Seattle Corporate Litigation Lawyer & Attorney : Grace M. Healy : Outside counsel : New York, King County, Tacoma, Bellevue

A recent opinion of Judge Pechman of the Western District of Washington in Aecon Buildings, Inc. v. Zurich North America, illustrates the importance of good in-house litigation management, complying with discovery, and supplying a detailed privilege log on time.  Defendant appears to have failed on all counts and the result is that defendant must pay into the court the amount that it was billed by its attorneys from the time its initial disclosures were filed through the date that defendant produced a relevant file – a period of more than eight months – as a discovery sanction.

The underlying case set forth a claim of bad faith refusal to defend and indemnify by a plaintiff who had been named as an additional insured on a policy.  At the time the insurance claim initially was tendered, it was rejected by an adjuster and the file was closed.  About one year later, and one month after the suit was started, a second adjuster reviewed the claim and noted that coverage had been triggered.  That adjuster was instructed not to continue work on the claim, and was not named in defendant’s initial disclosures as an individual who might have discoverable information. The second adjuster’s work came to light when her deposition was noted – she had signed declarations authenticating documents.  It seems that no one could state with certainty who ordered the second review, or why it was performed.

The court stated that defendant’s “failure to include in its responses to requests for production any documentation of [the second adjuster’s] work on the claim file, and its failure to produce, until the eleventh hour, a privilege log documenting those portions of the claim file attributable to her that it withheld on the basis of privilege, are clear violations of the discovery rules.”  That is a summary – the details run to almost eight pages.

This decision is must reading for anyone who believes that work done on a matter after a lawsuit has been started is privileged. 

 

• Email This
• Print
• Comments
• Trackbacks

If you have an employment contract for a set period of time and it has a renewal provision, follow that provision.  If you don’t, employment at-will is the result in New York. A common-law presumption that parties intend to renew an employment contract for an additional year if the employee continues to work after the contract expires is, for all practical purposes, non-existent -- it directly conflicts with the favored presumption of employment at-will.

This was discussed recently, in Goldman v. White Plains Center for Nursing Care, and the Court of Appeals strongly reaffirmed the presumption of employment at-will.  Plaintiff had signed an agreement in 1990 for a two-year employment period.  The contract provided that at expiration of the contract or termination of employment, the employer would "be released of any responsibility or obligation hereunder, except for payment of salary and benefits accrued to the effective date of such expiration or termination."  The parties were to discuss renewal during the two-year term.  They did not.  After the two-year term expired, the employee received annual salary adjustments; in 2004 the employer was sold and the purchaser assumed the contract.  Three months later the employee was terminated. 

She claimed the employment contract was breached relying on a common law presumption that an employment contract is renewed for successive one-year terms after an initial set period expires. The Court of Appeals ruled that the employment was a hiring at-will because the contract was clear and unambiguous, expired on a certain date, and required written modification.

The court noted that implying one-year renewals would conflict with the established rule that an employment contract, which doesn’t have a fixed duration, is presumed to be terminable at any time by either party.  Giving an unusual – for Court of Appeals decisions -- practice tip, the court stated: “Parties to future contracts can avoid uncertainty regarding application of the common-law rule simply by specifying that continuation of the employment relationship after the expiration of the contractual period will result in either successive one-year extensions of employment or at-will employment status.”
 

• Email This
• Print
• Comments
• Trackbacks

This week, in Sorbara Construction Corp. v. AIU Ins. Co., the New York Court of Appeals confirmed the importance of giving notice to every insurance carrier for each and every policy that may cover a claim if a policy requires that notice of an occurrence be given “as soon as practicable.” If the notice isn’t given in a “reasonable” period of time, there will be no coverage.  The carrier doesn’t have to show prejudice. 

This is the rule even if the insured gave notice to the same carrier under a different policy, such as workers’ compensation, or an additional insured gave notice to the carrier under another policy.  This applies to primary and excess policies. (The Appellate Division opinion in this matter states that AIU is an excess carrier.) 

The Sorbara carrier didn't receive notice for five-and-a-half years.  Given the circumstances, there was no coverage as a matter of law.

• Email This
• Print
• Comments
• Trackbacks

The New York Court of Appeals handed down two rulings this week relating to employees’ job injury claims against third parties. One of the cases, Brooks v. Judlau Contracting, Inc., potentially expands an employer’s liability because it allows a third party to enforce a contractual indemnity to the extent that the employer was negligent.

    The second, Brothers v. New York State Electric & Gas Corp., discusses the exceptions to the rule that a person hiring an independent contractor is not liable for the contractor’s negligence. (The double negative – exceptions to not being negligent -- in that last sentence is intentional since it often seems that the rule really describes a rule of liability.)  Here, however, the court refuses to find a state permit holder vicariously liable for the failure of an independent contractor to comply with safety requirements that were contained in the permit. 

Brooks -- Employer/Sub-Contractor Required to Partially Indemnify Contractor

Brooks v. Judlau Contracting, Inc., involved a serious on the job construction injury – a situation which implicated General Obligations Law section 5-322.1, which limits indemnity in construction, maintenance and repair contexts. 

Plaintiff, Brooks, sued the general contractor who, in turn, made a third-party claim for contractual indemnity against the sub-contractor, Brooks’ employer.  The Appellate Division held that General Obligations Law section 5-322.1 barred indemnity and, therefore, the indemnity was not enforceable. 

The Court of Appeals disagreed on the grounds that:

•    the purpose of General Obligations Law section is to prohibit indemnity for a party’s own negligence, and
•    If the statute is read as a blanket prohibition, it would have the opposite effect  -- it would require a contractor to pay for, or, in effect, insure its sub-contractor’s negligence. 

The court went on to read the contract, which required the sub-contractor to indemnify the contractor “to the fullest extent permitted by law,” as an agreement contemplating partial indemnification, rather than an agreement requiring full indemnity. 

The bottom line is that a contractor has a right of indemnity to the extent that the sub-contractor/employer was negligent.  I suspect that a lot will be written about this decision, which on its face seems reasonable but seems to open up a lot of questions about this section of the General Obligations law, vicarious liability/non-delegable duty, and your ongoing business relationships.  It seems a lot easier to require insurance.

Brothers – Vicarious Liability Not Present Although Sub-Contractor Did Not Comply with Safety Regulations Required by Contractor's Permit

Brothers v. New York State Electric & Gas Corp. also involved an on the job serious injury.  Here, indemnity was not the issue; rather, plaintiff sought to hold defendant New York State Electric & Gas vicariously liable for his employer’s failure to comply with federal and state safety regulations.  The basis of the claimed vicarious liability was a work permit, which NYSE&G had obtained from the state and which required that all work be done in accordance with safety regulations.  NYSE&G contracted with plaintiff’s employer to do the work.  If the safety obligations were delegable, NYSE&G would not be vicariously responsible for the employer’s failures.  If they were not, NYSE&G would have breached a duty to plaintiff and be responsible for his injuries.

The opinion discusses the rule that a person who hires an independent contractor is not liable for the contractor’s acts and the various exceptions to the rule.  The opinion makes clear that there is no bright line for making a determination that the "rule" does not apply and a party will be responsible for the negligence of its independent contractor.  The court repeatedly points out that this determination requires a “sui generis” inquiry.  In reaching its determination that the duty of complying with safety regulations could be delegated in this situation, and, accordingly, NYSE&G is not vicariously liable, the court relies on the nature of the permit – not really a bargained for contract – and various policy reasons.  One policy reason rejected by the court was the argument that plaintiff would be left with only workers' compensation if NYSE&G  were dismissed.
 

• Email This
• Print
• Comments
• Trackbacks

Historically, and I stress “historically,” New York State Court orders compelling discovery were not received with great concern.  In fact, it usually took three of them before there were serious consequences.  Things have been changing, and, if you doubt it, read Wilson v. Galicia Construction & Restoration Corp.,  which was decided by the Court of Appeals in April.   The court has spoken: discovery orders must be obeyed. The decision upholds a judgment of $700,000 against a defendant whose answer was stricken as a sanction for resisting discovery, even though the defendant had what appeared to be a strong fraud defense against the claim.  

Wilson was a personal injury claim.  Plaintiff alleged that he was injured by an object that fell from a scaffold into his eye.  The company that erected the scaffold and multiple others were named as defendants.  The scaffold company resisted discovery, and the trial court issued an order directing that discovery requests were due by a date certain or the scaffold company’s answer would be automatically stricken.  The answer was stricken.  

One month later, in response to a discovery request from another party, plaintiff produced the object that injured his eye.  It was an air-gun pellet that, apparently, had been fired into plaintiff's eye, rather than falling from the scaffold.  In other words, the facts supporting liability in the complaint were incorrect.  All of the defendants, except for the scaffold company, were dismissed. 

Over the next few years, the scaffold company tried to vacate the order striking its answer for several reasons.  It argued “justifiable excuse” without success.  It argued that the underlying claim should be dismissed because it was fraudulent.  This failed on the grounds that the sanction was a result of the scaffold company’s own behavior, not the plaintiff’s.

In the Court of Appeals, the scaffold company also argued that plaintiff had not satisfied the statutory requirements for proof after a default.  The court ruled that the argument was not preserved and did not reach it – and noted the unfairness to plaintiff if the court did rule in the scaffold company's favor. Two judges dissented on the grounds that evidence of fraud by plaintiff was compelling and it was an abuse of discretion for the trial court not to address it in order to preserve the integrity of the judicial system.

Seven hundred thousand dollars is a huge sanction. One might be tempted to argue that the court of appeals thought that resisting discovery was a strategic decision that should be punished.  Or, that the court might have ruled otherwise if the argument was preserved.  Or, that the dissent is correct.  No matter.  Powerful message delivered by the court.  The days of delay are over, and ignoring the message can be very expensive.  The $700,000 judgment represents a reduction of the trial court's award of  more than $1,000,000.

 

• Email This
• Print
• Comments
• Trackbacks

For the past few months I have subscribed to a Westlaw service that sends a daily email with links to cases in which the words ‘in-house,” and “lawyer” or “counsel” appear.  Most of the cases aren’t very illuminating about how courts view in house lawyers.  However, I have found two trends of interest.  First, there are a lot of discovery disputes about production of in-house lawyers’ notes.  And, second, when attorney fees are awarded, courts require opposing parties to pay attorney fees for time spent by in-house lawyers on litigation matters much more often than I expected.  When I come across a case that seems to lay down some law instead of simply ruling on these points, I’ll do a post.

Meanwhile, I did come across an auto accident case, Stallings v. Werner Enterprises, Inc., 2008 WL 4078783, pending in the federal district court for Kansas, which illustrates one downside to identifying a worker as an independent contractor – it can refute a claim of attorney client privilege. Defendant Werner Enterprises’ in-house counsel interviewed an independent contractor driver as part of an accident investigation shortly after a truck/car accident.  Plaintiff sought the notes of the meeting.  The court ruled that the attorney-client privilege did not cover the interview – the driver wasn’t seeking legal advice from the lawyer and there was no confidential relationship.  Because plaintiff demonstrated a need for the statements made shortly after the accident, the attorney’s notes were to be examined in camera to see if the statements could be separated from the attorney’s impressions. After the court’s review, only two paragraphs were redacted.

The case applies Kansas law, but might be thought of during accident or any other internal investigations.

 

• Email This
• Print
• Comments
• Trackbacks

Washington defense counsel had best not breathe a sigh of relief because the statute of limitations on a potential claim has run on the calendar.  On the other hand, plaintiff counsel should not despair because a statute may have been missed.  In Washington, a short stay in intensive care during which a cause of action accrues may toll a statute of limitations.

Plaintiff in Rivas v. Overlake Hospital filed one day after a three-year statute of limitations had run.  Last month, the Washington Supreme Court ruled that the statute of limitations on her medical malpractice claim may have been tolled because of incapacity during four days spent in intensive care during which the cause of action arose.  Defendant offered evidence that plaintiff was alert, oriented and aware of her surroundings at all times.  Plaintiff’s expert countered that she was incapacitated and not capable of understanding legal proceedings during her intensive care stay; her family described her as unresponsive and out of it. 

In reaching its decision, the court analyzed the interaction of the tolling statute  and the Guardianship Act, which the tolling statute states determines incompetency or disability. The Court of Appeals had ruled that plaintiff had not been incapacitated long enough to trigger the tolling statute.  However, the Washington Supreme Court reversed holding that the tolling statute does not require that a party be incompetent or disabled for any minimum amount of time.  A dissent reasoned that the Guardianship Act requires that an inability to manage ones affairs must exist over time for a finding of incapacity.

My knowledge of this case is based on the Supreme Court opinion and dissent.  But, as an aside, although the opinion and the tolling statute are clear that the incapacity must be present when the cause of action accrues, I am having a hard time with the chronology because it suggests that the facts supporting the cause of action led to the incapacity and didn’t necessarily exist at the time that the cause of action arose. I find myself wondering how plaintiff consented to the surgery if she were, indeed, incompetent.  Whether or not she was able to consent seems like pretty important evidence regarding her capacity; however, the opinion doesn’t mention this. 

Anyway, the Washington Supreme Court has ruled, and it would be a mistake to think that this broad reading of incapacity warranting a toll is limited to medical malpractice claims. Why wouldn’t any claim involving a serious injury or trauma implicate this toll?  No matter, there is a good chance that a statute of limitations defense may now create collateral issues, litigation and expense.

 

• Email This
• Print
• Comments
• Trackbacks

For anyone who deals with Washington consumers, the Washington State Supreme Court came down with a decision this week that is not to be missed.  I suspect that the decision’s reach will be debated for some time, but, right now, any business that has a consumer contract with an arbitration dispute resolution clause and/or out of state choice of law provision should look carefully at yesterday’s 35 page opinion in McKee v. AT&T, which stated that a cell phone dispute resolution clause was unconscionable in four different aspects and refused to enforce an arbitration clause that contained those provisions. 

McKee, an AT&T customer, initiated a class action suit in Washington state court relating to a cell phone contract.  AT&T objected for a number of reasons including a dispute resolution paragraph in the agreement that mandated arbitration and that waived any right to start class actions.  Citing Washington’s strong interest in consumer protection and limited contacts with New York, the court refused to apply New York law (which allows contractual waiver of class actions), and found the arbitration provision was substantively unconscionable because it mandated that the arbitration be confidential, prohibited class actions, shortened the statute of limitations, and limited attorney’s fees – only the customer paid them.  The bottom line is that the court refused to sever the unconscionable provisions, and the dispute resolution paragraph was stricken from the agreement because of the taint of the unconscionable portions.

I have no involvement in this case, but, given the tenor of the opinion, the best news for AT&T yesterday was that the court didn’t think it was necessary to reach the issue of whether the agreement was procedurally unconscionable.  The court did not seem particularly impressed with those procedures. 

Anyway, given this decision, sellers or service providers dealing with Washington consumers should take a hard look at their agreements, as well as their procedures for binding their customers or amending their agreements as soon as possible.
 

• Email This
• Print
• Comments
• Trackbacks

Today’s New York Times reveals that plaintiffs who reject settlement offers and go to trial often recover less than the offer at trial.  This is based upon a study of cases that will be published in the September issue of the Journal of Empirical Legal Studies.  The Times article says that the findings “raise provocative questions about how lawyers and clients make decisions, the quality of legal advice and lawyers’ motives.”  “The study found that factors like the years of experience, rank of a lawyer’s law school and the size of a law firm were less helpful in predicting the decision to go to trial. More significant was the type of case.”

What the Times article doesn’t suggest -- and statistics probably can't show --  is that parties often have legitimate differences of opinion about the merits of a case, and those differences play out at a trial.  Or, that  possibly, plaintiffs’ lawyers – who are willing to be paid by contingency fee – are intrinsically less adverse to risks than defendants’ lawyers – who choose to live by the hourly rate.  Or, that plaintiffs may be seeking to vindicate what they see as personal wrongs as opposed to defendants who generally view litigation as a cost of doing business.  Or, that defendants are paying more in settlement than they would lose if the cases were taken to trial.

Decisions to go to trial are often incorrect in hindsight, but saying that a decision to go to trial is a mistake that can be remedied in advance of trial ignores the enormous number of variables that occur during trial – such as, who turns up for jury duty that day, or whether that jury thinks your witness is not truthful because he or she begins to perspire while testifying.  Where you go to law school isn’t a big help at that time.

Certainly, each party wants the best result – if they agreed on what that was, there would never be a need for a lawsuit or a trial.  It doesn’t mean that the decision to reject a settlement offer to go to trial is a “mistake”.

• Email This
• Print
• Comments
• Trackbacks