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

This week’s Ninth Circuit decision in Hyundai Motor V. National Union Fire Ins. reminded me that advertising injury insurance coverage should be considered when a claim – that doesn’t seem to fit under any other coverage -- comes in to a business.

The court ruled that the insurer had a duty to defend Hynudai in a patent litigation because the patent infringement claim involved method of advertising used on Hyundai’s web site. Although the court referred to many other cases where advertising injury coverage had been rejected in patent violation claims, it examined the context of the claim and determined that it was implicated in this case. (A jury had found against Hyundai in the underlying case and awarded the patent holder $34,000,000 in damages. This suggests a pretty large defense bill.)

This claim was decided using California law, but the court noted that California law was essentially the same as that of Washington on this point.

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I’ve always been a bit of a news junky, but since I started this blog I have been reading much more than before – especially, about the possible effects of the financial crisis on law firms.  I have seen articles saying that:

•    law firms will suffer;
•    litigation will prosper; 
•    disaster, the increase in litigation hasn’t appeared;  (This less than two months into the most obvious symptoms of the downturn.)
•    general counsel are afraid that law firm rates will increase;
•    rates will not increase, they will decrease;
•    the hourly rate as a method of billing is dead;
•    In-house legal departments are shrinking;
•    In-house legal departments are keeping more work in-house.


I guess everyone is entitled to a point of view, but a lot of this stuff defies common sense.  Having lived through the market crash of 1987 and a law firm implosion in 1991, I can say with some confidence that none of this is new.  The only people whose opinions I really want to hear right now are those who moved out of equities into fixed income assets in January of this year.  Obviously, their recent track record on predicting the future is better than most everyone else's.

However, today, I read two pieces that made sense.  The first, a blog posting by Max Kennerly, pointed out that the assertion that law firms shouldn’t pay associate bonuses because they will offend clients, is baloney.  Amen.  Partners care about giving money to associates if they don’t have to do so, since it could go into the partners’ pockets instead.  Clients care – or should only care -- about getting value for the fees that they pay. 

That said, I do remember walking into an ostentatious marble and mahogany waiting room and thinking ruefully – I believe we paid for this.  Anyway, my rule of thumb is:  plaintiff’s lawyers – who only get paid for success – should have fancy offices, not lawyers who get paid by invoice.  If you think your legal bills are too high because associates make too much money speak up, or find someone who offers good service with lower rates.

The second posting, Cravath Partner Offers Tips on Cost Cutting  by Caroline Elefant, discusses a Business Week article, which also – in large part -- made sense. But, I don’t know if it is really advice on cost cutting, or sensible management.  The first two tips are to hire the right lawyer for the job, and to  hire an efficient lawyer.  If you haven’t been doing this, well, you probably just don’t know it – otherwise, why would you be doing so? 

However, the article goes on to recommend alternative billing arrangements, rather than billing by the hour.  It posits that in litigation, hourly billing creates the wrong incentives – sometimes losing a case could be more profitable to a firm than winning it.  Frankly, this may be true, but what ever happened to the concept that lawyers owe the highest duty of loyalty to their clients – not to themselves or their firm?  It presents a compelling argument for having a lawyer who you trust and who understands litigation review and is able discuss and monitor the work of outside counsel. 


 

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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.

 

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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.
 

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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”.

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