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California’s Long Awaited Brinker Decision on Meal and Rest Period Obligations

By Brian Gross and Brittany Maly on Posted in California Courts, Employment Litigation, Litigation Trends

 

The California Supreme Court recently released its long awaited decision in the class action case Brinker v. Superior Court (Hohnbaum), S166350, in which a class of approximately 60,000 restaurant employees alleged their employer failed to provide meal and rest periods as required under California law. Class action litigation has increased exponentially in California, with meal and rest period cases playing a large role in that increase. The Brinker decision provides clarification regarding issues of scope and timing for meal and rest periods required under California law, and provides further guidance regarding certification of classes for wage and hour claims.

Meal Periods

In a long anticipated ruling, the Court held, with regard to meal periods, that employers need not ensure that employees take 30 minute uninterrupted meal periods, but employers must provide such meal periods, in which the employees are relieved of all duty. Under Brinker, an employer has no responsibility to police such meal breaks to ensure that no work is done.  An employer may be liable, however, if they actually know or should know that an employee is not taking the meal period, or they create incentives to coerce or discourage employees from taking their meal period.

The Court also provided some clarification with regard to the timing of meal periods. Plaintiffs argued that California Labor Code Section 512 and California’s Industrial Welfare Commission Wage Orders should be interpreted to require meal periods on a “rolling” basis.  The Court, however, disagreed and found that a meal period must be provided if an employee works a shift over five hours (with the meal period starting no later than the 5th hour), and that a second meal period must be provided no later than the 10th hour of work. The Court also noted that a first meal period may be waived by mutual consent if the employee works no more than 6 hours on the day in question. A second meal period may be waived if the first meal period is not waived and the employee does not work more than 12 hours on the day in question.

Oral arguments can be viewed here:

Rest Periods

The Court also held that employees are entitled to rest periods of 10 minutes “for each four hours of work or major fraction thereof.”  In this context, a “major fraction” means a fraction greater than one half.  No rest period is required for employees who work a shift of less than 3 ½ hours. Michael Kelly, on Squire Sanders’ blog, Employment Law Worldview, provides a chart which outlines the new rest break requirements as follows:

Under the new Brinker standard, employees are entitled to rest breaks as follows:

 

Hours Worked Rest Periods
0 to less than  3.5 hours None
3.5 up to 6 hours 1
More than 6 up to 10 hours 2
More than 10 up to 14 hours 3
More than 14 up to 18 hours 4

 

The Court did not provide similar guidance regarding the timing of rest periods, noting that the Wage Orders only require that rest breaks fall in the middle of work periods “insofar as practicable.” As such, employers are advised to make good faith efforts to provide rest breaks in the middle of a work period, but practicality provides flexibility for the timing of such breaks. It is important to note that for rest periods, there is no “relieve of all duty” standard.

It is important that California employers review their current policies and ensure that they are current and comply with the above requirements. It is also important that employers review time sheets to ensure breaks are taken and that incentives are not created to discourage meal periods. As any employer without a clearly communicated policy is vulnerable to such class action litigation, it is also advisable to inform employees directly of such policies. Employers should also consider the following issues in light of Brinker when reviewing their policies:

 

  • What record keeping will be used to provide proof of meal periods and rest breaks? And how often will these records be reviewed to ensure compliance?
  • Establish what constitutes “relieve of all duty” for purposes of a meal period.
  • Establish a policy for supervisors to ensure employees are not discouraged from taking breaks or coerced.

More information on Brinker and its impact can be found on LXBN. 

USDA Tightens Oversight and Announces New Foodborne Illness Measures

By Brian Gross and Eric Skelly on Posted in Foodborne Illness

Raw HamburgerOn May 2, 2012, the United States Department of Agriculture (“USDA”) announced a series of prevention-based policy measures that it believes will better protect consumers from foodborne illness in meat and poultry products.

The USDA states that the purpose of these new regulations is to better allow both manufacturers and the USDA to:

 

 

(1)  trace contaminated food materials in the supply chain;

(2)  react more quickly to contamination; and

(3)  establish effective food safety systems.

The first measure will allow the USDA’s Food Safety and Inspection Service (“FSIS”)  to speed up the process for tracking E. coli O157:H7 in the nation’s food supply.  Currently, after an initial report of E. coli, USDA officials are required to wait for additional confirmation before they can begin an investigation.  These new measures will now allow FSIS to  initiate its investigation after the first indication of a positive test and move quickly to identify the source of the contaminated product and any processors who may have received contaminated product.  Once the source is properly identified, FSIS can issue instructions for minimizing consumer cases of foodborne illness accordingly.

The second key measure announced by the USDA is the implementation of three provisions included in the Food, Conservation and Energy Act of 2008.  These provisions will now require food establishments to:

(1)  prepare and maintain recall procedures on site;

(2)  notify FSIS within 24 hours that a meat or poultry product which could harm consumers has been shipped into commerce; and

(3)  document each reassessment of their hazard control and critical control point (HACCP) system food safety plans.

In addition,  USDA will make publicly available guidance to plants on the steps that are necessary to establish that their HACCP food safety systems will work as designed to control the food safety hazards that they confront. This process, called “validation,” enables companies to ensure that their food safety systems are effective for preventing food borne illness.  The guidelines will be available on the USDA website.

Proactive compliance with food safety standards, such as these recent measures enacted by USDA is of paramount importance to any company in the food industry. We advise our clients that such a proactive approach is essential to minimize risk, protect  the company’s brand name, and most importantly, to protect the customer. As such, all food manufacturers, suppliers and processors should, as soon as possible, ensure that their plants are in compliance with the new USDA measures, particularly with respect to reporting potential contamination and documenting any changes to a HACCP plan.  Furthermore, companies should preemptively review the HAACP plan guidelines released by USDA to confirm that their food safety systems are adequate and in compliance with federal laws.  The USDA expects the new regulations to go into effect in July, which just happens to coincide with the peak grilling season in the United States.

FDA Pumps The Brakes On Nanotechnology In The Food Industry

By Javier F. Flores and Brian Gross on Posted in Foodborne Illness, Litigation Trends

nanotechnologyNanotechnology is a cutting edge technology which involves the use of engineered, non-soluble material so tiny, it cannot be seen through a light microscope. Through manipulation of the chemical, physical and biological properties of nanomaterials, manufacturers can significantly alter the product into which they are added.   The potential capabilities of this technology in the food industry are endless. For instance, nanotechnology may be used in food packaging to keep products fresher and increase shelf life. Moreover, nano-based compounds can be used in food to enhance flavor or provide additional vitamins and minerals.

On April 20, 2012, the U.S. Food and Drug Administration (FDA) issued a draft guidance which addresses, among other things, the use of nanotechnology in food manufacturing and packaging materials. Though not legally binding, the draft guidance provides manufacturers with significant insight into the FDA’s current thinking on the use of nanomaterials in food products and packaging, as well as the direction in which the FDA may head in the future. The FDA makes it very clear as to its view on the potential risk such technologies present to both the consumer and food industry:

The consequences (to consumers and to the food industry) of broadly distributing a food substance that is later recognized to present a safety concern have the potential to be significant.

USA Today News reported that based upon the draft guidance, it appears that the FDA will place increased scrutiny upon food products and packaging which utilize nanotechnology. The draft guidance provides criteria to be used by food manufacturers to determine whether changes to the manufacturing process, including the use of nanotechnology, are authorized under the food additive or color additive regulations. According to the draft guidance, changes which utilize nanotechnology would likely fall outside the purview of those regulations, and therefore would be subject to increased regulatory scrutiny.  A recent article written by Chicago Tribune reporter Anna Yukhananov, reported that companies which utilize engineered nanoparticles in the manufacture of a particular food or food packaging may be required to affirmatively demonstrate, through additional testing, that their product is safe before they can introduce the product into the market.  Further, that the food manufacturers which utilize nanotechnology are “encouraged” to make regulatory submissions to the FDA for its approval before marketing the product, a process which is not required before a company can sell products which use approved additives.

The FDA’s recent draft guidance suggests that it will be cautious and thorough in its oversight of nanotechnology.   The long-term impact of the use of engineered nanoparticles is largely unknown, and the FDA is scrambling to get ahead of the curve.  By imposing heightened regulatory requirements on companies who wish to utilize nanotechnology in their products, the FDA will transfer the responsibility and cost of assessing the safety of this new technology onto the food industry.  The FDA’s stance will likely result in a delay in the introduction into the marketplace of products which incorporate nanotechnology, as company’s assess whether the benefits outweigh the costs of product development and the regulatory hurdles likely to be imposed by the FDA.

The Discoverability of Social Media in Personal Injury Litigation

By Daniel McCarthy and Brian Gross on Posted in Litigation Trends

Social Media iconsGone are the days of handwritten personal diaries and daily journal entries.  Internet-based social networking has replaced pen and paper.  Facebook reports that it had 901 million monthly active users worldwide as of March, 2012.  With the explosion of social networking in recent years, litigation counsel are becoming more savvy at using this technology to their advantage, and more an more courts are weighing in on the extent that a parties’ social media content is discoverable.  Case law addressing the discoverability of social media varies, and is developing as more and more courts are addressing this issue.  This post notes some of the more noteworthy decisions, followed by a discussion of a recent case handled by this firm and some advice on how to deal with this developing issue.

The large majority of courts addressing the issue will permit discovery of social media content upon a threshold showing that the information sought has some relevance to the underlying lawsuit:

  • Romano v. Steelcase, Inc., 907N.Y.S. 2d650 (2010)(permitting discovery of Facebook account where inconsistencies demonstrated with plaintiff’s claims versus the information contained in social media content);
  • McMillen v. Hummingbird Speedway, Inc., 2010 WL 4403285 (PA Commw. 2010) (social media content discoverable where its demonstrated that publically available portion revealed information showing plaintiff was exaggerating his injuries);
  • Zimmerman v. Weis Markets, Inc., 2011 WL 2065410 (Pa. Commw. 2011) (permitting discovery where publically available social media content including photographs depicting plaintiff were inconsistent with plaintiff’s claims of injury.) The hyperlink to this opinion was originally posted on gtleblog.

Other courts have denied or limited discover of a party’s social media content where there was no showing that the information sought would reveal relevant evidence:

  • McCann v. Harleysville Ins. Co. of New York, 78 A.D. 3d 1524 (N.Y.App.Div. 2010) (denying access to Facebook information where defendant “failed to establish a factual predicate with respect to the relevancy of the evidence.”);
  • Tompkins v. Detroit Metropolitan Airport, 2012 WL 17930 (E.D. Mich. 2012) (rejecting defendant’s overly broad discovery requests, but allowing limited discovery of photographs depicting plaintiff taken after the accident giving rise to the litigation).

Conclusion 

Based on the above, it is clear that counsel is well advised to craft discovery reasonably tailored to discover relevant social media content.  This can be demonstrated by a recent case handled by this firm.  Plaintiff, a college student, brought a personal injury claim and asserting significant impact on her social and athletic activities.  Plaintiff’s publically available Facebook account revealed photographs and status updates which contradicted plaintiff’s allegations and sworn deposition testimony concerning the extent of her injuries and impact on her everyday life.   Defendant filed a motion to compel plaintiff’s private social media content limited to photographs depicting plaintiff since the date of her injuries and written content relevant to her level of activity and participation in athletics.  The case settled while the motion was pending, but it was clear that plaintiff’s social media content and the motion to compel clearly impacted the case.   Accordingly, counsel should not overlook social media a source of discoverable information, and parties should be aware that their posts may become available regardless of whether they can be considered private.

John Crane v. Hardick: No Non-Pecuniary Damages for the Estate of a Former Navy Sailor

By Peter Faben and Brian Gross on Posted in Asbestos Litigation, Delaware Courts

 

Navy ShipAs has been discussed on this blog, a number of Courts—including the Eastern District of Pennsylvania and the DE Maritime—have recently held that maritime law may apply to claims brought by former Navy sailors who allege exposure to asbestos while performing maintenance work on ships while at sea.  Now, the Supreme Court of Virginia, in John Crane, Inc. v. Hardick, has held that parties bringing such claims under maritime law on behalf of deceased Navy sailors may be limited in the damages they can recover.  In the March 2, 2012 opinion, available here, the Court held that a Virginia trial court erred by allowing a jury to award non-pecuniary damages to the widow of a former Navy sailor who died as a result of mesothelioma.  A summary of the case follows.

Factual Background:

Robert Hardick served in the Navy from 1957 to 1976 as a machinery repairman aboard various ships.  He allegedly worked with asbestos-containing gaskets and packing products used in connection with valves, pumps, and other equipment on the ships.  Mr. Hardick performed work on ships while they were in shipyards in territorial waters, and also worked on the ships while they were underway at sea, such as during several trips to Guantanamo Bay, Cuba, and during a 13-month cruise to the Mediterranean.

The Case and Verdict:

In 2007, Mr. Hardick was diagnosed with mesothelioma and filed suit against a number of product and equipment manufacturers, including John Crane.  Mr. Hardick died in 2009 during the pendency of his action, which was revived as a wrongful death claim by his wife, who is also the administratrix of his estate.  The case was tried before a jury, which returned a verdict for the plaintiff in the amount $5,977,482.[1]  The verdict consisted of:

  1. $2 million for Mr. Hardick’s pain and suffering;
  2. $1.15 million for Mrs. Hardick’s loss of society;
  3. $2.5 million for Mrs. Hardick’s expected loss of Mr. Hardick’s income; and
  4. $327,482 for funeral and medical expenses.

After the verdict, John Crane filed a motion arguing, among other things, that the non-pecuniary portion of the verdict should be vacated.  At issue were the $2 million for Mr. Hardick’s pain and suffering and $1.15 million for Mrs. Hardick’s loss of society.  The trial court denied the motion, a decision that was appealed to the Supreme Court of Virginia and overturned.

The Virginia Supreme Court’s Opinion:

The Court made two rulings in its decision, which are best understood by examining the second ruling first.  The Court concluded its opinion by holding that in wrongful death actions brought under maritime law, the estate of a seaman is limited to recovery of pecuniary losses, relying on the U.S. Supreme Court’s holding in Miles v. Apex Marine Corp., 498 U.S. 19 (1990).  The Court rejected Mrs. Hardick’s argument that non-pecuniary losses were recoverable under a “common law” or general maritime law cause of action, even though non-pecuniary damages may be barred under either the Death on the High Seas Act (“DOHSA”) or the Jones Act (two of the federal statutes governing maritime law).  The Court found the holding in Miles clear: only pecuniary damages are allowed under the Jones Act and DOHSA and “a uniform rule [should apply] to all actions for the wrongful death of a seaman, whether under DOHSA, the Jones Act, or general maritime law.”  Thus, non-pecuniary damages are not available to the estate of a seaman in a wrongful death action under maritime law, regardless of the legal basis upon which the claim is brought.

The pivotal question, therefore, and the one the Court addressed first, was whether Mr. Hardick was a “seaman” or, as Mrs. Hardick argued, a “non-seafarer.”

The U.S. Supreme Court defined “seaman” in McDemott Int’l, Inc. v. Wilander, 498 U.S. 337 (1991), as an employee whose “duties must ‘contribute to the function of the vessel or to the accomplishment of its mission.’”  The U.S. Supreme Court added in Chandris, Inc. v. Latsis, 515 U.S. 347 (1995), that “a seaman must have a connection to a vessel in navigation…that is substantial in terms of both its duration and its nature.”

The Court had little trouble concluding that Mr. Hardick was a seaman.  Although the opinion does not spend much time applying Chandris or Wilander to the facts of the case at bar, the Court’s holding was likely based upon Mr. Hardick’s service as a machinery repairman, work which contributed to the function of the vessel, during periods of time in which the vessel was at sea, or, in other words, “in navigation.”  The Court also had little trouble in rejecting Mrs. Hardick’s argument that Mr. Hardwick was a non-seafarer as defined in the U.S. Supreme Court’s decision in Yamaha Motor Corp. v. Calhoun, 516 U.S. 199 (1996).  The Court noted that Mr. Hardick bore little in common with a 12-year-old girl riding a jet ski, who was the injured party at issue in Yamaha.

In conclusion, the Court held that because Mr. Hardick was a seaman, Miles applied and the $2 million the jury awarded for Mr. Hardick’s pain and suffering and the $1.15 million awarded for Mrs. Hardick’s loss of society were not recoverable by the plaintiff, as they were not pecuniary in nature.

Conclusion:

As with the decisions that have concluded that maritime law applies to certain former Navy sailors’ asbestos-related personal injury claims, the Hardick opinion does not provide the hard and fast rules that litigants in mass tort litigation often desire.  Most notably, the decision leaves open the question of how long a Navy sailor has to be working at sea before his “connection to a vessel in navigation” is sufficient to qualify that sailor as a “seaman” under Wilander and Chandris.  We will be sure provide any updates in the future as this question is litigated in other cases, as it almost surely will be.

[1] John Crane, Garlock, and Crane Co. all appeared on the verdict sheet.  The jury determined that the verdict should be split 50/50 between Garlock and John Crane, and assigned no fault to Crane.

 

What is Pink Slime and Why is It in My Burger?

By Brian Gross and Javier F. Flores on Posted in Foodborne Illness

Raw HamburgerNever has the saying, “ignorance is bliss,” been more true than in the context of the ground beef filler known as “pink slime.”  Pink slime, which is known in the food industry as “lean finely textured beef,” or “LFTB,” has been a commonly used ingredient in ground beef for more than two decades.  It is made available to Americans as part of the ground beef they purchase at their local grocery stores and fast food restaurants, and it is fed to children in their school lunches.  Experts estimate that approximately 850 million pounds of LFTB are added to ground beef each year.  LFTB has been dubbed “pink slime,” based on its appearance.  But according to Rich Jochum, corporate administrator for Beef Products, Inc., which took out a full-page advertisement in The Wall Street Journal to defend its product,

“[t]he derogatory term [pink slime] has trumped all science, all facts, all history.”

In fact, LFTB is beef.  LFTB is comprised of beef scraps which are left over from the cow after the valuable cuts of beef are sold. A centrifuge is then used to remove the fat, and ammonium hydroxide gas is applied to kill bacteria.  The resultant product is then added as a filler to ground beef.  This allows meat processors to recover meat that might otherwise be wasted, and saves up to 1.5 million head of cattle from slaughter.  It also leads to leaner ground beef and lower beef prices for consumers.

Until recently, however, most Americans were completely unaware that the ground beef they consumed contained up to fifteen percent LFTB.  That is due to the fact that it is considered a raw material, and thus federal labeling requirements dictate that its inclusion need not be reflected on the label.  Both beef processors and the federal government regulators maintain that there was no reason to label the presence of LFTB in ground beef, and risk consumer confusion, because it is not a separate ingredient.  “It’s beef,” says a USDA official. “There are various parts of the animal that come together in ground beef.  This is just one part.” Moreover, The U.S. Department of Agriculture (USDA) and U.S. Food and Drug Administration (FDA) both deem LFTB safe for consumption.  They point to the fact that the product has never been linked to any outbreaks, nor have there been any safety related recalls.

That, however, did not stop the firestorm which quickly swept across this country, fueled by social media, over concerns about the use of ammonium hydroxide and the quality of the meat used in the filler.  The media attention, and the associated response of the American consumer, has led a number of supermarkets to phase out the sale of any ground beef which includes LFTB, and caused a number of school districts to indicate that they will no longer serve ground beef which contains LFTB. This, in turn, has led to an economic disaster for many meat processors, including AFA Foods Inc., which filed for bankruptcy, and Beef Products, Inc., which will close three plants, resulting in a loss of more than 650 jobs.

Faced with the public outcry concerning LFTB, the USDA and FDA still maintain that LFTB is safe for consumption, and that the issue is not one concerning safety, but instead appears to involve the public’s concern with the way their food is made. In addition, they point out that, ammonium hydroxide, one of the major reasons for the public outcry, has also been extensively used as a food additive for many years in other food products, including various baked goods, cheeses, chocolates, other confectionery (e.g., caramel), and puddings, though there has been no similar outcry with respect to those products.

The recent public outcry against “pink slime” is a reflection of a growing public consciousness as to the food we eat.  It is also a startling demonstration of the power of social media and the effect it can have over the mainstream media and in shaping public opinion.  Perhaps this whole firestorm could have been averted with more comprehensive labeling of ground beef.  In fact, it appears that beef producers are now considering a label which would indicate whether ground beef contains LFTB.

“The idea is simple. Tell consumers what they’re buying. Give them an option. Let them make the choice.”

Transparency is the key to avoiding similar public uproar concerning the food we eat.

Can The Food Service Industry Navigate The USDA’s Zero Tolerance Policy on E.coli and Still Put Food On The Table?

By Javier F. Flores on Posted in Foodborne Illness, Litigation Trends

Co-authored by Brian Gross 

Foodborne IllnessThe USDA has recently announced that it will delay implementation of a controversial new program to extend its Zero Tolerance Policy for E. coli 0157:H7 to include six additional E. coli serogroups:  O26; O45; O103; O111; O121; and O145, which the USDA declared adulterants in non-intact raw beef.  The new policy, which was to take effect on March 5, would require routine testing of raw beef for these six additional serogroups, and would prohibit any beef found to carry one of these pathogens from entering the food chain.

Although more than 700 serotypes of E. coli have been identified, very of few of those are foodborne pathogens.  In fact, only Shiga Toxin producing E. coli (STEC) serotypes are considered foodborne pathogens.  While there are but a few E. coli serotypes which are considered to be foodborne pathogens, theSTECserotypes are extremely virulent and require very little human exposure to cause infection.  The CDC estimates that there are approximately 265,000STECrelated illnesses each year, 64% of which are attributable to non-0157:H7 E. coli.

Compare that figure to the numbers 700 and 4, which is the reported amount of E. coli 0157:H7 related illnesses and deaths stemming from an outbreak traced to undercooked and contaminated meat served at a Jack in the Box on the west coast in 1993 and an expanded scope under the USDA’s policy make perfect sense.

The question remains however; despite heightened scrutiny, better processes and scientific advances why are we continuing to see a persistent increase in reported outbreaks and recalls related to E. coli? It seems counterintuitive. Dr. Marc Siegel, a senior contributor to the Fox News Channel’s Medical A Team offers up some valuable insights.

I couldn’t agree more with Dr. Siegel. Fear is one of the largest pathogens and unfortunately many attorneys are capitalizing on this symptom. Not only are we seeing a staggering increase in the number of reported E. coli illnesses, so too are the number of foodborne illness claims filed each year.

The result is that many good companies are now expending more resources then ever to defend foodborne illness claims, while at the same time working tirelessly to comply with a well intentioned, yet constantly evolving governmental mandate. As National Council for the one of the largest food service providers in the world, we’ve seen first hand how proactive compliance and best practices can have a significant impact in minimizing risk and exposure. Companies who truly care about their products embrace food safety because they understand that there is more at stake than the bottom line. Closely monitoring suppliers, using scalable HACCP Plans and implementing aggressive standards for quality control not only protect a company’s brand, but its customers. This makes it easier to withstand attacks from plaintiffs counsel so you can continue to put food on everyone’s table, including your shareholders.

Increased Market for Cyber Insurance Means Litigation On the Horizon

By Michael R. Brown on Posted in Litigation Trends

Co-authored by Brian Gross 

Cyber SecurityCyber security, the protection of an entity’s confidential and proprietary information, is becoming an increasingly important concern to companies in almost every industry.  Moreover, as technology continues to grow at an exponential rate, cyber crimes and the resultant litigation continue to grow right along with it.

It is no secret that businesses today rely heavily on technology.  In today’s market, it is almost imperative to possess cutting edge technology in order to remain competitive.  For example, many companies have shifted their databases and infrastructure to the “cloud.”  In addition, mobile device technology allows a company’s employees to access sensitive information from their homes, airports and restaurants.

These technological advances come with inherent risks.  A company may electronically store its entire infrastructure and all of its client data, and often hires third parties to keep this information at off-site facilities.  As a result, vital information may be exposed to attack by cyber criminals, who attempt to gain access to customers’ personal and financial information.  Phishing attacks, trojans, and viruses constantly threaten corporate databases.  In extreme cases, large and influential businesses and government organizations must defend against “advanced persistent threats,” which are coordinated attacks by an adversarial group, such as a criminal organization or foreign government.  Making it even more difficult is the fact that many countries lack cyber crime legislation, which makes it possible for criminals to operate from almost anywhere in the world with relative impunity.  A report last year by Symantec Corp. estimated that 73% of small to midsize companies have been victim to a cyber attack.

Not surprisingly, the costs facing companies who find themselves facing cyber-related liability are daunting.  State and federal regulations typically require companies to implement costly customer notification protocols.  On top of that, businesses must also investigate the cause of the security breach and take remedial measures, which is challenging in an environment where hackers can stay a step ahead of cumbersome corporate IT departments.  Companies must also anticipate an interruption in business, either caused by a hacker or by a security measure implemented by the business itself, which is costly in terms of lost profits and opportunities.  Some businesses may also require expensive public relations help after a data breach in order to shore up consumer confidence, especially in the case of corporate defendants.  Finally, data breaches can be costly in terms of government penalties, as well as the legal fees associated with government investigations and settlements.  For all of these reasons, it is not surprising that the U.S. Cost of Data Breach Report has estimated a cost to companies of $214 per compromised record and $7.2 million per data breach event.

These conditions have encouraged companies to transfer risk to third parties, creating a boom in so-called “cyber risk” insurance.  While Symantec has estimated that only 33% of small and midsize companies have obtained cyber insurance, the field is growing, and not just with banks and credit card companies.  Any entity that could be exposed to identity theft could benefit from protection, including insurance companies, asset managers, retailers and law firms.   Based on the imminent growth in this field, a division of Liberty Mutual is expected to introduce three cyber liability policies which will cover data breaches and technology errors.

Despite the uptick in data theft incidents, plaintiffs have thus far found it difficult to maintain successful lawsuits against corporate defendants.  Most courts maintain a high “actual harm” standard.  That is, only those customers whose stolen information has led to looting of their bank accounts or some other crime may sustain a suit against the company.  The plaintiffs’ bar is, however, working to erode that standard by advocating a “credible threat of harm” standard, and by requesting discovery on the plaintiffs’ claims.  Because cyber litigation involves class-action suits with potentially thousands of plaintiffs, discovery is expensive and often spurs defendants to engage in costly settlements.  In addition, many expect that existing cyber crime legislation and consumer protection statutes could be amended to make it easier to sustain a suit.

One thing is clear: cyber crime is becoming a fact of life for companies.  The fallout has created a new industry in the insurance market, and “cyber litigation” will surely follow.  With thousands, or even millions, of potential class members, we are likely to experience huge growth in cyber lawsuits in the near future.

Philadelphia Judge Addresses Criticisms of Court’s Asbestos Program

By Peter Faben on Posted in Asbestos Litigation, Litigation Trends

Co-authored by Brian Gross 

CongressThis week, the Honorable John W. Herron, the Administrative Judge of the Trial Division of the Court of Common Pleas of Philadelphia, issued a significant order that attempts to address perceived problems in the Court’s Mass Tort and Asbestos Programs.  The order, available here, enumerates 15 different reforms that will significantly change the way asbestos litigation is handled in Philadelphia County, which is currently listed as number one on the American Tort Reform Foundation’s Judicial Hellhole list.

The reforms include, among other things:

  • A return to all-issues trials, and an end to reverse bifurcation;
  • No exigent trial settings;
  • A requirement that all discovery take place in Philadelphia;
  • Consolidation of cases only in very specific instances; and
  • A limit of no more than two trials per year for any counsel admitted pro hac vice.

Although it is too early to make predictions, one can only imagine that the reforms will lead to a significant reduction in new filings in the Philadelphia court.

Insurers Beware —Massachusetts Supreme Judicial Court Has Final Word on Damages Plaintiffs Are Entitled to Recover For Defendant-Insurers’ Violations of M.G.L. c. 93a and 176D

By Daniel McCarthy on Posted in Litigation Trends, Massachusetts Courts

Co-authored by Brian Gross 

On February 10, 2012, the Massachusetts Supreme Judicial Court found that plaintiffs were entitled to more than $22 million when it held that the damages to which a plaintiff is entitled to recover pursuant to M.G.L. c. 93A and 176D for an insurers’ failure to effect prompt, fair and equitable settlement of claims must be based on the underlying judgment in the plaintiffs’ tort action, and not the loss of use of the sum ultimately offered by the defendant-insurers.  See Rhodes v. AIG Domestic Claims, Inc., — N.E. 2D —-,Mass., 2012 WL 401034 (Mass., February 10, 2012).

The Rhodes case arose out of Rhode’s catastrophic personal injuries when a tractor trailer truck rear ended her car.  Rhodes, her husband and daughter brought a tort action against inter aliaGAF Building Corp. (“GAF”), the company that leased the tractor trailer truck. GAF was insured by Zurich American Insurance Company (“Zurich”) which carried a $2 million primary policy, and National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National Union”), which carried a $50 million excess umbrella policy. AIG Domestic Claims, Inc. (“AIGDC”) acted as National Union’s claims administrator.

Defendants’ and their Insurers’ evaluation of plaintiffs’ claims and the various settlement offers and demands are detailed at length in the Court’s opinion.  For purposes of this report, it is sufficient to note Zurich tendered its policy limits to AIGDC, but AIGDC’s highest offer prior to trial was $3.5 million, which increased to $6 million at the close of evidence.

After a trial on damages, the jury awarded plaintiffs damages in the approximate amount of $11.3 million, after deducting a co-defendant settlement and adding statutory interest.  The underlying tort action was settled pending appeal, but, plaintiffs’ claims against Zurich and AIGDC for both pretrial and postjudgment violations of Chapters 93A/176D proceeded to bench trial, where the judge found in favor of Zurich, but against AIGDC.  In calculating plaintiffs’ damages pursuant to Chapters 93A and 176D, the trial court andAppeals Courtboth held that plaintiffs’ damages are based on plaintiffs’ lost use of the funds.

On further appeal, the Massachusetts Supreme Judicial Court disagreed and held that the plain language of the Massachusetts Legislature’s 1989 amendments to Chapter 93A provides that the damages for knowing and willful violations of Chapters 93A and 176D committed by insurers are calculated by doubling or trebling the amount of the underlying judgment – in this case $11.3 million.

While the SJC’s decision invites the Legislature to consider expanding the range of permissible damages to be awarded for such cases, it is clear that under current law, liability insurers face significant risk in their claims handling practices, particularly where the underlying matter involves clear liability and potential for significant damages.