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Supreme Court Resolves Circuit Split On Insider Trading, Partially Overruling Newman

Posted in Corporate Litigation

Gavel_editFor the first time since 1997, the United States Supreme Court explored the requirements for proving a federal securities fraud claim based on insider trading, in Salman v. United States (Dec. 6, 2016).  The Salman opinion confirms that a factfinder may infer a personal benefit to a tipper from a gift of confidential information to a trading relative or friend, without the added requirement of “proof of a meaningful relationship” that had been imposed by the Second Circuit in United States v. Newman, 773 F.3d 438 (2d Cir. 2015).  Salman thus resolves a circuit split that had developed between the Second and Ninth Circuits.

Historically, individuals have been found to have engaged in securities fraud under “classical” theory or “misappropriation” theory.  Under classical theory, corporate “insiders” (directors, officers, and others deemed to hold a temporary fiduciary status) either trade on inside information or tip the information to someone who does.  Dirks v. S.E.C., 463 U.S. 646 (1983).  Under misappropriation theory, the person trading or tipping inside information need not owe fiduciary duties generally to a corporation and its stockholders, but must violate some relationship of trust and confidence through which she received the information.  United States v. O’Hagan, 521 U.S. 642, 650-52 (1997).  In both cases, then, the person engaging in insider trading has committed an act of deception by violating a relationship of trust and confidence.  Also, in both cases, the actionable deception is to the source of information and not to the other party to the trade or the general trading public, even though the latter may be injured by the trader’s conduct.  See id.  The Supreme Court has not read the federal securities laws as establishing “a general duty between all participants in market transactions to forgo actions based on material, nonpublic information.”  Chiarella v. United States, 445 U.S. 222, 233 (1980).

In the 2015 Newman case, the Second Circuit further limited the ability of the government to bring insider trading cases.  The court acknowledged that language in the Supreme Court’s Dirks opinion could be read as permitting a factfinder to infer that a tipper received a personal benefit by providing confidential information to a trading relative or friend, but added that such an inference “is impermissible in the absence of proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.”  Newman, 773 F.3d at 452.  The Newman opinion called into question hard-won victories by the federal government against insider trading defendants in the Southern District of New York.

The Ninth Circuit took a different direction in Salman.  In that case, confidential information originally was obtained by an investment banker at Citigroup, Maher Kara, who shared it with his brother Michael.  Unbeknownst to Maher, Michael then shared the information with others including the defendant, Bassam Salman, whose sister was married to Maher.  On appeal, the Ninth Circuit refused to follow Newman, considering itself bound by Dirks’ statement that a tipper benefits personally by making a “gift” of confidential information to a trading relative or friend.  To the extent Newman required that the tipper receive an additional benefit by providing the information, the Ninth Circuit declined to follow it.  United States v. Salman, 792 F.3d 1087, 1093 (9th Cir. 2015).

In a unanimous opinion by Justice Alito, the Supreme Court agreed with the Ninth Circuit, explaining that its discussion of gift giving in Dirks resolved the case.  As conceded by Salman’s counsel at oral argument, Maher indisputably would have breached his duty by trading on inside information himself and then making a cash gift of all trading proceeds to his brother.  Maher “effectively achieved the same result by disclosing the information to Michael, and allowing him to trade on it.”  Viewed in this light, it was unnecessary to find an additional pecuniary benefit resulting from the exchange of information:

Dirks specifies that when  a tipper gives inside information to ‘a trading relative or friend,’ the jury can infer that the tipper meant to provide the equivalent of a cash gift.  In such situations, the tipper benefits personally because giving a gift of trading information is the same thing as trading by the tipper followed by a gift of the proceeds.  Here, by disclosing confidential information as a gift to his brother with the expectation that he would trade on it, Maher breached his duty of trust and confidence to Citigroup and his clients – a duty Salman acquired, and breached himself, by trading on the information with full knowledge that it had been improperly disclosed.

Thus, Salman also appears to confirm that for an insider trading charge to succeed, the recipient of confidential information must know that it was disclosed in violation of a relationship of trust and confidence.

Salman was in many respects an “easy case,” because of the obvious and undisputed family relationships among the actors involved.  It remains to be seen whether the Second Circuit will continue to apply Newman or some new standard to cases in which the tipper and tippee are not in the same family and the benefit of making a gift of information is arguably less obvious.  In this regard, the Supreme Court stated in footnote 1 of its opinion that its decision did not implicate the questions of proof arising in the Newman case.  Practitioners also may observe that in footnote 2, the Supreme Court noted that the parties did not dispute the assumption that Dirks’ personal-benefit analysis applies both in “classical” and “misappropriation” cases, and therefore did not resolve whether both theories applied (as the government claimed) or only the misappropriation theory applied (as Salman claimed).

Salman v. United States (Dec. 6, 2016)

United States v. Newman, 773 F.3d 438 (2d Cir. 2015)

 

Causation Standard at Center of PA Supreme Court Asbestos Ruling

Posted in Asbestos Litigation, Litigation Trends

Pennsylvania-supreme-court-buildingOn November 22, 2016, the Pennsylvania Supreme Court issued a 4-2 Opinion in Rost v. Ford Motor Co., No. 56 EAP 2014, 2016 Pa. LEXIS 2638 (Pa. Nov. 22, 2016), in which the court purported to uphold and expand upon prior asbestos causation decisions set forth in Gregg v. V-J Auto Parts, Co., 596 A.2d 274 (Pa. 2007), and Betz v. Pneumo Abex, LLC, 44 A.3d 27 (Pa. 2010). However, when juxtaposed against the dissents of Chief Justice Saylor—the author of both Gregg and Betz—and Justice Baer, it becomes evident that the majority opinion creates an additional obstacle for defendants (particularly low-dose defendants) on the path toward exculpation.

In the opinion, the majority upholds a plaintiff’s verdict against Ford Motor Company for a plaintiff, Mr. Rost, who alleged he had experienced direct occupational bystander exposure to asbestos from Ford products while working as a “gofer” in an automotive repair garage over a three month time period. Ford challenged the verdict on two grounds: i) the plaintiff’s expert, Dr. Frank’s, causation opinion was impermissibly before the jury when the opinion amounted to an “each and every breath” opinion (which the court explicitly rejected in both Gregg and Betz) and, with respect to substantial factor causation, Dr. Frank’s opinion failed to take into account plaintiff’s other industrial occupational exposure during which Mr. Rost was exposed to asbestos “at pretty high levels” over at least a ten year period; and ii) the trial court erred in consolidating Mr. Rost’s case with other non-related mesothelioma cases.

Dr. Frank testified generally that mesothelioma is a dose-response disease wherein as the dose increases, the likelihood of developing the disease increases. He also testified that it is scientifically impossible to identify a particular exposure that caused the plaintiff’s disease where there were four sources of exposure, but that the causative agent was a series of exposures. Mr. Frank asserted that all documented exposures should be considered as contributing to the plaintiff’s development of disease, and concluded that it is not possible to quantify how much asbestos initiates the disease process and that it also varies according to individual susceptibility. After testifying to those opinions generally, Dr. Frank testified using a hypothetical that exposure to Ford products specifically was a substantial contributing factor to the plaintiff developing mesothelioma. Dr. Frank asserted “if [the three month exposure to Ford products] would have been [Mr. Rost’s] only exposure, I would be sitting here saying that that was the cause of his disease. Given that he had other exposures, it was all contributory.” Rost, No. 56 EAP 2014, 2016 Pa. LEXIS 2638, at *13.

 

Plaintiff’s Expert’s Conclusory Opinion Satisfied the Causation Standard

The majority began its analysis by revisiting two prior decisions—Gregg and Betz. In Gregg, the court rejected the “each and every breath” theory of causation as insufficient to create a factual issue to submit to the jury. In Betz, the court determined that a plaintiff must adduce evidence that exposure to a particular defendant’s asbestos-containing product was sufficiently “frequent, regular, and proximate” to support a jury’s finding that a defendant’s product was substantially causative of the disease.

In differentiating this case from Gregg and Betz, the court found that “while Dr. Frank clearly testified that every exposure to asbestos cumulatively contributed to Rost’s development of mesothelioma, he never testified that every exposure to asbestos was a ‘substantial factor’ in contracting the disease.” Id. at *27. (emphasis added). The court decided that Dr. Frank did not testify that a single breath of asbestos while at the garage caused Mr. Rost’s mesothelioma but that the entirety of his three month exposure caused his disease based on the fact that mesothelioma may develop after only small levels of exposure. The court explained that “[u]nlike the expert witness in Betz, who unabashedly offered ‘each and every breath’ testimony, in this case Dr. Frank relied upon a generally accepted methodology, taking into consideration exposure history, individual susceptibility, biological plausibility, and relevant scientific evidence (including epidemiological studies).”  Id. at *29-30.

The majority also explicitly rejected Ford’s argument that Gregg and Betz require asbestos plaintiffs to prove relative exposure as part of the “substantial factor” test, stating that “[c]omparison of Rost’s other occupational exposures to asbestos was unnecessary.”  Id. at 36. However, this finding contradicts what the court previously set forth in both Gregg and Betz, where the court indicated that a comparative analysis was warranted. In Gregg, the Court noted that “…we do not believe that it is a viable solution to indulge in a fiction that each and every exposure to asbestos, no matter how minimal in relation to other exposures, implicates a fact issue concerning substantial-factor causation in every ‘direct-evidence’ case.” Gregg 943 A.2d 216, 226-27 (Pa. 2007)(emphasis added). In Betz, the court also noted that “a comparative assessment of impact among differing exposures…is required for causal attribution as a matter of science, as it is under Pennsylvania law.” Betz 44 A.3d 27, 58 (Pa. 2012).

Chief Justice Saylor, joined by Justice Baer, best sums up the difficulties for defendants inherent in the majority’s opinion when he critiques that

[The plaintiff’s expert], however, did not provide the jury with any standards, or benchmarks, or other scientifically-accepted premises for assessing the substantiality of the risk associated with Mr. Rost’s “relatively low dose” exposure to [Ford’s] products in the context of Mr. Rost’s overall exposure. Rather, in response to a hypothetical question generally presenting the circumstances of Mr. Rost’s exposure to Ford products, [the plaintiff’s expert] merely affirmed, in a conclusory fashion, his belief that the exposure was substantially causative…By way of explanation or otherwise, the expert then reverted to various reaffirmations of his other opinions on general and specific causation, i.e., that “all [exposures] contributed[.]”…Where the issue is simply risk—I fail to appreciate how the substantiality of relatively low-dose exposures can be fairly demonstrated in the absence of some sort of reasonably-developed comparative risk assessment accounting for higher-dose industrial exposures. Rost, No. 56 EAP 2014, 2016 Pa. LEXIS 2638, at *69-70, 74.

 

Ford Suffered No Prejudice as a Result of Improper Consolidation

On the issue of consolidation, the majority found that the trial court’s apparently mandatory practice of consolidating asbestos cases based solely on the type of disease alleged violated Pennsylvania Rule of Civil Procedure 213(a). Under that rule, the trial court is permitted to consolidate cases, at its discretion, when there are common issues of law or fact, or which arise from the same occurrence or transaction. Instead, the trial court conducted no analysis and denied Ford’s several requests to sever the case on the sole rationale that consolidation has been a long-standing practice in asbestos matters before the trial court.

Despite the violation, the Pennsylvania Supreme Court found that Ford suffered no prejudice from the trial court’s error because Ford had an opportunity to cross-examine the other defendants’ witnesses but chose not to; Ford did not object to any portion of other defendants’ expert testimonies or closing arguments; and the jury was not confused on the issues when the trial court repeatedly instructed the jury to treat each case individually and decide each on its own merits.

Chief Justice Saylor also dissented from the court’s finding that the trial court’s error in consolidating several matters was not prejudicial and asserted that it is difficult to articulate specific prejudice but, when the court subsumes all of the differences among the various plaintiffs and their circumstances in unrelated cases, prejudice is inherent.

 

Key Takeaways for Asbestos Defendants

Asbestos defendants, particularly low-dose asbestos defendants, are in a precarious situation in Pennsylvania. The Pennsylvania Supreme Court appears to have approved conclusory opinions as satisfaction of a plaintiff’s burden to establish substantial factor causation and, perhaps even more disturbing for defendants, the Court has also apparently sanctioned the trial court’s improper consolidation of unrelated same-disease asbestos cases without consequence. So what is a defendant to do (besides hope that they don’t get sued in Pennsylvania and/or vote out the majority Justices)?[1]  Unfortunately, the answer is not clear given the conflicting views between Rost with Gregg and Betz, but it is clear that it will be more unpredictable for defendants to litigate asbestos cases in Pennsylvania as the current court takes a more plaintiff-friendly stance.

[1] The author of this article is both a proud resident and licensed attorney of the Commonwealth of Pennsylvania and, therefore, believes she has license to speak tongue in cheek about her state and the process by which judicial positions are filled.

 

 

Another Smoking Lung Cancer Asbestos Claim Gets Burned in Baltimore

Posted in Asbestos Litigation, Litigation Trends, Maryland Courts

camelsFive plaintiffs in a smoking lung cancer case in a Baltimore City, Maryland case captioned James Harrell, et al v. ACandS, INC., et al, Consol. Case No. 24X16000053 saw their claims go up in smoke on November 15, 2016 when the Court granted certain Defendants’ Motion for Summary Judgment on the Basis of Assumption of Risk and Contributory Negligence. With Judge Althea M. Handy presiding, the Court addressed whether the plaintiffs had assumed the risk of developing lung cancer by knowing of the addictiveness of cigarettes and their ability to cause lung cancer, but nevertheless proceeding to smoke cigarettes numbering in the thousands.

In Maryland, assumption of the risk is a defense that serves as a complete bar to plaintiff’s recovery of damages under both negligence and strict liability for failure to warn causes of action.[1] To prevail on the defense of assumption of the risk, the defendant must show that the plaintiff “1) had knowledge of the risk of danger; 2) appreciated that risk; and 3) voluntarily confronted the risk of danger.”[2] Under Maryland law, the first two elements are judged by an objective standard. The third element requires that the defendant establish that there was no restriction on the plaintiff’s freedom of choice either by existing circumstance or by coercion emanating from the defendant.[3]

With regard to the first element, the Court in Harrell found that the plaintiffs had knowledge and appreciated the risk that cigarettes were hazardous not by any direct evidence, but instead by relying on discussions of the hazards in the popular media, an almost guilt by association theory. For example, the Court noted that Reader’s Digest, “one of the most widely read publications in the 1920s and 1930s published articles discussing the addictiveness of cigarettes” and that a popular country artist recorded lyrics in 1947 that used phrases like “nicotine slave” and “smoke yourself to death.” The Court further relied on Maryland jurisprudence that concluded that “the ordinary consumer was aware of smoking hazards . . . since the 1950s.”[4]

With regard to the second element, the Court again relied not on any appreciation of risk specific to the plaintiffs, but on “common knowledge by the 1950s” that smoking cigarettes caused lung cancer. The court cited CBS News Program airings on smoking and lung cancer, 1950s print media reporting the connection, and again referenced case law that “found that from 1947 to 1984 the dangers of smoking were obvious and generally known so as to bar the plaintiff’s claims.”[5]

Finally, with regard to the third element, the court found that because the plaintiffs smoked such a high number of cigarettes (reaching in the tens and hundreds of thousands) from the 1950s through the subsequent decades, during a time when warning labels were required on every package, they voluntarily confronted the risk of smoking.

Earlier this year in the The Estate of Willard Entwisle, et al. v. ACandS, Inc. et al., Consol. Case No. 24X15000108, a different Baltimore City Judge granted a sealing product defendant’s Motion for Judgment as a Matter of Law in a smoking lung cancer asbestos personal injury matter, also finding that the plaintiffs’ damages related to his lung cancer were barred by the doctrine of assumption of the risk. However, in the Entwisle matter, the court required specific testimony that the decedent in the case had knowledge not only of the risks of smoking, but of the increased risk of lung cancer from the synergistic effects of asbestos exposure and smoking, something that the Court in Harrell did not mention. The evidence in Entwisle with regard to the knowledge and appreciation of the risk were also more plaintiff specific (i.e. testimony from the decedent’s co-worker and daughter), rather than broadly encompassing a “prevailing knowledge of the day” standard that the court in Harrell seemed satisfied with.

Does Harrell signal that courts in Baltimore may be willing to view the assumption of the risk doctrine more expansively in smoking lung cancer cases? Only time will tell.

[1] Blood v. Hamami, 143 Md. App. 375, 385 (2002).

[2] Blood, 143 Md. at 386 (quoting Liscombe v. Potomac Edison Co., 303 Md. 619, 630 (1985).

[3] Crews v. Hollenback, 358 Md. 627, 644 (2000).

[4] Citing to Estate of white ex rel. white v. R.J. Reynolds Tobacco Co., 109 F. Supp. 2d 424, 433 (D. Md. 2000).

[5] Waterhouse v. R.J. Reynolds Tobacco Co., 368 F. Supp. 2d. 432, 437-38 (D. Md. 2005).

Delaware Supreme Court Repudiates LLC’s Fraudulent Inducement Defense in Summary Advancement Proceeding

Posted in Delaware Courts, Employment Litigation, Litigation Trends, Uncategorized
Delaware Supreme Court

Delaware Supreme Court

The Delaware Supreme Court recently held that the plain language of an employment agreement and an LLC agreement prevented an LLC from interjecting a fraudulent inducement defense into a summary proceeding for the advancement of litigation expenses under Section 18-108 of the Delaware LLC Act.

Trascent Mgmt. Consulting, LLC v. Bouri, No. 126, 2016 (Del. Nov. 28, 2016). In Trascent, an LLC brought claims against a terminated executive for breach of his employment agreement. The executive then counterclaimed for advancement of his litigation expenses under his employment agreement and the operating agreement of the LLC, both of which contained nearly identical language stating that, “[u]nless a determination has been made by final, nonappealable order of a court of competent jurisdiction that indemnification is not required, [the LLC] shall, upon the request of [the indemnitee], advance or promptly reimburse [the indemnitee’s] reasonable cost of investigation, litigation or appeal, including reasonable attorneys’ fees [subject to the condition that the indemnitee provide a written undertaking to repay advancements if a court of competent jurisdiction ultimately decided he was not entitled to indemnification].” Having agreed to this language, the LLC “knew it agreed to provide a right, subject to expedited specific enforcement, and it could not reasonably believe that it could deny that right simply by alleging that the contract was invalid.”

Under those circumstances, the Court explained, allowing the LLC to interpose a defense of fraudulent inducement would be inconsistent with the contractual language, would defeat the purpose of a statutory advancement proceeding by inserting a “plenary claim” into what the Court noted should be a summary proceeding, and would impair the public policy interests served by contractual advancement provisions. In dicta, the Court also noted that equity supported its ruling because the LLC had employed the executive for 16 months and then sued him under the same contract that it claimed was invalid.

Link to ruling:

http://courts.delaware.gov/Opinions/Download.aspx?id=249390

Court Orders “One-Star” Yelp Review of Attorney Removed but Non-Party Yelp Refuses

Posted in California Courts, Litigation Trends, Professional Liability

How one small San Francisco case may cause significant change for the Internet and its users

2016_07_27-yelp-law-suit_homepage-3-22527971222Ever rely on a negative review on Yelp? Ever write a negative review on Yelp?  Well, one small dispute in San Francisco has set precedent in place that such a review can be found defamatory and ordered removed by not only the reviewer but Yelp itself – even when Yelp was not a party to the action. The decision, which was recently upheld up by the California Court of Appeal (Hassell v. Bird (2016) 247 Cal.App.4th 1336), is currently being reviewed by the California Supreme Court. An opinion is expected next year; however, the decision is a departure from the common understanding that user generated content is not only unequivocally protected by the First Amendment but that the online publisher is immune from any liability for such content under Section 230 of the Communications Decency Act.

This decision is intriguing on its face because apparently a business has recourse and potential legal support to seek certain comments be removed from online sites like Yelp (or Google, or Facebook, or Trip Advisor etc.) but what is also of import to the likely reader of this blog are the underlying facts, which involved review of an attorney’s handling of a personal injury case. Yes, you can post a review of your lawyer on Yelp.

San Francisco attorney Dawn Hassell’s firm represented Ava Bird for 25 days in a simple personal injury case in 2012. Hassell withdrew as counsel because her firm had difficulty communicating with Bird and Bird expressed dissatisfaction with Hassell’s firm. Hassell produced evidence of dozens of direct communications with Bird, at least one in-person meeting, and efforts made to resolve Bird’s claim with the insurance company involved. At the time Hassell withdrew, Bird had 21 months to file her claim before the statute of limitations expired. A few months later, on January 28, 2013, Bird posted a “one-star” (the lowest rating) review on Yelp.com about her experience with Hassell. Thereafter, Hassell sent Bird an e-mail (after telephone calls were apparently not returned) requesting she remove “the factual inaccuracies and defamatory remarks” from Bird’s review to which Bird refused.

Hassell then filed suit in February 2013 allegedly after seeking Yelp’s assistance and after she was advised by counsel for Yelp that the only recourse was legal action against the actual reviewer, Bird. Of course that recollection is disputed by Yelp. After filing suit, Bird posted yet another review (to which Hassell responded to on Yelp). It is also alleged by Hassell that Bird then posted at least one other review under another pseudonym.

Hassell prevailed because Bird never showed up in any of the proceedings and thus, a default was entered against her. At the default prove-up hearing Hassell was sworn and testified. Bird again did not appear. The Court found the reviews defamatory and awarded approximately $555,000 in damages and costs as well as an injunction ordering Bird to remove her posts about Hassell and her firm from Yelp. Now here is where the twist comes in: Hassell requested –  in light of Bird’s history of “flaunting” the California court system  – and the Court also ordered non-party Yelp to remove all Bird’s reviews including those Bird was thought to have posted under another pseudonym. Yelp was served with the judgment but determined that the judgment was “rife with deficiencies” and saw “no reason at this time to remove the reviews at issue.” Yelp then sought to set aside and vacate the judgment, which the Court denied finding that Yelp highlighted the defamatory reviews; the motion was not limited to Yelp’s own interests; and Yelp refused to acknowledge by a judicial finding that Bird’s reviews were defamatory and thus in violation of its own terms of service and therefore, “Yelp is aiding and abetting the ongoing violation of the injunction.” Yelp appealed.

There are a three central issues at play here: first, due process considerations as Yelp was a non-party to this action yet was ordered to remove posts from its website; second, immunity for online providers as Yelp claims it is legally immune from liability from what its users post on its sites under Section 230 of the Communications Decency Act; and third, First Amendment rights as Yelp claims Bird’s speech is being suppressed when Hassell failed to prove it was defamatory (because the finding was not made by a jury).

The appeals court affirmed the trial court’s order denying Yelp’s motion to vacate the judgment. In sum, the Court of Appeal found that: Yelp was not aggrieved by the judgment; Yelp had no constitutional right to notice and a hearing on the trial court’s order (to remove the reviews); and the Communications Decency Act did not bar the trial court’s order.

As to the First Amendment claims, the Court of Appeal found those statements that were found defamatory are not afforded the protection of the First Amendment but to the extent that the order included subsequent posts that Bird or anyone else may post, the order is a prior restraint on speech. The matter was remanded to the trial court to modify its order accordingly on the issue. Yelp raised the argument that the speech found defamatory was not a finding by a jury but rather, by the judge so it was not properly decided to which the Court found no legal support for that argument.

This decision has caught the eye of the ACLU and certain non-profit think tanks who are champions for free speech and the internet economy in addition to a significant number of members of the Internet community (Facebook, Twitter). This decision is a big threat to Section 230 as it not only opens up liability to online publishers but threatens to limit speech. Not to mention this could place the onus on these publishers to edit user content to “one side of the debate.” Hearing both sides of a debate is a tenet both appreciated and disliked about online user content but nevertheless respected under the theory that all opinions, negative or positive, should be heard. So basically an action won essentially by default that resulted in a judgment against a non-party online publisher may turn online speech for everyone – user and publisher – on its head. For many of us that use Yelp regularly, there is in inherent value in both positive and negative reviews but the latter reviews may soon be silenced for fear of liability.

The reviews remain on Yelp to this day so if the opinion is not overturned, Yelp likely faces contempt proceedings and Hassell and her firm potentially remain harmed by the defamatory speech albeit Hassell does have a “five star” rating on Yelp. Regardless, this little dispute may change the meaningfulness of such reviews. Stay tuned.

Daimler Ruling’s Crucial Role in Recent Delaware Court Decision

Posted in Asbestos Litigation, Delaware Courts, Litigation Trends

Jury_Box_Purchased_8-13-14_iStock_000010826297SmallSince the United States Supreme Court’s decision in Daimler AG v. Bauman in 2014, general jurisdiction over a corporate defendant has become a hot topic. See 134 S. Ct. 746 (2014). In most jurisdictions, it is no longer sufficient for a plaintiff to establish a corporate defendant was registered to do business in the jurisdiction at issue or that the corporate defendant had sales and/or derived revenue in the jurisdiction at issue. Rather, there is a heightened inquiry and heavier burden placed on a plaintiff.

The Daimler Court held that a corporate defendant is deemed “at home” for purposes of establishing general jurisdiction over it in the forum where it is incorporated and in the forum where it maintains its principal place of business. Outside of those two circumstances, a corporate defendant will be considered at home only in exceptional cases.

One such exceptional case, as noted by the Daimler Court, can be found in the Perkins v. Benguet Consol. Mining Co. case wherein a corporate defendant moved its operations to Ohio out of Japanese occupied Philippines during World War II. See 342 U.S. 437 (1952). In Perkins, the president of the corporate defendant company kept an office, maintained company files, and oversaw the company’s activities in Ohio sufficient to render the defendant essentially at home in Ohio.

Many courts have interpreted the Court’s opinion in Daimler to place a heavy burden on plaintiffs to present such an exceptional case. With such a heavy burden placed on plaintiffs, the question many defendants are asking is: what amount of discovery are plaintiffs entitled to take in order to establish general jurisdiction over a corporate defendant?

The Delaware Superior Court recently faced this very question. In April 2016, the Delaware Supreme Court issued a decision in Genuine Parts Co. v. Cepec limiting the circumstances in which a defendant is deemed to be subject to general jurisdiction in the State of Delaware pursuant to Daimler. 137 A.3d 123 (Del. 2016). Shortly thereafter, Defendant Union Carbide Corporation (“UCC”) filed motions to dismiss for lack of personal jurisdiction pursuant to Daimler and Cepec in 211 cases pending in New Castle County, Delaware. The plaintiff in one of those cases – Charles Kimble – responded by serving written discovery requests and seeking the deposition of UCC’s corporate representative. In addition, plaintiffs in six additional cases[1] (out of the 211 with pending motions to dismiss) sought the deposition of The Dow Chemical Company (“Dow”) alleging Dow, as a Delaware corporation and parent to UCC, held some information relevant to whether the Delaware Superior Court could exercise general jurisdiction over UCC.

UCC responded to written interrogatories and document requests providing its basic corporate information and publicly available documents detailing its limited contacts with Delaware and its relationship with Dow. However, UCC and Dow both filed separate motions to quash the depositions of their corporate representatives (“Motions”). In their Motions, UCC and Dow argued Plaintiffs failed to provide “some indication” of a plausible basis for their assertion that Delaware Superior Court could exercise general personal jurisdiction over UCC and Dow pursuant to Daimler.

Plaintiffs opposed UCC’s and Dow’s Motions and asserted a cross motion seeking to compel UCC to provide full and complete responses to interrogatories and document requests. The basis for Plaintiffs’ opposition was that UCC’s relationship with Delaware presented an exceptional case in that it is registered to do business in Delaware and substantially all of its revenue is derived through sales to its parent company, Dow, which is also a Delaware Corporation. Plaintiffs ignored the fact that UCC is neither incorporated in nor has its principal place of business in Delaware. Instead, it focused solely on the relationship UCC maintains with Dow to attempt to establish personal jurisdiction.

On October 1, 2016, the Special Master in Delaware Superior Court issued an opinion quashing the depositions of UCC’s and Dow’s corporate representatives and denying Plaintiffs’ motion to compel. The Special Master relied on Delaware precedent requiring a plaintiff to establish an articulable, plausible theory by which the Delaware courts could exercise jurisdiction over UCC and determined Plaintiffs had put forth no such theory to entitle them to the discovery they sought.

In determining no additional discovery was warranted, the Special Master focused on the lack of exceptional circumstances present. It was undisputed that UCC’s state of incorporation and principal place of business are outside of Delaware, UCC has no office or manufacturing facility in Delaware, and it does not own, operate or lease any real property in Delaware. The Special Master observed that Plaintiffs underestimated the rigorous test set forth in Daimler as Plaintiffs asserted only that UCC conducts business in Delaware through transactions with its parent company and Delaware corporation, Dow. Notably, the Special Master re-iterated the fact that Daimler essentially changed the landscape of the jurisdictional analysis by requiring more evidence than that necessary to simply establish a defendant conducted business in the forum state.

The Special Master’s decision will hopefully help to pave the path in asbestos litigation. Despite a clear test to determine when a court may exercise general jurisdiction over a corporate defendant, plaintiffs continue to serve overbroad jurisdictional discovery seeking much of the information they already possess in an effort to seemingly conduct a fishing expedition into areas irrelevant to the personal jurisdiction analysis. The Daimler Court itself stated “it is hard to see why much in the way of discovery would be needed to determine where a corporation is at home.” 134 S. Ct. at 762 n. 20. Not only are plaintiffs’ inquiries often irrelevant, but defendants are forced to expend significant costs engaging in such discovery in jurisdictions in which they do not legally belong.

[1]  Plaintiffs James Bailey, Francis Classon, James Davis, Susan Domino, Frank Dudley, and Kathleen Gloyne filed one consolidated request to depose Dow’s corporate representative on issues relating to whether Delaware courts could exercise personal jurisdiction over UCC.

Don’t Watch Your Personal Jurisdiction Defense Sail Away

Posted in Employment Litigation, Litigation Trends, Rhode Island Courts

Inland_cat_sailboatThe rules of civil procedure are thrust, like harpoons, upon young lawyers during their first year of law school, and for good reason.  Failing to abide by any number of a jurisdiction’s various rules sections, subsections, and clauses can result in instant death to your client’s cause of action or defense.  For example, we know that under Rule 12(b) of the Federal Rules of Civil Procedure, motions asserting the defense of personal jurisdiction must be made before filing a responsive pleading, and can be deemed waived if not raised in such a motion or the responsive pleading itself.

Though there are various exceptions to the time-to-plead rules, the importance of getting a personal jurisdiction challenge front and center before the court early on in the litigation process applies to most jurisdictions, and a failure to do so can undermine the defense altogether.  A defendant learned this lesson the hard way in a recent case before the Rhode Island State Supreme Court.

In Pullar v. Cappelli, No. 2015-303 (R.I. 2016), the plaintiff (and former Rhode Island resident) met the defendant (a New York resident) in New York to negotiate a contract for employment, in which the plaintiff was to serve as captain of the defendant’s sailboat for a term of three years, with an annual salary and promise of bonus amounting to one year’s salary at the conclusion of the contract.  One month before the contract was set to expire, the defendant terminated the plaintiff’s employment without cause, denying the skipper his bonus.  The plaintiff subsequently filed suit for breach of contract to recover the money owed him.

In his initial answer, the defendant asserted that the subject venue, Rhode Island, did not have personal jurisdiction over him.  Nevertheless, the case proceeded for the next three years, through virtually all stages of litigation.  The defendant served written discovery, took the plaintiff’s deposition, filed discovery motions with the court, participated in court-annexed arbitration, rejected the arbitration award, and requested a trial assignment.  After the case was assigned for trial, and more than one year after the conclusion of arbitration, the defendant moved for summary judgment, asserting a lack of in personam jurisdiction.

On appeal after the trial court granted the defendant’s motion, the Rhode Island Supreme Court did not waste any breathe analyzing whether the defendant had minimum contacts with the state to satisfy the jurisdictional requirements of the long arm statute.  Recognizing that the defendant properly preserved the jurisdictional defense by raising it in his answer, the Court rejected the notion “that preservation of the defense is inviolable simply because it was raised in the answer.”  Relying on the analogous Rule 12 of the Federal Rules of Civil Procedure and interpretive case law, the Court concluded that simply asserting a jurisdictional defect in an answer does not preserve the right to raise the defense indefinitely.  Adopting the forfeiture doctrine developed by the federal court, the Supreme Court held that the defendant’s conduct prior to asserting his jurisdictional defense gave the plaintiff the reasonable expectation that he would defend the case on the merits.  By conducting three and one half years of active litigation, submitting to the jurisdiction of the arbitration panel, and requesting  a trial date, the defendant was found to have forfeited his personal jurisdiction defense.  The case was remanded for further proceedings.

The lesson of Pullar is not hard to extract.  A properly preserved jurisdictional defense, like a pickled herring in the belly of a galleon, will still spoil if is not timely utilized.

The Trouble with Dying Declaration Affidavits in Asbestos Litigation: a Case Study

Posted in Asbestos Litigation, Products Liability

Lady JusticeIn asbestos litigation, often times a plaintiff’s sole evidence of product identification takes the form of an affidavit created shortly before the claimant passes away.  Typically called a “dying-declaration” affidavit, the document preserves the plaintiff’s written testimony for trial, thereby preserving his cause of action against the individuals and entities he believes were responsible for causing his illness.

Such affidavits are problematic for defendants for a variety of reasons, principally because the affidavits are frequently created in the short window between a litigant’s diagnosis and his death, which may pre-date the filing of suit.  Under these circumstances, there is patent prejudice inflicted on defendants whose products are identified in the affidavits.  The defendants are denied the right to place the written identification testimony through the crucible of cross-examination, a fundamental right that is generally afforded to defendants in all litigation.

The prejudice inflicted on the decedent-plaintiff, however, is equally patent, if the affidavits are excluded from evidence.  The plaintiff may be the only source of product identification evidence available to his estate, and to deny the admission of a dying declaration affidavit may deny the plaintiff a viable cause of action.

Courts facing the dilemma posed by a dying declaration affidavit recognize the competing rights and interests of the litigants, and often look to the circumstances under which the document was created.  A recent decision in the Rhode Island Superior Court, Pisano v. Alfa Laval, Inc., C.A. No. PC-13-5868 (November 2, 2016) (Gibney, J.), weighed the competing interests with the language of the operative rule of evidence, and came down on the side of the plaintiff, admitting three affidavits executed less than two months prior to the plaintiff’s death, and before he could be deposed, for the purposes of defeating a defendant’s summary judgment motion.

In Pisano, a defendant moved for summary judgment asserting, among other things, insufficient product identification, where the evidence was limited to the plaintiff’s three affidavits.  The plaintiff had been diagnosed with mesothelioma on September 27, 2013, and executed the three affidavits in two separate bunches, one on October 25, 2013, and the other two on November 1, 2013.  The plaintiff passed away on December 16, 2013, one month after suit had been filed, and before he could be deposed by the defendants.  In the first October 25, 2013 affidavit, the plaintiff stated that he cut and installed asbestos-containing flooring tiles with his neighbor in the basement of his home in 1964; he described the tiles as being 10” x 10” and speckled black and white.  In the second affidavit, executed November 1, 2013, the plaintiff reiterated the events in the first affidavit, and further stated that the tiles were in fact 9” x 9”, black and white in color, and of the type he had circled in defendant’s catalog, which was attached as an exhibit to the affidavit.  In the third affidavit, dated November 1, 2013, the plaintiff stated that he installed ceiling tiles in his home sold by the defendant, and again attached a section of the defendant’s catalog in which he circled the alleged product.  Both the floor and ceiling tiles purportedly contained asbestos, to which the plaintiff was exposed.

The defendant challenged the admissibility of the affidavits for the purposes of product identification, arguing, in part, that the affidavits did not satisfy the “dying declaration” exception to the rule against hearsay because they were executed more than a month before the plaintiff  passed away and therefore were not made under the belief of impending death.  The trial court, Gibney, J., disagreed.  Recognizing that in order to be relied on at the summary judgment stage, affidavits must contain information that would be deemed admissible at trial, the court turned to Rhode Island Rules of Evidence 804(b) [1] to analyze the affidavits.

Under Rule 804(b), an unavailable declarant’s statements are admissible if made under belief of impending death, and relate to the declarant’s perceived cause or circumstances of his death.  The declarant’s state of mind can be proven by direct or circumstantial evidence, including through statements made to the declarant about his medical condition.  The dying declaration exception to hearsay is justified by the belief that the declarant’s impending death likely removes any motivation to make false claims.  In analyzing the Pisano affidavits, the court noted that, under existing case law, no time limit applies to terminal illness cases when defining the phrase “impending death” under 804.  In fact, the court referred to a previous decision in which it considered the fact that statements made by a declarant after being told that his condition was incurable and inoperable constituted a dying declaration for purposes of the rule.   The Pisano plaintiff represented, in his second affidavit, that he provided his statements “with the understanding that [he] may not be well enough to survive through the time of a deposition or trial.”  The court was therefore satisfied that the plaintiff sufficiently established his belief of impending death through his express statements, and deemed the affidavits admissible for product identification purposes under Rule 804.

Pisano follows the universal policy courts favor throughout the nation of resolving issues, evidentiary or otherwise, in a manner that permits the plaintiff a decision on the merits of his case.  Defendants must be vigilant in exploring not only the content of dying declaration affidavits, but the circumstances of their creation in order to posture for their exclusion from evidence both at the summary judgment stage and at trial.

[1] Rule 804 of the Rhode Island Rules of Evidence is functionally identical to Rule 804 of the Federal Rules of Evidence; both address the dying declaration exception to the rule against hearsay, among others.

The Case of the Missing Product: What Is a Defendant To Do?

Posted in Complex Torts, Louisiana Courts, Products Liability

Artboard 1You get served with a citation in a new products suit. The facts do not look good. The airbag system didn’t deploy. Maybe a tire exploded. Perhaps the steering assembly failed. A call is made to the plaintiff’s attorney – you want an expert to use an onboard diagnostic tool to test for what went wrong. Expecting to reach an amenable date for an inspection, you get a response that you were not quite expecting – the vehicle (or tire or steering assembly) has been salvaged and is no longer available for inspection. What happens next, and the legal theories involved, undoubtedly vary from state to state. Here we take a brief look at Louisiana law on the “case of the missing product.”

Adverse Presumption

In Williams v. General Motors Corp., 639 So. 2d 275, 276 (La. App. 4 Cir. 1994), the plaintiff was driving as 1985 Buick manufactured by GM when his steering failed and his vehicle veered into a guardrail. After the accident, the Williams’ damaged vehicle was taken to Jackie Rowan’s Automotive Repair where “[a]n employee of the repair shop discarded the rack and pinion steering assembly. Mr. Williams, therefore, could not produce those parts at the trial in support of his claim that they were defective.” Id. at 278. General Motors asserted that the failure to produce those parts in court “creates a presumption that the evidence would have been unfavorable to his cause.” Id. The court held that “[w]here a litigant fails to produce evidence available to him and gives no reasonable explanation, the presumption is that the evidence would have been unfavorable to him….the record supports Mr. Williams’ contention that the part was inadvertently discarded when it was mistaken for scrap metal by an employee of Jackie Rowan’s Automotive Repair Shop.” Id. The court held that Mr. Williams therefore provided a reasonable explanation for his failure to produce the evidence in court and no such unfavorable presumption applied. Id.

While in the Williams case the plaintiff was able to provide a ‘reasonable explanation’ for his failure to produce the allegedly defect part, such a determination is fact intensive and varies from case to case. Depending on the plaintiff’s response to the inquiry requesting an inspection of the product, there may be an opportunity to seek an adverse presumption prior to trial.

 

The Firestone Case & Summary Judgment

firestoneAlternatively, if the facts so align, a more cost effective approach may be a motion for summary judgment. In a very recent case, Gladney v. Milam, 39, 982 (La. App. 2 Cir. 9/21/15); 911 So. 2d 366, the plaintiff was driving a leased van equipped with Firestone tires when the van’s right front tire failed and the plaintiff lost control of his vehicle. Firestone filed a motion for summary judgment on the grounds that plaintiff could not prove a defective condition without producing the tire at issue, which had gone missing for reasons unknown. Id. at 368. The plaintiff had “photographs of the damaged tire, a copy of the state police accident report listing tire failure as the cause of the accident, [and] the affidavit of Sidney Youngblood, a manager of a tire store who had reviewed photographs of the tire, and correspondence concerning the location of the tire.” Id. The court ultimately held as follows:

 

At trial, the plaintiffs would have the burden of proving by a preponderance of evidence that a characteristic of the tire made it unreasonably dangerous, or that the tire was negligently maintained, thereby causing the accident. However, the plaintiffs’ experts did not know the air pressure at the time of the accident or when the pressure was last checked, and could only speculate that the tire was defective given the visible damage to the tire depicted in the photographs. Thus, although the circumstantial evidence offered by plaintiffs raised several plausible explanations for the cause of the tire’s failure, the record does not contain sufficient evidence from which a reasonable juror could conclude that more probably than not the accident was caused by either a defective condition of the tire or negligent maintenance.

Consequently, we cannot say the district court erred in granting summary judgment in favor of Firestone . . . . Id. at 372.

 

While the above brief discussion only serves a cursory analysis of the ‘Case of The Missing Product,’ it shows that when you have a products liability case with no product, there are substantively powerful and potentially cost effective procedural paths to go down that can advantageously position a manufacturer’s defenses. Proper discovery inquiries also undoubtedly go a long way toward setting the framework for these defenses and, as in any case, require attention to detail so as to garner the right information.

Rhode Island Jury Returns a $23 Million Dram Shop Verdict

Posted in Dram Shop Liability, Premises Liability, Rhode Island Courts

craft beer 2Following a five-week trial, a Providence jury found Twin River Casino, a Providence liquor store, and a teenage drunk driver liable in a dram shop case where the plaintiff, Alissa Moulton, sustained serious spinal injuries following an April 24, 2010 motor vehicle accident. Specifically, Moulton was paralyzed from the chest down when she and her friend, Cristina Sianpi, were ejected from the back seat of a 1997 Toyota Camry.  The car’s driver, 18 year-old defendant Alexander Arango, was Moulton’s boyfriend and the father of their child. According to reports, Arango lost control of the Camry, which struck a median barrier, crossed the two right lanes of the highway, rolled over, and collided—rear end first—with a tree on the highway’s grass shoulder.

Although historically known as “conservative” in terms of verdict awards, it took this particular jury less than two days of deliberation before awarding Moulton $23 million in damages, plus interest. Additionally, the jury assigned 70 percent responsibility to the underage driver, 20 percent to Twin River Casino, and 10 percent to Royal Liquors, a Providence liquor store that allegedly sold alcohol to Arango. Under Rhode Island law, each defendant is jointly and severally liable for the entire amount of damages regardless of the percentage of responsibility. (R.I.G.L. § 10-6-2.)  The defendants against whom a money judgment is entered are also, however, entitled to a set-off in the amount of either: (1) the total amount paid by each settled defendant; or (2) the percentage of fault assigned to each of those settled defendants by the trier of fact, whichever is greater.  (R.I.G.L. § 10-6-7.)

At trial, Moulton, who is now confined to a wheelchair, was represented by Providence personal injury firm of Mandell Schwartz & Boisclair.  Her lawyers argued before Judge William E. Carnes, Jr., that Twin River was negligent in serving alcohol to a visibly intoxicated Arango, and that Twin River violated the Rhode Island Liquor Liability Act (R.I.G.L § 3-14-1 et. seq.) by negligently serving the underage driver.

For his part, Arango, was sentenced to two years in prison after pleading guilty in June 2010 to two counts of driving to endanger resulting in serious bodily injury, and one count of driving under the influence.

A spokesperson for Twin River has suggested that the casino may seek to appeal the decision, as it is “inconsistent” with evidence put on by the defense.

 

About the Authors

Kenneth R. Costa is a partner with Manion Gaynor & Manning. He is a member of the multi-state Products Liability Litigation Team, with a primary focus in insurance defense, products liability, asbestos-related and toxic torts cases in Rhode Island, Massachusetts, and Connecticut.

Matthew Giardina is an associate in Manion Gaynor & Manning’s Providence office, and a member of the firm’s Products Liability and Complex Tort Litigation Group. He focuses his practice in the areas of products liability defense, mass torts, and other complex tort litigation.