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WHAT TODO IFYOU’RESLAPP’ED

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F A L L | W I N T E R | 2 0 1 2

THE POTENTIALCOST OF “FREE”PUBLIC WIFI

THE POTENTIALCOST OF “FREE”PUBLIC WIFI

Copyright Infringement and the DMCA

pg14and Its Impact on the Standard of Care

SOCIAL MEDIA EVIDENCE

Strategic Lawsuits Against Public Participation

Recent Trends and Key Strategies for Defense Counsel

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Table ofContents

The articles contained herein are for informational purposes only and are not intended to be the basis for decisions in specific situations nora substitute for legal counsel. Copyright © 2012 USLAW NETWORK, Inc. All rights reserved.

From the Chair’s Desk Page 1

FEATURES:

The Potential Cost of “Free” Public WiFi –Copyright Infringement and the DMCA Page 2What To Do If You're SLAPP’ed Page 4So You’re Thinking of Getting into the Business of Healthcare? Here are the Top 5 Things You Need to Know. Page 6Navigating a New Course – Why the Deepwater Horizon Ecologic Disaster Should Spur Clean Energy Progress Page 8The No-Liability Clause – Recognizing the Problem is the First Step Page 10Lead Litigation: Recent Trends and Key Strategies for Defense Counsel Page 12The Evolving Affirmative Duty to Investigate Social Media Evidence and Its Impact on the Standard of Care Page 14

Reporting Consumer Product Safety Issues to Regulatory Agencies Worldwide Page 16Bad Faith Litigation in Canada…Much Ado About Nothing? Page 18The Role of the Attorney in China’s Outbound Investments Page 20European Sales Law Proposal –An Opportunity for U.S. Companies Page 22

Background Checks – Helping Employers Navigate the Battle Between Negligent Hiring and Discriminatory Hiring Practices Page 24Whistleblowing in the U.S.A. Page 26Post-Termination Misconduct of Claimant –Powerful Evidence for Employer to Limit Damages Page 28Federal Decisions After the Americans with Disabilities Act Amendments – Everything Old is New Again 0

In Vitro Fertilization: Legal Issues Abound Page 32Once Bitten, Twice Shy – Restructuring Payment of Past Due Accounts to Avoid Bankruptcy Preference Liability Page 34California Case Triggers Big Changes Across Nation as Diversity Grows Page 36The Material Impact of Materials Page 38Corruption of the Appraisal Process – Insurers Need to Resolve Coverage and Fraud Issues Before Submitting Disputes to Appraisal Page 40

DEPARTMENTS:

Firms on the Move Page 42Successful Recent USLAW Law Firm Verdicts Page 43Spotlight on Partners Page 48

About USLAW Page 46USLAW Membership Reference List Page 47

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U S L A W www.uslaw.org 1

F R O M T H E Chair’s Desk

www.uslaw.org

JILL ROBB ACKERMANBaird Holm LLP

Omaha, NE

LEW R. C. BRICKERSmithAmundsen LLC

Chicago, IL

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We have probably all used free publicWiFi to access the Internet at a coffee shop,lunch or when visiting a bank, hospital,hotel, or other business. While free publicWiFi access to the Internet is convenient forcustomers, it is not without substantial riskto the business offering such access. Someindividuals may use the free access to carryout infringing activities – such as download-ing movies from an illegal file-sharing site,“swapping” songs through a music sharingservice, or pirating software. These infring-ing activities on the part of customers canpotentially leave businesses vulnerable toclaims of copyright infringement and sub-ject to both civil and criminal liability.However, businesses can protect themselvesfrom potential copyright liability by takingproper proactive measures which will be ad-dressed later in this article.

AVENUES OF LIABILITY Under copyright law, there are four av-enues of liability for copyright infringe-ment, which may apply to public WiFiproviders:1. Direct infringement occurs when an in-

dividual actually carries out the infring-

ing act. For example, a user infringes acopyright when he downloads a movieor song without permission from thecopyright owner. WiFi providers are notliable under direct infringement unlessthey or their employees/agents are theones carrying out the infringing act.

2. Contributory infringement occurs “byintentionally inducing or encouragingdirect infringement.” This definitioncomes from MGM v. Grokster, where theSupreme Court held a peer-to-peer filesharing software company liable forcontributory infringement because itsservices were known to encouragecopyright infringement activities.

3. Vicarious infringement occurs when anindividual or entity profits from directinfringement, while the entity main-tains the ability to stop or control theinfringement. The factors of vicariousliability also come from Grokster, wherethe Supreme Court determined thatGrokster profited from its infringingsoftware and had the ability to stop theinfringement by cutting off access to its

software. How the theories of contrib-utory and vicarious infringement applyto providers of free public WiFi will re-main for the courts to decide.

4. The final avenue of liability for WiFiproviders for copyright infringementarises under a theory of negligence.Under this theory, it is negligent forWiFi providers to leave their networkopen and unsecured, knowing thatother individuals may connect and en-gage in infringing activities. The con-cept of negligence has not traditionallybeen applied to copyright infringe-ment law, and the courts will ultimatelydecide whether this approach will beadopted. However, in light of this pos-sibility, it is prudent for WiFi providersto consider proactive measures toshield themselves from liability.

INDUSTRY ENFORCEMENT TACTICS With the advent of peer-to-peer filesharing, infringement of music and movieshas increased exponentially, and copyrightowners have implemented new enforce-ment tactics. For example, over the last 13

THE POTENTIAL COST OF“FREE” PUBLIC WIFI

COPYRIGHT INFRINGEMENT AND THE DMCAJames E. O’Connor Baird Holm LLP


years, the Recording Industry Association ofAmerica (“RIAA”), has pursued lawsuitsagainst various parties with the objective oftargeting the “key” parties in the infringe-ment chain to reduce the overall level of in-fringement. In 1999, the RIAA began suingthe peer-to-peer file sharing networks, in-cluding Napster, Grokster and their equiva-lents, in an attempt to target the source ofthe infringement. But the ease of creatinga peer-to-peer network has prevailed, andnew file sharing sites appear continuously.So these suits did not make a considerableimpact on infringing activities. In 2003, theRIAA began pursuing individual infringers.As of early 2006, the number of total suitsagainst individual infringers totaled 17,587.1Intensifying the attack on individual in-fringers, the RIAA began pursuing collegestudents by contacting universities to havethem forward pre-litigation infringementnotices to the students whose IP addresseswere identified as engaging in infringing ac-tivity. In 2008, at the height of this cam-paign, the RIAA had sent over 5,400 ofthese letters. However, none of these tacticsappears to have considerably reduced in-fringing activities. More recently, copyright owners havetargeted the next link in the infringementchain, namely, Internet Service Providers(“ISPs”). The copyright owners have nego-tiated with ISPs so that the ISPs will forwardcopyright infringement notices to individ-ual subscribers. The goal of this program isto prevent future infringement, firstthrough education, and if necessary, mitiga-tion measures. The process works as follows: 1) a copy-right owner monitors the Internet for in-fringing content and identifies the IPaddresses where infringing material isfound and the IP addresses that access it;2) the owner notifies the corresponding ISP,who will then forward an online alert, suchas an e-mail, to the particular subscriber(without giving the copyright owner any in-formation identifying the subscriber); 3)the subscriber receives the alert, whichranges in severity from an educational warn-ing to a notice that mitigation measures willbe imposed on the subscriber’s services. Mitigation measures include temporaryreductions of Internet speed, redirection toa landing page until the subscriber contactsthe ISP to discuss the infringing activities, orother measures that the ISP deems appro-priate. Although the stated purpose of miti-gation measures is to educate subscribersabout how to avoid infringing activities, theseverity of the response by the ISP will in-crease for each infringing activity.

IMPACT ON PUBLIC WIFI PROVIDERS While this system appears to provideample warning and education to subscribersbefore they face mitigation measures, a busi-ness that provides free public WiFi couldfeasibly receive multiple alert notices for in-fringing activity in a single day. This puts thepublic WiFi provider at risk of the ISP slow-ing down their Internet connectivity, whichcould have a serious, detrimental impact. Atthis point, it is unclear how ISPs will penal-ize public WiFi providers. Further, we have had several clients of-fering free public WiFi receive notices di-rect from copyright owners alleging thatinfringing material has been transmittedover the client’s network. In each case, thepotential of liability for copyright infringe-ment has been raised. In light of the above, it is our recom-mendation that providers of public WiFiconsider taking the following measures.

DMCA SAFE HARBOR AND BESTPRACTICE The Digital Millennium Copyright Actof 1998 (“DMCA”) provides four safe har-bor provisions that provide immunity toservice providers (like public WiFiproviders) for infringing activities that takeplace on their networks provided that theservice providers meet specific require-ments. There are three basic requirementswhich must be met to be eligible for any ofthe safe harbor provisions. A serviceprovider must:1. Adopt and implement a policy for ter-

minating the accounts or subscriptionsof repeat infringers (such a policy in-cludes notifying the individual who con-ducted the infringing activity andultimately blocking the individual fromaccessing the network if the infringingactivity persists; additionally, documen-tation of all steps taken by the providerto stop infringing activities is necessary);

2. Inform users of this policy; and

3. Accommodate and not interfere withthe “standard technical measures” thatcopyright owners use to identify copy-right infringement and protect theircopyrighted works.

Two of the four safe harbors in theDMCA are most applicable to public WiFiproviders. The first safe harbor applies toservice providers that only offer an Internetconnection. The service provider in thiscase merely acts as a data conduit. For aprovider to be eligible for this safe harbor,it must not interact with the content of the

data transmission in any way, aside fromperforming the function of transmitting thedata. This may apply to some public WiFiproviders. The second safe harbor provision,sometimes referred to as 512(c), applies toany provider of network access. This defini-tion includes most public WiFi providers.For a service provider to be eligible for thissafe harbor and not liable for any infringingmaterial that resides on the provider’s net-work by the direction of a user, the providermust have a designated agent registeredwith the United States Copyright Office.The designated agent shall receive andprocess all DMCA takedown notices of in-fringement. An outline of the registrationprocess and copy of the required form canbe found at: http://www.copyright.gov/on-linesp/. Additionally, under 512(c), theprovider must not have knowledge of the in-fringing activity, be aware of circumstanceswhere infringement is apparent, or receivea financial benefit from any infringing ac-tivity. While 512(c) places additional prereq-uisites on the provider with the registrationof a designated agent, it is a best practice forany public WiFi provider to comply with thisrequirement. Compliance with the prereq-uisites of 512(c) gives the public WiFiprovider safe harbor protection, furthershielding its business from infringing actsthat take place on its network. With public WiFi providers open tomultiple avenues of potential liability, it isrecommended that they comply with the re-quirements of the safe harbor provisionsunder the DMCA to shield themselves frompotential liability for copyright infringe-ment that occurs on their networks.

1 The RIAA stopped publicly publishing the num-ber of lawsuits it issued against individual in-fringers after February 2006.

James E. O’Connor is apartner with Baird HolmLLP in Omaha, Nebraska.His practice focuses on tech-nology and intellectualproperty with special empha-sis on cyber issues; the devel-opment, acquisition, and

use of technology; and privacy and security mat-ters. He represents clients in the financial,health, technology and cyber industries. Mr.O’Connor would like to thank AriAnnaGoldstein, summer associate at Baird Holm, forher assistance with this article.


How would you characterize a plaintiffwho deliberately filed suit against a widearray of persons, knowing that the suitcould not succeed but willing to spend vastamounts of time and money to litigate it?An eccentric crackpot? For a corporationwhose large real estate or industrial devel-opment project encounters vociferous op-position from local citizens, such a lawsuitcan be merely a cost of doing business. Inthe last 30 years such suits have come to beknown as SLAPPs – strategic lawsuitsagainst public participation. A typical SLAPP targets the individualswho have spoken out against the devel-oper’s project in a public forum. The devel-oper sues them for defamation, abuse ofprocess, wrongful interference with busi-ness advantage, and other torts. When theSLAPP defendants finally win summaryjudgment after a year or more of discovery(assuming they have not caved in long be-fore then), they are too exhausted and im-poverished even to consider striking backagainst the developer with a suit for wrong-ful use of civil proceedings. Anti-SLAPP statutes are now on thebooks in 26 states.1 Their purpose, as ex-pressed in the preamble of the Californiastatute, is to respond to the “disturbing in-crease in lawsuits brought primarily to chillthe valid exercise of the constitutionalrights of freedom of speech and petitionfor the redress of grievances.” The wordingof these statutes, and their interpretationby the courts, vary from state to state. Thisarticle will focus on the anti-SLAPP experi-ence of two states with nearly identicalstatutes – probably the most far-reaching inthe country – and a substantial volume ofanti-SLAPP litigation.

ANTI-SLAPP STATUTE OF MAINEAND MASSACHUSETTS The key elements of the Massachusettsand Maine anti-SLAPP statutes are:• When a party asserts that the civil claims

(including counterclaims and cross-claims) against him are based on his ex-ercise of his right of petition under theU.S. or State Constitution, he may bringa “special motion to dismiss” within 60days after service of the complaint or, inthe court’s discretion, at any later time.

• The court shall advance the specialmotion so that it may be heard and de-termined with as little delay as possible.

• All discovery proceedings (except,with the court’s permission, specifieddiscovery pertaining to the special mo-tion itself) are stayed until the courthas ruled on the special motion.

• The court must grant the special mo-tion unless the opposing party showsthat “the moving party’s exercise of itsright of petition was devoid of any rea-sonable factual support or any ar-guable basis in law,” and that themoving party’s acts caused actual in-jury to the responding party.

• In making its determination, the courtshall consider the pleading and sup-porting and opposing affidavits.

• If the court grants a special motion todismiss, it may award costs and reason-able attorney fees to the moving party.

The two statutes then define “a party’sexercise of its right of petition” to mean anystatement:• Made before or submitted to a legisla-

tive, executive or judicial body, or anyother governmental proceeding;

• Made in connection with an issueunder consideration or review by a leg-islative, executive or judicial body, orany other governmental proceeding;

• Reasonably likely to encourage consid-eration or review of an issue by a leg-islative, executive or judicial body, orany other governmental proceeding;

• Reasonably likely to enlist public par-ticipation in an effort to effect suchconsideration; or

• Falling within constitutional protectionof the right to petition government.

The Massachusetts/Maine experiencehas served as a laboratory for both thestrengths and the unintended conse-quences of this legislative attempt to curban abuse in the civil justice system.

JUDICIAL INTERPRETATION OF ANTI-SLAPP STATUTE The anti-SLAPP statute is a more po-tent weapon than the traditional motion todismiss for failure to state a claim, whichcan be deployed immediately but is rarelysuccessful, or the summary judgment mo-tion, which is more often successful butcannot be used until months or even yearsof discovery have taken place. The anti-SLAPP statute is a game changer, andcourts in Massachusetts and Maine havehad to wrestle with a number of difficultquestions that arise under it.

What constitutes “petitioning activity”? Reports of illegal activities to the propergovernmental authorities are “petitioningactivity.” These include reports of crime tothe police or District Attorney, reports of

WHAT TODO IF

YOU’RESLAPP’ED

John S. WhitmanRichardson, Whitman, Large & Badger


child abuse to the Department of HumanServices, and similar reports to environmen-tal, landlord/tenant, professional regulation,and other governmental agencies. Petitioning activity also includes speak-ing out at (for example) planning or zoningboard meetings, or submitting written com-ments. Nor is it necessary for the peti-tioner’s statement to address a topic on acurrent hearing or legislative agenda; peti-tioning activity extends to statements thatmay have the effect of bringing some newissue into consideration or review by anygovernmental body. Furthermore, the state-ment is not required to deal with a matterof public concern in order to be protectedpetitioning activity. It may express the peti-tioner’s personal, commercially motivatedpoint of view. A person may engage in petitioning ac-tivity indirectly. In a recent federal case inMaine, a chiropractor sued a 77-year-old for-mer patient who had accused him of sexualassault. She reported him to the police andsued him (clearly petitioning activities), andalso published the allegation of sexualabuse on a website, concluding with an ap-peal to others who had been similarly mis-treated by the same chiropractor to sharetheir stories. The court found that the web-site content was arguably a statement “rea-sonably likely to enlist public participationin an effort to effect consideration” by somegovernmental body in the future, but de-nied her anti-SLAPP motion as devoid offactual support. Any lawsuit is a constitutionally pro-tected petitioning activity, which raises a co-nundrum: why isn’t a SLAPP suit apetitioning activity? In the paradigm case ofa huge developer cynically crushing opposi-tion by suing the local citizens who havespoken out against its environmentally ru-inous project, it is easy to identify the whitehat and the black hat. Such was not the case,however, in Ralph Nader v. Maine DemocraticParty, decided in April 2012. The formerpresidential candidate sued the MaineDemocratic Party and the DemocraticNational Committee alleging they had de-liberately filed numerous baseless com-plaints challenging his nomination papers,for the admitted purpose of distracting hiscampaign and draining it of money, time,and resources. The defendants filed an anti-SLAPP motion, which was granted by theSuperior Court because their tactics, even ifunsuccessful, had constituted petitioningactivity. The Maine Supreme Judicial Courtreversed, pointing out that the case impli-cated Nader’s right to petition the court, andalso the fundamental right of voters to casttheir votes effectively.

Who has standing to be protected for peti-tioning activity? The statute refers to “the moving party’sexercise of the moving party’s right of peti-tion,” and ordinarily the defendant seekingthe protection of the statute will have en-gaged in activities seeking to further his owninterest. In addition, the Massachusettscourts early recognized that “the statutewould provide but hollow protection for cit-izens who wished to exercise the right of pe-tition if statements made by an attorney ontheir behalf were not covered by the anti-SLAPP statute to the same extent as state-ments made by them directly.” Conversely, speaking out on a subject ofpublic concern does not automatically qualifyas petitioning activity. In a 2010 Massachusettscase, a journalist who was a longtime residentof Boston’s North End wrote five newspaperarticles critical of a local property owner, whothen sued her for defamation and interfer-ence with business relations. The courtagreed that her articles fell within at least onebranch of the definition of “petitioning activ-ities,” but held that the statute was inapplica-ble because her articles did not seek toredress a grievance of her own.

How should the court determine whethera petitioning activity was devoid of any rea-sonable factual support or any arguablebasis in law? To prevail on an anti-SLAPP motion,the defendant bears the initial burden ofshowing that the suit was based on some ac-tivity that would qualify as an exercise of hisright to petition. The burden then falls onthe plaintiff to “show” that the exercise ofthe right of petition was “devoid of any rea-sonable factual support or any arguablebasis in law.” Except for stating that “thecourt shall consider the pleading and sup-porting and opposing affidavits,” the statuteis silent on how the court is to evaluate this“evidence.” Unlike a motion to dismiss forfailure to state a claim or a summary judg-ment motion, the anti-SLAPP statute re-quires the judge to assume a fact-findingrole. The only facts available, however, willoften be those stated in the parties’ affi-davits, which are not subject to cross-exam-ination and are likely to contradict eachother. In an early anti-SLAPP case, the MaineSupreme Judicial Court ruled that the trialjudge must view this evidence “most favor-ably to the moving party,” which is the op-posite of how motions to dismiss or forsummary judgment are treated. As the fed-eral judge observed in the 2011 chiroprac-tor case described above,

If that were correct, any defendant could suc-ceed on a special motion under anti-SLAPPmerely by filing a false affidavit, and therewould be no way around it. Of course falseaffidavits can be filed to defeat summaryjudgment, but the result is to move the caseto trial where the jury can decide the facts.Here, the result would be to prevent trial,and no one would ever decide the facts.

Seven months later the Maine SJC tac-itly acknowledged this point and an-nounced, in the Nader case, a change in thelaw. Reversing its earlier decisions, the courtheld that henceforth a plaintiff confrontedwith an anti-SLAPP motion need only makea prima facie showing that any of the petition-ing activities was devoid of any reasonablefactual basis or arguable basis in law.

EVALUATION OF ANTI-SLAPPSTATUTES The course correction in the Nader casemay have saved the Maine statute fromgoing off a constitutional cliff, but anti-SLAPP statutes in general will continue toraise constitutional concerns. Because of thebreadth of the right to petition government,most of the litigants who have taken advan-tage of its protection are startlingly differentfrom the public-spirited environmentaliststanding in front of the developer’s bull-dozer. Furthermore, because the denial ofthe anti-SLAPP motion gives rise to an im-mediate appeal, meritorious lawsuits can bemonkey-wrenched by tactical anti-SLAPPmotions with little chance of success. Inspite of these drawbacks, however, the anti-SLAPP statute does provide a powerful re-sponse to a serious abuse of the judicialsystem by the rich and powerful, and until amore surgical instrument can be developedit will serve an important purpose.

1 AZ, AR, CA, DE, FL, GA, HI, IL, IN, LA, ME,MD, MA, MN, MO, NE, NV, NM, NY, OK, OR,PA, RI, TN, UT, and WA.

On August 7, 2012 the ABA passed a Resolutionencouraging the remaining states to enact anti-SLAPP statutes.

John S. Whitman is afounder of Richardson,Whitman, Large & Badger,a 12-lawyer litigation firmin Portland and Bangor,Maine. He has handledlawsuits arising from shipcollisions, illegal wiretap-

ping, dam failure, and an array of insurancedisputes, legal malpractice defense, and productliability defense. He is a Harvard graduate(B.A. and J.D.).


From an outsider’s perspective, thehealthcare industry appears to be a lucrativefield upon which many would like to cap-italize. That outsider is correct. In lightof the new healthcare reform law, themajority of which the Supreme Courthas upheld, the Federal governmenthas been doling out huge sums ofmoney as incentives to help achieve its“triple aim” of (1) better care for individu-als, (2) better health for populations, and(3) lower growth in expenditures, and manyare jumping at the opportunity to claimtheir share. However, a lucrative healthcarebusiness comes at a price that is beyond cap-ital contributions and investments. The price in this industry is the count-less landmine statutes and regulations dic-tating the formation of certain healthcareentities, relationships between members ofthe healthcare world, as well as a healthcareentity’s workforce, to name a few. Naturally,with increased opportunity for moneycomes increased regulation as well as in-creased enforcement. Nevertheless, whatentrepreneurs should remember is, if Stateand Federal laws are navigated properly, ahealthcare business can become successful.This article, through a review of some of themost common Federal healthcare laws andregulations, provides the top five consider-ations for prospective healthcare-business

owners in working toward a successfulhealthcare business.

KNOWING HOW YOU CANFORM YOUR ENTITY

First and foremost, before hit-ting the ground running with a

new business venture, when incor-porating professional services into the

business model, it is important to determinehow this entity may be formed. Beyond thelimited liability company versus corporationdebate, most states have a prohibitionagainst the corporate practice of medi-cine (“CPOM”). While each state may de-fine the term slightly differently, thegeneral idea is that a general corporation,not owned by a physician, may not employa licensed professional (e.g., a physician) toperform professional services (e.g., practicemedicine). The impetus behind the CPOMdoctrine is that physicians, and not corpo-rations, should be practicing medicine. Thedoctrine aims to maintain the integrity ofthe delivery of medical services by eliminat-ing competing interests in the outcome ofthe services being provided. Notably, however, many common excep-tions exist. For instance, the CPOM doctrinedoes not usually apply to hospitals. Hospitalsmay employ licensed professionals to providetheir professional services because the hospi-

tal is in the business of providing healthcareservices. Likewise, many states permit li-censed professionals to perform their profes-sional services through professionalcorporations or professional limited liabilitycompanies as, typically, each shareholder ormember must be licensed in the professionalservice being rendered. Therefore, afteridentifying the service being provided, it isimportant to determine if the State has aCPOM doctrine and whether it applies.

KNOWING WHO CAN WORKFOR YOU

Healthcare entities that sub-mit claims to Federal healthcare

programs (e.g., home health agen-cies, mental health organizations,

etc.), like Medicare, have an obligation toperform certain background checks onthose who provide services on behalf ofthose entities. Included in those backgroundchecks is ensuring that no person employedor contracted with the healthcare entity is ex-cluded from participation in Medicare,Medicaid and all other Federal health careprograms. Federal healthcare programs willnot pay for any items or services furnished,ordered or prescribed by an excluded indi-vidual or entity. Likewise, entities submittingclaims for healthcare items or services pro-vided by an excluded provider or entity can

SO YOU’RE THINKING OF GETTING INTO THEBUSINESS OF HEALTHCARE?

Here are theTop 5 Things

You Needto Know.

Neda Mirafzali Clark Hill PLC

1.

2.


face enormous civil monetary penalties. Assuch, it is crucial to perform initial and peri-odic checks of all employees and contractorsto ensure none are excluded.

PROTECTING PATIENTINFORMATION (IT IS NOTONLY FOR DOCTORS ANDHOSPITALS)

Many know the HealthInsurance Portability and

Accountability Act of 1996 (“HIPAA”) as aprohibition against the release of medicalrecords; however, HIPAA is much morethan that. In fact, although HIPAA was en-acted in 1996, in 2009, the HealthInformation Technology for Economic andClinical Health (“HITECH”) Act, signifi-cantly amended HIPAA to instill a breachnotification process and to increase penal-ties for violating HIPAA. The Departmentof Health and Human Services (“HHS”)Office of Civil Rights (“OCR”) enforces theHIPAA rules. HIPAA, as a law, only applies to coveredentities (i.e., health plans, health care clear-inghouses, and healthcare providers).However, recognizing that covered entitiesdo not perform all of their own healthcarefunctions or activities (for instance, billingand collections), the OCR drafted provi-sions of the Privacy Rule to permit coveredentities to disclose patients’ protectedhealth information (“PHI”) to business as-sociates. Business associates are individualsor entities that provide a service to coveredentities requiring the sharing PHI. Businessassociates can take a number of forms in-cluding, billing companies, consultants, in-dependent transcriptionists, accreditationorganizations, auditing companies, to namea few. HIPAA requires covered entities uti-lizing the services of business associates toenter into Business Associate Agreements,which set forth the parameters within whichPHI may be used by the business associate.Failure to enter into, and abide by, a busi-ness associate agreement can result in sig-nificant fines.

UNDERSTANDING THELIMITATIONS ON REFERRALRELATIONSHIPS

Most typical business rela-tionships thrive on rewarding a

party for referring business. For in-stance, in many business ventures, it is com-mon to offer a discount to an existing clientor customer for referring a new client orcustomer. However, a person in the health-care world engaging in a payment-for-refer-rals relationship could find him or herselfin jail and/or facing colossal monetary

penalties, depending on the violation. Three Federal laws specifically governreferral relationships: the Anti-KickbackStatute (“AKS”), the Physician Self-ReferralLaw (“Stark”) and the BeneficiaryInducement Statute. The AKS is a criminalstatute that prohibits knowingly and willfullysoliciting, receiving, offering or paying any-thing of value to induce referrals of items orservices payable by a Federal healthcare pro-gram. “Anything of value” includes cash,free rent, hotel stays, meals, concert tickets,excessive compensation, etc. Notably, onedoes not have to be a healthcare profes-sional to violate the AKS. Because almost any business relation-ship, especially a marketing relationship,could run afoul to the AKS, the HHS Officeof Inspector General (“OIG”) has issued anumber of regulatory safe harbors that pro-tect relationships fitting squarely within thesafe harbor. Some of these safe harbors in-clude equipment or space rental agree-ments, employment agreements, andinvestments in ambulatory surgery centers. In the most general terms, Stark relatesto physicians referring patients to them-selves. Specifically, Stark prohibits physi-cians from referring patients, who receivecertain designated health services (“DHS”)payable by Medicare or Medicaid, to entitieswith which the physician, or an immediatefamily member, has a financial relationship,unless an exception applies. DHS includescertain clinical laboratory services, physicaltherapy, occupational therapy, speech ther-apy, radiology and imaging services, durablemedical equipment and supplies, etc.Financial relationships can take a numberof forms, including ownership and invest-ment interests as well as compensationarrangements. For example, generally, pro-viding gifts to a referring physician wouldconstitute a compensation relationship.However, Stark, like the AKS, has certainregulatory exceptions, including the Non-Monetary Compensation exception, whichpermits the relationship so long as it satisfiesthe requirements of the exception. The Beneficiary Inducement Statuteprohibits a person from offering or transfer-ring to a Medicare or Medicaid beneficiaryany remuneration that the person knows orshould know is likely to influence the bene-ficiary’s selection of a particular provider,practitioner or supplier of Medicare orMedicaid-payable items or services. TheOIG has issued a number of exceptions tothis statute, including the permissible pro-vision of gifts with a value of not more than$10 per item or $50 in the aggregate to asingle beneficiary annually. Therefore, un-less it fits within an exception, offering a dis-

count to patients to induce the patient topurchase a service or supply from a particu-lar provider is prohibited and can result insignificant penalties. Many impermissible relationships arenot as obvious as the aforementioned exam-ples; however, it is critical for healthcarebusiness owners to have their relationshipsthoroughly evaluated by counsel to ensurefull compliance with these laws.

BEING COGNIZANT OFSTATE LAWREQUIREMENTS

With the exception ofthe CPOM discussion, above,

many of the laws introduced inthis article have been Federal laws applyingto Medicare and Medicaid beneficiaries andFederal healthcare monies. Before prospec-tive healthcare business owners assumethese prohibitions do not apply to privateinsurance, a review of State law is crucial.Many states have adopted laws very similarto the Federal laws noted above, whichapply to private insurance. Moreover, manystates have adopted laws in addition to theFederal laws that dictate the practice of ahealthcare business, including fee-splittinglaws and strict insurance fraud laws.

CONCLUSION While the regulation of healthcare hasbeen common since the 1990s, with the en-actment of healthcare reform, and the avail-ability of incentive payments, healthcareenforcement has increased dramatically.Healthcare professionals and non-healthcareprofessionals alike find themselves on thefront page of the newspaper, faced withmulti-million dollar fines and decades of jailtime. As such, it is more important than everfor prospective healthcare-business ownersto understand the landmines before themand to consult with qualified counsel to assistin navigating the Federal law issues as well asthe many State law issues that may arise informing and owning a healthcare business.

Neda Mirafzali is an attor-ney with Clark Hill PLC’shealthcare practice group.She regularly counsels health-care providers, billing compa-nies and managementcompanies on corporate andhealthcare compliance mat-

ters, reimbursement matters, audit appeals, liti-gation matters, and regulatory analysis. She maybe reached at [email protected] or@nedazali.

3.

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On April 20, 2010, the BP DeepwaterHorizon oil rig exploded 40 miles off thecoast of Louisiana. The explosion killed 11crewmembers and injured 16 more. By thetime the rig was capped nearly threemonths later, 4.9 million barrels of crude oil(nearly nine times the size of the ExxonValdez spill in 1989) had escaped into theGulf of Mexico and surrounding waters.The result was 580 miles of oiled shoreline,and extensive damage to marine andwildlife habitats, and the Gulf’s fishing andtourism industries. The spill marked theworst environmental disaster in U.S. historyand the largest spill the world has ever seen.

INITIAL REGULATORY RESPONSE In the days and months following theexplosion, there was a flurry of political, leg-islative, environmental, and industry activ-ity. On May 21, 2010, the White Housecreated the bipartisan National Commissionon the BP Deepwater Horizon Oil Spill andOffshore Drilling (National Commission)to determine the root cause of the spill andto offer options on safety and environmen-tal precautions. A week later, the U.S.Department of the Interior (DOI) issued amoratorium on all deepwater offshoredrilling on the outer continental shelf(OCS), which was later rescinded, rein-stated, and rescinded again. Dozens of com-mittee hearings were held in Congress andthe Senate, and the White House unsuccess-fully pushed a legislative package to in-crease funding for regulatory oversight,raise liability limits on the parties responsi-ble for environmental disasters, and in-

crease the tax on the oil industry to pay intothe federal oil liability trust fund. One of the most significant changes,however, was the abolition of the MineralsManagement Service (MMS). The DOI cre-ated the MMS in 1982 to regulate offshoredrilling and production in U.S. waters. TheMMS had been under fire for perceivedconflicts of interest and other improprietiesprior to the Gulf spill and the attacks inten-sified in the wake of the spill. The result wasthe replacement of the MMS with the transi-tory Bureau of Ocean Energy Management,Regulation and Enforcement (BOEMRE),which, by October 2011, was replaced bythree distinct administrative bodies: Bureauof Ocean Energy Management (responsiblefor administering the development of min-eral resources on the OCS), Bureau ofSafety and Environmental Enforcement (re-sponsible for promulgation and enforce-ment of regulations), and Office of NaturalResources Revenue (revenue collection). Prior to its dissolution, BOEMRE devel-oped and implemented safety rules de-signed to prevent another offshorecatastrophe. The first rule, the DrillingSafety Rule, created stringent new standardsfor well design, casing, and cementing, andwell control procedures and equipment, in-cluding blowout preventers. The rule alsorequired operators, for the first time, to ob-tain certification of their proposed drillingprocess by a qualified engineer. A secondrule, known as the Workplace Safety Rule,requires operators to develop a comprehen-sive safety and environmental managementprogram that identifies the potential haz-

ards and risk-reduction strategies for allphases of activity. At its core, the rule seeksto reduce the human and organizational er-rors that lie at the heart of many accidentsand oil spills.

FAILURE TO ACHIEVE A LONG-TERMPOLICY “FIX” Beyond such stopgap measures, long-term policy solutions have been lacking. Tobe certain, the moratorium on offshoredrilling has ended, and development ispoised for a comeback. While it is unlikelyany political conventions will swell with thechorus “drill baby drill” this election cycle,the vast sums of offshore oil wealth cannotbe denied. Offshore wells provide 15 per-cent of America’s domestic natural gas pro-duction and 27 percent of America’sdomestic oil production. In fact, the OCScontains an estimated 85 billion barrels ofoil in technically recoverable resources –more than all onshore resources and thosein the shallower state waters combined. For this reason, offshore drilling is nowback on line. On February 28, 2011,BOEMRE announced that it approved thefirst deepwater drilling permit since theDeepwater Horizon explosion, noting thatit approved the permit because “the opera-tor successfully demonstrated that it [could]drill its deepwater well safely and that it[was] capable of containing a subseablowout if it were to occur.”1 Since that time,the agency has continued to approve deep-water drilling applications. However, even with permits now beingissued, the larger policy issues remain unre-

James L. Robenalt and David C. Campbell Williams Kastner


solved. Not surprisingly, in this political cli-mate, legislative progress has been lacking.Despite a flurry of proposals, Congress hasnot been able to agree on any one legislative“fix.” Initially, in 2010, two proposed billsthat promised to bring major change to oilspill liability and safety failed: the Housepassed the Consolidated Land, Energy andAquatic Resources Act (CLEAR), whichwould add restrictions on offshore drillingand increase response safety and liabilityprovisions in current law. However, follow-ing a grueling health care vote, the Senatefailed to ever address the bill. The Senatealso drafted a similar bill, the Clean EnergyJobs and Oil Company Accountability Act of2010, which similarly died in the halls ofCongress. More recently, the House votedto revoke President Obama’s five-year planfor offshore drilling, replacing it with itsown plan that calls for more ambitious oiland gas development off the U.S. coast. TheHouse’s plan will likely go nowhere in theSenate and would be vetoed by the currentadministration. Opponents of offshore drilling havealso tried their hand in court. In theSouthern District of Alabama, the

Defenders of Wildlife (DOW) filed suit chal-lenging BOEMRE’s approval of a Shelldeepwater exploration permit off the coastof Alabama. The claims included violationof National Environmental Policy Act forfailing to perform an EnvironmentalImpact Statement before approving the per-mit and violation of the EndangeredSpecies Act for not suspending the bid ap-proval process before consulting with theexpert agencies and performing a supple-mental analysis of the environmental effectsof the drilling operations. However, in aMay 8, 2012 decision, the court grantedsummary judgment in favor of BOEMREand dismissed DOW’s claims.

A NEW HORIZON FOR CLEANOFFSHORE ENERGY? In the midst of the national debate onoffshore drilling, many have questionedwhy we do not use the Deepwater Horizoncatastrophe as an opportunity to shift ourenergy course altogether. In fact, onOctober 6, 2010 – only 6 months after theDeepwater Horizon oil rig exploded –Secretary of the Interior Ken Salazar andthe Cape Wind Associates, LLC presidentJames Gordon signed the nation’s first leasefor commercial wind energy developmenton the OCS. The Cape Wind project com-prises 46 square miles on the NantucketSound in Massachusetts, and consists of 1303.6 megawatt (MW) wind turbine genera-tors.2 On average, the turbines are expectedto generate 170 MW of electricity, about75% of the average electricity demand forCape Cod, Martha’s Vineyard, andNantucket island combined. As attorney Todd Griset noted in hiswell-reasoned article, Harnessing the Ocean’sPower: Opportunities in Renewable OceanResources, the “Earth’s oceans contain vaststores of energy, much of which can be har-nessed to create usable power in the form ofelectricity.”3 Consider, for example, that theNational Renewable Energy Laboratory hasestimated that the gross wind resource ofUnited States waters approaches 4,150 gi-gawatts of power – approximately four timesthe nation’s total electric installed capacityin 2010. Similarly, the United States has awave or tidal power capacity that would meet

more than half of the country’s electricpower demand.4 Why not, then, maximizethe potential for clean, renewable energy? One impediment, as Mr. Griset notes,is the fragmentation of our laws and regula-tions. For instance, renewable energy oceanprojects are subject to the regulations of awhole host of federal agencies, includingthe Environmental Protection Agency, Fishand Wildlife Service, National Park Service,NOAA’s National Marine Fisheries Service,Federal Aviation Administration,Department of Defense, and United StatesCoast Guard. In addition to this complexweb of federal regulation, states also havebroad discretion to regulate projects. Thus,in order for clean energy development totake hold, there must be a streamlining andsimplification of the “patchwork of regula-tory regimes” governing renewable oceanenergy projects.5 Another obstacle is political will. It isfor this reason that commentators havelamented that the Deepwater Horizontragedy was a missed opportunity to galva-nize support for a clean energy future.6 Infact, the administration’s offshore drillingplan warns that if no additional offshorelease sales are offered between 2012 and2017, then to compensate, government mayneed to “favor alternative vehicle fuels suchas ethanol or methanol, vehicles withgreater fuel efficiency, or alternative trans-portation methods such as mass transit,”“might mandate increased reliance on…wind-generated electric power,” and “mightgive more emphasis to programs encourag-ing more efficient electricity transmissionand more efficient use of gas and electricityin factories, offices and homes.” As somemight add, this is “just the point.” These areprecisely the policy actions that are needed.7

James L. Robenalt is anAssociate in WilliamsKastner’s Seattle office. Hispractice is focused on gen-eral litigation, commerciallitigation, environmentallaw, insurance and Indianlaw & gaming.

David C. Campbell is anAssociate in the Portland of-fice of Williams Kastner. Heis a general and commerciallitigation attorney focusingin professional liability, per-sonal injury, products lia-bility, construction, health

care, environmental and mortgage and foreclo-sure matters.

1 Andrew Hartsig, Shortcomings And Solutions: Reforming The Outer Continental Shelf Oil And Gas FrameworkIn The Wake Of The Deepwater Horizon Disaster, 16 OCEAN & COASTAL L.J. 269, 294-95 (2011).

2 Todd J. Griset, Harnessing the Ocean’s Power: Opportunities in Renewable Ocean Energy Resources, 16 OCEANAND COASTAL L.J. 395, 429-30 (2011).

3 Id. at 396.4 Id. at 399, 403.5 Id. at 414-15, 432.6 Richard G. Steiner, Deepwater Horizon’s Missed Lessons, CLEV. PLAIN. D., Jan. 16, 2012, available at

http://www.cleveland.com/opinion/index.ssf/2012/01/deepwater_horizons_missed_less.html.7 Id.


The “no-liability” clause contained insome insurance policies can come as an un-expected and unpleasant surprise as youplan your risk transfer strategy in any givencase. Its function is to treat a person or or-ganization as an insured, or as an additionalinsured, in the first instance. Once that per-son or organization has a second policy thatapplies to the loss, that second policy trig-gers the no-liability clause, and the first pol-icy drops out. In other words, one moment you’re aninsured, the next moment, you’re not. This

may sound hard to believe, but as onePennsylvania court put it, “It seems that in-surance companies are indefatigable in de-vising language which excludes coveragerather than accepts it.”

“OTHER INSURANCE” CLAUSES ANDTHEIR EFFECT To better understand no-liabilityclauses, some background on “other insur-ance” clauses is helpful. “Other insurance”simply refers to a situation in which two ormore liability insurance policies cover the

same risk for the same insured. The “otherinsurance” clause describes how the insur-ers will share the defense and indemnifica-tion when more than one insurance policyis triggered. In a sense, a no-liability clauseis an “other insurance” clause, becauseother available insurance affects paymentsunder the policy. To interpret “other insurance” clauses,one must look at that clause in each applica-ble policy. In the simplest sense, primaryclauses state that they are the first layer ofcoverage for the insured and pay equally

THENO-LIABILITY

CLAUSERECOGNIZING THE

PROBLEM ISTHE FIRST STEP.

William J. Mitchell Ahmuty, Demers & McManus


where there is other insurance available.Excess clauses (in an otherwise primary pol-icy) state that they are excess over otheravailable insurance. There are also variationsof these, some at the insured’s request, suchas “super-primary” clauses. By intentionallyre-wording its “other insurance” clause, aninsurance carrier can manipulate where itspolicy will stack in the paying order. Like no-liability clauses, other availableinsurance triggers “other insurance”clauses. Most people in the world of riskmanagement and risk transfer have a goodworking understanding of the way that“other insurance” clauses work vis-à-vis eachother. Where two policies are triggered,both of which have primary clauses, the re-sult will be concurrent, equal sharing.Where one policy has a primary clause, andanother policy has an excess clause, the ex-cess clause will typically be given effect, andthat particular policy will not be triggereduntil after the limits of the primary policyare exhausted. Where two or more policiesall have excess “other insurance” clausesthat contain substantially similar languageand cannot be reconciled, the courts willtypically find the policies “mutually repug-nant,” and find that all policies will shareequally beginning at dollar one. It has become increasingly common tofind situations in which two applicable poli-cies both have excess clauses. For example,a contractor retains a subcontractor, and re-quires the subcontractor to obtain insur-ance for the contractor. The contractor mayhave a primary policy that contains “otherinsurance” language to the effect that thecontractor’s policy becomes excess wherethe contractor has been listed as an addi-tional insured on another’s policy. In otherwords, risk of loss is contractually passed toany subcontractor. At the same time, thesubcontractor hired by the contractor mayhave added the contractor as an additionalinsured, but the subcontractor’s policy hasan excess provision within the additional in-sured endorsement. Typically, the excessclauses would then cancel each other out,and neither policy would be deemed excessover the other. Thus, the two policies wouldapply concurrently and share equally on aprimary basis. This result could leave one orboth of the parties, and their insurance car-riers, frustrated because this result was nottheir intent.

EXAMPLES OF NO-LIABILITYCLAUSES Enter the no-liability clause: the nextstep in the insurance carrier’s efforts tomove its policy away from the risk. The ef-fect of the no-liability clause is to only pro-

vide coverage for people or entities, butonly if they have no other coverage at all.For the contractor, recognizing no-liabilityclauses in its subcontractors’ policies canprevent problems going forward. For theclaims professional, recognizing that one ofthe potentially paying policies has a no-lia-bility clause will allow the claims adjuster toavoid litigation surprises, reevaluate the risktransfer target, adjust reserves, and help toreach an objective settlement. So what do no-liability clauses looklike? Unlike “other insurance” clauses,which are often labeled in the policy, no-li-ability clauses may not be clearly marked. Inaddition, no-liability clauses could appear invirtually any type of policy. No-liability clauses could read some-thing like this:• “The insurance contained in this policy

is not applicable to any person with re-spect to any loss against which he hasother valid and collectible insurance.”

• “None of the following is an insured…any person other than the named in-sured, if such person has available tohim any other valid and collectible au-tomobile liability insurance.”

• “Who Is An Insured includes you forany covered loss, and anyone else, ex-cept your customers, unless they haveno other available insurance.”

• “If there is other valid and collectibleinsurance, whether primary, excess orcontingent, available to the garage cus-tomer and the limits of such insuranceare sufficient to pay damages up to theamount of the applicable financial re-sponsibility limit, no damages are col-lectible under this policy.”

• “This insurance does not apply to anyinjury or damage to the extent that theinsured has available any other validand collectible insurance, whether ona primary, excess or contingent basis.”

• “With respect to your mobile equip-ment, the term ‘insured’ also includesyour employee and any other personlegally liable for the conduct of suchperson, but only if there is no other in-surance covering the liability availableto them.”

These no-liability clauses (also called“escape clauses”) often can be a confusingread, but always favor the insurance carrier.As noted above, the net effect is that cover-age is provided under a policy with a no-lia-

bility clause, unless or until you have otheravailable insurance, at which point, you areno longer an insured on the policy contain-ing the no-liability clause.

JUDICIAL TREATMENT OF NO-LIABILITY CLAUSES How do the courts treat no-liabilityclauses? Despite some personal distain,many courts have given no-liability clausesthe meaning that the insurance carrier in-tended. After all, parties are free to contractas they wish, and if the no-liability clause isat issue, it means that the insured alreadyhas other insurance available. In other juris-dictions, courts have rejected no-liabilityclauses as repugnant – after quoting a no-li-ability clause, an appeals judge in Floridaonce wrote: “Did the Queen of Hearts writethis for Alice?” Still other jurisdictions haveapplied some other allocation, oftentimesdepending upon the specific wording of theno-liability clauses when compared to theother policies. As with most legal matters,this underscores the importance of knowingthe rules in your particular jurisdiction. Thus, in jurisdictions that will apply no-liability clauses, where a properly-written no-liability clause squares off against a policywith a standard primary “other insurance”clause, the no-liability clause wins. Againstan excess clause, the no-liability clause willoften be given effect, trumping the excessclause, but not always. Two policies that bothcontain escape clauses are often reduced toprimary, concurrent policies. As with any potential problem, aware-ness of the issue is the first step. No-liabilityclauses can arise in a variety of policies, andthere is no telling where these will show upin the future. Watch particularly in mattersthat involve a mix of policies, such as in-stances where both automobile and generalliability policies are triggered, as theseclauses are common in commercial automo-bile policies, but less common in the gen-eral liability context. By recognizingno-liability clauses, you are better preparedto deal with them.

William J. Mitchell is an at-torney with Ahmuty, Demers& McManus in New York,where he is co-chair of thefirm’s Insurance CoverageGroup. His practice focuseson insurance coverage liti-gation, for both policy hold-

ers and insurers, and he may be reached [email protected].


A number of fundamental shifts are oc-curring in the world of lead exposure litiga-tion. On the regulatory side, the Centers forDisease Control are eliminating the use ofthe term “blood level of concern” and re-placing it with the term “reference value”due to increasing evidence that there is noblood lead level without deleterious effects.Rather, the evidence consistently correlateseven low blood lead levels with IQ deficits,attention-related behaviors, and poor aca-demic achievement. To identify childrenwith elevated blood lead levels, the CDC hasadopted a “reference value” based on the97.5th percentile of the blood lead level dis-tribution among children one to five yearsof age, which is currently 5 ug/dL. This re-duction from the previous standard of 10ug/dL will likely encourage the plaintiff’sbar to pursue lead exposure cases at lowerlevels of exposure. Fortunately, in recent years the defense

bar has been successful in educating the ju-diciary on lead issues. There is a growingrecognition among courts that other factors(e.g., socioeconomic factors, family history,and heredity) play a role in a child’s neu-ropsychological development and that evi-dence of these factors is relevant andadmissible. As a result, courts are beginningto allow discovery of health, IQ, and educa-tion information from non-party family mem-bers – material that can prove critical to thesuccessful defense of a lead exposure claim.

QUESTIONING CAUSATION Courts have begun to recognize that adefendant landlord still has the right toquestion causation and thereby escape lia-bility or mitigate its damages, even wherethere is evidence of lead exposure and thelandlord had actual or constructive noticeof the condition. For example, a landlordwho has been negligent in dealing with lead

hazards presented by paint is clearly entitledto challenge causation by showing that theinfant plaintiff ingested other lead-contain-ing substances during the relevant time pe-riods. Furthermore, while the infantplaintiff is usually non sui generis at the timehe consumes the lead paint, he is not ab-solved from all responsibility simply becausehe was once very young. The plaintiff canbe held accountable for pre-teen andteenage misconduct, such as discontinuingprescribed medication or failing to attendschool, where such misconduct constitutesa failure to mitigate damages at a time whenthe plaintiff could be held legally responsi-ble for his or her actions.1

BUT IS LEAD THE PROXIMATECAUSE? In addition to proof of an elevated leadlevel and actual or constructive notice of adefective lead condition in the premises, a

LEAD LITIGATION:RECENT TRENDS ANDKEY STRATEGIES FORDEFENSE COUNSEL

Thomas F. Segalla, William J. Greagan, and Matthew D. Cabral Goldberg Segalla LLP


plaintiff must also prove that the lead expo-sure was a proximate cause of the plaintiff’sinjuries. This is a particularly fertile groundfor the defense attorney. Plaintiffs frequently allege that the in-fant plaintiff suffers from a lower IQ or neu-rological, cognitive, and behavioraldisorders due to exposure to lead. However,a multitude of variables in a child’s medical,family, social, and environmental history areknown to have a far greater negative effecton cognitive and behavioral developmentthan elevated blood lead levels. Known riskfactors include family history of learningdisorders, speech and language related dif-ficulties, attention deficit/hyperactivity dis-order (ADHD), and many often hereditarypsychological disorders including depres-sion, anxiety, conduct disorder, and opposi-tional defiant disorder. Other variablesinclude maternal drug, alcohol, or tobaccouse during pregnancy; chronic medical ill-ness during pregnancy; premature and lowbirth weight; and maternal age. Other important and scientifically rec-ognized neuro-developmental risk factorsare socioeconomic status and home envi-ronments. Children from poor socioeco-nomic backgrounds have statistically highermortality rates and are at risk for severalchronic medical, behavioral, and emotionaldisorders. Furthermore, home environ-ments characterized by poor parentingpractices, domestic violence, and minimalcognitive stimulation increase a child’s riskfor poor cognitive, behavioral, and aca-demic outcomes.

EVOLVING SCOPE OF DISCOVERY Courts have begun to recognize thatlead exposure does not equal injury. Whensupported by scientific studies and articles toshow a link, expert testimony can be utilizedto show that the plaintiff’s disorder and dis-abilities were caused by other factors includ-ing the social and environmentalcircumstances of his upbringing and familyhistory.2 Once a court acknowledges thatother factors besides lead exposure are mate-rial and relevant, the defendant should be al-

lowed to conduct discovery into these areas. Because claims are usually brought bya parent, in their representative capacityonly, on behalf of an infant plaintiff, plain-tiff’s counsel take the position that defen-dants are only entitled to discovery from theinfant plaintiff. Since the mother is not aparty in her own right, and she has not puther own medical condition into issue, hermedical history remains privileged.However, because a child’s in utero devel-opment is inextricably intertwined with thehealth of his mother, courts do permit dis-covery of prenatal health records.Nevertheless, plaintiff’s counsel routinely at-tempt to foreclose inquiry into the healthand academic performance of siblings andparents. Considering that social, behavioral,cognitive, and intelligence deficiencies maybe attributed to heredity, prenatal condi-tions, and psychological factors, courtsshould permit discovery from non-partyfamily members. The scope of discovery in lead paintcases is an evolving area of the law, and theissue of non-party discovery has arisen fre-quently in this context. Some courts, citingthe broad discovery provision contained inRule 26(b)(1), have permitted discovery ofnon-party information because they foundit relevant or reasonably calculated to leadto the discovery of admissible evidence.3

Others, however, have rejected discovery ofnon-party siblings and parents as beyondthe scope of Rule 26.4

In a recent New York opinion, theSupreme Court of Schenectady County per-mitted defendants to show that themother’s prenatal medical records demon-strated that she only achieved a tenth gradeeducation, she had used alcohol and crackcocaine while pregnant, the infant plaintiffwas born with crack cocaine in his system,the father abused drugs, and the plaintiff’syounger brother (who presumably had notbeen exposed to lead) had a learning dis-ability.5 The court found that this medicalevidence was sufficient to sustain the defen-dant’s burden to seek medical record dis-covery and IQ testing from the non-party

family members. This logic presents a Catch-22 because,while parental and sibling histories are ma-terial and relevant to determine whetherother factors besides the exposure to leadpaint are causing or contributing to injuriesclaimed by the infant plaintiff, the court hasindicated that such discovery is only war-ranted where the evidence of the conditionsis known to exist. Arguably, the inquiryshould be permitted in the first instance todetermine whether the conditions exist.Many courts, probably the vast majority,hold that the medical records of the plain-tiff’s siblings and parents are privileged andcannot be disclosed except by way of waiver.6

In these jurisdictions, defense counsel canstill effectively cross-examine plaintiff’s ex-perts with respect to those material and rel-evant factors they have to recognize but didnot consider. In sum, along with increased awarenessof the deleterious effects of lead in theblood, courts are also taking note of otherenvironmental, hereditary, genetic, and so-cioeconomic factors that tend to cause orcontribute to those same deleterious effects.Defense counsel must be aware of these fac-tors and should make every effort to pursuediscovery of all material and relevant infor-mation bearing on these factors.

Thomas F. Segalla is afounding partner ofGoldberg Segalla LLP. Hispractice focuses on the de-fense and insurance cover-age aspects of mattersinvolving toxic tort and en-vironmental issues, bad

faith, and construction site accidents.

William J. Greagan, a part-ner in Goldberg Segalla’sAlbany office, has extensiveexperience defending per-sonal injury claims againstowners, landlords, andproperty managers involv-ing lead, asbestos, mold,and other toxic tort claims.

Matthew D. Cabral is anassociate in GoldbergSegalla’s Albany office. Hisbroad experience includestoxic tort cases involving as-bestos and lead, as well asthe defense of cases involv-ing premises liability andpersonal injury.

1 Cunningham v. Anderson, 84 A.D.3d 1370, 1372 (3d Dept. 2011); Watson v. Priore (Oneida County New York2011).

2 Cunningham v. Anderson, 85 A.D.3d 1370. 3 See, e.g., Stewart v. Nassau, No. 89-8214 (Civ. Dist. Ct. Orleans Par. Jan. 19, 1996); Anderson v. Seigel, 255

A.D.2d 409, 680 N.Y.S.2d 587 (App. Div. 1998); and Salkey v. Mott, 237 A.D.2d 504, 656 N.Y.S.2d 886 (App.Div. 1997).

4 See, e.g., Monica W. v. Milevoi, 252 A.D.2d 260, 685 N.Y.S.2d 231, 234 (App. Div. 1999); Andon v. 302-304Mott Street Assocs., 257 A.D.2d 37, 690 N.Y.S.2d 241 (1st Dept. 1999); and Van Epps v. County of Albany, 184Misc. 2d 159, 706 N.Y.S.2d 855, 864-65 (Sup. Ct. Albany Co. 2000).

5 Scott v. Carson, 2010 N.Y. slip op. 50731U; 2010 N.Y. Misc. LEXIS 869 (Schenectady County, New York 2010). 6 See, Ryan v. Simma (Rensselaer County 2011). Notably, the court did hold that parent and sibling school

records are discoverable, but are subject to in camera inspection to prevent the disclosure of medical in-formation.


Social media websites such asFacebook, MySpace, and Twitter are the21st century’s preferred method of interact-ing and communicating with peoplearound the world. As of February 2012,Facebook had over 500 million users, andof those 500 million, 50% of activeFacebook users logon every day. Further, an-other study found that there are approxi-mately 140 million “Tweets” per day, or 750“Tweets” per second. This phenomenon haslead to courtrooms across the country fac-ing novel issues on the use of social mediawebsites in litigation. As a result, the scopeof an attorney’s duty to not only adviseclients of the ramifications of maintainingsocial media websites, but also the duty touse it to obtain information about an adver-sary, has created a new challenge in compe-tently representing clients. A common theme found throughoutrecent decisions on the use of social media

websites is that based upon many jurisdic-tions liberal discovery rules informationposted on social media websites may be dis-coverable and used in the prosecution or de-fense of a case. A federal court in Coloradoheld that the content of social networkingsites in the public areas, which contradictedthe allegations as to the effect of the injurieson the plaintiffs’ daily lives, wasdiscoverable.1 A New York trial court foundthat access to information contained on theplaintiff’s current and historical Facebookand MySpace pages and accounts to be bothmaterial and necessary.2 Further, a Floridafederal court ordered a plaintiff to produceall photographs added to any social network-ing site since the date of the subject accidentthat depicted plaintiff, regardless of whoposted the photographs.3 A recent study re-vealed that between January 1, 2010, andNovember 1, 2011, there were 674 reportedstate and federal court cases that involved so-cial media evidence in some capacity. Thus,social media websites have replaced the useof surveillance and has become a less expen-sive and more useful source of information

for attorneys seeking to find the “smokinggun” piece of evidence. As new forms of social media websitescontinue to evolve and advance, so too mustthe profession of law to keep pace with theduty owed to clients. In fact, a Marylandcourt recently commented that “[i]t shouldnow be a matter of professional compe-tence for attorneys to take the time to inves-tigate social networking sites.”4 Thus, thequestion becomes what duty does a lawyerowe to his own client to warn about the mes-sages or photographs he posts to his socialmedia website? Conversely, what duty doesa lawyer owe to a client to obtain all relevantand material information about an adver-sary’s postings and photographs to a socialmedia websites? While there is a dearth ofcase law on the subject, the sentiment ap-pears to be that a lawyer who chooses to ig-nore social media does so at his own peril. With regard to his own client, at thetime of being retained, an attorney has aduty to explain to the client the effect hissocial media website can have on the case.Such a discussion is akin to warning a clientthat a former conviction may come to lightduring the course of discovery. However,this is not to say that an attorney should in-struct clients to delete potentially damaging

The Evolving Affirmative Dutyto Investigate Social Media

Evidence and Its Impacton the Standard

of Care

Karen Painter Randall and Steven A. Kroll Connell Foley LLP


content from their social media websites.This notion was clearly exemplified in Lesterv. Allied Concrete Company, 2011 Va. Cir.LEXIS 132 (Va Cir. Ct. 2011) where a plain-tiff’s attorney instructed his client to removedamaging evidence from his Facebookpage, which showed the plaintiff as anythingbut grieving, resulting in a severe courtsanction of over $700,000. In addition, inQualcomm, Inc. v. Broadcom Corp., 2008 U.S.Dist. LEXIS 91 (S.D. Cal. Jan. 7, 2008), aCourt ordered Qualcomm to pay$8,568,633 for failure to produce tens ofthousands of documents requested in dis-covery. The Court also sanctioned six attor-neys from an outside law firm for blindlyaccepting Qualcomm’s claim that their e-discovery searches were adequate, as well asintentionally hiding or recklessly ignoringrelevant documents. Nevertheless, an attor-ney has a duty to warn a client that as the lit-igation proceeds, even non-public postings,or postings to their social media website bya third party may be discoverable. The other main duty of an attorneyarises out of the investigation of an adverseparty through social media websites. For ex-ample, a defense attorney would not be act-ing competently and diligently in a personalinjury case, if the attorney ignored picturesof a recent trip to Hawaii posted by a bliss-fully looking plaintiff who is claiming loss ofenjoyment of life. However, an attorneydoes not have carte blanche to send “friendrequests” to every opposing party he has anactive file with. First, most jurisdictions havea rule prohibiting a lawyer from contactinga represented party without the party’scounsel’s consent. Second, Courts will notpermit a “fishing expedition” into a per-son’s private social media website without areasonable basis. There still must be a “fac-tual predicate with respect to the relevancyof the evidence”, as described by one NewYork appellate court in McCann v.Harleysville Insurance Co. of New York, 78A.D.3d 1524, 910 N.Y.S.2d 614 (N.Y. App.Div. 4th Dept. 2010). Third, most on-line so-cial media is controlled by a non-party serv-ice provider. The Stored CommunicationAct, 18 U.S.C. § 2701 et seq., prohibits elec-tronic communication services from reveal-ing a user’s private messages even if theyreceive a subpoena. Further, the extent ofthe privacy protection afforded by theStored Communication Act may dependupon the user’s conduct, i.e., their privacysettings. Therefore, an attorney is requiredto obtain written authorization from an ad-verse party for a non-party to reclaim datafrom a private social media website. Despitethese hurdles, an attorney has a duty tocheck all public social media websites for

any relevant information. Moreover, attor-neys should begin to craft and formulatenew interrogatories, requests for docu-ments, and deposition questions that canhelp form a basis for gaining access to po-tentially material information and photo-graphs contained in an adversary’s privatesocial media website. Similar to obtainingwritten authorizations for receipt of a plain-tiff’s pertinent medical records, attorneysshould also consider requesting written au-thorizations for a plaintiff’s non-public so-cial media websites when deemedappropriate. Another area of the law where socialmedia has played a large role is in an attor-ney’s due diligence in serving legal papersupon an adverse party. Courts have recog-nized a duty of attorneys to perform basicinternet searches to find the whereabouts ofa party. One Indiana appellate court wasamazed that the plaintiff’s attorney hadfailed to Google an absent defendant as amatter of due diligence, noting that theCourt itself had done so and immediatelyobtained search results that included a dif-ferent address for defendant as well as anobituary for the defendant’s mother listingnumerous relatives who might have knownhis whereabouts.5 A Florida appellate courtquestioned the effectiveness of an attorneywho had only checked directory assistancein order to get an address to serve a defen-dant, calling such a method in the age ofthe Internet the equivalent of “the horseand buggy and the eight track stereo.”6

Moreover, in Louisiana the appellate courtupheld a trial judge’s rejection of a party’sdue diligence claims where that judge hadconducted his own Internet search and con-cluded that the proper contact informationfor the defendant was “reasonably ascertain-able.”7 Therefore, an attorney’s duty to dili-gently obtain the location of a party forservice purposes has been heightened bythe availability of social media. In a profession based upon traditionand legal precedent, it is apparent that at-torneys cannot ignore the technologicalchanges going on around them. Rule 1.1 ofthe ABA Model Rules requires lawyers to becompetent in the representation of theirclients. Further, Comment 6 the aforemen-tioned Rule advises that lawyers “shouldkeep abreast of changes in the law and itspractice.” Thus, early on in their represen-tation attorneys should discuss the ramifica-tions of a client’s social media on the matter.In addition, an attorney should perform asearch, using a search engine such asGoogle, for any relevant, public informationavailable not only for his client, but any par-ties or witnesses to the action. Lastly, an

attorney should create a discovery plan thatincludes interrogatories and document re-quests that take into consideration poten-tially relevant information contained in asocial media website. While a body of caselaw continues to develop as to the duty withregard to social media, the biggest takeawayfor attorneys is that they must be cognizantof these websites and their potential use forbetter or worse in litigation.

1 Ledbetter v. Wal-Mart Stores, Inc., 2009 U.S. Dist.LEXIS 126859 (D. Colo. 2009)

2 Romano v. Steelcase, Inc., 30 Misc. 3d. 426, 907N.Y.S.2d 650 (N.Y. Sup. Ct. 2010)

3 Davenport v. State Farm Mutual AutomobileInsurance Company, 2012 U.S. Dist. LEXIS 20944(M.D. Fla. 2012)

4 Griffin v. Maryland, 995 A.2d 791 (Md. Ct. Spec.App. 2010)

5 Munster v. Groce, 829 N.E.2d 52 (Ind. Ct. App.2005)

6 Dubois v. Butler, 901 So. 2d 1029, (Fla. Dist. Ct.App. 2005)

7 Weatherly v. Optimum Asset Management, 928 So.2d 118 (La. Ct. App. 2005)

Karen Painter Randall is aPartner at Connell FoleyLLP. A Certified Civil TrialAttorney, Randall providesrepresentation and advo-cacy services to a wide rangeof professionals and busi-nesses in complex litigation.

Randall is the former Chair of the USLAWProfessional Liability Practice Group and amember of its Leadership Committee. Randallalso manages the Professional Liability andDirector and Officer Litigation Practice Groupsat Connell Foley, USLAW NETWORK’s NewJersey firm. Randall has lectured and writtenextensively on defense, coverage and risk man-agement issues while also serving in key leader-ship positions with the American BarAssociation, Defense Research Institute andCouncil on Litigation Management.

Steven A. Kroll is an associ-ate at Connell Foley LLP inthe Professional Liabilitypractice group. In additionto representing professionalsin various areas, Kroll rep-resents commercial landlordsand tenants in matters re-

lated to premises liability. Kroll is a 2009 grad-uate of Rutgers-Newark School of Law, where hegraduated cum laude, and received the distin-guished award of Order of the Coif. For more in-formation on Connell Foley, please visitwww.connellfoley.com or call 973.535.0500.

Companies that make or sell consumerproducts may have had occasion to askthemselves, “What would we do if the gov-ernment notified us that one of our prod-ucts was defective and that the productwould have to be recalled?” The answer tothat question would be a resounding,“Wrong question!” Instead of waiting for thegovernment to knock at the door, consumerproduct companies must self-report safety is-sues that could potentially lead to prod-uct recalls, and may face claims forsignificant civil penalties if theyfail to act in a timely manner. In the United States, andin several foreign jurisdic-tions, companies thatmanufacture, import,distribute or sell con-sumer products eachhave an independentaffirmative obligationto notify the govern-ment when they re-ceive informationthat may suggest asafety issue has arisenwith respect to theirproducts. Althoughsafety investigationsand recalls can be insti-gated by the govern-ment, a company thatwaits to hear from the gov-ernment before reportingsafety information risks theimposition of steep penalties,potentially up to $15 million. Thisarticle will focus on the reporting ob-ligations imposed by the Consumer

Product Safety Commission (CPSC) andregulatory bodies of two other countrieswhen safety issues arise involving consumerproducts, and recent trends in the in-creased monetary penalties sought for vio-lations of these obligations.

WHAT CONSUMER PRODUCT SAFETYISSUES ARE COMPANIES REQUIREDTO REPORT IN THE U.S.? In the United States, the ConsumerProduct Safety Commission (CPSC) is an in-dependent federal agency created byCongress in 1972. It has jurisdiction overmore than 15,000 types of consumer prod-ucts used in and around the home, in

sports, recreation and schools. These in-clude virtually all household consumer

products except automobiles andother on-road vehicles, tires,

boats, alcohol, tobacco,firearms, food, drugs, cos-

metics, pesticides, med-ical devices and water-

craft, which are regu-lated by other enti-ties such as theNational HighwayTranspor ta t ionSafety Administra-tion (NHTSA); theBureau of Alcohol,Tobacco and Fire-arms (ATF); theFood and DrugAdmin i s t ra t ion

(FDA); and the U.S.Coast Guard (USCG).

C o m p a n i e sthat import, manufac-

ture, distribute or sellconsumer products within

the United States must beaware of their affirmative ob-

ligations relative to informationthey are required to collect, main-

tain, evaluate and report regarding

Reporting ConsumerProduct Safety Issues to

Regulatory AgenciesWorldwide

THE U.S., CANADIAN AND AUSTRALIAN EXPERIENCE ANDRECENT TRENDS IN CIVIL PENALTY PAYMENTS

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safety issues and be aware of the substantialpossible adverse consequences of a com-pany’s delinquency with respect to these ob-ligations. Among other things, the CPSCregulations require companies to monitorand analyze engineering data, quality con-trol data, production data, safety-relatedproduction or design changes, product lia-bility suits, claims for personal injury ordamage, test data, consumer and retailercomplaints, returns and warranty claims,and information received from the CPSC orother governmental agencies. Under the CPSC regulations, the obli-gation to report safety issues to the CPSC isbroader than the obligation to recall a prod-uct. The regulations explicitly advise com-panies that any doubts as to whether acompany should report a product safetyissue should be resolved in favor of report-ing to the Commission. Manufacturers, importers, distributorsand retailers are required to report to CPSCunder Section 15(b) of the ConsumerProduct Safety Act (CPSA) within 24 hoursof obtaining information which reasonablysupports the conclusion that a product doesnot comply with a safety rule issued underthe CPSA, or contains a defect which couldcreate a substantial risk of injury to the pub-lic or presents an unreasonable risk of seri-ous injury or death. Companies, therefore,must prospectively analyze available data todetermine if a product presents a risk thatcould occur in the future, while the CPSC,in deciding whether to seek penalties forfailing to timely report safety issues, will an-alyze the timeliness of a company’s reportsand other actions retrospectively, based onwhat actually did occur. At times, the CPSCmay have the benefit of hindsight that wasentirely unavailable to the company whenthe company was determining whether ornot it had a reporting obligation.

WHAT ARE THE RISKS IF A COMPANYFAILS TO TIMELY REPORT SAFETY ISSUES? Even if a product safety issue is re-ported to the CPSC, the CPSC may seek toimpose civil penalties based on allegationsthat the report should have been filedsooner than it was actually filed. In 2008, theConsumer Product Safety Improvement Act(CPSIA) increased the maximum amountof civil penalties the CPSC may seek from$1.8 million to $15 million. The CPSC,therefore, can now seek civil penalties in theamount of up to $15 million if a companyfails to timely report safety issues that shouldhave been reported more promptly. The factors that the CPSC must con-

sider in determining the amount of civilpenalties to seek are the nature, circum-stances, extent and gravity of the violation;the nature of the product defect; the sever-ity of the risk of injury; the number of de-fective products distributed; and theappropriateness of the penalty to the size ofthe business involved and such other factorsas appropriate. The CPSC is also requiredto consider how to mitigate undue adverseeconomic effects on small businesses. In the past few years, the dollar amountof civil penalties paid by firms to resolveCPSC allegations of untimely safety issue re-porting has increased. In fiscal year 2011,for example, the CPSC reported that tenfirms had paid civil penalties for failing totimely report hazards. Seven of these penal-ties were $450,000 or less and the otherthree were under $1 million. By contrast, inthe first half of fiscal year 2012, there havebeen eight reports of firms paying civilpenalties for failing to timely report safetyissues. Seven of the eight firms paid$400,000 or more. Three of the eight firmspaid $1.1 million, $1.3 million and $1.5 mil-lion, respectively. Raising the “cap” on pos-sible civil penalties, thus, may haveemboldened the CPSC to seek increasinglevels of monetary payments to resolve alle-gations of untimely reporting.

WHAT CONSUMER PRODUCT SAFETYISSUES ARE COMPANIES REQUIREDTO REPORT IN CANADA? Canada has recently implemented theCanada Consumer Product Safety Act. Thislaw in part requires companies to report in-dividual safety-related events involving con-sumer products. Under this Act, companiesthat manufacture, import or sell consumerproducts in Canada must report to HealthCanada within two days after becomingaware of certain types of safety-related inci-dents or occurrences. An occurrence maybe considered a potentially reportable inci-dent if it involves product mislabeling, miss-ing instructions, a defect, a productcharacteristic or an occurrence, involving aproduct in Canada or elsewhere, that mayhave been expected to result in serious ad-verse health effects. Recalls that occur inother jurisdictions also must be reported toHealth Canada. Failure to timely complywith these requirements exposes a companyto possible enforcement proceedings andpenalties up to $25,000 per day. Criminalpenalties for certain violations could in-clude imprisonment up to five years andfines up to $500,000 for a first offense and$1,000,000 for subsequent offenses.

WHAT CONSUMER PRODUCT SAFETYISSUES ARE COMPANIES REQUIREDTO REPORT IN AUSTRALIA? Australia has a similar statute, the TradePractices Amendment (Australian ConsumerLaw) Act (No. 2) 2010 (ACL) that requirescompanies to report serious injuries, illnessor death associated with consumer goods.This law applies to a broader class of suppli-ers of consumer goods and services relatedto the consumer goods and requires all par-ticipants in the supply chain including im-porters, manufacturers and retailers as wellas repairers and installers to report withintwo days of becoming aware of an incidentthat occurs, in Australia or elsewhere, inwhich any person “considers that a death orserious injury was caused or may have beencaused by the use or foreseeable misuse ofthe consumer goods.” Under the Australialaw, a “serious injury” is an “acute physical in-jury or illness requiring medical treatment orsurgical treatment by, or under the supervi-sion of, a qualified doctor or nurse.” Injuriesthat do not require treatment by a medicalprofessional are not reportable. Civil penal-ties for failing to comply with certain noticerequirements can be up to $16,500.

WHAT SHOULD A COMPANY DO? To minimize the risk of penalties, com-panies should implement programs and pro-cedures to regularly and routinely monitorincident data and other quality and safetydata to identify safety issues reportable to theCPSC under Section 15(b). Companies thatimport or sell products in Canada andAustralia should also ensure that proceduresare in place to help to identify product relatedincidents and circumstances that may requirethat reports be sent to Health Canada or theAustralian Competition & ConsumerCommission. While consumer product com-panies may not welcome the thought of noti-fying government officials of potentiallynegative information about their products,the alternative approach of waiting for thegovernment officials to make first contactwhen a safety issue arises presents substantiallymore unwelcome potential risks and costs.

Cheryl Possenti, a partnerat Goldberg Segalla LLP,has nearly 30 years of expe-rience defending complexpersonal injury actions andclass actions. She counselssome of the world’s foremostmakers of toys and chil-

dren’s products on recalls, mandatory govern-ment reporting and related regulatory issues.She can be reached at [email protected].

A. INTRODUCTION Many people involved in the Canadianinsurance industry are alternately amazedand appalled at the bad faith punitive dam-age awards that occasionally emerge fromthe US Courts. They are amazed some statesallow liability limits on auto policies less than10% of the Canadian mandatory minimums($200,000), and they are astounded that aperson who purchases only $25,000 of suchliability coverage can later receive a jury ver-dict of $145 million in punitive damagesagainst the auto insurer for “bad faith” han-dling of an excess liability claim under thepolicy (the Campbell v. State Farm saga). SomeCanadian observers were similarly perplexedhow a simple water leak claim on a home-owner’s policy spiralled into a “toxic mold”catastrophe and ultimately resulted in aTexas jury tagging the homeowner insurerwith some $26 million for mental anguishand punitive damages, and attorneys fees(the Ballard v. Fire Insurance Exchange saga). For their part, US observers wouldprobably be surprised to learn that the high-

est court north of the border (the SupremeCourt of Canada) has effectively limitedavailable punitive damage awards againstfirst party insurers in that country to $1 mil-lion and then only in cases of most egre-gious misconduct. With respect to liabilityinsurance, you can literally count on onehand the number of “bad faith refusal tosettle” cases in Canada and the largest suchaward has been a mere $300,000.

B. THE ORIGIN OF THE GOOD FAITHOBLIGATION “Bad faith” litigation and run away juryawards of multi-million dollar punitive dam-ages against insurers is strictly a NorthAmerican phenomenon. There is no suchcause of action in the United Kingdom, thevery place where today’s modern insuranceindustry originated. In the USA, the Restatement ofContracts expressly imposes upon contract-ing parties “a duty of good faith and fairdealing in [the contracts] performance andenforcement.” No such provision exists in

Canada nor, indeed, have the Canadiancourts adopted any such general rule as amatter of common law. In addition, mostUS states have enacted statutes or regula-tions expressly governing insurance claimsand proscribing certain unfair or deceptiveclaims handling practices. These, along withgeneral tort law principles, form the basisfor much “bad faith” litigation south of theborder. Canada, the world’s second largestcountry in size, comprises ten provinces andthree territories, each of which has its ownlegislative and regulatory regime for insur-ance. Some, but by no means all, of theseprovinces/territories have legislative provi-sions prohibiting “unfair or deceptive prac-tices” in the business of insurance, but noneof the legislation provides any statutorycause of action for insurer “bad faith.” However, the Canadian courts have re-peatedly endorsed the concept of a duty ofgood faith as an implied term in every con-tract of insurance. The courts have also heldthat, generally speaking, insurance policies

B A D F A I T H L I T I G A T I O N I N C A N A D A

Much Ado AboutNothing?

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are “peace of mind” contracts. These prin-ciples can form the basis in appropriatecases for both punitive and mental distressdamages arising from wrongful denials ofcoverage. Thus far in Canada, only one appealcourt in one province (New Brunswick) hasactually endorsed the concept that insurerbad faith is a tort (as opposed to merely abreach of contract claim). In that case, thecourt declared “it is settled law, at least inthis Province, that insurers owe a duty ofgood faith and fair dealing to their insured,a breach of which may give rise to their lia-bility in both contract and tort.” Openingthe door to tort allows damages claims to bemade not only against the insurance corpo-ration, but also directly against its adjusters,claims managers, investigators and other in-dividuals involved in the claims process.However, such tort suits have not in factgained traction in Canada, and bad faithclaims are still generally treated as breachof contract claims against the insurer alone. Today, as in the USA, coverage enforce-ment lawsuits in Canada invariably includewhat have become almost standard form al-legations of bad faith claims handling on thepart of insurers and very often claim substan-tial punitive and mental distress damages onthat account. Such awards are actually veryrare and, in most instances, the claim ismerely a litigation tactic designed to ransomsettlements through a combination of:1. the mere possibility of an award being

made by a sympathetic, unsophisti-cated jury; and

2. the increased cost, inconvenience and,occasionally, embarrassments arisingfrom extensive discovery into corpo-rate finances, administration andclaims handling.

C. THIRD PARTY LIABILITY CLAIMS:WHAT ARE THE “GOOD FAITH” OBLIGATIONS? As indicated, there have been relativelyfew successful bad faith lawsuits against lia-bility insurers in Canada. Of course, likemost litigation, the vast majority of suchcases settle before trial. Nevertheless, the ab-sence of reported Canadian case law in thisarea provides an astonishing comparisonwith the US experience. Canadian courts have held that whilethe opportunity to settle a defensible casefor the policy limits necessarily produces aconflict of interest between insurer and in-sured, it is not a situation where the insurerowes fiduciary duties to the insured, and theinsurer is not required to abandon theirseparate interest simply because of the pos-sibility of a judgment in excess of policy lim-

its. Rather, liability on that account will onlyflow where the defense is mishandled,where the insurer fails to consider the in-sured’s interests as well as its own, andwhere there has been poor or untimelycommunication to the insured of all mate-rial information touching upon their posi-tion in the litigation. Cases involving failure to settle withinlimits do not usually result in punitive dam-age awards. Rather, the insurer becomes li-able for the amount of the excess judgment.Indeed, the highest punitive damage awardin Canada for wrongful denial of liabilitycoverage was made in 2012 and was only for$75,000.

D. FIRST PARTY COVERAGE: WHATARE THE GOOD FAITH OBLIGATIONS? By far the most common form of badfaith allegation against insurers is made inthe context of first party property or disabil-ity insurance coverages. Even so, theSupreme Court of Canada has declared; “aninsurer will not necessarily be in breach ofthe duty of good faith by incorrectly deny-ing a claim that is eventually conceded, orjudicially determined, to be legitimate…thequestion instead is whether the denial is asa result of the overwhelmingly inadequatehandling of the claim or the introductionof improper considerations into the claimsprocess.” Conduct which some Canadian courtshave held to constitute a breach of the dutyof good faith in first party cases includes:• Failing to provide an accurate and fair

explanation of the policy terms andclaims procedures;

• Failing to act with reasonable prompt-ness during each step of the claimsprocess, including timely payment ofundisputed portions of the claim.

• Failing to undertake a competent in-vestigation of the claim using objectiveunbiased experts; and

• Denials of coverage or delayed pay-ments to take advantage of the in-sureds economic vulnerability or togain bargaining leverage.

The highest punitive damage award ina first party coverage case in Canada is $1million. It involved a denial of coverageunder a homeowners policy on grounds ofalleged arson even though the insurer wastold by their own investigators, they “didn’thave a leg to stand on.” The award wasmade by a jury and while the SupremeCourt of Canada ultimately allowed it tostand, they expressed the view that theamount was extremely high.

E. PUNITIVE DAMAGES: WHAT IS THETHRESHOLD?While the case law establishes that the in-surer’s breach of the implied duty of goodfaith claims handling is a necessary pre-con-dition for any award of punitive damages, itdoes not follow that such awards are auto-matic in all cases where there has been abreach. Rather, the Supreme Court ofCanada has made it very clear there is a two-step analysis which must be undertakennamely:1. Beyond establishing that the denial of

coverage was an incorrect judgmentcall, was the denial also the result ofboth overwhelmingly inadequate claimhandling or the introduction of im-proper considerations? and

2. If so, was the insurer’s conduct so ex-ceptionally egregious that an award ofpunitive damages is warranted.

It is only in exceptional cases whereboth conditions are met, that punitive dam-ages are supposed to be awarded in Canada.Some observers believe the trial courts oftenoverlook the exceptional nature of theaward and that some dilution of the thresh-old criteria has occurred. Still, awards ofpunitive damage for insurer bad faith inCanada remain relatively rare even wherethe denial of coverage or the handling of theclaim has been judicially found wanting.Given the size of awards regularly made inUS courts, observers south of the border maybe inclined to think bad faith litigation inCanada is indeed much ado about nothing.

Nigel Kent ([email protected]) and Samantha Ip([email protected]) are sen-ior partners in the insur-ance litigation group atClark Wilson LLP inVancouver, Canada.Nigel's been practicing in-surance law for 32 years,teaches at CapilanoUniversity, and is recog-nized as a most frequentlyrecommended specialist inhis field in the "BestLawyers in Canada" direc-tory. In addition to her ex-pertise in insurance law,

Sam is also a leading construction litigationcounsel and is a much sought after contributorto industry publications and presenter at promi-nent professional liability continuing educationseminars.More detailed bios are available atwww.cwilson.com

OUTBOUND INVESTMENT OVERVIEW As Chinese companies currently haveboth the capacity and desire to invest over-seas, outbound investment has been in-creasing at a very fast pace in recent years(See Chart). Chinese companies have ex-hibited strong interest in entering theAmerican market in an effort to “GoGlobal.” The Chinese government has is-sued over the past few years regulations en-couraging and facilitating outboundinvestment in accordance with the Chinese’12th five-year plan. For example, since June2011, the Measures for the Administration ofPilot RMB Settlement for Overseas DirectInvestment and the Circular on Issues Relevantto Cross-border Direct Investment with Renminbi(RMB, the official currency of the PRC)now entitles certain investments made byChinese investors (except financial domes-tic enterprises) outside the PeoplesRepublic of China (PRC) to be settled inRMB, and the income made through thoseinvestments may be repatriated to the PRCin RMB. A bank will also be able to grant aloan in RMB to a foreign enterprise or in-vestment project if a domestic enterprise isone of the investors. Although great strides

have been made, Chinese investments stillremain strongly monitored by Chinese au-thorities. The Chinese system can still be de-scribed as “a government approval system.”In other words, before Chinese companiesare entitled to invest in the American econ-omy, they will have to go through a lengthyprocess, generally involving many approvalsfrom numerous governmental entities.Although obtaining such approval is gener-ally not the main obstacle to the closing ofa transaction (unless there is specific restric-tions attached to the investment industry),obtaining all necessary approvals usuallyslow down the process considerably andtherefore may affect the competitiveness ofChinese companies in transactions forwhich time is of essence.

CONCERNS OF CHINESE CLIENTSWHEN DOING BUSINESS IN THEUNITED STATES One of the main concerns being raisedby the Chinese is in regard to the corporatetax structure in the United States as well aswithholding tax. Chinese need guidance re-garding the best way to structure a contem-plated transaction. They also seek

advisement on business structure, whichState to register a company, visa issues, nec-essary governmental licenses and permits,procedures to purchase and sell real estate,how to identify, approach and negotiatewith an American target, applicable listingrules in the US, as well as the restricted in-vestment industries according to US regula-tions. Questions often posed might be,“What is the best way in which to invest inthe energy and mining sector?” or “Whatrole does the Committee on ForeignInvestment in the United States (CFIUS)play and can it be problematic in the caseof transactions involving Chinese investors. Also, as US environmental law is at amore mature stage, Chinese clients willneed to be advised on the best way to struc-ture a transaction in order to comply withsuch regulations. Chinese clients are usuallyunfamiliar with such regulations, so it is im-portant to offer an added-value service byverifying that the transaction complies withsuch norms. Labor law is also more devel-oped in the US and Chinese clients willneed guidance on the many labor regula-tions they may face.

The Role of the Attorneyin China’s Outbound

InvestmentsGeorge Wang Duan & Duan Law Firm

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INTRODUCTION TO CHINESEOUTBOUND INVESTMENT RULES Overseas investments by Chinese do-mestic enterprises are subject to the ap-provals and registration with three differentgovernmental bodies in accordance toChinese law.

A. State Administration of ForeignExchange (SAFE) in charge of the ad-ministration of foreign exchange;

B. National Development and ReformCommission (NDRC) responsible forChina’s economic development and in-dustrial policy; and

C. Ministry of Commerce (MOFCOM).

Obtaining the approval of the NDRC isthe cornerstone of the process. Once NDRCapproval has been obtained, other authorities,including the MOFCOM and SAFE are gen-erally not going to object to the transaction.

First, every overseas investment mustbe registered with SAFE. Second, it is nec-essary to obtain NDRC’s approval for invest-ment in Overseas Investment Projects1

(OIP). Last, an application must be madeto transfer the foreign currency abroad. For example, and according to theInterim Measures for the Administration ofVerification and Approval of Overseas InvestmentProjects (Measures), for an OIP in the field

of exploration and exploitation of crude oiland mines (considered as Resources OIP)for which the amount of investment madeby the Chinese party reaches $300 millionor more (in U.S. Dollars) , the verificationand approval of NDRC will be required. If adomestic enterprise invests in a ResourcesOIP, and if the amount of the investmentmade by the Chinese party is more than $30million but less than $300 million, the ap-proval documents from the Department ofDevelopment and Reform at the provinciallevel shall be obtained as well as theRegistration Approval Form for Local MajorOverseas Investment Projects issued andstamped by the Department of Utilizationof Foreign Capital and OutboundInvestment under NDRC. In addition, the relevant approvalsmust also be obtained from MOFCOM.MOFCOM regulations clearly state as a pre-condition that the projected Overseas in-

vestment2 must not: “(1) Endanger thesovereignty, security and social public interest ofthe State, or violates the laws and regulations ofChina; or (2) Impair China’s relationship withother countries (regions);or (3) [be] likely to vio-late the international treaties China has accededto; or (4) Involve any technology or commoditiesof which the export is prohibited.”3 The conceptof security and social public interest of theState has been broadly interpreted and

therefore this requirement shall be exam-ined carefully. In addition to these three governmen-tal entities, the State-owned AssetsSupervision and AdministrationCommission (SASAC) may also impose re-strictions on state-owned enterprises as it isin charge of supervising and managingtheir overseas investments4. SASAC requiresthat state-owned enterprises do not invest innon-principal industries overseas unlessnecessary for any specific reason. In thatspecific scenario, SASAC’s approval must beobtained prior to making such investment5.The China Securities RegulatoryCommission (CSRC) will also have to ap-prove transactions involving companieswhich are listed on one of the two Chinesestock exchanges. Finally, it shall be noted that the abovesummary does not apply to financial institu-tions, which are subject to specific rules. Itshall also be noted that the SpecialAdministrative Region of Macao and HongKong and the autonomous region of Taiwanare also subject to different rules.

OUTBOUND INVESTMENT: A FOUNTAIN OF OPPORTUNITIES FORAMERICAN LAWYERS As it can be understood from all thedifferent legal requirements established bythe Chinese and American authorities,there are currently plenty of opportunities,if not a necessity, for further collaborationbetween Chinese and American lawyers inorder to better serve client’s interest incross-border transactions and more specifi-cally to help Chinese clients to successfullyinvest in the “American Dream.”

George Wang is a partner,at Duan & Duan LawFirm. Mr. Wang’s practiceincludes corporate, mergers& acquisitions, investment,capital market, financing ,dispute resolution, etc. Hefrequently advises on cross-

border transactions involving China and theUS. He has advised on matters relating to bothinbound and outbound investment and M&Atransactions. He also advises companies on theirlisting in China and the US. He studied inChina and the UK and got a postgraduate de-gree at Oxford University in law. You may con-tact him by email at [email protected].

1 Ventures that investment subjects take to obtain overseas ownership, right to operation and manage-ment, and other related rights and interests by ways of input of money, securities, physical items, intel-lectual property or technology, equity interest, creditor’s right, and other assets, rights and interests, orprovision of guaranty

2 Define as: acts of establishing non-financial enterprises or obtaining the ownership, controlling right, business op-eration right, and other right of non-financial enterprises by way of new establishment and merger and acquisition,by enterprises legally established in China.

3 Article 9, Measures for the administration of Overseas Investment, Decree No.5 [2009] of the Ministryof Commerce

4 Central enterprises overseas investment supervision and management of the Interim Measures (SASACOrder No. 28)

5 Article 10 of Interim Measures for the Supervision and Management of Overseas Investment of CentralEnterprises, Order No.28 of the State-owned Assets Supervision and Administration Commission of theState Council

CHINA’S OVERSEASINVESTMENT1 9 9 0 - 2 0 0 9$ BILLIONS

‘90 “91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09

0.9 1

4 4.32 2 2.1 2.6 2.7 1.9 1

6.9

2.7 2.85.5

12.3

21.2

26.5

55.9 56.5

SOURCE: Ministry of CommerceChina Daily

INTRODUCTION The EU market is composed of morethan 500 million citizens. Do AmericanSMEs (small to medium-sized enterprises)fully exploit it? The answer is no, they donot, and one of the main reasons is that de-spite the existence and success of the EU’ssingle market, in reality only large multina-tional companies with armies of legal staffcan exploit it to its full potential. Barriers to cross-border trade remain inregards to America (and even among the EUMember States). And not only because of cus-tom duties, tax regulations, administrative re-quirements, difficulties in delivery, languageand culture, but also because of the existenceof 27 different contract laws regimes. The EU legislation contains a numberof common rules (Directive 2011/83/EUon consumer rights, Directive 2000/31/ECon certain legal aspects of information soci-ety services, in particular electronic com-merce, in the internal market, Directive2011/7/EU on combating late payment incommercial transactions, Directive93/13/EEC on unfair terms in consumercontracts, etc.), but they do not cover allareas of contract law. The current legal framework in the EUis characterized by differences within thenational legal systems and contract laws ofthe 27 Member States.

As a consequence, companies operat-ing in the EU are obliged to use a wide vari-ety of contracts governed by differentnational contract laws when operating inEurope’s Single Market. Many of these re-sult from divergent sales laws between the27-Member States. This makes sellingabroad complicated and costly, especiallyfor SMEs which cannot afford to tradeacross the EU borders, because sellingabroad means adapting sales contracts to upto 27 different legal systems. This cost sup-poses an average of $12,000 (U.S. Dollars)for each additional country (apart from theextra expenses for translation to the locallanguage, adapting websites when firmswant to sell online, etc.). There is no doubt that contracts are es-sential for running businesses and selling toconsumers and, therefore, the current 27different sets of national rules lead to addi-tional transaction costs, a lack of legal cer-tainty for businesses and a lack ofconfidence for the consumers. This acts asan obstacle for both consumers and busi-nesses to shopping and trading across EUborders. SMEs are particularly affected byhigher transaction costs and most of thetimes they renounce to do it. As a result, 55% of the EU companiesrefuse cross-border transactions due to thelegal-contractual obstacles. At the same

time, only 7% of EU consumers buy onlinein another EU Member State, whereas 33%do it in their own country. This situationcontrasts with the United States’ internalmarket, where a company in Detroit caneasily sell its products to a consumer in L.A. The potential of the internal EU mar-ket and cross-border electronic trade is stillunder-exploited and, on most occasions, itis being exploited by large companies ofthird countries (mostly from USA). Traderswho are dissuaded from cross-border trans-actions due to contract-law obstacles forgoat least €26 billion in intra-EU trade everyyear. Meanwhile, 500 million consumers inEurope lose out on greater choice andlower prices because fewer companies makecross-border offers, particularly in smallernational markets.

FUTURE NEW REGIME: OPTIONALCOMMON EUROPEAN SALES LAW The European Commission has com-mitted to resolve this problem. On October11th 2011, an optional Common EuropeanSales Law (CESL) was proposed, offeringa single set of rules for cross-border contractsin all 27 EU countries. The Commission’sproposal now needs approval from the EUMember States and the EuropeanParliament, that will pass the CESL at theend of 2012 or the beginning of 2013.

EUROPEAN SALES LAW PROPOSAL

AN OPPORTUNITYFOR U.S. COMPANIES

Álvaro Marco Adarve Abogados, S.L.P.

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The CESL should help to break downthe current barriers, and give consumersmore choice and a higher level of protec-tion. Why? Because companies will have aunique legal framework to rule their rela-tions all around the EU, providing themwith an easier and cheaper instrument tosell their products. Consumers will also havethe option of choosing a user-friendlyEuropean contract with a high level of pro-tection, as long as the traders offer theirproducts on the basis of the CESL.

The CESL will be applicable:• only if both parties voluntarily and ex-

pressly agree to it;• to cross-border contracts, where most of

the problems of additional transactioncosts and legal complexity arise;Member States will have the choice tomake the Common European Sales Lawapplicable to domestic contracts as well.

• to goods-selling contracts, digital-contentcontracts (such as music, movies, soft-ware or smart-phone applications) andservices contracts related to the latter.

• for both business-to-consumer andbusiness-to-business transactions if atleast one party is established in a EUMember State. Traders could use thesame set of contract terms when deal-ing with other traders both from insideand outside of the EU, giving the CESLan international dimension.

MAIN LEGAL ASPECTS OF THECOMMON EUROPEAN SALES LAW The Consumer European Sales Law(CESL) is an optional framework, chosen bythe parties. The consumer must explicitly de-clare whether he/she agrees to apply theCESL; this declaration is different from theone in which the consumer expresseshis/her agreement to conclude the contract. It is desirable that the Commission ap-proves some accompanying measures tomake the exercise of the free right tochoose this regime easier for SMEs and con-sumers, when they contact with big compa-nies – or companies in a dominant marketposition – in accordance with the voluntarynature of the CESL. In addition, the Common EuropeanSales Law is an alternative set of contract lawrules, identical in every Member State andapplicable throughout the EU, which willco-exist with the national legislation in forcein the field of contract law. As a regulation, the CommonEuropean Sales Law will be generally and di-rectly applicable. The CESL includes a com-prehensive (183 articles) but non-exhaustiveset of contract law rules, covering:

• the general principles of contract law;• the pre-contractual obligation (informa-

tion) and its content, rules on how agree-ments are concluded, consumers’ right towithdraw and the avoidance of contracts;

• rules to interpret the contract terms,rules on the content and effects of con-tracts as well as contract terms pre-sumed to be unfair; risk and delivery;payment conditions, etc.

• obligations and remedies of the partiesto a sales contract or a related servicescontract;

• supplementary common rules on dam-ages for loss and on interest for latepayment;

• restitution; and• prescription.

Certain aspects continue to be gov-erned by applicable national legislation, onthe basis of the Rome I Regulation.

ADVANTAGES FOR COMPANIES Providing one common (yet optional)regime of contract law that is identical forall 27-Member States so that traders nolonger need to wrestle with the uncertain-ties that arise from having to deal with mul-tiple national contract systems has provento be of benefit. According to a recent sur-vey (Eurobarometer), 73% of Europeancompanies stated that if able to choose, theywould use one single European contract lawfor all cross-border sales to consumers fromother EU countries. Ultimately, the primary benefit to smalland medium-sized companies is an easierroute to expansion into new markets and agreat reduction in transaction costs for thosecompanies that wish to trade cross-border.

ADVANTAGES FOR CONSUMERS A chief benefit to the consumer is awider choice of products at lower prices dueto the increased competition; all the whileproviding the same high level of consumerprotection in all Member States, trans-parency and a good knowledge of con-sumer rights in cross-border transactions. Once it comes into force, a fewEuropean model contracts will be drawnup, designed for specific trade areas orfields of activity, containing comprehensivestandard terms and conditions, and avail-able in all the official languages of the EU.These will be very useful tools for both busi-ness-to-business and business-to-consumerrelationships.

OPPORTUNITY FOR BUSINESSES…AND LAWYERS Some EU solicitors and in-house

lawyers are afraid of the possible decreaseof legal advice requests once the CESLcomes into force. But, on the contrary, legalwork will increase. On the one hand, in many places, ref-erences are made to domestic law (for exam-ple, legal personality, invalidity of a contractarising from lack of capacity, illegality, deter-mination of the language of the contract,matters of non-discrimination, representa-tion, plurality of debtors and creditors,change of parties including assignment, set-off and merger, property law including thetransfer of ownership, intellectual propertylaw and the law of torts) which will forcecompanies to seek legal advice regarding thelegislative framework and also increase thelegal uncertainty. In the beginning, the reg-ulation wouldn’t be applied uniformlythroughout the EU. National courts, whichare competent for the interpretation and ap-plication of the regulation, will offer variouspossible interpretations, and the legal incer-titude will increase. On the other hand, the CESL will en-tail a significant increase of cross-borderbusiness-to-business and business-to-con-sumer transactions, resulting in an increasein the advice needed in other areas of lawsuch as commercial, litigation, etc. Summarizing, we welcome theCommission’s initiative that will (1) promotethe cross-border trade for businesses (espe-cially SMEs), (2) encourage cross-borderpurchases by consumers, and (3) consolidatethe advantages of the internal EU market. The CESL will be a win-win solutionafter the current legal diversity for cross-bor-der trade in the EU single market. It willallow SMEs to expand their business to newmarkets in Europe and help consumers getbetter deals. We encourage U.S. companiesto benefit from it.

Álvaro Marco is a Partnerand the Director of theCorporate & BankingDepartment at AdarveAbogados, S.L.P. inMadrid, Spain. He advisesboth companies & individ-uals in all matters of corpo-

rate and financial operations, and commercialcontracts in general. His specialty is consul-tancy regarding corporate reorganizations, com-pany acquisitions, financing contracts andcommercial contract. He is also a Professor ofthe International Private Law Department ofthe UCLM University Law School. AdarveAbogados, S.L.P. is the Spanish member ofTELFA. www.adarve.com

With quick and easy electronic access to personal infor-mation at an employer’s fingertips, employers must learn how to

properly utilize such information in the hiring process. The failureto perform adequate background checks can open an employer up

to liability for claims based on negligent hiring. These claims canhave a negative impact in the marketplace, adversely affect employee

morale and be costly to defend. On the other hand, improper use ofbackground checks during employee screening can expose employers

to civil rights violations. These opposing pitfalls require em-ployers to perform a precarious balancing act and

to understand the liability to which they areexposed. Employers need to develop a

hiring process that effectively insulatesthem from both negligent hiring andcivil rights claims. Employers understand that they bear a

certain amount of liability for the actionsof their employees during working hours.What some fail to realize is that hiringsomeone who is incompetent or unfit forthe job can expose the employer to a neg-ligent hiring claim based on harm thatemployee causes even if the employee’sconduct is outside the employer’s control.For instance, one court found the ownerof an apartment complex liable for ahandyman’s assault on a tenant outside ofworking hours.1 Liability existed because

the owner failed to investigate the handy-man’s background, which included a laun-dry list of violent crimes.

The first step in avoiding liability fornegligent hiring is to understand the ele-ments of the claim. To prevail on a negli-

BACKGROUND CHECKS

Helping Employers Navigate the Battle Between Negligent Hiring and

Discriminatory Hiring Practices

John M. DiCaro and Michele MolinarioJones, Skelton & Hochuli, P.L.C.

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gent hiring claim, a plaintiff must show that(1) an employment relationship existed, (2)the employee was unfit for the position, (3)the employer knew or should have knownthe employee was unfit, (4) the employeenegligently or intentionally caused the in-jury, and (5) the employee’s conduct prox-imately caused the injury.2 Regarding thefirst element – employment relationship –employers cannot assume they can escapeliability through artful contract language orindependent contractor relationships.3

Courts will look at the totality of the factswhen determining employment statusrather than simply reviewing the languageof an employment contract. Second, whendetermining if an employee is unfit, courtswill examine both the nature of the positionand the risk the employee posed to thosewith whom he came in contact.4 A job appli-cant cannot be deemed unfit solely becauseof a criminal conviction.5 The third ele-ment – requiring an employer to haveknowledge that the employee was unfit –can be satisfied by showing that the em-ployer should have discovered informationshowing the employee was unfit.6 For in-stance, in the example of the apartmentowner above, the owner should have discov-ered the handyman’s history of violentcrimes by simply checking his referencesand performing a public informationsearch. Under the fourth element – the em-ployee’s tortious conduct – an employer isliable only for an employee’s torts.Therefore, if the employee’s actions werenot negligent or intentional, a claim fornegligent hiring would fail.7 Finally, on the issue of proximatecause, a plaintiff must show that the injurieswere caused by a characteristic of the em-ployee which the employer knew mightcause harm.8 While applicants with criminal recordsare legally barred from holding certain po-sitions, there are many others for whichthey still may be hired. To comply with fed-eral law, a policy cannot blindly reject can-didates based on their criminal record. Forinstance, as arrest and incarceration ratesfor African Americans and Hispanics ex-ceed those of the general population,9 a hir-ing policy that rejects any applicant with a

criminal history might have a disparate im-pact on those two protected classes andmight violate Title VII of the Civil Rights Actof 1964. Liability can be minimized by fullyresearching an employee’s criminal back-ground and applying that information tothe standards set forth under a properly de-veloped hiring policy. An employer shoulddevelop a hiring policy that relies on factorsthat is job related. In order to show that an

exclusion based on criminal history is a busi-ness necessity, the employer must take intoaccount (1) the nature and gravity of the of-fense, (2) the time that has passed since theconviction or completion of the sentenceand (3) the nature of the job sought.10 Evenif a hiring policy does have a disparate im-pact on a protected group, it might still belegally valid if the requirement is job relatedand consistent with business necessity.11

For instance, Company A, whichprocesses credit card information, screensfor applicants with convictions for creditcard fraud. However, Company B, whichprovides landscaping services, would have adifficult time arguing that credit fraud con-victions are related to a business necessity.Thus, while both of the processes forscreening applicants can result in a dis-parate impact on a protected group, onlyCompany A’s policy meets the business ne-

cessity requirement. An employer’s potential liability underthe doctrine of negligent hiring requiresemployers to weigh the potential disparateimpact of their hiring policies. This shouldnot discourage employers from investigatingthe backgrounds of their employees and im-plementing an appropriate applicationprocess. To the contrary, by implementing astrong background investigation policy andusing that policy in conjunction with a care-fully tailored applicant screening process,employers can protect themselves from neg-ligent hiring claims while still meeting thestandards set forth under Title VII.

BEST PRACTICES TIPS:• Conduct a thorough background

check by accessing public record sitesthat would reveal an applicant’s crimi-nal background.

• Develop narrowly tailored written poli-cies and procedures for screening ap-plicants and employees for criminalconduct.

• Eliminate policies or practices withblanket exclusions of applicants basedon any criminal record.

• When asking questions about criminalrecords, limit inquires to those recordsrelated to the job in question , consis-tent with business necessity.

• Training. Training. And, more training.

Mr. DiCaro joined Jones,Skelton & Hochuli in1997, and has been aPartner since 2003. He con-centrates his practice ongovernmental liability, per-sonal injury, civil rights,and insurance defense. Mr.

DiCaro has tried cases for the City of Phoenix,Mesa, several insurance carriers and a numberof private clients.

Ms. Molinario joined Jones,Skelton & Hochuli as anAssociate in 2008, and hasbeen a trial attorney since2000. She has tried approx-imately 26 state and federaljury and bench trials andadministrative law hear-

ings. Ms. Molinario concentrates her civil liti-gation practice on governmental entity defensewith an emphasis on labor/employment dis-putes and civil rights matters.

1 Ponticas v. K.M.S. Invs., 331 N. W.2d 907 (Minn. 1983).2 Rodolfo A. Camacho, “How To Avoid Negligent Hiring Litigation,” 14 Whittier L. Rev. 787, 794 (1993).3 Santiago v. Phoenix Newspapers, 164 Ariz. 505, 508, 794 P.2d 138, 141 (1990).4 Ponticas v. K.M.S. Invs., 331 N. W.2d 907, 912 (Minn. 1983).5 See Green v. Missouri P.R. Co., 549 F.2d 1158 (8th Cir. 1977).6 Stricklin v. Parsons Stockyard Co., 192 Kan. 360, 388 P.2d 824 (1964).7 Di Cosala v. Kay, 91 N.J. 159, 173, 450 A.2d 508, 516 (N.J. 1982).8 Ponticas at 915.9 EEOC Enforcement Guidance, No. 915.002, at FN 10, dated 4/25/2012.10 Green v. Missouri P. R. Co., 549 F.2d 1158, 1160 (8th Cir. 1977).11 EEOC Enforcement Guidance, 915.002 (April 25, 2012).

To comply with federal

law, a policy cannot

blindly reject

candidates based on

their criminal record.

The plot is a familiar one tomovie fans – the heart-of-gold em-

ployee stumbles upon informationthat her employer is taking danger-ous shortcuts and putting lives at risk.She tries to alert her supervisor and

manager, but her livelihood andher very life are threatened by

the powerful and heartless ex-ecutives. Although she wouldlike to forget what she knowsand resume her happy life,her conscience intervenes.She outsmarts the evil exec-

utives, blows

the whistle, and saves the day. The movie ends with the heroine bask-ing in the adoration of those who were spared as a result of hercourageous actions. But when real life intervenes in the Hollywoodfantasy, the circumstances are rarely as dire, the whistleblower israrely as heroic, and the ending is rarely as happy. In real life, thewhistleblower files a lawsuit seeking to recover money damages inpayment for her good works. Whistleblowing has become ingrained in American culture asa result of the glorification of whistleblowers in the media and thecurrent anti-business sentiment in this country. Virtually every statein the union has adopted some form of whistleblower protection,and many of these statutes have been enacted within the last tenyears. Individual state whistleblower statutes vary wildly in their ap-plication and scope, and it is important for employers and their rep-resentatives – everyone from legal counsel to first-line managers –

to understand the potential exposure in their jurisdiction(s).What type of employer is covered by the statute? What exactly

qualifies as whistleblowing? Are there administrative proce-dures for whistleblower complaints and, if so, are they

binding? How long does an employee have to bring awhistleblower claim? What types of damages are avail-

able to whistleblowers? As with all other areas of employment related

litigation, forewarned is forearmed when dealingwith potential whistleblower claims. Here are a

few questions that every employer should beable to answer about the whistleblowerstatute in its jurisdiction(s):

1. WHAT TYPE OF EMPLOYER IS COVERED BY THE STATUTE?

Of the fifty states and the District ofColumbia, thirty-three states have enactedwhistleblower provisions that protect onlypublic and/or state employees. Somestatutes apply strictly to employees of thestate, while others extend to employees ofmunicipalities and political subdivisions.The remaining seventeen states haveadopted laws that protect both public andprivate employees. For those states that ex-tend protection to private employees, sev-

eral states exclude very small employers(for example, an employer with less

than ten employees), requiring that aprivate employer have a minimum

number of employees to be cov-ered by the statute. Only one

state has no formal whistle-blower statute in place.

Robyn Farrell McGrath Sweeney & Sheehan, P.C.

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2. DOES THE SPEECH OR ACTIONQUALIFY AS WHISTLEBLOWING? Not every disgruntled employee whodisagrees with a supervisor or employer is awhistleblower. Although the statutes varysomewhat in how they define whistleblow-ing, there is general agreement that the sub-ject of the whistleblowing has to be aviolation of a law, rule or regulation that isof concern to the public. Disputes that arepersonal to the employee, such as disputesover the terms and conditions of employ-ment, do not qualify as whistleblowing.Moreover, if the employee’s position re-quires that he report misconduct of others,those reports may not constitute whistle-blowing in some states. Generally, whistleblowers must show(1) that he or she reasonably believed thathis or her employer’s conduct was violatingeither a law or a rule or regulation promul-gated pursuant to law; (2) that he or sheperformed a whistleblowing activity; (3)that an adverse employment action wastaken against him or her; and (4) that thereexists a causal connection between thewhistleblowing activity and the adverse ac-tion. Many states utilize the familiarMcDonnell-Douglas burden-shifting frame-work, requiring the plaintiff to make aprima facie case before shifting the burdento the employer to show a legitimate, non-retaliatory reason for the adverse action. Ifthe employer can do so, the burden shiftsback to the employee to show that the em-ployer’s reason is pretextual.

3. MUST THE PLAINTIFF EXHAUSTADMINISTRATIVE REMEDIES OROTHER PREREQUISITES BEFORE FILING SUIT? Many states provide no administrativeframework within which to file a whistle-blower claim and instead provide for a pri-vate right of action for whistleblowers in thestate court system. Some of these states, de-spite the lack of any administrative process,do impose certain prerequisites uponwhistleblower plaintiffs. For example, a fewstates require that the putative whistle-blower provide the information to his su-pervisor, or at least make a good faith effortto do so. Other states require a written re-port by the whistleblower to either a super-visor or a specified officer within agovernment agency, such as the AttorneyGeneral. Those states that do have theseprerequisites often impose a time limitationwithin which the whistleblower must reportthe allegedly wrongful conduct. Another possible prerequisite exists inthose states that require whistleblowers tofollow the provisions of any collective bar-

gaining agreement or employment contractthat may govern the employment relation-ship. Frequently, those agreements will spec-ify a grievance or similar procedure thatprovides an exclusive remedy for all em-ployee complaints, including whistleblowercomplaints. In contrast, several states do require ex-haustion of administrative remedies beforea whistleblower may file a civil action. A pre-cious few states provide only an administra-tive remedy and do not authorize awhistleblower to pursue damages in thestate court system. The administrativescheme stands as the only avenue throughwhich the whistleblower may seek compen-sation. For those states that require admin-istrative exhaustion before filing a civilaction, there is typically a limitations periodfor filing with the administrative body fromthe alleged act of retaliation and a limita-tions period for filing a civil action that be-gins to run from the conclusion of theadministrative process. Somewhere between the states thatallow the whistleblowers to go immediatelyto court and the states that require exhaus-tion of administrative remedies are a hand-ful of states that employ a hybrid approach,providing an administrative avenue for re-dress of whistleblower complaints which theemployee may, or may not, utilize beforegoing to court. In addition to providing atime limit within which the whistleblowermust file with the administrative tribunal,these jurisdictions usually provide a statuteof limitations that begins to run at the con-clusion of the administrative process.

4. WHAT IS THE STATUTE OF LIMITATIONS? The statute of limitations applicable towhistleblower claims varies widely from stateto state, from ten days to three years.However, despite these broad differences, asignificant majority of jurisdictions have astatute of limitations of 180 days or less forwhistleblower claims. While ten days is theshortest limitations period, there are severalstates with 30, 90 and 180 day periods. As ageneral rule, the statute begins to run at thetime of the allegedly retaliatory action bythe employer and not at the time of the al-leged whistleblowing activity. There are,however, a small handful of states that re-quire a complaint to be made within twoyears of the whistleblowing activity, as op-posed to two years from the date of the re-taliatory action. It is much more commonfor the statute to establish a statute of limi-tations that begins to run with the first actof alleged retaliation.

5. WHAT DAMAGES ARE AVAILABLE? There are two schools of thought re-garding damages available to whistleblow-ers. The first school believes that damagesshould be awarded to make the whistle-blower whole and limit damages to actuallost wages, lost benefits, and equitable reliefsuch as reinstatement and/or restoration ofseniority. The states subscribing to thisschool believe that the whistleblower shouldnot suffer a loss because of his actions andshould be returned to his pre-whistleblow-ing status. In contrast, the second school be-lieves that, not only should thewhistleblower be made whole, but thereshould be a windfall to the whistleblower asa reward for revealing wrongful conductand a punishment to the employer for theretaliation against the whistleblower.Therefore, the second school authorizes thefull panoply of tort damages, includingcompensatory damages, front and back pay,fringe benefits, attorneys’ fees and costs,and some type of punitive or treble dam-ages. These states reward whistleblowers fortaking the risk of revealing wrongful con-duct in the workplace and punish employ-ers who retaliate against these employees.In addition to damages recoverable by thewhistleblower, some statutes authorize im-position of a civil or criminal fine againstthe employer, payable to the state, for viola-tion of the whistleblower protection statute.Typically, these statutes provide for a finethat is imposed for each violation. An employer’s awareness of the contoursof the whistleblower protection statute in itsjurisdiction(s) will assist the employer in man-aging employees who seek to cast themselvesas whistleblowers. If an employer can accu-rately assess the claim, the response to theemployee can either avoid or advance theemployer’s position in subsequent litigation.

Robyn Farrell McGrath is apartner in the EmploymentPractices Group at Sweeney& Sheehan, P.C. inPhiladelphia. She representsboth public and private em-ployers in a wide variety ofemployment and civil rights

litigation at the administrative, trial, and ap-pellate court levels. In addition to her litigationpractice, Ms. McGrath counsels clients on work-place issues and is a frequent lecturer to insurersand employers on issues in employment andcivil rights law. She can be reached at [email protected]

After termination of an employmentrelationship, the former employee some-times makes a claim for discrimination orretaliation. While investigating the claim,the employer may discover the employeeengaged in criminal or illegal activity, orother illicit misconduct. This informationmay surface through interviews offormer co-workers, investi-gation of criminal courtdockets, or formal dis-covery. However the in-formation isdiscovered, the em-ployer will try to usethe information tolimit the claim fordamages. Courts havelong recognizedthe doctrine of“after-acquired”evidence ins i t u a t i o n swhere themisconducto c c u r r e dwhile the em-ployment rela-tionship wasstill intact. Thisarticle addresseswhat happenswhen the formeremployee’s misconductoccurs after termination. In McKennon v.Nashville Banner PublishingCo., 513 U.S. 352 (1995),an Age Discrimination inEmployment Act (ADEA)case, the United StatesSupreme Court confirmedan employer who discoversadditional grounds for dis-charging a terminated em-ployee may rely on newlyfound, or after-acquired, evi-

dence to minimizethe claim for back-pay and frontpay.

The Court con-cluded the misconduct

could not be a totalbar to recov-

ery because the evidence was not known atthe time of the discharge. Therefore, itcould not be deemed the reason for the dis-charge. However, the Court acknowledgedthe employee’s misconduct must be consid-ered in determining the appropriate reme-dial relief and ultimately held neitherreinstatement nor frontpay is appropriate.The Court declined to preclude backpay asa remedy altogether, but concluded backpayshould be subject to a shortened calculation,from the date of the actual termination tothe date the after-acquired evidence was dis-covered. To take advantage of these limita-tions, the employer must establish themisconduct rose to a level that would have

supported termination if the employerhad found out about it. WhileMcKennon was an ADEA case, theCourt acknowledged its reasoning

would apply to Title VII cases, as thelaws share the goal of eliminatingdiscriminatory acts in the work-place, and the “substantive, an-tidiscrimination provisions of theADEA are modeled upon the pro-hibitions of Title VII.”

In McKennon, and in most ofthe cases which followed, the em-ployee’s conduct occurred duringthe employment relationship. Whathappens when the employee’s mis-

conduct occurs after the termination? Federal Courts have ruled, under cer-tain circumstances, employers may limita former employee’s claim for damageswhere the former employee engages inbehavior after the termination if the be-havior would have resulted in terminationif it occurred while the employee was stillemployed. The Eighth Circuit Court ofAppeals first considered the issue in thecase of Sellers v. Mineta, 358 F.3d 1058 (8thCir. Mo. 2004). In this case, Wendi Sellers,a former Air Traffic Controller with theFAA, sued the Secretary of Transportationpursuant to Title VII of the Civil RightsAct of 1964, 42 U.S.C. § 2000e, et seq.

Post-TerminationMisconduct of Claimant

POWERFUL EVIDENCE FOR EMPLOYER TO LIMIT DAMAGES

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(2000), alleging sex discrimination and re-taliation. The jury returned a verdict in favorof Sellers, and she moved for reinstatementor frontpay. The district court denied rein-statement but awarded frontpay. The gov-ernment appealed on the basis that afterSellers’ termination from the FAA, she wasterminated from a subsequent position at abank for attempting to process an unautho-rized loan application. Sellers admitted tothe improper conduct, explaining she com-pleted the application to obtain her spouse’sex-wife’s credit history. The government ar-gued the district court abused its discretionin awarding Sellers frontpay because herpost-termination conduct – falsification of aloan application for personal reasons – ren-dered her unsuitable for reinstatement(thereby precluding frontpay). The Court in Sellers cited McKennon ashaving significant precedential value, as theSupreme Court in McKennon acknowledgedan employee’s misconduct is relevant to thequestion of remedies. The Sellers Courtnoted as particularly germane the SupremeCourt’s holding that where, after termina-tion, it is discovered the employee engagedin wrongdoing, neither reinstatement norfrontpay is appropriate. The McKennonCourt noted it would be both “inequitableand pointless to order the reinstatement ofsomeone the employer would have termi-nated, and will terminate, in any event andupon lawful grounds.” McKennon, at 361-62. The Sellers Court acknowledged fewcourts had addressed whether theMcKennon rationale extends to situations ofemployee misconduct occurring after termi-nation. The Tenth Circuit confronted theissue in Medlock v. Ortho Biotech, Inc., 164F.3d 545 (10th Cir. 1999), where former em-ployee Medlock was allegedly terminated inretaliation for pursuing a claim of race-based discrimination. At his unemploymentbenefits compensation hearing, Medlockverbally abused defendant’s counsel. TheTenth Circuit recognized post-terminationconduct could, arguably, limit a plaintiff’sremedies, but declined to extend the logicof McKennon to Medlock, as the misconductoccurred as a direct result of the retaliatorydiscrimination. (See also, McKenna v. City ofPhiladelphia, 636 F. Supp. 2d 446 (E.D. Pa.2009), wherein the Court held to cut offTitle VII equitable damages, a plaintiff’spost-termination wrongdoing must not beattributable to the defendant’s conduct). The Court in Sellers agreed with theTenth Circuit’s reasoning in Medlock, despiteits ultimate ruling, and held the logic ofMcKennon is applicable in the context of aTitle VII plaintiff’s post-termination con-duct. Under appropriate circumstances, the

conduct may limit the remedial relief avail-able to the plaintiff. The Court theorized adischarged employee may be convicted of acrime unrelated to his or her former posi-tion as a result of post-termination miscon-duct. In such a situation, the incarcerationwould render the former employee ineligi-ble for reinstatement, and therefore, renderan award of frontpay inequitable. A plain-tiff’s post-termination conduct is relevant indetermining whether a frontpay award isavailable, and if so, in determining the ex-tent of the award. The Sellers Court expanded on the em-ployer’s burden in raising the defense.McKennon held the employer bears the bur-den of establishing, by a preponderance ofthe evidence, the wrongdoing was “of suchseverity that the employee in fact would havebeen terminated on those grounds alone.”After Sellers, the employer must present evi-dence of actual employment practices toprove this point, and may not rely on stan-dards articulated in employment manuals. The Sellers Court did not specifically ad-dress backpay limitations where post-termi-nation misconduct is at issue, presumablybecause the backpay award was not ap-pealed in that case. However, the Courtclearly extended the reasoning and holdingof McKennon to instances involving post-ter-mination misconduct. Therefore, it logicallyfollows McKennon’s holding limiting back-pay would also apply in situations involvingpost-termination misconduct, and in fact,Courts have construed the Sellers opinionas establishing this concept. See McKenna,636 F. Supp. 2d 446, 460, footnote 4.Therefore, an employer may successfullyargue backpay calculations should be lim-ited to the period of time between the dateof the allegedly unlawful termination andthe date the evidence of post-terminationmisconduct was discovered. If a plaintiff is incarcerated after termi-nation, the incarceration may be used to de-fend damages from a different angle. It iswell established that a plaintiff must attemptto mitigate his or her damages to recoverbackpay or frontpay. See, inter alia, Ellerbrookv. City of Lubbock, 465 Fed. Appx. 324 (5thCir. Tex. 2012); Giles v. GE, 245 F.3d 474(5th Cir. Tex. 2001). An employer can winthe mitigation issue by showing that the em-ployee has withdrawn from the employmentmarket. See McKenna. If a plaintiff is incar-cerated, an employer may assert plaintifffailed to use “reasonable diligence” to ob-tain “substantially equivalent” employmentduring the period of time he or she was in-carcerated, and has “withdrawn from thelabor market.” However, if the incarcerationis causally linked to the alleged discrimina-

tion, these defenses will not apply. SeeMedlock, McKenna. If this argument is made,it logically opens the door for the employerto investigate the plaintiff’s past behavior toascertain whether he or she engaged in in-stances of similar behavior pre-dating theemployment or the alleged discriminatoryact. Obviously the information can andshould be sought through formal discovery,but employers also may independently dis-cover this information through online in-quiries to local law enforcement agencies orpublic records requests. Once evidence of an employee’s mis-conduct is obtained, an employer shouldseek to limit damages. An employer maymove for partial summary judgment askingthe Court to limit Plaintiff’s damages forbackpay or to dismiss Plaintiff’s claim for re-instatement or frontpay altogether. Anotheroption for an employer is to seek a stipula-tion with plaintiff’s counsel regarding recov-erable damages. Depending on the natureof the misconduct, a plaintiff may be moti-vated to waive a claim for certain damagesor concede to reduced damages in ex-change for keeping potentially damaging ev-idence of misconduct from reaching a jury. Regardless of whether an employersuspects a plaintiff has engaged in miscon-duct or criminal behavior since his or hertermination, it should promptly investigatethe issue as a matter of course in each case.The exercise is simple and discovering post-termination misconduct can yield an effec-tive damages defense useful both at trialand in facilitating reasonable settlementnegotiations.

Christopher Barkas is ashareholder with CarrAllison in Tallahassee,Florida. He started his careeras a trial attorney in Miamias a prosecutor, and defendsemployment, professional lia-bility, transportation, and re-

tail cases. He graduated from Florida StateUniversity and Cumberland School of Law, andpractices in Florida State and Federal Courts.

Elizabeth “Betsy” Burgess isan associate at Carr Allisonin Tallahassee, Florida. Sheprimarily defends employ-ment, personal injury,wrongful death, and home-owners’ association cases.She graduated from Auburn

University and Florida State University College ofLaw, and is licensed to practice in all State andFederal Courts in Florida.

Three and a half years ago, Congressexpanded the coverage of the Americanswith Disabilities Act, which prohibits em-ployers from discriminating against quali-fied individuals with disabilities and requiresemployers to make reasonable accommoda-tion to the known disabilities of such indi-viduals. The Americans with Disabilities ActAmendments Act (“ADAAA”) became effec-tive January 1, 2009. Explaining its purpose in the amend-ments, Congress expressed its belief that inthe years since adoption of the ADA, courtinterpretations deviated from the statute’sintent to expand opportunities for the dis-abled. Far too much time and energy wasdevoted by the courts and litigants to argu-ing whether an individual was “disabled”rather than focusing on the employer’s ob-ligations, according to legislators. Claims arising under the amendedstatute have now begun to make their waythrough the courts. And the lesson for em-ployers from an examination of these re-cent decisions is in fact old news. Whilemore employment plaintiffs are surviving

summary judgment motions based on argu-ments that they are not “disabled,” defen-dant employers continue to prevail whenthey can establish that their actions weremotivated not by improper discriminationbut by a legitimate nondiscriminatory rea-son such as poor performance. The chinks in the armor of most ADAplaintiffs’ cases are in two places: establish-ing all elements of the prima facie case andmeeting the ultimate burden to prove dis-criminatory motive. The amendments tothe ADA have the affect of making it easierfor a plaintiff to establish a prima facie case,and thus have applied a patch to one of thetraditional chinks, so to speak. But the bal-ance of the McDonnell Douglas burden-shifting framework remains, and where theemployer has strong evidence that a legiti-mate, non-discriminatory reason motivatedany adverse employment action, the em-ployer should still prevail. This second stepin the McDonnell Douglas analysis is and al-ways has been the element of the test whichis more probative of discrimination vel non,and this element remains unchanged. With

the amendments, as they are being appliedby the courts, Congress appears to have suc-ceeded in shifting the focus of the inquiryin disability discrimination cases to the em-ployer’s conduct rather than the nature ofthe employee’s physical condition.

SPECIFIC STATUTORY CHANGES To shift the focus from coverage to em-ployer conduct, Congress made a numberof changes to the statute, including the fol-lowing major revisions, which have been ap-plied by courts in recent months forplaintiff-friendly findings:

Mandate To Interpret Broadly The amendedstatute retains the same language definingwho qualifies as an individual with a disabil-ity, but expressly changes the way such lan-guage should be interpreted. The revisedAct requires that when interpreting itsterms with respect to whether or not an in-dividual suffers from a “disability” triggeringcoverage, “this Act shall be construed infavor of broad coverage of individuals ... tothe maximum extent permitted by the

Federal Decisions Afterthe Americans with

Disabilities ActAmendments

EVERYTHING OLDIS NEW AGAIN

Joan C. McKenna LeClairRyan

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terms of this Act.” 42 U.S.C. § 12102(4)(A). In Lohf v. Great Plains Manufacturing,Inc., No. 10-1177-RDR, 2012 WL 2568170(D. Kan., July 2, 2012), the district court re-fused to enter judgment for the employeron its argument that terminated employeeLohf was not “disabled” by his purporteddisability, a low back condition calledspondylolisthesis. Great Plains asserted thatLohf did not suffer from any “disability” cov-ered by the ADA because a 25 or 30-poundlifting restriction coupled with the need toalternate sitting and standing did not “sub-stantially limit a major life activity.” Thecourt responded that while under the pre-amended ADA it may have agreed with theemployer’s argument, in the wake of theADA amendments, Lohf had presentedenough evidence to survive summary judg-ment on whether he was substantially lim-ited in a major life activity. As the opinionstated “[t]he court is mindful that under theADAAA the inquiry into whether or not thelimitation is substantial is not meant to be‘extensive’ or demanding.” Id. at *6. The court found that Lohf presentedenough evidence to arguably make out aprima facie case of disability discrimination.But Lohf had been fired after shoving acoworker during an altercation in violationof the company’s zero tolerance policy for vi-olence. The company was able to show thatmanagers interpreted the policy to prohibitany threatening or hostile physical contactwith another worker and consistently firedemployees for any such physical contact.Although the employee established a primafacie case and the employer presented a non-discriminatory reason for its action, the courtfound that Lohf had presented no real evi-dence to undermine the veracity of the em-ployer’s reason for his termination, that is,his violation of the zero tolerance policy. Theplaintiff’s case ultimately failed.

Expanded List of Major Life Activities In thepre-amended Act, the ADA contained a rep-resentative list of major life activities inwhich a plaintiff could be substantially im-paired in order to qualify as having a disabil-ity under the Act, including caring foroneself, seeing, hearing, speaking, walking,breathing, performing manual tasks, andlearning. The amended statute expandedthe list of “major life activities” in which anindividual could be limited to include newactivities, such as: eating, sleeping, standing,lifting, bending, reading, concentrating,thinking and communicating. That list isaugmented by the EEOC’s final regulationsto include the additional life activities of sit-ting, reaching and interacting with others.The new statute also states that major life ac-

tivities include the operation of major bod-ily functions including the immune system,cell growth, digestive, neurological, respira-tory and endocrine functions. The addition of “lifting” as a major lifeactivity caused a plaintiff to survive summaryjudgment only to lose his case on groundsthat he was unable to perform an essentialjob function in Thomas v. Werthan Packaging,Inc., No. 3:10-cv-0876, 2011 WL 4915776(M.D. Tenn., Oct. 17, 2011). The employee,

who operated various paper cutting and la-beling machines for a manufacturer of largepaper pet food bags, suffered lower backproblems preventing him from lifting morethan 20 pounds. Although the court recog-nized that a number of pre-ADAAA cases hadheld that a 20-pound lifting restriction didnot substantially limit a major life activity, be-cause the revised statute now explicitly de-fined “lifting” as a major life activity, materialfacts existed regarding whether the employeewas “substantially limited,” precluding sum-mary judgment on that basis. The court didhowever enter judgment for the employer inlight of the employer’s evidence that the abil-ity to lift more than 20 pounds was an essen-tial function of the employee’s job.

Changed Definition of “Regarded As” Underthe pre-amendment statute as interpretedby the courts, an individual could not meetthe definition of being “regarded as” havinga disability unless they could demonstratethat their employer perceived them as hav-ing a substantial limitation to a major life ac-tivity. Under the amended statute, anindividual can show he or she was regardedas disabled if he or she was subject to an ad-verse action based on an impairment thatmerely is not transitory and minor.

A police cadet’s claim that he was “re-garded as” disabled by a police departmentthat fired him as unfit for duty despite a re-turn-to-work physician certification survivedsummary judgment where the employer ar-gued the cadet’s blood disorder was “transi-tory and minor.” In Lapier v. Prince George’sCounty Maryland, No. 10-cv-2851, 2012 WL1552780 (D. Md., April 27, 2012), the courtheld that Lapier succeeded in establishingthat his employer regarded him as disabledas the result of a blood disorder that period-ically caused his oxygen levels to plummet,resulting in fainting. Citing the language ofthe revised statute and noting that plaintiffsneed not show their employers perceivedthe impairment as substantially limiting, thecourt rejected the police department’s claimthat the plaintiff’s blood complaint was tran-sitory and minor. The evidence showed theplaintiff’s blood condition in fact waschronic and impacted several bodily func-tions and life activities. The court refused toenter judgment for the department onplaintiff’s “regarded as” claim.

CONCLUSION The good news is that while each of therevisions to the statute make it easier forplaintiffs to establish a prima facie case, thatdoesn’t necessarily translate into wins forthe employee at the end of the day. In eachof these illustrative decisions, interpretingthree different aspects of the revised statute,the employee was able to survive a legal at-tack to his prima facie case. These plaintiffssurvived a hurdle upon which plaintiffs his-torically have faltered. The tipping point ineach of these cases however remained in theproof regarding whether discriminationmotivated the termination. Put otherwise,the cases continue to turn on whether theemployer’s documentation and other proofdemonstrate a decision based upon legiti-mate non-discriminatory considerations. In that regard, what’s old is new again.

Joan C. McKenna is a part-ner at LeClairRyan inRichmond, Virginia, whereshe concentrates her practiceon employment law. She rep-resents employers rangingfrom small start-ups to na-tional companies in a wide

variety of employment-related matters rangingfrom administrative proceedings to federal liti-gation. She is a graduate of Brown Universityand the University of Virginia School of Law.Contact her at [email protected] (804) 783-7512.

Claims arising under the

amended statute have now

begun to make their way

through the courts.

And the lesson for employers

from an examination of

these recent decisions is

in fact old news.


In a recent Supreme Court decision,Astrue v. Capato,1 the Court ruled that chil-dren born after the death of a parent via invitro fertilization could be entitled to SocialSecurity benefits, but only if the deceased’sstate allowed it. Social Security is a federalprogram that gives benefits to survivors ofdeceased individuals who have paid into theprogram. Children eligible to obtain bene-fits are generally described as those who areunmarried and under the age of eighteen. Mr. Capato and his wife had his spermfrozen after he was diagnosed with cancer.His wife became pregnant naturally and thesperm was kept in a sperm bank. Capatolater died of his cancer and his wife was in-seminated nine months later, leading to thebirth of twins eighteen months afterCapato’s death. When Mrs. Capato appliedfor Social Security benefits for her twins,Social Security looked to state law for thedefinition of “child.” It was determined thatthe family was domiciled in Florida at thetime of Mr. Capato’s death and that Floridalaw governed whether or not posthumouschildren could obtain survivor benefits.

Florida law does not allow posthumouslyconceived children to qualify for inheri-tance if they were conceived after the deathof the decedent and therefore, Capato’schildren did not qualify for Social Securitybenefits. Social Security benefits to families ofdeceased employees were initially estab-lished to ensure that dependents were pro-tected from hardship after the death of thewage earner. The Court in Astrue admittedthat Social Security Administration defer-ence to state law was reasonable and thatthe same deference would create differentoutcomes in different states and in differentsituations. This ruling means that if you livein a state, such as Massachusetts, that recog-nizes “children” born after the death of aparent, they are eligible to collect SocialSecurity benefits. In other states, likeFlorida, that do not recognize posthumouschildren conceived after the death of a par-ent, such children would be ineligible forbenefits. The Court often shows deferenceto an agency’s statutory interpretation whenthat interpretation has been deemed rea-

sonable and when it is clear that Congressintended for the agency to make rules thatshould be followed as law. Therefore, theCourt found that the Social SecurityAdministration’s decision to look to statelaws for guidance was one reasonable inter-pretation of the statute and should not bedisturbed. Several questions about fairness arisefrom this case. Is it fair that children insome states get benefits, while children inother states are barred from collecting?While federalism is embedded into the fab-ric of American society, should a federalbenefit be unequally distributed basedupon a state’s definition of “child”? IfCongress decided to change the definitionof “child” for the purpose of making SocialSecurity benefits uniform, thereby includ-ing children conceived or implanted usingin vitro fertilization after the death of oneor both parents, the change could have un-intended consequences. Such changescould affect abortion rights, inheritancerights and “family law” as we know it.

In Vitro Fertilization:Legal Issues Abound

Lawrence R. Smith and Erin A. Johnson SmithAmundsen, LLC


ARE DIFFERENT RESULTS IN EACHSTATE ACCEPTABLE? One of the most important things toconsider moving forward from the Astruedecision is whether it is good for a federallaw to produce varying results based onwhich state’s definition of child applies. Tosay that you will receive a federal benefit ifyou live in Illinois but will be denied thatsame federal benefit if you live in Floridalooks fundamentally unfair. When it comesto federal programs, it seems that thereshould be one result: either all posthumouschildren receive benefits, or none do.Allowing for unequal results creates morecost to the system by forcing litigation to in-terpret ambiguous state statutes along withchallenging which state a person is domi-ciled in at the time of their death or whetherresidency at time of death is the appropriatetime frame for determining benefits. At afundamental level, it is natural to think thata federal agency issuing benefits would op-erate from one set of rules that offer pre-dictable outcomes in all states, no matterwhere a “father” or “mother” lives or dies.

STATE LAW ISSUES Worker’s Compensation is a state-runprogram that functions similarly to SocialSecurity. Each state has a unique set of lawsgoverning the program, which invariablyleads to different outcomes. Every state de-termines who can qualify as a beneficiaryunder Worker’s Compensation in the eventof an employee’s death and what benefitschildren of the deceased are allowed.Variance by state could complicate claims forcompanies that operate in multiple states. Illinois, Wisconsin, New York, andFlorida have different definitions of “child”,leading to varying outcomes for posthu-mous children attempting to collectWorker’s Compensation benefits. In Illinois,“child” is defined as “a child whom the de-ceased employee left surviving, including aposthumous child, a legally adopted child,a child whom the deceased employee waslegally obligated to support or a child towhom the deceased employee stood in locoparentis.”2 Illinois leaves open the possibilityfor implanted embryos to recover aWorker’s Compensation death benefit. Wisconsin takes the opposite view. TheWorker’s Compensation statute defines aWisconsin child as “a child by their marriageor domestic partnership…who is living atthe time of the death of the employee andwho is likewise wholly dependent on the de-ceased employee for support.”3 There is noroom in the statute to allow for posthumouschildren to collect money from their de-ceased parent. In fact, the statute describing

what a “dependent” is ensures no posthu-mous child can receive benefits because itstates that children must be living at the timeof their parent’s death.4 This means that, inWisconsin, a child born the day after thedeath of a parent would be unable to collectbenefits because they were not “living” at thetime of the parent’s death. The New York legislature has taken asimilar approach to Illinois by defining“child” to include posthumous children out-right, with no qualifiers. This would almostcertainly allow any child, even those bornyears after their parent’s death, to collectWorker’s Compensation benefits from thestate. State definitions are important becausethey supposedly reflect the views of local res-idents. There is the potential for both fed-eral law and state law to re-define theirdefinitions of “child” to reflect advance-ments in science and fertility. State defini-tions of “child” are most important becausethey are what federal agencies defer towhen benefits questions arise.

IMPACT ON EMPLOYERS AND INSURERS The Social Security Administration’sdeference to state law in order to decidewhich posthumous children get benefitscould potentially leave it open to equal pro-tection discrimination claims becauseposthumous children would be treated dif-ferently in each state than would other nat-ural children. An employee’s spouse couldpotentially say that an employer disagreedwith their lifestyle and maliciously trans-ferred the employee to a state that did notrecognize posthumous children leading theSocial Security Administration to unfairlydeny benefits. Employers that operate inmultiple states and have uniform benefitspolicies may subject employees and theirfamilies, in the rare event of a death on thejob, to uncertainty because of the govern-ment’s policy of state deference interactingwith company benefit programs. A survivingspouse could conceivably sue the employerfor a “discriminatory transfer.” For example, the child of a same sexcouple who’s DNA does not come from thedeceased employee may not be able to col-lect Social Security Insurance because thestate may not recognize posthumous chil-dren. Even if the state did recognize posthu-mous children, there could be challenges asto whether a posthumous child not sharingthe DNA of the deceased could still be con-sidered a descendent since the child hadnot yet been adopted by the deceased. An unreasonable result could also beimagined if a male employee is transferred

from Illinois to Florida, his wife becomes pregnant and then he dies. Though thechild was “contemplated” in Illinois, thechild would be barred from collectingSocial Security benefits in Florida. Had theemployee not been transferred before hisdeath, the posthumous child would havebeen entitled to benefits. A similarly unfairoutcome could be imagined if a womanlives in one state, moves with her husbandto another state and then is inseminated ina third state after the husband’s death. Thecourts would need to decide what criteriashould be used to determine where the de-ceased employee was domiciled or resided.

CONCLUSION The Social Security Administration’sdeference to state intestacy law is problem-atic. Congress needs to fix the uncertaintyby legislating and the Social SecurityAdministration needs to create its own setof guidelines detailing who is entitled toSocial Security benefits when the death of asperm donor or egg donor occurs beforethe birth of a child. Either all posthumouschildren should be afforded benefits ornone should because varying results are un-reasonable. Re-defining “child” will not beeasy and will have ramifications on inheri-tance, abortion rights, insurance issues andhealth law. In vitro fertilization is a scientificmarvel, but the legal questions that it hasraised, and will continue to raise in the fu-ture, are numerous and complicated.

1 631 F. 3d 626.2 820 ILCS 305/7 (2012).3 Wis. Stat. § 102.49(1) (2011).4 Wis. Stat. § 102.51(1) (2011).

Lawrence R. Smith, a found-ing partner of SmithAmundsen in Chicago,Illinois, focuses his practiceon risk management consult-ing, case monitoring, media-tion, arbitration, andimplementing successful trial

strategies. Having tried over 120 jury cases, hisexperience covers many areas including productliability, transportation, aviation, employment, in-surance services, and commercial litigation.

Erin A. Johnson is a sum-mer associate at SmithAmundsen, LLC and a3rd-year-law student at theUniversity of WisconsinLaw School.


PREFERENCES IN A NUTSHELL In an effort to achieve equal-ity of treatment among similarlysituated creditors, Section 547 ofthe Bankruptcy Code gives thedebtor or trustee authority toavoid transfers or payments madeby the debtor to a creditor within 90days before the debtor’s bankruptcy pe-tition date. Creditors who received com-paratively more than their brethren areforced to disgorge pre-petition payments in exchangefor a pro rata post-petition distribution to all creditors. The Bankruptcy Code defines a preference as:• Any transfer of the debtor’s property;

• To or for the benefit of a creditor;

• For or on account of an antecedent debtowed by the debtor before such transfer wasmade;

• Made while the debtor was insolvent;

• Made on or within 90 days before the dateof the filing of the petition; or between 90days and one year before the date of the filingof the petition, if such creditor at the time of suchtransfer was an insider;

• That enables such creditor to receive more than such cred-itor would receive if the case were a case under Chapter 7 ofthe Code; the transfer had not been made; and such creditor re-ceived payment of such debt to the extent provided by the provisionsof Title II of the code.

ONCE BITTEN, TWICE SHY

Restructuring Payment ofPast Due Accounts to

Avoid BankruptcyPreference Liability

Lisa P. Sumner and Jill C. Walters Poyner Spruill LLP

“Let me get this straight: They filed bankruptcy owing us $250,000, and now they’re suing to recover the pittance they paid us just before they

filed? Are you serious?!?!?” If you’ve ever found yourself yelling similar words to your attorney, or if you’re the attorney who held the phone at

arm’s length until your client calmed down, then you probably wondered what could be done differently next time to avoid costly preference

litigation. Given the rising number of bankruptcy filings since the “Great Recession” began and the attendant risk of preference claims, it’s more

important than ever to understand the effect that a debt restructuring agreement with a potential debtor may have on preference exposure.


A typical preference is a payment madeby an insolvent debtor to an unsecured cred-itor within the ninety-day preference period.The debtor or trustee ordinarily has twoyears after the petition date within which tofile the preference “adversary proceeding”in bankruptcy court. In theory, the risk ofpreference liability discourages creditorsfrom using aggressive collection tactics thatmight push their debtor into bankruptcy. One of the most common statutory af-firmative defenses to a preference action isthe “ordinary course of business” defense.To succeed, the defending creditor mustprove that: • the debt was incurred in the ordinary

course of business or financial affairs be-tween the creditor and the debtor, and

• the payments were made to the creditorin the ordinary course of business or fi-nancial affairs between the creditor andthe debtor (“subjective test”) or the pay-ments were made according to ordinarybusiness terms (“objective test”).

The ordinary course of business de-fense is intended to protect recurring, cus-tomary trade transactions, not payments insettlement of contractual claims. The de-fense essentially pardons those creditorswho work with a potential debtor in a waythat helps the debtor avoid the slide intobankruptcy.

THE CREDITOR’S DILEMMA Imagine that a customer is in financialdistress and has fallen behind on paymentsdue to a creditor, but the customer is notready to enter bankruptcy. The creditor maybe willing to continue providing goods orservices to the customer on credit terms, butonly if the customer enters an agreement topay the past due balance in full or in part.The agreement will provide the customerwith a longer term for repayment than orig-inally contracted and induce the creditor toforbear a collection action. The customermay be asked to sign a promissory notepayable to the creditor in the amount of thepast due balance, and the creditor may in-sist on receiving a lien or guarantee to se-cure payment. The question that arises in this situa-tion is whether any of the payments madeunder the debt restructuring agreementcould fall within the ordinary course of busi-ness defense and be insulated from prefer-ence recovery if the customer subsequentlyenters bankruptcy. In other words, is itworth the creditor’s effort to pursue and im-plement a debt restructuring agreement?

MAKING THE BEST OF A BAD SITUATION While preference plaintiffs often arguethat payments made on past due debt pur-suant to a debt restructuring agreement areper se outside of the ordinary course of busi-ness, many courts have disagreed. The deci-sions tend to be fact-specific, and theapplicability of the defense tends to turn onwhether the terms of the debt restructuringagreement are ordinary when compared tothe ways that other participants in thedebtor’s and creditor’s industry have dealtwith financial distress. The burden of prov-ing whether the terms are “ordinary” restswith the creditor. For example, the SecondCircuit remarked that “[i]t is not difficult toimagine circumstances where frequent debtrescheduling is ordinary and usual practicewithin an industry, and creditors operatingin such an environment should have thesame opportunity to assert the ordinarycourse of business exception.”1

The Bankruptcy Code provides credi-tors with considerable latitude to establishwhat terms or practices are ordinary in therelevant industry. In fact, one particularlybroadminded court stated that “[o]nly atransaction that is so unusual or uncommon‘as to render it an aberration in the relevantindustry,’ falls outside the broad range ofterms encompassed by the meaning of ‘or-dinary business terms.’”2

Case law reveals numerous factors thatcourts are likely to consider when evaluat-ing whether payments made under a debtrestructuring agreement fall within the or-dinary course of business defense. Creditorscan use these factors to guide their negotia-tions and draft debt restructuring terms totheir advantage. The factors include:• Commonality of restructuring agree-

ments in the particular industry.

• Typical terms of such agreements (includ-ing payment frequency, duration of re-payment period and interest rate).

• Whether credit enhancements such ascollateral or guarantees are commonlyprocured by creditors in the industry inconjunction with such agreements.

• Whether new debt instruments such as apromissory note were executed.

• Whether the parties actively negotiatedthe agreement.

• Whether the debtor provided value (e.g.,a restructuring fee) in consideration forthe agreement.

• Whether the creditor agreed to compro-mise the balance due in exchange for theagreement.

• Whether the creditor used unusual pres-sure or threats to compel the debtor toenter the agreement.

• Comparison to terms of restructuringagreements entered into by same creditorwith other customers.

In addition, it is important to reviewany recent case law on restructuring agree-ments in the state or states where the cus-tomer might file for bankruptcy. Eventhough preference actions are governed byfederal law, the prevailing attitude towardallowing payments under such agreementsto qualify for the ordinary course of busi-ness defense varies by jurisdiction.

CONCLUSION Accepting payments under a debt re-structuring agreement with a financially dis-tressed customer will leave an unsecuredcreditor with preference liability exposureif the customer subsequently enters bank-ruptcy. This risk can be mitigated, but nevereliminated, by carefully tailoring the agree-ment to track closely the applicable indus-try’s customary terms and practices to theextent they can be identified, documented,and later proven. Most creditors wouldrather be paid now and live with the risk ofpotential disgorgement later, but savvy cred-itors will explore the optimal terms of repay-ment to minimize preference risk andstructure their deals accordingly.

1 Lawson v. Ford Motor Co. (In re Roblin Industries,Inc.), 78 F.3d 30, 32 (2nd Cir. 1996).

2 Ganis Credit Corp. v. Anderson (In re Jan Weilert RV,Inc.), 315 F.3d 1192, 1198 (9th Cir. 2003) (inter-nal citations omitted).

Lisa P. Sumner is a partnerin the Raleigh office ofPoyner Spruill LLP andleads the firm’s Creditors’Rights and Bankruptcy prac-tice group. She concentrateson representing secured andunsecured creditors with

workouts of commercial debt, Chapter 11 bank-ruptcy claims, and related litigation. Lisa can bereached at [email protected].

Jill C. Walters is an associ-ate in the Raleigh office ofPoyner Spruill LLP, whereshe advises clients regardingconsumer and commercialcollection and bankruptcycases. Jill previously servedas a staff attorney for the

United States Bankruptcy Administrator in theEastern District of North Carolina. She can bereached at [email protected].


California Case Triggers Big Changes Across Nation As Diversity Grows

A Researched Analysis 3iCorp.com

The California WCAB En Banc decision that changesthe Workers’ Compensation playbook, while forcing

language service providers to play by the rules.

As the 2010 census has shown, cultureand language throughout the United Stateshas been shifting away from an English-onlyenvironment at an increasing pace. Nearly25 Million Americans are considered tohave Limited English Proficiency (LEP),meaning they speak English less than “VeryWell.” Among the most affected groups, theHispanic community has seen a 43% growthover the past decade1, accounting for 74%of total population growth within theUnited States2. This leaves over 8 MillionHispanics, many of whom actively partici-pate in the labor market, unable to commu-nicate effectively. An intensive analysis of the most recentreports released by the Bureau of LaborStatistics shows that many of the greatest in-

creases in these numbers and percentageshave occurred outside of the traditionalborder states of California, Arizona, Texasand Florida. With these factors in mind,Lawyers, Carriers and Claims Providersmust be on alert for how increasing diversitywill affect the Workers’ Compensation andLegal communities in the United States. On March 17, 2011, the CaliforniaWorker’s Compensation Appeals Board(WCAB) produced an En Banc decision onJose Guitron vs. Santa Fe Extruders and StateCompensation Insurance Fund (SCIF) (CaseNo.: ADJ 163338; LAO 0873468) that hascreated a tremendous amount of nervouschatter within the insurance community.This case amends the California LaborCode to state that, “… The employer is re-

quired to provide reasonably required inter-preter services during medical treatmentappointments for an injured worker who isunable to speak, understand, or communi-cate in English.”3 In short, the decisionstates that any treatment related to the in-dustrial injury may require the adjuster toprovide the injured worker with an inter-preter. With this in mind, it is important tonote that 3iCorp.com’s independent reviewof trends in literacy and language profi-ciency have shown that the Hispanic com-munity also composes the largest groupscoring in the lowest category on literacyproficiency tests.4 Should a claimant notfully be able to read and comprehend thematerials translated to their language,


Guitron points to the fact that these injuredworkers are deprived of necessary benefitsshould language services not be an integralpart of their care and recovery. A case such as this is “of broad concernto the Workers’ Compensation community,and that the issue has not, until now, beenaddressed in a precedential decision.”5

Language services had traditionally and in-formally been only used in the medical-legalarena. Adjusters have often authorized lan-guage services for litigated cases involvingLEP injured workers for hearings, deposi-tions and AME/QME medical-legal ap-pointments, but not for general, medicaltreatment appointments. The Guitron rulingnow requires adjusters to provide author-ized language services to injured workersthat state a need, or desire, for assistance inunderstanding the directions and instruc-tions from all medical treatment providers(including doctors, physical therapists, chi-ropractors, acupuncturists, etc.) and formal-izes “the rule (to) also include payment forinterpreting services at depositions, hear-ings, conferences and arbitration.”6

The Guitron decision sets an immenseprecedent for future rulings on similar is-sues. While currently confined toCalifornia, with the national shifting of de-mographics in all nationalities and cultures,similar case rulings are likely to spreadacross the United States. In reaching the decision in Guitron, theWCAB judges include language services asan amendment to Labor Code section 4600,which requires employers to provide thereasonable amount of medical treatment to“cure or relieve the injured worker from theeffects of their industrial injury.” The WCABjudges reasoned that an injured worker isonly able to recover from these injuries andillnesses if they can truly understand andfollow the directions given to them by theirmedical service providers. Employers, insurance carriers, claimsproviders and legal professionals have beeninitially concerned that this ruling seems touncontrollably increase the cost associatedwith the application of language services.However, Guitron addresses the fact that ifthe injured worker cannot understand the

instructions of medical professionals, theyare not likely to recover from their injury orillness, thus prolonging their duration ofthe claim by increasing litigation, lost timefrom work and other unnecessary increasesassociated with the cost of LEP claims. Upon further analysis, althoughGuitron mandates a much broader use oflanguage services than ever before, it alsoprovides a number of stringent require-ments for providers of language services.Giving stricter guidelines to protect carriersfrom abuse, the case points particularly tothose that are assigned by applicant’s coun-sel in litigated cases. Although conventional wisdom mighthave suggested that Guitron would providea surge of business for language servicesfirms, many Lienholders of language serv-ices are finding it increasingly difficult tohave their bills paid or adjudicated in theirfavor. At a recent Northern California indus-try symposium, one WCAB Judge opinedthat the early indications from rulings sinceGuitron have shown that Lienholders arehaving increasing difficulty collecting, nowhaving to prove all service-related detail intheir bills. Whereas prior bills and liens for lan-guage services may have been lacking in de-tail, Guitron sets forth the burden that,among other things, language servicesproviders must prove:

1. that the services provided were reason-ably required

2. that the services were actually provided3. that the interpreter was qualified to

provide the services4. that the fees charged were reasonable

(further broken down by element) a. Hourly rate stated b. Amount of time spent interpreting c. Travel charges clearly listed and sub-

stantiated d. Any other additional charges listed

and substantiated

While the decision establishes the re-quirement for Employers, Carriers, andClaims Administrators to provide languageservices as part of medical treatment, it is,

unfortunately, mostly silent on the items ofwhat constitutes “reasonableness” in provi-sion of service or to give a true “market rate”value. However, the ruling does voice astrong preference towards “preauthoriza-tion” and “pre-negotiation” of both terms. In response to the confusion, there is amovement afoot within California to consol-idate and define all of the payment issuesrelated to language services, as well as torapidly adjudicate the overwhelming bur-den of language service liens that are cur-rently clogging many WCAB regionaloffices. This proposition has caused a riftbetween many occupational language serv-ice providers and the insurance providerfirms with contention as to what constitutesfair payment practices. In response and preparation for theimpending revisions to Workers’Compensation guidelines, Employers,Carriers, and Claims Providers should estab-lish a working relationship with reliable andtrustworthy language services firms, estab-lishing agreements for reimbursementrates, as well as authorization protocols. Proactive carriers who recognize thesignificant impact of this case will have anadvantage when the effects of this decision,and others like it to come, weave their wayinto future underwriting decisions. Legalprofessionals must have a full understand-ing of their LEP claimant’s rights to lan-guage services to ensure that the claimantis receiving adequate care and instructionfrom their medical providers to expeditethe recovery process.

A Certified Minority Business Enterprise,3iCorp.com® makes going global easier by inte-grating the power of more than two decades oflanguage, cultural, and transportation expert-ise. We are passionate about facilitating trueunderstanding by removing language “barri-ers” to create trust and loyalty among your lim-ited English speaking audience. Increase thecomprehension of your message while decreasingcosts – 3iCorp makes it easy. To learn more visitwww.3iCorp.com.

3iCorp.com950 Boardwalk, Suite 100San Marcos, CA 92078

CONTACT: Wendy LanphereVice President of National AccountsOffice/Cell: (615) 483-3521

3iCorp and 3i Interpreting are trademarks orregistered trademarks of 3iCorp.com.

1 United States Census Bureau, The Hispanic Population 2010, May 2011, http://www.census.gov/prod/cen2010/briefs/c2010br-04.pdf (January 31, 2012).

2 Advertising Age, Five Surprising Facts Marketers Should Know about the 2010 Census Stats, April 2011http://adage.com/article/news/census-2010-surprising-facts-marketers/149692/ (January 31, 2012).

3 WorkersCompensation.com, California’s En Banc Division: Guitron V. Santa Fe Extruders And SCIF,March 2011, http://www.workerscompensation.com/compnewsnetwork/news/ca-en-banc-guitron-santa-fe-scif.html, August 30, 2011. P. 13

4 National Center for Education Statistics. U.S. Department of Education. Adult literacy In America. April2002.

5 Jose Guitron vs. Santa Fe Extruders; and State Compensation Insurance Fund, (Calif. WCAB 2011.). p. 6.6 Jose Guitron vs. Santa Fe Extruders; and State Compensation Insurance Fund, (Calif. WCAB 2011.). p. 8.


Nicholas Biery, Ph.D., P.E. S-E-A, Ltd.

THE MATERIAL IMPACT OF MATERIALS


and you might get a discussion of commonantioxidants and anti-UV agents in plasticfibers. But such obscure knowledge can beof great use when it comes to understand-ing the cause of a failure. Materials science can be summarizedin many ways, but one (relatively) simpledefinition is that it is the study of the rela-tionship between the structure and compo-sition of materials and the resultingproperties and performance. It also encom-passes the methods used to impart or mod-ify the structure and thus the properties, theart and science of turning raw ingredientsinto the useful metals, plastics, and otherengineering materials that are usedthroughout our modern world. It is thestudy of how and why things are put to-gether, from the atoms in them to the glueor welds used for final assembly. This is not to say that the materials sci-entist is the ultimate expert, able to addressevery aspect of every case where somethingis broken, bent, cracked or degraded. Thereare times where the cause of failure is clearand unambiguous, and there are timeswhere understanding the failure mecha-nism is a small aspect of a large case.Caution is necessary, however. Without un-derstanding the why and how of a failure, itis possible (and unfortunately quite com-mon) that a component that failed as a re-sult of an incident is interpreted as a cause.An example is a broken bolt in a motorcyclesteering mechanism. The injured driver isquite likely to attribute his accident to thefailure of the bolt. A materials scientist cantell you by looking at the fracture whetherit was caused by years of cyclic stresses, or byhitting an obstacle at high speed. Testingmay reveal whether or not it met the manu-facturer’s specifications for performance.Armed with this knowledge, liability may bedirected at the designer, the manufacturer,the supplier, or the user. Similar questionsarise in many accidents, where the failuremode of a component, and an investigationof its properties, can determine whether itwas the cause of the accident or a casualty. Materials experts spend much of theirtime using microscopes, studying the finedetails of fractured and broken things,using specialized tests to determine whatwas used to make them and how, and ifthere might have been some unfortunateadditions to or omissions from the recipe.Established scientific methodologies enablethe materials expert to examine a failedrope and determine whether the fibers werecut or broke under tension, whether it wasabraded or failed due to a chemical expo-sure. Laboratory testing can determine thetype of fiber used in the rope, as well as give

an indication of how weathered it is. Thesame is true of broken pipes and brokenwelds, collapsed towers and leaking vessels– a study of the failure can tell us whatcaused it and oftentimes when it occurred.Testing may also indicate if the fracturedcomponent was made properly or not. If asteam pipe splits along a seam weld, a studyof the fracture can determine whether itfailed because it was improperly made, be-cause it was over-pressured, or because itwas exposed to a chemical that degraded it.It may also reveal if a defect in the weldshould have been detected during the man-ufacturer’s inspection, or if it started out toosmall to see and grew in the field. Similarly,through appropriate testing, a materials ex-pert may be able to ascertain if a plastic fit-ting fractured due to a chemical exposureor due to improper installation, whether astainless steel connector in a fuel systemfailed due to the use of off-spec steel or ex-posure to road salt. In addition to the straightforwardanalysis of failed parts, materials sciencealso comes in handy when investigating themore unusual cases. Why is the paint on thishouse peeling while the paint on the neigh-boring house is fine? Is it because there is aproblem with the paint, or because it waswashed with the wrong cleaner? Why do wesee cracking in this lot of hose connectorswhen we didn’t see it in the last, eventhough both meet the material specifica-tions? Was it because they were made incor-rectly, or were they exposed to somethingduring shipping? Why is this shipment of sil-ver plated picture frames turning purple,when the last one was fine? Is it the lacquerused to seal the plating, or the omission ofa rhodium layer on top of the silver?Questions such as these often are not asked,yet can easily be answered by materials ex-perts. And the answers can have significantdollar amounts tied to them. So how do you know that you need amaterials expert in your case? It would beeasy (and self-serving) to imply that you al-ways need one if something is broken, bentcracked or degraded (corroded), but therewill be times when you may not. If you havea materials expert you trust, it is certainlyworth a few minutes of your time to askthem what they can tell you, to discuss howand why it might be important for your case.If not, you can ask yourself a few questionsto get pointed in the right direction. If understanding the why, how, andwhen of a failure would enable you to vali-date one theory of the case and invalidateothers, then you should call a materials ex-pert. Their expertise could be the key toyour case; engaging the materials expert as

early as feasible is best to ensure that the ev-idence is preserved properly and that theright testing is done. If it is already wellknown that a part was grossly corroded,leaking, and marked for replacement, youmay not need a materials expert to tell youwhy it failed. Alternatively, you may wantone to help you determine if the system de-signer, the system maintainer or anotherparty is liable for the corrosion. If your me-chanical engineer tells you that the loadswere several times the strength of the mate-rial, you probably don’t need to know thedetails, and likely don’t need your materialsexpert to confirm that the fractured partwas overloaded. When should you avoid calling a mate-rials expert? The easy answer is never sinceeverything is made from a material; if aproduct has failed in any fashion it is usuallya materials issue. However, there may beother engineering aspects to the failure thatneed to be considered. A reliable materialsscientist or engineer will direct you to thatdiscipline. Since materials are such a perva-sive aspect of our world and because the ma-terials discipline touches so many of theother engineering disciplines, a good placeto start your inquiry is with a materials sci-entist or engineer. If you have a materialsexpert whom you trust, you should feel con-fident that they will direct you elsewhere ifthey cannot help you. There are cases, how-ever, where you may want to call another ex-pert first. If the system is complex, then thefirst engineer you talk to should understandthe system – if it’s a mechanical issue or in-volves piping, speak with a mechanical orchemical engineer; if it’s a building, talk toa structural engineer; if it’s an electrical sys-tem, talk to an electrical engineer. Ofcourse, there are materials experts who aregoing to know each of these systems, but notevery materials engineer is going to under-stand every system. Once you hire an expertwho understands the system, they will beable to advise if and when it is time to bringin a materials expert.

Dr. Nicholas Biery earned de-grees in Materials Science &Engineering from theUniversity of Tennessee (BS)and Carnegie MellonUniversity (MS and PhD).After school, he joined theExxonMobil Upstream

Research Company where he worked for seven yearson cryogenic steels, high-strength pipelines, andother projects. Since joining S-E-A, Ltd. in 2008,he conducts failure analyses and testing for metal,composite, ceramic, and plastic components.


Carolyn A. Mathews Murchison & Cumming, LLP

THE LAW GOVERNING APPRAISALSIN CALIFORNIA AND OTHER STATES: Fire Insurance policies have long beenrequired to use standard policy provisions.They provide that, when the insured and in-surer fail to agree as to the actual cash valueor amount of a loss, they must participate inan appraisal. Each party selects a competentand disinterested appraiser, who togetherselect (or the court appoints) a competentand disinterested umpire. The party-ap-praisers appraise the loss and, in the eventof disagreement, submit their differences tothe umpire. Courts have enforced appraisalclauses in fire insurance policies for a hun-dred and twenty five years. (See Old SaucelitoLand & Dry Dock Co. v. The Commercial UnionAssurance Co., 66 Cal. 253 (1884).) Code of Civil Procedure § 1280, whichgoverns the conduct of arbitrations, pro-vides that agreements to arbitrate includevaluations and appraisals. (Coopers &Lybrand v. Schwartz, 212 Cal.App.3d 524, 534(1989).) An appraisal is an arbitration and,prior to 2001, appraisals were subject to ar-bitration provisions regarding subpoenas,depositions, and document discovery. A

court reporter could transcribe testimony. In 2001, in response to complaints ofalleged insurer abuses following the 1991Oakland fire and the 1994 Northridgeearthquake, the legislature inserted the fol-lowing language into the Standard Policy’sAppraisal paragraph: “Appraisal proceedings are informal... For

purposes of this section, ‘informal’ meansthat no formal discovery shall be conducted,including depositions, interrogatories, re-quests for admission, or other forms of for-mal civil discovery, no formal rules ofevidence shall be applied, and no court re-porter shall be used for the proceedings.”(Ins. Code § 2071.)

As a result, the procedures governingappraisals have been significantly changedand adjusters and defense counsel shouldchange their practices accordingly.

THE “APPRAISAL CLUB”: The name “Appraisal Club” was coinedby this author to describe a group who haveformed a clique to dominate appraisal pro-cedures in California and other states. Some

Appraisal Club members were drawn toCalifornia by the Northridge earthquake.The legislature was persuaded to extend thelimitations on claims arising out of that 1994event, and litigation of claims continued fiveyears into the 21st Century. Appraisal Clubmembers can be identified by their disclo-sure statements. He will have alternatelyserved as an appraiser, umpire, or expert inhundreds of appraisals with other membersin the alternate positions. If he is a party-ap-praiser, he names another club member asumpire or calls them to testify as experts –thereby insuring members full employment.These “experts,” who have no personalknowledge of the loss, argue the award mustbe based on pricing provided by the “unchal-lengeable” computer program, Xactimate,even though an item can clearly be replacedfor less than that set by Xactimate personnelin Orem, Utah. (Xactimate is a widely usedefficient program; but “garbage in, garbageout” applies to any computer program.)Appraisers are to fix the amount of loss basedon their own skill and expertise – not that ofa computer program.


Carolyn A. Mathews is anAssociate Partner in the LosAngeles office of Murchison& Cumming, LLP. A mem-ber of the firm's InsuranceLaw practice group, Ms.Mathews focuses on first andthird party insurance cover-

age claims and litigation involving complex cov-erage issues and evolving areas of the law.

THE EXPANDING AND EVOLVINGCLAIM: Appraisals conducted by Appraisal Clubmembers expand during the process. Newclaims appear. Why? Because the Adjusterfailed to pin down the extent of the claimedloss prior to the appraisal. When an AppraisalClub member values a simple claim for inte-rior water damage, a need for extensive emer-gency services, code upgrades, additionalliving expenses, and loss of income is trig-gered. They argue that, under Kacha v. AllstateIns. Co., 140 Cal.App.4th 1023 (2006) the ap-praisers must value all the insured’s claimeddamages and accept the insured’s descriptionof the quality and quantity of damaged items.A $150,000 claim, evolves to $450,000; and,when a $300,000 award is made, the appraiserclaims he saved the insurer a lot of money. What can be done to prevent an ex-panding claim? First, obtain a Proof of Lossand the insured’s definitive estimate of theclaim prior to appraisal submission. Don’tallow the insured to submit several estimateswithout identifying which one constitutesthe claim. An insurer’s appraisal demandshould clearly state the extent of the dis-pute. Seek an umpire ruling that new esti-mates and evidence may not be submittedduring appraisal. Make sure photographsare digitally dated.

APPRAISE THE ENTIRE LOSS: What about line items the Adjusteragreed to pay before the appraisal? Insuredsargue the right to dispute value of items theinsurer agreed to pay is waived. Contractors’bids are higher on small projects. The fairmarket value of a portion of a loss is ex-tremely difficult to accurately determine.Policy provisions require appraisers to “ap-praise the loss.” They do not contemplateappraising only the disputed portions.

APPRAISAL SCOPE IS LIMITED TODETERMINING THE VALUE OF ALOSS: An arbitration encompasses questionsof fact and law; but appraisers only havepower to determine questions of fact,namely the actual cash value and replace-ment cost of the claimed loss. (Jefferson Ins.Co. v. Superior Court, 3 Cal.3d 398 (1970).)Appraisals are not designed to resolve issuesof coverage or causation, and insurersshould ask themselves, “Is this really a dis-pute over value?” In a dispute over value,the Adjuster believes the insured inflatedthe loss and the insured believes theAdjuster is “low-balling” it. The line betweenover-valuing, under-valuing and fraud and“bad faith” is fine.

APPRAISAL IS NOT THE PLACE TOCONFIRM SUSPICIONS OF FRAUD: The fact that a fraudulent claim shouldnot be submitted to appraisal is heightenedby the 2001 changes emphasizing informal-ity, eliminating discovery and prohibitingcourt reporters. The insured may tell lies toexplain questionable aspects of the claim,and there is no record of the falsehoods. As stated in Safeco Ins. Co. v. Sharma,160 Cal.App.3d 1060, 1066 (1984): “When an insurer disputes an insured’s de-

scription in identification of the lost or de-stroyed property, it necessarily claims theinsured misrepresented – whether innocentlyor intentionally – the character of the loss…this claim opens the door to allegations offraud. Were an insurer permitted to includethe former issue within the scope of an ap-praisal, a determination in the insurer’sfavor would foreclose a court from determin-ing…fraud in any subsequent litigation.”

Appraisal Club members expandSharma to mean appraisers must accept everyclaim an insured makes regarding the loss.But, Sharma involved a claim that stolenpaintings were a matched set. Appraisers didnot have access to them to make that deter-mination. Sharma does not mean that ap-praisers must accept the insured’s claimsabout the condition and quality of itemswhen the items involved are available to view.

ISSUES OF FRAUD AND COVERAGESHOULD BE RESOLVED PRIOR TOAPPRAISAL: The Court of Appeal recently held inKirkwood v. California State AutomobileAssociation Inter-Insurance Bureau, 193Cal.App.4th 49, 63 (2011) that an appraisalwas properly deferred until the insured ob-tained a court declaration as to whether theinsurer improperly applied blanket depre-ciation based on the item’s age without re-gard to condition. The Kirkwood court said,“judicial economy favors resort to declara-tory relief” as to questions of coverage be-fore appraisal. It “heads off duplicativefuture actions.” Kirkwood equally supportsan insurer’s request to defer appraisal untilcoverage and fraud issues are determined.

THE IMPORTANCE OF THE LANGUAGEOF THE AWARD: Devonwood Condominium Owners Ass’n v.Farmers Ins. Exchange, 162 Cal.App.4th 1498(2008) illustrates the importance of the lan-guage of an award when coverage is in dis-pute. An appraisal panel’s authority islimited to the amount of a loss, coverage isleft to the court. The dilemma for the

appraisal panel is how to resolve valuationissues without impinging on the court’s au-thority to determine coverage. TheDevonwood appraisal was complicated byFarmers’ claim it did not cover interiorpainting, while the association maintainedit did. The appraisers set forth two cate-gories of replacement cost – one exclusiveof interior painting and one for the paint-ing, stating the award was made withoutconsideration of any coverage or other pol-icy provision which might affect the in-surer’s liability. The court confirmed theaward and entered a money judgment forthe combined value of the two categories.The court of appeal reversed, holding themoney judgment did not conform with theappraisal award and the court lacked au-thority to enter it. The appraisers expresslyacknowledged they were not resolving cov-erage questions, and, without a determina-tion of coverage, the money judgment wasinvalid.

IN CONCLUSION:• Deny claims that are clearly not covered.

• If a claim is suspect, have the insuredexamined under oath.

• Don’t use appraisals to determine cov-erage or prove fraud.

• Seek deferral of appraisal until a judi-cial determination of coverage and/orfraud is obtained.

• Establish the extent and scope of theclaim before an appraisal, and definevalues in dispute.

• Look carefully at your party-appointedappraiser’s affiliations and disclosurestatement.

• Obtain an itemized award that identi-fies the value assigned to disputed lineitems and contains the appraiser’s dis-claimer of consideration of coverageand pertinent issues.


Firmson theMove

Carr Allison (Birmingham, AL)Carl K. Dowdey, III, attorney with CarrAllison and Lieutenant Colonel in the U.S.Army Reserves, was recently assigned as theChief of Administrative Law and Boards withthe 87th U.S. Army Reserve SupportCommand (East). Prior to his current assign-ment, Dowdey held the position of StaffJudge Advocate at the Deployment SupportCommand which provides transportationand logistical support for deployed soldiersoverseas. Following graduation fromCumberland School of Law, Dowdey wascommissioned as a First Lieutenant andserved in Germany and at Fort Rucker,Alabama. After serving on active duty for fouryears, he entered the Reserves where he hasbeen serving for nearly a decade.

Dillingham & Murphy, LLP (SanFrancisco, CA)In August 2012, Barbara L. Harris Chiang ofDillingham & Murphy was elected to theboard of directors of the NationalConference of Women’s Bar Associations(the “NCWBA”). NCWBA is a national organ-ization of women’s bar associations repre-senting approximately 35,000 women in theUnited States and Canada. It provides a na-tional forum for the exchange of ideas an in-formation vital to women professionals andwomen’s bar associations. The NCWBA pro-motes the advancement of women in societyand the administration of justice and servesas a vehicle for the exchange and dissemina-tion of information and ideas amongwomen’s bar associations.

Gallagher, Callahan & Gartrell, P.C.(Concord, NH)Charles P. Bauer of New Hampshire USLAWfirm Gallagher, Callahan & Gartrell, P.C. hasbeen inducted as a Fellow into the AmericanCollege of Civil Trial Mediators (ACCTM) andas a Member into the National Academy ofDistinguished Neutrals (NADN). Charlie is theonly ACCTM Fellow in New Hampshire andone of just six NADN Members in the State.

Goldberg Segalla LLP (Buffalo, NY)Goldberg Segalla was honored to receive theMinority Corporate Counsel Association’sGeorge B. Vashon Innovator Award for thecategory of Pipeline Initiatives. TheInnovator Awards are given annually to in-house legal departments, law firms, and barassociations that have led the way with inno-vative best practices to assist diverse attorneys.Goldberg Segalla was recognized for itsDiversity Internship Program, which was de-veloped by partner Joseph M. Hanna in col-laboration with the Minority Bar Associationof Western New York and the University atBuffalo Law School, to provide opportunitiesfor minority UB Law students to gain first-hand experience in the legal system. It pro-vides participants with an in-depth look at thelegal process and the interaction between the

bench and the bar that they would not oth-erwise get, along with the development of im-portant legal research, writing, casemanagement, and client service skills criticalto their long-term success. So far, the pro-gram has placed more than 50 students inclerkships in Western New York courts as wellas in several area law firms, with more judgesand law firms asking to participate every day.

Picadio Sneath Miller & Norton, P.C.(Pittsburgh, PA)Kelly A. Williams of Picadio Sneath Miller &Norton, P.C. in Pittsburgh, Pennsylvania wasrecently nominated to become a Fellow ofthe Allegheny County Bar Foundation.Created in 1996, the Allegheny County BarFoundation Fellows Program was establishedas a formal means to honor attorneys whohave shown a commitment to excellence incharitable, community, professional, and/orpublic service activities. The Fellows Programallows the Allegheny County Bar Foundationto enhance the delivery of pro bono legalservices to low-income clients in AlleghenyCounty, Pennsylvania.

Quattlebaum, Grooms, Tull & BurrowPLLC (Little Rock, AR)Kristine G. Baker, a Managing Member atQuattlebaum, Grooms, Tull & Burrow PLLC,was appointed to the United States DistrictCourt for the Eastern District of Arkansas.Hon. Baker is the second partner of the lawfirm to be appointed to the federal benchsince the firm’s founding in 2000.

Richardson, Whitman, Large & Badger(Portland, ME)John B. Lucy, a partner in the Maine USLAWfirm, Richardson, Whitman, Large & Badger,has been nominated to be a judge on theMaine District Court. The Legislature will meetregarding his nomination in early September.

Wicker Smith O’Hara McCoy and FordP.A. (Miami, FL)Richards H. Ford, Managing Partner with theOrlando, FL office of USLAW memberWicker Smith O’Hara McCoy and Ford P.A.,was recently inducted as a Board CertifiedCivil Pretrial Practice Advocate by theNational Board of Legal SpecialtyCertification (NBLSC). The Civil PretrialPractice Advocacy is the newest division ofthe NBLSC, as well as the first and only na-tional certification that recognizes profi-ciency in handling contested civil mattersthat do not go to trial. Civil Pretrial Practiceincludes the preparatory steps for all disputesbefore a tribunal, including litigation pro-ceedings from inception through discovery,pretrial motions and hearings, and alterna-tive dispute resolution procedures. BoardCertification is a rigorous testing and ap-proval process that officially recognizes theextensive education and courtroom experi-ence of the attorney.

QUATTLEBAUM, GROOMS, TULL & BURROW PLLC

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SuccessfulRecentUSLAW

Law FirmVerdicts

Ahmuty, Demers & McManus (Albertson, NY)Brian J. Donnelly of Ahmuty, Demers &McManus obtained a defense verdict in thematter of Reimold v. Coinmach after a trial inSupreme Court, Queens County. The plaintiffwas a 62 year old woman who slipped a fell onwater emanating from the laundry room in herapartment building. She sued the owner of thebuilding, the managing agent, and our client,Coinmach, who supplied all the equipment forthe laundry room, washers, dryers and adrainage pit from which it was argued thewater backed up. The plaintiff sustained a wristfracutre and a knee injury which ultimately ledto a total knee replacement. ADM argued thatCoinmach’s weekly inspection the day beforethe accident revealed no issue with thedrainage in the laundry room and that thebuilding owner was responsible for drainage is-sues. The jury found the building owner andmanaging agent 100% at fault.

Cox Smith Matthews Incorporated (San Antonio, TX)Cox Smith Matthews announced thatBankruptcy Judge Ronald King of the UnitedStates Bankruptcy Court for the WesternDistrict of Texas has entered a $16 millionjudgment for Cox Smith client ReorganizedTXCO Resources, Inc. (“RTXCO”), in one ofthe earliest complex litigation matters arisingout of the Eagle Ford development in SouthTexas. RTXCO is the successor entity to TXCOResources, Inc. and affiliated entities(“TXCO”), which was a publicly traded oil andgas exploration and productioncompany thatfiled a voluntary Chapter 11 case on May 17,2009. Cox Smith served as TXCO’s debtors’counsel. Prior to confirmation of its bank-ruptcy plan, TXCO agreed to sell many of itsoil and gas assets to Newfield ExplorationCompany, headquartered in Houston, Texas,and also a client of Cox Smith. In February2010, the plan became effective and RTXCOemerged from Chapter 11. Newfield is the onlyshareholder of record in RTXCO and the solebeneficiary of the Liquidating Trust. InNovember 2009 and prior to its bankruptcyconfirmation, TXCO filed suit againstPeregrine Petroleum. TXCO alleged PeregrinePetroleum misappropriated trade secrets fromTXCO in breach of the terms of a confidential-ity agreement and used that information to ac-quire oil and gas leases in the Maverick Basinof South Texas. The trial, which took place inthe U.S. Bankruptcy Court for the WesternDistrict of Texas (San Antonio Division) beganMay 31, 2011 and lasted until September 2011.Cox Smith shareholder James “Marty” Trussheaded up the energy litigation trial team forRTXC.

Fee, Smith, Sharp & Vitullo, L.L.P. (Dallas, TX)Partners Mike Sharp and Clint Cox of Fee,Smith, Sharp & Vitullo received a trucking de-fense verdict in Dallas’ 44th Civil District Court.Plaintiffs Robert and Rebecca Fuller soughtover $9MM in past/future damages againstDefendants Genuine Parts Company (NAPAAuto Parts) and their driver CarmenMooreman. Plaintiffs argued the Defendantswere grossly negligent in the operation of an18-wheeler that struck Plaintiff Rebecca Fullerin February 2008, causing catastrophic brainand bodily injury. Plaintiffs presented testi-mony as to liability and damages, through fiveexperts, seeking a life care plan in excess of$2.4MM. With only one dissenting juror, theverdict placed 100% of the negligence onPlaintiff Rebecca Fuller, thereby denying thePlaintiffs any recovery.

Goldberg Segalla LLP (Buffalo, NY)Goldberg Segalla gained the dismissal withprejudice of a putative class action lawsuitbrought against a product manufacturer in theU.S. District Court for the Eastern District ofPennsylvania. Cheryl A. Possenti and John P.Freedenberg led the team on this case. Theplaintiff brought vague allegations thatportable electric products manufactured byour client following two previously conductedvoluntary recalls still contained the alleged de-sign defect that led to the recalls. She broughtnonspecific claims under state consumer-fraudstatutes as well as for breach of express war-ranty, breach of the implied warranty of mer-chantability, and unjust enrichment. Theplaintiff’s complaint alleged damages in excessof $5 million in order to obtain federal juris-diction under the Class Action Fairness Act; inall, the potential damages alleged could havetotaled over $200 million for the replacementcost of more than 10 million products. We suc-cessfully demonstrated to the federal judgethat the plaintiff’s allegations were withoutmerit and, particularly, her nonspecific allega-tions of design defect and other claims were in-sufficient to bring such claims underconsumer-fraud statutes. On April 10, 2012, thecourt granted our team’s motion to dismiss theplaintiff’s claims on all counts, and subse-quently the court dismissed the case with prej-udice, ending the matter for our client.

Hall Booth Smith & Slover, P.C. (Atlanta, GA)John E. Hall, Jr., along with his law partner,Heather S. Ware, of USLAW Georgia firm HallBooth Smith & Slover received a defense ver-dict in a case in Fulton County, GA. The caseinvolved allegations of a missed rectal canceron a CT scan. Mr. Hall’s defendant radiologistread the scan as normal in November 2005.


The patient had another CT scan for addi-tional symptoms in September of 2006 andcancer was found in the rectum and chest.Plaintiffs contend it was visible in theNovember 2005 scan. Plaintiffs brought inDr. Arnold Friedman of California as theirexpert. The defense had Dr. Leslie Quint ofMichigan. The defense used “Where isWaldo” cartoon to show once you knowwhere Waldo is, then it is easy to see him.The defense contended Dr. Friedman did aretrospective review, knowing where thecancer was from a later colonoscopy andcalled it on the CT scan, even though thestandard of care suspicious factors were notthere. The defense contended that thereare certain factors that must be present toreport a suspicious mass. Using an aspira-tional safety rule, the plaintiffs contendedthat if you cannot completely rule out can-cer as a radiologist you must suggest followup test. HBSS noted that cancer can neverbe completely ruled out in the rectum in aCT scan and this was a ridiculous standardunrelated to the standard of care. Plaintiffasked the jury for $7M at closing. The jurywas out under two hours and indicated thatit was 12-0 for the defense on standard ofcare from the start, they just wanted to bethorough in reviewing the records.

Jones, Skelton & Hochuli, PLC(Phoenix, AZ)Kevin Neal and Erin Richardson, attorneysat Jones, Skelton & Hochuli, PLC, inPhoenix, Arizona, recently earned a defenseverdict in a premises liability case on behalfof Twisted Tree Farm. Plaintiff Jill Newham,who was thirty-seven at the time of the acci-dent, alleged that during a riding lesson atDefendants Larry and Janet Hischer’sTwisted Tree Farm she was thrown from ahorse, resulting in an alleged head injury,traumatic brain damage, and harm to hermarriage, business, and her quality of life.Plaintiff claimed that Defendants were neg-ligent for having failed to force Plaintiff towear a helmet during her lesson. To proveher claim, Plaintiff called David D. Johnson,an equine expert, who opined that all ridersshould wear a helmet anytime they ride ahorse, regardless of their age or of the par-ticular equestrian activity. Defendants ar-gued in response that the facts showedPlaintiff was not thrown from the horse;rather, Plaintiff lost her balance and slid offthe side of the horse, landing on her but-tock and shoulder. An adult rider, Plaintiffwas not required by any law or industry stan-dard to wear a helmet during her riding les-son. Plaintiff requested just and reasonablecompensatory damages, $38,000 in pastmedical expenses; $500,000 in future med-

ical expenses; and $1,400,000 in future lostearnings. Plaintiff had also made a $950,000offer of judgment before trial, andDefendants had made a $10,000 offer ofjudgment. During his closing argument,Plaintiff’s counsel asked the jury to awardPlaintiff between $2 million and $4 million,while Defense counsel, Kevin Neal, demon-strated that Plaintiff had failedto prove liability and damages. She wastherefore not entitled to recover anything.After about an hour of deliberation, the juryunanimously found for the Defense.

Murchison & Cumming, LLP (Los Angeles, CA)William T. DelHagen, Paul R. Flaherty andAdrian J. Barrio, of Murchison & Cumming,LLP successfully represented the City ofMoreno Valley and one of its employees,Mosallam Almasri, in a personal injury ac-tion brought by the employee of independ-ent contractor Riverside ConstructionCompany. The city hired Riverside to per-form storm drain improvements and streetlane widening. The plaintiff, the superin-tendent of construction for Riverside, suf-fered debilitating injuries when he wasstruck by a truck operated by Cesar Rosales,an employee of the defendant and cross-complainant Pipeline Carriers, Inc. At thetime of the accident, the plaintiff was stand-ing in the middle of the street, engaged inthe task of performing pre-constructionmeasurements. Mr. Almasri was on thescene at the time of the accident, but he didnot direct the plaintiff’s activities in any wayand was essentially an onlooker. The plain-tiff argued that the city and Mr. Almasrifailed to ensure that Riverside and its em-ployees, including the plaintiff, compliedwith applicable Cal-OSHA regulations per-taining to traffic control at or near the jobsite. The Superior Court for the County ofSan Bernardino granted the city and Mr.Almasri’s Motion for Summary Judgmenton the basis of the “Privette” doctrine andthe California Supreme Court’s recent de-cision in Seabright v. US Airways, Inc., 52Cal.4th 590 (2011). The court found that,under Seabright, neither the city nor Mr.Almasri owed the plaintiff a duty of care toensure workplace safety. The court notedthat, by hiring an independent contractor,the city implicitly delegated to the contrac-tor any tort law duty it owed to the contrac-tor’s employee, the plaintiff, to ensureworkplace safety. That implicit delegationincluded any tort law duty the city owed tothe plaintiff to comply with applicable statu-tory or regulatory safety requirements. Inaddition, the court found that the city didnot “affirmatively contribute” to the plain-


SuccessfulRecentUSLAW

Law FirmVerdicts

Continued

tiff’s injuries and, further, that Mr. Almasriwas immune from personal liability by virtueof his status as a public employee.

Poyner Spruill LLP (Raleigh, NC)RBC Bank (USA) was the victim of a sophis-ticated mortgage fraud scheme in 2008 per-petrated by a large conspiracy involvingrealtors, mortgage brokers, developers and2 rogue bank employees in Myrtle Beach,South Carolina. The scheme involved thepurchase of residential properties at highlyinflated values by straw-buyers. Brokers sub-mitted fraudulent loan applications, includ-ing false or forged financial documents, toprocure loans from the bank. The brokersobtained inflated appraisals, which valuedproperties at substantially more than fairmarket value. Sellers agreed to pay kick-backs to the co-conspirators (often includ-ing the buyer and the broker), either atclosing through fraudulent payments onthe HUD-1 or after closing out of the loanproceeds. All of the loans went into defaultvery shortly after closing, and the bank lostat least $11.6M on 24 transactions. PoynerSpruill, through the efforts of lead partnerDavid Dreifus and assisted by Thomas L.“Tate” Ogburn, worked closely with RoyalBank of Canada’s internal fraud investiga-tion team in a forensic analysis of the trans-actions to trace the flow of funds to establishthe pattern of fraud and to identify the par-ticipants in the scheme, which was often dif-ficult to determine from the face of thetransaction documents. PS led the recoveryeffort against the bank’s fidelity bond in-surer, as well as filing 3 separate lawsuitsagainst closing attorneys, appraisers, andthe mortgage brokers, sellers and other par-ticipants in the scheme. To date, a substan-tial portion of the bank’s losses have beenrecovered, and actions are continuingagainst some of the participants.

Quattlebaum, Grooms, Tull & BurrowPLLC (Little Rock, AR)Steven W. Quattlebaum and Kristine G.Baker of Quattlebaum, Grooms, Tull &Burrow PLLC, represented Hortica-Florists’Mutual Insurance Company (“Hortica”) ina declaratory judgment action seeking dec-laration of its contractual obligations to de-fend and indemnify Pittman NurseryCorporation (“PNC”) in a number of law-suits for which PNC sought coverage. Whilethe court ruled on summary judgment thatHortica had a duty to defend PNC in thelawsuits, PNC’s counterclaim against Horticafor negligence, bad faith, and breach of con-tract proceeded to trial in October 2011.After three days of testimony, the jury unan-imously found that Hortica did not breach

its contract with PNC but found that Horticawas negligent and acted in bad faith in thehandling of PNC’s insurance claims, award-ing PNC $1,350,000. On January 10, 2012,the trial court granted Hortica’s Motion forJudgment as a Matter of Law finding thatthere was no legally sufficient basis to sup-port the claims of negligence and bad faithand that the jury’s verdict was unsupportedby substantial evidence.

Rothgerber Johnson & Lyons LLP(Denver, CO)In 2011 Rothgerber Johnson & Lyons wasasked to serve as defense counsel for a com-pany very late in the litigation process – infact, several years after the case commenced.Over 150 plaintiffs - former residents of anapartment complex - sued the firm’s client,the complex owner, for alleged exposure toasbestos loosened during large-scale renova-tions of the complex. Trial was months awayw and no meaningful discovery had beentaken. This case made the newswires whenthe state health department evacuated theentire complex because of the potential as-bestos exposure. The plaintiffs’ settlementdemand was roughly $40 million. Over thecourse of about six months, lead attorneys,Michael Plachy and Douglas Tumminello,along with their team, deposed virtually allof the plaintiffs – sometimes up to three dep-ositions a day. The firm ultimately filed a va-riety of motions for summary judgment, andmediated the case while those motions werepending. By the time mediation rolledaround the plaintiffs had dropped their set-tlement demand to less than 20% of whatthey originally were asking, largely becauseof a number of adverse rulings by the court.Mediation was unsuccessful, and the casewas weeks away from trial when the court en-tered summary judgment in the firm’s favorand dismissed all claims against their client.

SmithAmundsen LLC (Chicago, IL)Eric Samore and Molly Arranz of USLAWIllinois firm SmithAmundsen obtained anorder from the Illinois Supreme Court va-cating the judgment of the Appellate Courtdenying the defendant’s petition for leave,with direction that the court address themerits of the petition. The primary issueraised in the defendant’s petition inUSECO Industries v. Poolman, No. 113620,concerned defining the bar that class coun-sel must clear in order to satisfy the ade-quacy prong for class certification underIllinois law.

Wicker Smith O’Hara McCoy & FordP.A. (Miami, FL)Amy Millan DeMartino of the West PalmBeach office of Wicker Smith O’HaraMcCoy & Ford P.A. successfully obtained adefense verdict on behalf of QBE InsuranceCorporation in a first-party breach of con-tract action seeking damages in excess of $5million for additional property damage al-legedly caused by Hurricane Wilma. ThePlaintiff provided its first notice of loss fol-lowing Wilma. After receiving notice of theloss, QBE evaluated the Plaintiff’s claim andissued payment of $125,312.09, after appli-cation of the $270,818 hurricane de-ductible. Plaintiff had no furthercommunication with QBE until the lawsuitfiled on October 15, 2010, almost five (5)years after Wilma. The case was tried in theUnited States District Court for theSouthern District of Florida in the MiamiDivision for six (6) days and the jury re-turned a verdict in favor of QBE. The juryfound that QBE had not breached the in-surance agreement.

Connell Foley LLP (Roseland, NJ) Connell Foley LLP recently representedlong-time USLAW supporter, ABC BusCompanies, Inc., in connection with itsopening of a facility in Jersey City, NewJersey. Connell Foley corporate partner,John Cromie, handled the acquisition byABC Bus Companies of the stock of HudsonBody Company, a bus repair and servicebusiness and negotiation of a long-termlease with seller’s affiliate for the New Jerseysite. Connell Foley real estate and land usepartner, Charles Harrington, also success-fully obtained approval from the zoningand planning officials in Jersey City to per-mit ABC Bus to expand their newly-ac-quired Jersey City location.

SuccessfulRecentUSLAWLaw FirmTransactions



USLAW NETWORK

2001. The start of something...better.Mega-firms...big, impersonal bastions of legaltradition, encumbered by bureaucracy andoften slow to react. The need for an alterna-tive was obvious. A vision of a network ofsmaller, regionally based, independent firmswith the capability to respond quickly and ef-ficiently to client needs from Atlantic City toPacific Grove was born. In its infancy, it was lit-tle more than a possibility, discussed arounda small table and dreamed about by a handfulof visionaries. But the idea proved too goodto leave on the drawing board. Instead, withthe support of some of the country's brightestlegal minds, USLAW NETWORK became real.

Fast-forward to today.Today, the commitment remains the same asoriginally envisioned. To provide the highestquality legal representation and seamlesscross-jurisdictional service to major corpora-tions, insurance carriers, and to both largeand small businesses alike, through a networkof professional, innovative law firms dedicatedto their client's legal success. To ensure ourgoals are the same as the clients we serve, our40-member Client Leadership Council is di-rectly involved in the development of our pro-grams and services. This communicationpipeline is vital to our success and allows us tobetter monitor and meet client needs and ex-pectations.

USLAW NETWORK goes way beyond pro-viding quality legal services. Our clients re-ceive ongoing educational opportunities,online resources including webinars, jurisdic-tional updates, real-time discussion boardsand resource libraries. We also provide ourclients monthly podcasts through USLAWRadio, a semi-annual USLAW Magazine, aswell as annual membership directories andpractice group directories.

Now as a network with over 6,000 attorneysfrom 100 defense-based law firms, spanningthe United States, Canada, Latin America,Europe, Asia and Africa, USLAW NETWORKremains a responsive, agile legal alternative tothe Mega-firms.

The USLAW Success Story.The reality of our success is simple: we suc-ceed because our clients succeed. We providehigh-quality legal results through the efficientuse of legal budgets. We provide cross-jurisdic-tional services eliminating the time and ex-pense of securing adequate representation indifferent regions. We provide trusted and ex-perienced specialists quickly. Success.

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USLAW Abroad.Just as legal issues seldom follow state borders, they often extend beyond US boundaries as well.In 2007, USLAW established a relationship with the Trans-European Law Firms Alliance(TELFA), a network of 25 independent law firms representing more than 700 lawyers.Subsequently, in 2010 we entered a similar affiliation with the ALN (formerly the Africa LegalNetwork) to further our service and reach.

How is USLAW NETWORK membership determined.Firms are admitted to the Network by invitation only and only after they are fully vetted througha rigorous review process. Many firms have been reviewed over the years, but only a small per-centage were eventually invited to join. The search for quality member firms is a continuousand ongoing effort. Firms admitted must possess broad commercial legal capabilities and havesubstantial litigation and trial experience. In addition, USLAW NETWORK members must sub-scribe to a high level of service standards and are continuously evaluated to ensure these stan-dards of quality and expertise are met.

USLAW in Review.• All vetted firms with demonstrated, robust practices and specialties• Efficient use of legal budgets, providing maximum return on legal services investments• Seamless, cross-jurisdictional service• Responsive and flexible• Multitude of educational opportunities and online resources• Team approach to legal services


ALABAMA | BIRMINGHAMCarr Allison Charles F. Carr........................................(251) 626-9340 [email protected] | ANCHORAGERichmond & Quinn Robert L. Richmond ..............................(907) 276-5727 [email protected] | PHOENIXJones, Skelton & Hochuli, P.L.C. Donald L. Myles, Jr. ...............................(602) 263-1743 [email protected] | LITTLE ROCKQuattlebaum, Grooms, Tull & Burrow PLLC John E. Tull, III .......................................(501) 379-1705 [email protected] | LOS ANGELESMurchison & Cumming, LLP Friedrich W. Seitz ..................................(213) 630-1000 [email protected] | SAN DIEGOKlinedinst PC John D. Klinedinst.................................(619) 239-8131 [email protected] | SAN FRANCISCODillingham & Murphy, LLP Patrick J. Hagan ....................................(415) 397-2700 [email protected] | SAN JOSERobinson & Wood, Inc. Joseph C. Balestrieri..............................(408) 792-5903 [email protected] | SANTA BARBARASnyder Law, LLP Barry Clifford Snyder ............................(805) 683-7750 [email protected] | DENVERRothgerber Johnson & Lyons LLP Ben M. Ochoa........................................(303) 628-9574 [email protected] | HARTFORDHinckley, Allen & Snyder LLP Noble F. Allen ........................................(860) 725-6237 [email protected] | MIAMIWicker Smith O’Hara McCoy & Ford P.A. Nicholas E. Christin ...............................(305) 448-3939 [email protected] | TALLAHASSEECarr Allison Christopher Barkas................................(850) 222-2107 [email protected] | ATLANTAHall Booth Smith & Slover, P.C. John E. Hall, Jr. ......................................(404) 954-5000 [email protected] | HONOLULUGoodsill Anderson Quinn & Stifel LLP Thomas Benedict...................................(808) 547-5716 [email protected] | BOISEDuke Scanlon & Hall PLLC Richard E. Hall .......................................(208) 342-3310 [email protected] | CHICAGOSmithAmundsen LLC Lew R.C. Bricker ....................................(312) 894-3224 [email protected] | INDIANAPOLISBingham Greenebaum Doll LLP James M. Hinshaw ................................(317) 968-5385 [email protected] | CEDAR RAPIDSSimmons Perrine Moyer Bergman PLC Kevin J. Visser........................................(319) 366-7641 [email protected] | LOUISVILLEBingham Greenebaum Doll LLP Mark S. Riddle .......................................(502) 587-3623 [email protected] | NEW ORLEANSMcCranie, Sistrunk, Anzelmo, Hardy, McDaniel & Welch LLC Michael R. Sistrunk ...............................(504) 846-8338 [email protected] | PORTLANDRichardson, Whitman, Large & Badger Wendell G. Large .................................(207) 774-7474 [email protected] | BALTIMOREFranklin & Prokopik, PC Albert B. Randall, Jr. .............................(410) 230-3622 [email protected]

MASSACHUSETTS | BOSTONAdler Pollock & Sheehan P.C. John F.X. Lawler ....................................(617) 603-0516 [email protected] | DETROITClark Hill PLC Anthony A. Agosta ..............................(313) 965-8523 [email protected] | ST. PAULLarson • King, LLP Mark A. Solheim ...................................(651) 312-6503 [email protected] | GULFPORTCarr Allison Douglas Bagwell ...................................(228) 864-1060 [email protected] | RIDGELANDCopeland, Cook, Taylor & Bush, P.A. Greg Copeland......................................(601) 427-1313 [email protected] | KANSAS CITYBaty, Holm, Numrich & Otto, PC Lee M. Baty............................................(816) 360-8100 [email protected] | ST. LOUISLashly & Baer, P.C. Stephen L. Beimdiek.............................(314) 436-8303 [email protected] | GREAT FALLSDavis, Hatley, Haffeman & Tighe, P.C. Maxon R. Davis......................................(406) 761-5243 [email protected] | OMAHABaird Holm LLP Jill Robb Ackerman...............................(402) 636-8263 [email protected] | LAS VEGASThorndal Armstrong Delk Balkenbush & Eisinger Brian K. Terry.........................................(702) 366-0622 [email protected] HAMPSHIRE | CONCORDGallagher, Callahan & Gartrell R. Matthew Cairns ................................(603) 545-3622 [email protected] JERSEY | ROSELANDConnell Foley LLP Kevin R. Gardner...................................(973) 533-4222 [email protected] JERSEY | FLORHAM PARKClyde & Co US LLP Jeffrey L. O’Hara ...................................(973) 210-6720 [email protected] MEXICO | ALBUQUERQUEModrall Sperling Timothy C. Holm ...................................(505) 848-1817 [email protected] YORK | ALBERTSONAhmuty, Demers & McManus Michael Rabus .......................................(646) 536-5748 [email protected] YORK | BUFFALOGoldberg Segalla LLP Neil A. Goldberg ...................................(716) 566-5475 [email protected] YORK | HAWTHORNETraub Lieberman Straus & Shrewsberry LLP Stephen D. Straus..................................(914) 347-2600 [email protected] CAROLINA | RALEIGHPoyner Spruill LLP Thomas K. Lindgren..............................(919) 783-2827 [email protected] DAKOTA | DICKINSONEbeltoft . Sickler . Kolling . Grosz . Bouray . PLLC Randall N. Sickler ..................................(701) 225-5297 [email protected] | CLEVELANDRoetzel & Andress, LPA Bradley A. Wright .................................(330) 849-6629 [email protected] | OKLAHOMA CITYPierce Couch Hendrickson Baysinger & Green, L.L.P. Gerald P. Green .....................................(405) 552-5271 [email protected] | PORTLANDWilliams Kastner Eric J. Neiman .......................................(503) 944-6943 [email protected] | HARRISBURGThomas, Thomas & Hafer LLP Todd B. Narvol.......................................(717) 237-7133 [email protected]

PENNSYLVANIA | PHILADELPHIASweeney & Sheehan, P.C. Warren E. Voter ....................................(215) 963-2439 [email protected] | PITTSBURGHPicadio Sneath Miller & Norton, P.C. Henry M. Sneath ...................................(412) 288-4013 [email protected] | PITTSBURGHPion, Johnston, Nerone, Girman, Clements & Smith, P.C. John T. Pion ...........................................(412) 667-6200 [email protected] ISLAND | PROVIDENCEAdler Pollock & Sheehan P.C. Richard R. Beretta, Jr. ...........................(401) 427-6228 [email protected] CAROLINA | COLUMBIASweeny, Wingate & Barrow, P.A. William O. Sweeny, III ...........................(803) 256-2233 [email protected] Mark S. Barrow .....................................(803) 256-2233 [email protected] DAKOTA | PIERRERiter, Rogers, Wattier & Northrup, LLP Robert C. Riter.......................................(605) 224-5825 [email protected] | MEMPHISMartin, Tate, Morrow & Marston, P.C. Lee L. Piovarcy.......................................(901) 522-9000 [email protected] | DALLASFee, Smith, Sharp & Vitullo, L.L.P. Michael P. Sharp....................................(972) 980-3255 [email protected] | HOUSTONJohnson Trent Brian P. Johnson ....................................(713) 860-0509 [email protected] | SAN ANTONIOCox Smith Matthews Incorporated Brett W. Schouest..................................(210) 554-5269 [email protected] | SALT LAKE CITYStrong & Hanni, PC Stanford P. Fitts .....................................(801) 323-2014 [email protected] | RICHMONDLeClairRyan Charles G. Meyer, III ..............................(804) 783-7535 [email protected] | SEATTLEWilliams Kastner Sheryl J. Willert .....................................(206) 628-2408 [email protected] VIRGINIA | HUNTINGTONHuddleston Bolen LLP Richard J. Bolen.....................................(304) 691-8420 rbolen@huddleston bolen.comWISCONSIN | MILWAUKEESmithAmundsen, LLC Patrick J. Lubenow................................(414) 282-7103 [email protected] | CASPERWilliams, Porter, Day and Neville PC Scott E. Ortiz .........................................(307) 265-0700 [email protected]

INTERNATIONALARGENTINA | BUENOS AIRESRattagan, Macchiavello, Arocena & Peña Robirosa Abogados SC Juan Martin Arocena......................+(5411) 4010-5007 [email protected] | OTTAWAKelly Santini Lawrence Kelly ......................................(613) 238-6321 [email protected] | VANCOUVERClark Wilson Barry Fraser ...........................................(604) 891-7773 [email protected] | SANTIAGOCarey & Allende Abogado Luis Felipe Arze ......................................(562) 4852093 [email protected] | SHANGHAIDuan & Duan George Wang ......................................8621 6219 1103 [email protected] | MEXICO CITYBryan Gonzalez Vargas & Gonzalez Baz Aureliano (Kir) M. Gonzalez-Baz..+52 (55) 5279-3601 [email protected]

MEMBERSHIP


Ringler AssociatesOFFICIAL STRUCTUREDSETTLEMENT PARTNER OF USLAW NETWORKwww.ringlerassociates.com5311 Worthington DriveBethesda, MD 20816Phone:(301) 229-2852Robert J. BlattenbergPresident & CEO27422 Aliso Creek Road Suite 200Aliso Viejo, CA 92656Phone:(949) 296-9000Email: [email protected] Duncan, CSSCChairman 490 Norristown Road, Suite 251 Blue Bell, PA 19422Phone:(610) 834-5553 Email: [email protected] John L. MachirSenior Vice President & CMO5311 Worthington Drive, Suite 200Bethesda, MD 20816Phone:(301) 229-2852Email: [email protected]

Ringler Associates is the nation’s largest structuredsettlement firm, with offices located in all major lit-igation centers in the U.S. and the U.K. Since 1975,the company’s structured settlement specialistshave placed over 170,000 annuities totaling over$24 billion in claim settlements for casualty carriersand self-insured corporations.

Since its establishment, Ringler Associates has useda partnership approach building a team of highly-seasoned professionals. Settlement consultants atRingler average over 10 years of experience inclaims, insurance, law and negotiations; many areformer senior claims officers and attorneys. As ex-perts in all aspects of structured settlements involv-ing tort liability, representatives from RinglerAssociates help settle cases faster, save money onclaims administration costs, and reduce caseloadsand paperwork. Ringler is the ONLY structured set-tlement company licensed by all the insurance car-riers selling structures. Ringler Associates providefast, accurate quotes, call with updates on ratechanges, and are available around-the-clock tomeet with clients and help review files.

Development of settlement annuity plans by thecompany’s experts includes analysis and life careplans which define the needs and costs for theclaimant’s entire future. On-site support is offeredduring all phases of the settlement negotiations.Our specialists will assist in the handling of closingdocuments and follow-up after cases are closed. In-house seminars covering the structured settlementprocess are also available.

Please refer to our website for further informationand contact an individual Ringler Associate in yourarea. While online, check out our top-rated legalpodcast Series called RINGLER RADIO, with over1,000,000 total listeners!

SEA, Ltd.OFFICIAL TECHNICALFORENSIC EXPERT PARTNER OF USLAW NETWORKwww.SEAlimited.com7349 Worthington-Galena RoadColumbus, OH 43085Phone:(614) 888-4160Fax: (614) 885-8014J. Kenneth CorwinNational Account Executive7349 Worthington-Galena RoadColumbus, OH 43085Phone:(800) 782-6851Email: [email protected] TorrensNational Account Executive3403 N. Sam Houston Parkway W., Suite 350Houston, TX 77086Phone:(800) 880-7324Email: [email protected] HenthornManager7349 Worthington-Galena RoadColumbus, OH 43085Phone:(800) 782-6851Email: [email protected]

S-E-A is a multi-disciplined engineering and fire in-vestigation company specializing in failure analysis.S-E-A also conducts environmental and industrialhygiene analysis. They offer a complete investiga-tive service, which includes mechanical engineer-ing, electrical engineering, metallurgicalengineering, civil engineering, fire investigation,environmental and work place safety analysis, and afully equipped chemical testing laboratory. Thesedisciplines interact to provide a thorough and inde-pendent analysis that will support any subsequentlitigation. S-E-A's full-time staff of investigators, en-gineers, and chemists are licensed/ registered pro-fessionals and are court-qualified experts in theirrespective fields. With ten offices located through-out the US, S-E-A has provided professional serv-ices to manufacturers, attorneys and the insuranceindustry Nationally and Internationally. S-E-A hasalso developed specialized practice groups in con-struction, marine, trucking, vehicle dynamics andquality control laboratory testing.

U.S. Legal Support, Inc OFFICIAL COURT REPORTING PARTNER OF USLAW NETWORKwww.uslegalsupport.com363 N. Sam Houston Pkwy. E.Suite 900Houston, TX 77060Phone:(832) 201-3834 Fax: (713) 653-7172Charles F. SchugartPresident & CEO363 N. Sam Houston Pkwy. E., Suite 900Houston, TX 77060Phone:(832) 201-3834 Fax: (713) 653-7172Email: [email protected] CunninghamDivision President – IL200 West Jackson Boulevard, Suite 600Chicago, IL 60606Phone:(312) 236-8352 Fax: (312) 236-3344Email: [email protected] GiammancoDivision President – CA Reporting15250 Ventura Boulevard, Suite 410Sherman Oaks, CA 91403 Phone:(818) 995-0600 Fax: (818) 880-4248Email: [email protected] WatsonDiv. Pres. – TX Records & Reporting363 N. Sam Houston Pkwy. E., Suite 900Houston, TX 77060Phone:(832) 201-3872 Fax: (713) 653-7172Email: [email protected]

U.S. Legal Support has been providing services tothe legal community for more than 20 years. With42 offices across the nation and the combined yearsof experience of our staff, U.S. Legal Support canprovide nationwide coverage with local expertise.Utilizing U.S Legal Support's Court Reporting serv-ices provides access to over 1200+ superior court re-porters using state-of-the-art technology including:Complete online office with 24/7 access includingonline scheduling and calendar access, the ability toview invoices online, transcript/exhibit/documentrepository, electronic delivery, RealTime Reportingincluding Summation & Livenote, daily and expe-dited delivery, Interactive PDF transcripts, LegalVideography, text/video synchronization, con-densed transcripts/word indexes, conferencerooms, video conferencing and Interpreters.

U.S. Legal Support is one of the most experiencedfirms in managing large, complex cases. The Powerof our Commitment differentiates us from ourcompetitors. We pride ourselves in our ability tocreate personal relationships and partnerships withfirms by creating custom solutions tailored to theirindividual legal needs. We schedule and coordinatedepositions, provide exhibit indexes and databases,schedule and manage online reports of your dis-covery process and monitor all stages of the billingcycle. Let U.S. Legal Support show you the Powerof our Commitment today.

★★★★★USLAW

PREMIERPA R T N E R


PREMIERPA R T N E R


PREMIERPA R T N E R

2012 USLAW Partners


3iCorp.comOFFICIAL TRANSLATION, INTERPRETATION, ANDNON-EMERGENCY MEDICAL TRANSPORTATIONPARTNER OF USLAW NETWORKwww.3iCorp.com950 Boardwalk, Suite 100San Marcos, CA 92078Info: (818) 720-7294Order: (800) 311-6289Fax: (866) 903-4329Michael A. CirilloPresident & CEOPhone:(413) 657 9524Email: [email protected] MattinglyBrand ManagerPhone:(760) 224-3662Email: [email protected]

Have you ever left your interactions with inter-preters feeling unsure that either your message, orthe statements of others, was clearly communi-cated?

3iCorp.com is here to help you through this stress-ful situation.

Our message is simple: Increasing the comprehen-sion of your message will lead to better results.

As American demographics become more cultur-ally diverse, today’s legal environment will see acontinuing increase in the need for language serv-ices. As this happens, your interactions withLimited English Proficient (LEPs) individuals canbecome increasingly risky. It will be necessary to en-sure that everyone involved in your case can clearlyand unambiguously understand your message.Acknowledging cultural and linguistic differencesby providing your services in familiar languages willnot only help to make your job easier but will alsohelp you to facilitate a trust that might not haveotherwise occurred.

We are passionate about turning language “barri-ers” into business opportunities by facilitating trueunderstanding. 3iCorp.com offers the professionalonsite and telephonic interpreting services to getthe job done well; be it depositions, hearings,recorded statements, or translation of legal docu-ments. We also provide non-emergency transporta-tion to and from appointments.

A Certified Minority Business Enterprise,3iCorp.com® makes going global easier by inte-grating the power of more than two decades of lan-guage, cultural, and transportation expertise.Increase the comprehension of your message whiledecreasing costs – 3iCorp® makes it easy.

Demonstratives, Inc.OFFICIAL LEGAL ANIMATION SERVICES PARTNER OF USLAW NETWORKwww.demonstratives.com2321 N Loop Dr., Ste 201Ames, IA 50010Phone:(515) 296-6930Daniel Kruger, Ph.D., PresidentPhone:(515) 296-6737Email: [email protected] Fox, Ph.D.Vice PresidentPhone:(515) 296-7175Email: [email protected] McGrory, Esq.Vice President / General CounselPhone:(913) 226-5205Email: [email protected]

Complex ideas and intricate fact patterns are moreeasily understood when taught using visual tools.Demonstratives, Inc. (DI) has a rich history of cre-ating effective, science-based 2D and 3D computeranimations and graphic presentations for attorneysand their clients in over 1500 litigation matters.

DI’s staff includes doctorate-level experts, engi-neers, scientists, animators, illustrators, modelers,and graphic artists who apply sound, scientific prin-ciples to every presentation, bringing decades ofexperience to intellectual property, environmental,construction defects, and product liability cases.This unique blend of scientific and artistic talent al-lows DI to create the most visually compelling,technically accurate, and persuasive images.Attorneys in law firms and corporate legal depart-ments rely on DI to create powerful courtroomtools and effective catalysts for settlement.

D4 DiscoveryOFFICIAL E-DISCOVERY PARTNER OF USLAW NETWORKwww.d4discovery.com 222 Andrews StreetRochester, NY 14604Phone:(800) 410-7066Fax: (585) 672-9026John HollandChief Executive Officer222 Andrews StreetRochester, NY 14604Phone:(585) 385-4040 Email: [email protected] LapresiSenior Vice President222 Andrews StreetRochester, NY 14604Phone:(585) 512-3747Cell: (585) 281-0254Email: [email protected] GroomVice President 8429 N Silo RoadParker, CO 80138Phone:(585) 512-3788Cell: (303) 968-7232 Email: [email protected]

D4 is the nationally-recognized leader in litigationsupport and eDiscovery services to law firms andcorporate law departments.

Founded in 1997, D4 covers the full spectrum ofeDiscovery services from early data assessment con-sulting, data collection through data processing,and online hosting to production. D4 also resells,supports and provides training for all the leadingeDiscovery applications.

Think of D4 as your own, in-house eDiscovery andComputer Forensics Department. Here are some ex-amples of when you should consider contacting D4:• Your client informs you that they have a new

case for you and you suspect it includes elec-tronic evidence (email, office documents, etc.).

• You need eDiscovery assistance with 26(f) meet-ings or 30(b)(6) depositions or you need aneDiscovery expert witness to testify in court.

• You receive hard drives, cell phones or other de-vices from your client for a case and want toknow the best way to deal with it.

• You need someone to defensibly collect elec-tronic evidence from your client’s corporate sys-tems, structured databases or social media sites.

• Your firm is considering bringing new technol-ogy in-house for document review or litigationsupport such as Relativity, Summation, orConcordance.

• Any question or need to talk through optionsfor dealing with discovery document review orelectronic evidence.

With its broad range of flexible, scalable solutions,backed by the most experienced eDiscovery person-nel in the industry, D4 is uniquely qualified to beyour USLAW strategic eDiscovery support team.

2012 USLAW Partners


Marshall Investigative GroupOFFICIAL INVESTIGATIVE PARTNER OF USLAW NETWORKwww.mi-pi.com416 W Talcott RoadPark Ridge, IL 60068Phone:(855) 350-6474 (MIPI)Fax: (847) 993-2039 Doug MarshallPresidentEmail: [email protected]

Doug Marshall, the founder of MarshallInvestigative Group, has been investigating claimsfor over 25 years. Our nationwide firm specializesin insurance fraud investigations, providing cover-age throughout the United States. Our private investigators provide the knowledge and skills necessary to extract the information you need tosuccessfully evaluate your claim. We use investiga-tors from diverse backgrounds like criminal justice,information technology and business, who sharetheir knowledge with others in the firm. Our goal isto exceed your expectations by providing prompt,thorough and accurate information whether that isto establish proper reserves or to documentclaimant activities. We have a wide variety of serv-ices for Cargo, Disability, Liability and Workman’sCompensation claims such as activity/backgroundchecks, employment, health history, internet research, public records, skip tracing, statements,subrogation and surveillance. We conduct our investigative business with the highest degree of integrity, confidentiality and productivity.

At Marshall Investigative Group, we value each andevery customer. We are confident that our extraor-dinary investigative work, provided on a timelybasis, will make a difference in your bottom line.We will be happy to discuss your case and respondto any questions you may have.

MDD Forensic AccountantsOFFICIAL FORENSIC ACCOUNTANT PARTNER OF USLAW NETWORKwww.mdd.comKevin Flaherty10 High Street, Suite 1000Boston, MA 02110Phone:(617) 426-1551Fax: (617) 426-6023Email: [email protected] Damico750 Hammond Drive, Building 14Atlanta, GA 30328Phone:(404) 252-0085Fax: (770) 452-3668Email: [email protected]

Matson, Driscoll & Damico is a leading forensic ac-counting firm that specializes in providing eco-nomic damage quantification assessments for ourclients. Our professionals regularly deliver expert,consulting and fact witness testimony in courts, ar-bitrations and mediations around the world.

We have been honored to provide our expertise oncases of every size and scope, and we would bepleased to discuss our involvement on these fileswhile still maintaining our commitment to clientconfidentiality. Briefly, some of these engagementshave involved: lost profit calculations; business dis-putes or valuations; commercial lending; fraud;product liability and construction damages.However, we have also worked across many otherpractice areas and, as a result, in virtually every in-dustry.

Founded in Chicago in 1933, MDD is now a globalentity with 22 U.S. and 13 international locations.

In the United States, MDD’s partners and seniorstaff are Certified Public Accountants; many arealso Certified Valuation Analysts and CertifiedFraud Examiners. Our international partners andprofessionals possess the appropriate designationsand are similarly qualified for their respectivecountries. In addition to these designations, ourforensic accountants speak 30 languages.

Regardless of where our work may take us aroundthe world, our exceptional dedication, singularlyqualified experts and demonstrated results will al-ways be the hallmark of our firm. To learn moreabout MDD and the services we provide, we inviteyou to visit us at www.mdd.com. You are also wel-come to contact John A. Damico, one of MDD’sfounding partners, at [email protected] or404.252.0085.

2012 USLAW Partners

Magna Legal Services, LLC OFFICIAL JURY CONSULTANT PARTNER OF USLAW NETWORKwww.magnals.com1635 Market Street, 8th FloorPhiladelphia, PA 19103Phone:(866) 624-6221Fax: (866) 579-0819Robert AckermanPresidentEmail: [email protected] HutnickDirector of MarketingEmail: [email protected]

Who are the worst and best jurors for your case? Isyour trial story believable? What are the strengthsof your case you can emphasize, and the weak-nesses that you can eliminate? These are only someof the questions that Magna Legal Services canhelp you answer.

Our consultants can assist in:• Focus Group Research • Mock Trial Research • Thematic Development Research • Perception Studies • Case Risk Assessment • Change of Venue Studies • Jury Selection Assistance • Witness Communication Training • Shadow Jury Studies

By conducting Jury Research, Magna assists youand your clients in identifying the best pathway to afavorable verdict. Let Magna Legal Services helpyou see your case through the jurors’ eyes. Callabout our exclusive cost-effective on-line focusgroups.


Med Legal Consulting SourceOFFICIAL MEDICAL RECORD ANALYSIS, MEDICALBILL AUDIT, AND LIFE CARE PLANNING PARTNER OF USLAW NETWORKwww.medlegal-la.com1000 Wilshire Blvd., Suite 260Los Angeles, CA 90017Phone:(213) 347-0203Fax: (213) 347-0209Nancy Fraser Michalski, RNChief Executive OfficerCell: (310) 993-1363Email: [email protected]

Through expert interpretation of critical informa-tion at the center of bodily injury liability cases,Med Legal consistently delivers case changing in-formation to their clients. Attorneys, risk and litiga-tion managers and claims professionals turn toMed Legal as a part of a greater innovative ap-proach to mitigating damages.

Since its foundation in 2000, Med Legal’s approachto medical record analysis, life care plans and med-ical bill reviews has been grounded in the conceptof building a strategic partnership. Med Legal hasbeen working with litigation and claims teams tobuild strong cases based on facts discovered in themedical records. By bridging the gap between themedical and legal worlds, Med Legal improvescases from the start resulting in improved out-comes with a more limited investment of time andmoney.

Med Legal is a national leader providing medicalrecord reviews, medical bill audits and life careplans. The information Med Legal provides helpswith a range of issues including, but not limited to:(1) understanding how pre-existing conditions re-late to an injury sustained during the incident; (2)verifying the reasonableness of treatment renderedand the past medicals; and (3) evaluating claimsfor future care cost damages.

Med Legal Consulting Source is headquartered inLos Angeles. You can follow Med Legal on twit-ter@medlegalLA.

2012 USLAW Partners

DC’12

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