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IN THIS ISSUE SPOTLIGHT D a r ke n i n g H a r b o r F i n a n c i a l i n s t i t u t i o n sâ&#x20AC;&#x2122; s a f e h a r b o r p r o t e c t i o n s t a ke a h i t f r o m t h e U. S . Supreme Cour t To u g h C h o i c e f o r B r o ke r s W h e n a l l e g e d m i s co n d u c t c r o s s e s s t a t e l i n e s , w h i c h l aw a p p l i e s? STREAMING INSIGHT I n t r o d u c i n g t h e T i m e l y N o t i ce p o d ca s t TOP 5 E m p l oy m e n t l a w l e s s o n s f r o m T h e O f f i ce
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PLM | JULY 2018 INSIGHT 4 | Litigation Funding: Efforts Increase to Pull Back the Curtain As the litigation funding market continues to experience meteoric growth, efforts to increase transparency are gaining traction — and parties in federal litigation need to be prepared.
Q&A 6 | Streaming Insight A conversation with Jonathan Schwartz, founder and host of the new Timely Notice podcast.
SPOTLIGHT 8 | Darkening Harbor The U.S. Supreme Court limits application of safe harbor in fraudulent transfer suits where financial institutions act only as conduits. 10 | A Complex Choice Confronting choice of law issues when an insurance broker is alleged to have engaged in misconduct in one state, causing injury to a customer in another state.
TOP 5 15 | Top 5 Employment Law Lessons Learned From The Office The outlandish antics of the Dunder Mifflin crew are enough to make any employment lawyer cringe. But practical lessons can be learned from Michael Scott and company.
CASE NOTES 16 | Civil rights action against correctional institute dismissed Court addresses vicarious liability, breach of contract, and professional negligence. 17 | Dismissal of Legal Malpractice Action Upheld Plaintiff failed to disclose it in bankruptcy petition.
Litigation Funding: Efforts Increase to Pull Back the Curtain By Louis A. Russo Believe it or not, as recently as January 2012, some referred to the "trading in legal claims" as a "rarity" and described the litigation finance market as "missing." But by 2016 the worldwide market for litigation finance was estimated at nearly $3 billion. And a recent survey by Burford Capital — the world’s largest litigation funder — revealed that litigation funders are only just getting started. LITIGATION FUNDING HAS AND WILL CONTINUE TO EXPERIENCE METEORIC GROWTH Indeed, according to Burford Capital’s 2017 Litigation Finance Survey: Latest Research Shows Continued Strong Growth, litigation finance among U.S.-based law firms has increased by 28 percent in just the last year, and a staggering 414 percent since 2013. Thirty-six percent of U.S. law firm respondents reported using litigation finance in 2017; that same number was just 7 percent four short years ago. But perhaps the most predictive statistics are that 72 percent of respondents believe litigation finance is increasingly important in the business of law and half of all lawyers who have not yet used litigation finance expect to do so in the next two years. In light of this meteoric growth, many feel we are still in the wild, wild west of litigation finance. A recent New York Times article went so far as to describe litigation finance as “unregulated and opaque.” Then it should come as no surprise that the industry is coming under increased scrutiny by Congress.
Reading the digital version of Professional Liability Magazine? CLICK HERE to access Burford Capital’s 2017 Litigation Finance Survey.
THE LITIGATION FUNDING TRANSPARENCY ACT OF 2018 The Litigation Funding Transparency Act of 2018 (the LFTA), which would require the disclosure of litigation funding in class action and multidistrict litigation (MDLs) in federal courts was introduced in Congress in early May. The sponsors of the LFTA claim it is designed to limit potential conflicts of interest that might “unnecessarily drag out litigation or harm the interest of the claimants themselves.” If it is enacted, the mandated disclosure must be made within 10 days after the execution of the funding agreement or after the action was served. Not only would counsel be required to disclose “the identity of any commercial enterprise … that has a right to receive payment that is contingent on the receipt of monetary relief … by settlement, judgment, or otherwise” but counsel would be required to “produce for inspection or copying … any agreement creating the contingent right.” LITIGATION FUNDERS SUPPORT A MORE TEMPERED APPROACH TO DISCLOSURE Litigation funders have naturally come out against the LFTA and advocated instead for ex parte and in camera review to allow the judge to decide if there are any conflicts or if the funder is improperly exercising control over the litigation, citing to a recent order by Northern District of Ohio Judge Dan Aaron Polster in an MDL against opioid manufacturers. Many claim that this new required disclosure proposed by the LFTA will turn into a sideshow that will prevent the resolution of the substantive claims. Even so, some litigation funders who understand that some form of disclosure is inevitable in actions involving many parties are breathing a sigh of relief because the LFTA would not apply to every federal litigation and should allow them to continue to fund commercial disputes between a limited number of sophisticated parties CONCLUSION All should stay tuned to see whether the LFTA becomes law in the United States. If it doesn’t, it is likely that some form of disclosure of the existence of litigation funding will be required — if not by Congress, then by federal judges. The main question is what the scope of such disclosures will be. Until there is legislation on this, parties in federal litigation need to be prepared to handle this issue on a case-by-case basis.
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STREAMING INSIGHT A conversation with Jonathan L. Schwartz, founder and host of the Timely Notice podcast
oldberg Segalla marked spring 2018 with the launch of Timely Notice, our podcast that addresses in an engaging and easily digestible way many of the critical and cutting-edge issues facing insurance industry professionals as well as in-house and outside legal counsel. We sat down with Jonathan L. Schwartz, partner in Goldberg Segalla’s Global Insurance Services Practice Group, to discuss what inspired him to create the podcast, what listeners will learn, and what the future holds. What sparked the idea for Timely Notice, and what are some of the unique benefits of a podcast? What really sparked my interest in the podcast was the thought that we could reach our audience — our own clients, as well as the broader insurance industry, plus the business and professional communities — in a different way. I’d started to ask questions of people in the insurance industry, clients in particular, about what they are reading to stay current. My goal has always been to be on the same “page” as them, so I
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understand the trends and developments impacting the industry. From the feedback I was getting, one idea really struck home: Everyone consumes information and learns differently. There are some people who prefer to read it, others who prefer to take it in visually, and others who prefer audio. I've always been a fan of the podcast medium. I listen to a lot of them. So, I thought a podcast would make an excellent complement to the extensive and excellent resources we were already putting out there — newsletters, blogs, seminars, webinars, and email alerts. I think that when our industry friends are looking for insight on a particular question or issue, listening to a Timely Notice episode would deliver that desired insight in a new and convenient way, and add to or solidify the understanding they may have already begun to develop from what they’re reading. Plus, the podcast medium is terrific for people who always seem to be on-the-go. Another benefit is the conversational format of the podcast, which gives the guest an opportunity to showcase his/her knowledge and offer different perspectives, both practical and with a local flavor that may not easily come across through the written word. Who is the audience for Timely Notice? Anyone with interest in tort law, contracts, or the world of insurance — anybody whose practice or whose business touches upon insurance — would find this interesting.
Our plan has always been to make sure the podcast has something for everybody in the insurance industry. We're not limiting it to bread-and-butter insurance coverage topics, for example. We want to be a one-stop shop for all salient and cutting-edge issues affecting the insurance industry. Another facet of our plan is to share all the knowledge bases our firm has to offer. In addition to our Global Insurance Services team, I’ve collaborated with my partners from the Management and Professional Liability and Employment and Labor groups, and from the Workers' Compensation team. We're also planning several episodes for the summer with the Toxic Tort and Environmental groups. There are so many different areas we plan to cover that are relevant to the insurance industry, as the industry truly does make the world go 'round. So I think that anybody who is directly in the insurance industry, claims professionals, underwriters, agents, brokers, as well as anybody who is in corporate or enterprise risk management, will find Timely Notice incredibly valuable as their twice-weekly source of news and commentary on subjects relevant to their businesses and their careers. Can listeners suggest topics? Absolutely. At the end of every podcast, we encourage listeners to contact us and let us know if you have any comments or suggestions. We strongly encourage our listeners to contact us if they have any ideas or particular topics they would like to hear more from us about. Podcasting allows us to have a dynamic relationship with our audience. There's give-and-take. We care deeply that our listeners hear our take on what is important to them. So, if they share their ideas, we'll do our very best to create episodes based on those ideas. What differentiates Timely Notice from other podcasts out there? Two things. Of course, by no means will Timely Notice take the place of your podcasts about the National Football League, Hollywood, politics, or true crime. What we're hoping to accomplish is to supplement your podcast rotation and give you an option to work a bit of professional development and industry education into the mix, at a comfortable pace and in a more relaxed setting.
But as far as the way we differentiate ourselves from other podcasts — number one is that there are few, if any, podcasts out there that cover the insurance industry and publish frequently. We come out twice a week, and we try very hard to make sure that our podcasts are easily digestible, with episodes that are about 20 minutes long. Number two is the topics we cover, because they are not only interesting and professionally important to our audience, but also invoke many of the most important news stories of our day. We've discussed the opioid addiction crisis and its impact on insurance coverage. We have a two-part podcast series that just came out on cyber insurance and cyber security. We also have a great episode on the #MeToo movement and its impact on the civil justice system. What does the future hold for Timely Notice? We're hoping our audience is excited for Tuesdays and Thursdays and the release of a new episode. We know that based on the quality content we offer, our audience will grow by word of mouth. So we are going to continue to publish our episodes “timely,” and we're going to be bringing in guests on plenty of different subjects, both from Goldberg Segalla and from the outside. We’re hoping that ultimately our audience will look at Timely Notice as essential commentary on recent developments in the insurance industry. We also will continue to provide our audience regularly with deep dives on narrow subjects so they end each episode with a fully formed understanding of certain problems facing the insurance industry, why those problems persist, what’s on the horizon, and what steps they can take to minimize or completely eliminate the problems. If someone has a new take on a particular subject or a new case comes out, we would love if you would share that with us. Plus, we're open to guests from both sides of the aisle; we're certainly not limited to just defense lawyers, and if plaintiff lawyers want to come and talk to us, I would love to have them, too. We take all comers! Again, we're experimenting, we're nimble, and as time goes by, we are going to continue to develop and to keep improving.
CHECK OUT THE ENTIRE TIMELY NOTICE EPISODE LIBRARY HERE. www.timelynoticepodcast.com
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The U.S. Supreme Court limits application of safe harbor in fraudulent transfer suits where financial institutions act only as conduits By Daniel L. Gold In a closely watched decision, Merit Management Group LP v. FTI Consulting, Inc., No. 16-784, 583 U.S. ___ (U.S. Feb. 27, 2018), the Supreme Court ruled unanimously that the “safe harbor” protections of 11 U.S.C. § 546(e) do not protect allegedly fraudulent transfers from avoidance when financial institutions act only as conduits in the transaction between other parties. The ruling raises new litigation and risk management challenges for banks that act as intermediaries in transactions, while the points the court did not address will likely find their way into novel disputes concerning application of 546(e). In Merit Management, the Supreme Court diagramed the subject transaction as follows: “a transfer from A → D that was executed via B and C as intermediaries, such that the component parts of the transfer include A → B → C → D.” As described by the parties to the transaction, “B” and “C” were “financial institutions” as defined in the Bankruptcy Code, which entities typically include federally insured savings banks and similar institutions. The transaction that the trustee sought to avoid was the alleged overpayment for the purchase stock where entity A, the transferor, sent money to entity D in exchange for stock in entity D. Accordingly, the trustee sought to avoid a transfer from A → D, where entities B and C were involved as intermediaries. More specifically, Valley View Downs LP and Bedford Downs Management Corp. entered into an agreement whereby Valley 8 | PLM
View, which was applying to obtain the last available harness-racing license in Pennsylvania, would purchase all of Bedford Downs’ stock for $55 million. Initially, Bedford Downs had been a competitor to Valley View for the harness-racing license, but agreed to withdraw its application to enter into the cooperative agreement with Valley View. Valley View obtained the racing license and obtained a loan from Credit Suisse for $55 million as part of a larger $850 million transaction. Credit Suite wired the $55 million to a third-party escrow agent, Citizens Bank of Pennsylvania. Bedford Downs’ stock certificates were deposited with Citizens Bank to be held in escrow, and Citizens Bank disbursed the $55 million in two installments to former Bedford Downs shareholders, from which Merit Management Group LP received $16.5 million. The closing statement for the transaction reflected Valley View as the “Buyer,” the Bedford Downs shareholders as the “Sellers,” and $55 million as the “Purchase Price.” In the larger transaction, Valley View intended to open a “racino,” but its plans fell through when it failed to obtain a separate gaming license. Ultimately, Valley View and its parent company, Centaur LLC, filed for Chapter 11 bankruptcy protection. The bankruptcy court confirmed a plan of reorganization, and appointed FTI Consulting Inc. as the litigation trustee. Thereafter, FTI filed suit against Merit in the Northern District of Illinois to avoid the $16.5 million transfer from Valley View to Merit, alleging the transfer to be constructively fraudulent under Section 548(a)(1)(B) of the Bankruptcy Code. FTI did not seek to avoid the intermediate transfers from Valley View to Credit Suisse, from Credit Suisse to Citizens Bank, or from Citizens Bank to Merit,
but only the overall transfer that ended with Merit (i.e., A → D, and not A → B, B → C, or C → D). For purposes of the complaint, Credit Suisse and Citizens Bank were treated only as intermediaries, and not as ultimate transferees. It is important to note that neither Valley View nor Merit claimed to be a “financial institution” or other entity covered by the safe harbor. Merit filed a motion for judgment on the pleadings, arguing that the safe harbor of 546(e) protected the transfer because it was a “settlement payment” made by, to, or for the benefit of a covered “financial institution,” e.g., Credit Suisse and Citizens Bank. The District Court granted the Rule 12(c) motion, ruling that the financial institutions transferred or received funds in connection with a “settlement payment” or “securities contract.” The Seventh Circuit, however, reversed, holding that the 546(e) safe harbor did not protect transfers from avoidance where financial institutions act as mere conduits. The Supreme Court affirmed, finding that neither Valley View nor Merit were excepted “financial institutions,” and holding that the language and context of Section 546(e) support the view that the only relevant transfer for purposes of determining the applicability of the section 546(e) safe harbor is the transfer that the trustee seeks to avoid, which in this case was the transfer from Valley View to Merit. In other words, the intermediate transfers through the excepted financial institutions could be ignored for purposes of analyzing the overall transfer. Instead, the analysis should focus on whether the entity for whose actual benefit the transfer is made is a financial institution entitled to the safe harbor. Transfers where “financial institutions” (or other Section 546(e) entities) act as “mere conduits” for an ultimate transferee that is not a “financial institution” are not exempt from avoidance actions. Section 546(e) provides: “Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 548(b) of this title, the trustee may not avoid a transfer that is a margin payment, as defined in section 101, 741, or 761 of this title, or settlement payment, as defined in section 101 or 741 of this title, made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or www.goldbergsegalla.com
securities clearing agency, or that is a transfer made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency, in connection with a securities contract, as defined in section 741(7), commodity contract, as defined in section 761(4), or forward contract, that is made before the commencement of the case, except under section 548(a)(1)(A) of this title.” While the text of the statute seems to bar avoidance suits where the subject transfer is “made by or to ... a financial institution,” the Supreme Court looked at Section 546(e) in the context of the Bankruptcy Code’s transfer-avoidance scheme and the limited exceptions to that remedial scheme in holding that the “relevant transfer for purposes of § 546(e)” is the “overarching transfer that the trustee seeks to avoid.” As the court remarked, “[t]ransfers ‘through’ a covered entity ... appear nowhere in the statute.” Accordingly, the Court held that the trustee’s complaint alleged an avoidable transfer between Valley View and Merit and that the component parts of the overall transfer between Credit Suisse and Citizens Bank “are simply irrelevant to the analysis under § 546(e).” The court, however, reinforced, in dicta, the widely held view that a transfer made “by” or “to” a securities clearing agency is barred from avoidance by Section 546(e) without regard to whether the clearing agency acted only as an intermediary. Practically speaking, the decision in Merit Management will prevent dismissal of many suits wherein one of the stops along the way is through an exempt “financial institution” or other exempt entity to the ultimately transferee. In short, a trustee’s ability to recover allegedly fraudulent transfers is enhanced at the pleading stage. Whereas, under previous decisions in certain circuits, a transfer involving securities could be insulated from avoidance where an exempt financial institution was merely involved in the chain of transfer, those transfers cannot be dismissed at the pleading stage merely because cash or securities may have been transferred through a bank or broker. In Merit Management, the trustee was empowered to pursue the recipients of cash payments for the purchase of stock, which payments were funded by borrowed money. Accordingly, the exposure for transfer-
ees dealing with financially troubled businesses that eventually enter bankruptcy has potentially increased, especially for leveraged buyouts involving private companies. Transactions involving stock and similar settlement payments in the public markets, however, seemingly will continue to be shielded from avoidance by the safe harbor, particularly where the transaction does not entail a change of control. See, e.g., In re MacMenamin’s Grill, Ltd., 450 B.R. 414, 430 n.19 (Bankr. S.D.N.Y. 2011) (refusing to apply Section 546(e) safe harbor to trustee’s attempt to avoid transfer where “no party was acting in its capacity as a participant in a securities market and the avoidance of the transaction would not pose any risk to any securities market.”). In addition, the decision did not touch on the merits of the trustee’s claim against Merit or any defenses that Merit could assert to the complaint, but only the scope of the safe harbor. Among the issues that were not addressed by the court that leave room for future disputes regarding the application of the 546(e) safe harbor are: (i) what constitutes a qualified financial contract covered by the statute, (ii) whether the “customer” of a financial institution is entitled to safe harbor protections in connection with a securities contract, and (iii) whether the transaction in Merit Management involved a securities contract or a “settlement payment.” These lacunae leave open the possibility of future decisions that refine the application of the 546(e) safe harbor in the context of public transactions relating to equity or debt securities, including transactions clearing through securities clearing agencies or made through brokerage accounts at financial institutions. While the safe harbor will continue to shield financial institutions when they operate as escrow agents, custodians, or clearinghouses in transactions involving securities contracts or qualified settlement payments, bankruptcy trustees will be emboldened to pursue fraudulent transfer suits against recipients that cannot pose an absolute defense by interposing a qualified financial institution as a participant in the chain of transfers. Accordingly, we may see more suits that target investors, investment funds, loan participants, and similar entities in avoidance actions by trustees seeking to unwind financial transactions involving bankruptcy companies. July 2018 | 9
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Tough Choice for Brokers Confronting choice of law issues when an insurance broker is alleged to have engaged in misconduct in one state, causing injury to a customer in another state By Peter J. Biging and Heather M. Zimmer
This article was originally published in the spring 2018 edition of the Professional Liability Defense Quarterly, a publication of the Professional Liability Defense Federation. Peter is co-chair of the PLDF’s Insurance Committee.
hen an insurance broker engages in tortious conduct and/or alleged breach of contractual obligations in the same state as the customer resides and the location of the insured risk, the question of which state’s law to apply is fairly simple. The question can become much more complicated when either the broker, the customer, or the insured risk are located in different states. This issue has been a particularly difficult one to resolve in New York, in light of a series of federal court decisions that appear to have reached diametrically opposite conclusions purporting to apply the same analytical framework. The issue is further complicated when you consider whether the law at issue is intended as “conduct-regulating” or “loss-allocating.” The following is a discussion of the evolution of the issue in New York, the complicated nature of the analysis given the conflicting decisions applying the same analytical framework, and how it is believed the choice of law analysis will be resolved going forward. CHOICE OF LAW ANALYSIS A federal court sitting in diversity applies the choice of law rules of the forum in which it sits. Licci v. Lebanese Canadian Bank, SAL, 672 F.3d 155, 157 (2d Cir. 2012) (citing Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496 (1941)). See Lichtenstein v. Reassure Am. Life Ins. Co., 2010 WL 1189494, at *1 (E.D.N.Y. Mar. 26, 2010); Trumpet Vine Inv. v. Union Capital Partners I, Inc., 92 F.3d 1110, 1115 (11th Cir. 1996); Valentino v. Bond, 2008 WL 3889603, at *4 (N.D. Fla. Aug. 19, 2008); Collegenet, Inc. v. XAP www.goldbergsegalla.com
Corp., 2004 WL 2303506, *14 (D. Or. Oct. 12, 2004). Indeed, even if the case were to subsequently be transferred to another jurisdiction based on 28 U.S.C. § 1404, the transferee court would still apply the transferor court’s choice of law analysis. Atlantic Marine Constr. Co., Inc. v. United States Dist. Court for the W. Dist. of Tex., 134 S.Ct. 568, 582 (2013). Thus, where a case has been brought in federal district court in New York, the choice of law analysis will be performed under New York law. In determining choice of law, New York courts first look to whether there is an actual conflict of laws between the varying states whose laws are sought to be applied. An actual conflict exists when the jurisdictions have different substantive rules. See Pescatore v. Pan Am. World Airways, Inc., 97 F.3d 1, 14 (2d Cir.1996) (holding that an actual conflict existed where Ohio law allowed for consideration of loss of society for damages but New York law did not); Bader v. Purdom, 841 F.2d 38, 39–40 (2d Cir.1988) (holding that an actual conflict existed where jurisdictions differed concerning the availability of recovery under a negligent parental supervision theory). Where the laws at issue are not in actual conflict, you apply New York law. See Curley v. AMR Corp., 153 F.3d 5, 12 (2d Cir.1998). In tort cases, New York courts make a choice of law determination based on an “interests analysis,” which considers the “law of the jurisdiction with the most significant interest in, or relationship to, the dispute.” In re Refco Inc. Sec. Litig., 892 F. Supp. 2d 534, 537 (S.D.N.Y. 2012); see also Cobalt Multifamily Investors I, LLC v. Shapiro, 857 F. Supp. 2d 419, 430 (S.D.N.Y. 2012). This interest analysis is a “flexible approach” – it gives effect to the law of the jurisdiction which “because of relationship or contact with [the] occurrence or the parties, has greatest concern with [the] specific issue raised in the litigation.” Id. This flexibility is important because it allows the court to diverge from precedent if the Judge believes, or the parties successfully argue, that a certain jurisdiction has a greater interest. July 2018 | 11
To determine which jurisdiction has the “greatest concern” or “greatest interest” with the issue raised, you first have to determine whether the rules relevant to the issue are (1) conduct-regulating or (2) loss-allocating. AHW Investment Partnership, MFS, Inc. v. Citigroup Inc., 661 Fed.Appx. 2, 4 (2016); Geron v. Seyfarth Shaw LLP (In re Thelen LLP), 736 F.3d 213, 219-220 (2d Cir. 2013). “Conduct-regulating rules have the prophylactic effect of governing conduct to prevent injuries from occurring.” Padula v. Lilarn Props. Corp., 84 N.Y.2d 519, 522 (1994). They are rules that people use as a guide to govern their primary conduct, such as fraud, defamation, and negligent misrepresentation. See, e.g., Lyman Commerce Solutions, Inc. v. Lung, 2014 WL 476307, at *3 (S.D.N.Y. 2014) (fraud is conduct-regulating). Compare In re Mediators, Inc., 1993 WL 497993, at *1 (S.D.N.Y. 1993) (privilege is conduct-regulating); Stephens v. American Home Assurance Co., No. 91 Civ. 2898, 1995 WL 230333, at *7 (S.D.N.Y. April 17, 1995) (employing New York choice-of-law rules in diversity case and applying law of jurisdiction where conduct subject to privilege occurred); with Satcom Intern. Group, P.L.C. v. Orbcomm Intern. Partners, L.P., 1999 WL 76847, at *2 (S.D.N.Y.,1999) (applying Virginia privilege law because that is where party is a domiciliary and that is where its counsel is located); Del Giudice v. Harlan, No. 15 Civ. 7330, 2016 WL 6875894, at *2 (S.D.N.Y. Nov. 21, 2016) (“Pursuant to Federal Rule of Evidence 501, ‘in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.’”).1 On the other hand, loss-allocating rules are those which concern a person’s liability, “which prohibit, assign, or limit liability after the tort occurs,” including charitable immunity statutes, guest statutes, wrongful death statutes, vicarious liability statutes, and contribution rules. Id.; Padula, 84 N.Y.2d at 522; see also Schultz v. Boy Scouts of Am., 65 N.Y.2d 189, 198 (1985) (loss-allocating rules are those “relat[ing] to allocating losses that result from admittedly tortious conduct” (emphasis added)); Mark Andrew of the Palm Beaches, Ltd. v. GMAC Commercial Mortg. Corp., 265 F.Supp.2d 366, 378 (S.D.N.Y.2003) (noting that negligence and negligent-misrepresentation claims are based on “conduct regulating rules rather than loss allocating rules”).
Notwithstanding the foregoing, a review of relevant decisions on the issue reveals that a number of courts have not distinguished between conduct-regulating and loss-regulating claims in performing their analysis, resulting in conflicting determinations. See, e.g., Lichtenstein v. Reassure Am. Life Ins. Co., 2010 WL 1189494, at *1 (“In New York, ‘fraud claims are governed by the state in which the injury is deemed to have occurred, which is usually where the plaintiff is located.’”); Narine, 2007 WL 3353484, at *3 (same); Thomas H. Lee Equity Fund V, L.P. v. Mayer Brown, Rowe & Maw LLP, 612 F. Supp. 2d 267, 283-84 (S.D.N.Y. 2009) (“For tort actions, the jurisdiction with the greatest interest is generally the jurisdiction in which the loss occurred—or where the plaintiff is located.”); Cromer Finance Ltd. v. Berger, 137 F. Supp. 2d 452, 492 (S.D.N.Y. 2001) (“for claims based on fraud, a court’s ‘paramount’ concern is the locus of the fraud, that is, ‘the place where the injury was inflicted, as opposed to the place where the fraudulent act originated.”).
To muddle things even further, in New York, the choice of law analysis may be done separately for each claim and defense, under a doctrine called dépeçage. See 2002 Lawrence R. Buchalter Alaska Trust v. Philadelphia Financial Life Assur. Co., 96 F.Supp.3d 182 (S.D.N.Y. 2015); Fed. Hous. Fin. Agency v. Ally Fin. Inc., No. 11– CV–7010, 2012 WL 6616061, at *5 (S.D.N.Y. Dec. 19, 2012). In other words, the “[d]epecage doctrine recognizes that in a single action different states may have different degrees of interests with respect to different operative facts and elements of a claim or defense.” Simon v. Philip Morris Inc., 124 F.Supp.2d 46, 75 (E.D.N.Y.2000). However, it seems that, generally, courts will apply the analysis to the entire claim and its defense, on an issue-by-issue basis, and “the law governing an affirmative defense is the same as the law governing the claim itself.” In re ICP Strategic Credit Income Fund Ltd., 568 B.R. 596 (S.D.N.Y. 2017) (finding that choice of law for breach of fiduciary duty claim applies
1 If neither party addresses a choice of law issue, it is implied the parties have consented to apply New York law. See Allied Irish Banks v. Bank of Am., N.A., 240 F.R.D. 96 (S.D.N.Y.2007) (finding implied consent to apply New York privilege law where the parties did not address the choice of law and cited New York cases); In re General Motors LLC Ignition Switch Litigation, 80 F.Supp.3d 521, 527 (S.D.N.Y.2015) (same).
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making sure its rules and regulations governing professional conduct in the state are complied with. See, e.g., Cobalt Multifamily Investors I, LLC v. Shapiro, 857 F. Supp. 2d 419, 433 (S.D.N.Y. 2012) (applying the laws of Connecticut, New Jersey, and New York to defendant law firms located in each state that were accused of assisting their clients’ fraudulent Ponzi scheme because of “these states’ interest in regulating the conduct of law firms and lawyers who are licensed to practice within their borders.”); AHW Inv. P’ship v. Citigroup Inc., 980 F. Supp. 2d 510, 524 (S.D.N.Y. 2013) (“New York has the greater interest in regulating its vast securities industry to ensure that application of the law leads to the appropriate admonitory effects on industry participants.”); Kwiecinski v. Renke, 2012 U.S. Dist. LEXIS 135708, *12-17 (E.D.N.Y. July 30, 2012) (in case involving an attorney allegedly converting funds in a client trust account, holding “[where] conflicting conduct-regulating laws are at issue, the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders,” and concluding that the conversion took place in the attorney’s state).
to defense of in pari delicto even though defense was a loss-allocating rule); Crown Cork & Seal Co., Inc. Master Retirement Trust v. Credit Suisse First Boston Corp. 2013 WL 308889 (S.D.N.Y. Jan. 25, 2013). CONDUCT-REGULATING RULES While there has been some genuine confusion on the issue, the Second Circuit’s decision in Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 739 F.3d 45, 49 (2d Cir. 2013) directs the courts to focus in regard to conduct-regulating laws on the place where the tortious conduct occurs. See Licci, 739 F.3d at 50 (holding that, where the tortious conduct and the injury are in different jurisdictions, “it is the place of the allegedly wrongful conduct that has superior interest in protecting the reasonable expectations of the parties who relied on the laws of that place to govern their primary conduct”). This aligns with the position a number of courts have taken in cases involving alleged professional misconduct that the law of the defendant’s place of business should generally be applied because of the interests of the state where the professional is situated in www.goldbergsegalla.com
In 2016, the Second Circuit reaffirmed the holding from Licci in AHW Investment Partnership, MFS, Inc. v. Citigroup Inc., 661 Fed. Appx. 2, 5 (2d Cir. 2016). In AHW, plaintiffs, who were Florida corporations, brought suit against a New York corporation alleging that its officers made fraudulent and negligent misrepresentations about their investment, causing them to incur losses in excess of $800 million. Id. at 4. In relying upon Licci, the Second Circuit held that New York law should apply because it is where the misrepresentations by defendants’ officers occurred, and: under New York law, when the jurisdictions of the conduct and injury are distinct, it is the place of the allegedly wrongful conduct that generally has superior ‘interests in protecting the reasonable expectations of the parties who relied on the laws of that place to govern their primary conduct and in the admonitory effect that applying its law will have on similar conduct in the future.’ Id. at 5.
All this notwithstanding, both the Southern and Eastern District Courts have on numerous occasions held that where the “tort occurred” is the place where the plaintiff was injured. See, e.g., Drenis v. Haligiannis, 452 F. Supp. 2d 418, 427 (S.D.N.Y. 2006) (“when the law is one which regulates conduct . . . ‘the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders.’ ‘A tort occurs in the place where the injury was inflicted, which is generally where the plaintiffs are located.’”); Bergeron v. Philip Morris, Inc., 100 F. Supp. 2d 164, 170 (E.D.N.Y. 2000) (“A general rule has developed for conduct-regulating laws: ‘where the defendant’s tortious conduct and the plaintiff’s injury occur in different states the place of the wrong is considered to be the place where the last event necessary to make the actor liable occurred.’ For actions sounding in fraud and deceit, the substantive law of the state in which the injury is suffered, rather than the state where the fraudulent conduct was initiated, usually governs.”); Trainum v. Rockwell Collins, Inc., 2017 WL 2377988, at *18 (S.D.N.Y. 2017) (“Under New York law, “[i]t has long been held that when the conflict pertains to a conduct-regulating rule, the law of the place where the tort occurs will generally apply, with the locus of the tort generally defined as the place of the injury.”); Currier, McCabe & Associates, Inc. v. Public Consulting Group, Inc., 2017 WL 4842023, at *11 (N.D.N.Y. 2017) “[since] the alleged injury was felt in Massachusetts where [defendant-counterclaimant] is domiciled—Massachusetts law applies to [defendant-counterclaimant ]’s claim under the appropriate choice of law analysis.”); Tiberius Capital, LLC v. Petrosearch Energy Corp., 2011 U.S. Dist. LEXIS 36019, 26-27 (S.D.N.Y. Mar. 31, 2011). The effect of this has been to essentially turn an interests analysis test that seemingly should clearly defer to the interests of the state in which the tortious conduct is undertaken into one that can often end up applying the law of the state in which the injury is suffered. The recent decision in Holborn Corporation v. Sawgrass Mutual Insurance Company, 2018 WL 485975 (S.D.N.Y Jan. 17, 2018) is believed to offer clarity on this issue, and specifically in the insurance agent/ broker E&O claim context. In Holborn, the District Court relied on the holding in Licci (continued on next page) July 2018 | 13
that for a choice of law analysis, the court should apply the law of where the tortious conduct occurred, not the place of the plaintiff’s injury, as previously held by the Second Circuit in White Plains Coat & Apron Co. v. Cintas Corp., 460 F.3d 281, 284 (2d Cir. 2006). 2018 WL 485975, at *5. In doing so, the District Court explicitly noted that the approach taken by the court in White Plains was based on decisions concerning conflicting loss-allocating rules (Schultz v. Boy Scouts of Am., 65 N.Y.2d 189, 198 (1985), not conduct-regulating rules. Id.; see also MasterCard International Incorporated v. Nike, Inc., 164 F. Supp. 3d 592 (S.D.N.Y. 2016) (finding OR law applied to negligence claim because it is where tortious conduct occurred, and the “last event rule is not chiseled in stone but rather gives way when it is at war with state interests so that the more general principles of interest analysis apply”); Benefield v. Pfizer, Inc. (S.D.N.Y. 2015) (finding that GA law applied to claims for negligence, fraud, and unjust enrichment because it is where tortious conduct occurred). In undertaking this analysis, the court in Holborn appears to have put the question of where the tort occurred to bed, and made clear that, where insurance agent/broker torts are alleged, the law of the jurisdiction in which the tortious conduct was engaged in, not where the tort was “completed” by causing the alleged harm, is the law to be applied with regard to alleged negligence, breach of contract, breach of fiduciary duty, fraud, negligent misrepresentation and the like. LOSS-ALLOCATING RULES Comparative Negligence and Respondeat Superior Comparative negligence laws are generally viewed as loss-allocating rules in New York state courts and federal district courts within the Second Circuit. See, e.g., Bullock v. Caesars Entertainment Corp., 83 F.Supp.3d 420, 422 (E.D.N.Y. 2015); Levy v. Marriott Int’l, Inc., No. 08–cv–4795, 2011 WL 1542082, at *2 (E.D.N.Y. Apr. 21, 2011) (Carter, Mag. J.) (“Comparative negligence is a loss allocation law.”); O’Brien v. Marriot Intern., Inc., No. 04–cv–3369 (VVP), 2006 WL 1806567, at *2 (E.D.N.Y. June 29, 2006) (Pohorelsky, Mag. J); Burke v. Stone & Webster, Inc., No. 03-Civ-8694, 2006 WL 522604, at *5 (S.D.N.Y. Mar. 2, 2006) (“With respect to loss-allocating rules, e.g. comparative
negligence, it is appropriate to apply New York law.”); Armstead v. Nat’l R.R. Passenger Corp., 954 F.Supp. 111 (S.D.N.Y.1997) (Rakoff, J.) (concluding that comparative negligence law was loss-allocating); Pascente v. Pascente, No. 91-Civ-8104, 1993 WL 43502, at *1 (S.D .N.Y. Feb. 25, 1997) (Sotomayor, J.) (“Contributory negligence rules are considered to be loss-allocating.”) (citing Cain v. Greater N. Y. Council of the Boy Scouts of Amer., 519 N.Y.S.2d 43, 44 (2d Dep’t 1972)); Murphy v. Acme Markets, Inc., 650 F.Supp. 51, 53 (E.D.N.Y.1986) (McLaughlin, J.) (“Although the Court of Appeals has not provided a touchstone to distinguish ‘appropriate standards of conduct’ rules from those that pertain to ‘loss allocation,’ there is little doubt that it would place comparative negligence statutes under the latter heading; such statutes allocate losses ‘that result from admittedly tortious conduct.’”) (citations omitted). Additionally, respondeat superior, or vicarious liability, is also determined under New York’s loss-allocating rules. See Roper v. Team Fleet Financing Corp., 10 Misc.3d 1080(A) (Sup. Ct. Bronx County 2006) (the loss-allocating analysis is for the law “that allocates losses after the tort occurs (such as vicarious liability rules.)”) Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66, 72; GlobalNet Financial.com, 449 F.3d 377, 382; Padula, 84 N.Y.2d at 522. In determining which state’s loss-allocating rules to apply, the Neumeier standard, adopted from Neumeier v. Kuehner, 31 N.Y.2d 121, 612 N.E.2d 177 (N.Y. 1972) provides the analytical framework for making this determination. See Roper v. Team Fleet Financing Corp., 10 Misc.3d 1080(A) 3 (Sup. Ct. Bronx County 2006). The three guiding principles are as follows: 1) If the parties are domiciled in the same state, the law of that state controls; 2)“If the tort takes place in the state where one party is domiciled and the law of that state favors the domiciliary, the second Neumeier rule mandates the application of the law of the situs of the tort”;2 and 3) When the parties are domiciled in different states with conflicting laws, “[t]he law to be applied is that of the jurisdiction where the tort occurred unless it appears that ‘displacing
[the] normally applicable rule will advance the relevant substantive law purposes’ of the jurisdictions involved.” Under this analysis, the place of the injury is the “determining factor” or rather, the place of where the tort occurred is where the last event was (Schultz, 65 N.Y.2d at 195, 480 N.E.2d at 683, 491 N.Y.S.2d at 94).. See Blundon v. Goodyear Dunlop Tires North America, Ltd., 2015 WL 5943480, at *3 (W.D.N.Y.,2015) citing Cooney v. Osgood Machinery, Inc., 81 N.Y.2d 66, 73-76 (1993) In undertaking this analysis, courts will generally only consider the parties who are relevant to the actual inquiry at issue. For example, in considering the question of vicarious liability, a District Court ignored the domicile of an unrelated defendant in its choice of law analysis. See Aboud v. Budget Rent A Car, 29 F.Supp.2d, 178, 180 (S.D.N.Y. 1998). This aligns with the guidance afforded by the Restatement (Second) Conflict of Laws, which states that the domicile of the defendants is to be evaluated, “according to their relative importance with respect to the particular issue.” Restatement (Second) Conflict of Laws § 145 (1971). And it is also noted that courts will often give controlling weight to the jurisdiction with the greatest interest in the case, even if a strict application of Neumeier might arguably dictate a different conclusion. See, e.g., Pescatore v. Pan American World Airways, Inc., 97 F.3d 1, 13 (2nd Cir.1996) (quoting Datskow v. Teledyne Continental Motors Aircraft Prods., 807 F.Supp. 941, 944 (W.D.N.Y.1992) (quoting Schultz v. Boy Scouts of America, 65 N.Y.2d 189, 491 N.Y.S.2d 90, 96, 480 N.E.2d 679 (N.Y.1985))). For example, in Murphy v. Acme Markets, Inc., 650 F. Supp. 51, 54 (E.D.N.Y. 1986), New York domiciliaries brought an action against Pennsylvania corporations for injuries suffered in New Jersey. Id. In considering which jurisdiction’s loss-allocating rules to apply, the court noted that “[i]t is conceptually difficult to reconcile [the third Neumeier ] rule with the loss allocation interest analysis expounded in Schultz because it is not clear what interest, if any, vests in the locus jurisdiction by virtue of the parties’ split domiciles.” Murphy, 650 F. Supp. at 54. The Court
2 To put it another way, “the second Neumeier rule addresses “true” conflicts, where the parties are domiciled in different States and the local law favors the respective domiciliary.... In essence, ... the second Neumeier rule adopts a “place of injury” test for true conflict guest statute cases. Fargas v. Cincinnati Mach., LLC, 986 F.Supp.2d 420, 424 (S.D.N.Y. 2013)
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thus applied New York law in lieu of New Jersey, the site of the tort, because the plaintiffs demonstrated that New York had the greatest interest in protecting New York domiciliaries and New Jersey had little or no interest in applying its own loss allocation rules because no party involved was a New Jersey domiciliary. Id. In Armstead v. National R.R. Passenger Corp., 954 F.Supp. 111, 113 (S.D.N.Y.1997), the court reached a similar decision, where a New York domiciliary sued a District of Columbia domiciliary for injuries that occurred in Virginia. Id. In finding that New York’s comparative negligence law should apply instead of Virginia’s contributory negligence standard, Judge Rakoff found that “[i]f the purpose of these laws relates to loss allocation, Virginia has no substantive law interest in enforcing its rule when two non-domiciliaries are involved.” Armstead, 954 F.Supp. at 113; see also O’Connor v. U.S. Fencing Ass’n, 260 F.Supp.2d 545, 559 (E.D.N.Y. 2003) (finding that New York had greater interest in protecting its domiciliaries than California, where injury occurred); see also Cooney, 612 N.E.2d at 281 (“the second Neumeier rule is not inflexible and is subject to an exception created by the “less categorical” third Neumeier rule… “the applicable rule of decision will be that of the state where the accident occurred but not if it can be shown that displacing that normally applicable rule will advance the relevant substantive law purposes without impairing the smooth working of the multi-state system or producing great uncertainty for litigants.”). In Cooney v. Osgood Machinery, Inc., 81 N.Y.2d 66, 595 N.Y.S2d 919, 612 N.E.2d 277 (N.Y. Ct. App. 1993), the Court dealt with a more challenging analysis, and required resort to Neumeier’s second rule to resolve the conflict. In Cooney, a Missouri resident was injured in Missouri while operating a machine distributed by a New York corporation, and the plaintiff sued the distributor in a New York court. Cooney, 595 N.Y.S.2d 919, 612 N.E.2d at 279. The distributor commenced a third-party action against the plaintiff’s employer, a Missouri corporation, seeking contribution. Id. Contribution claims against the employer were allowed under New York law but not under the Missouri workers’ compensation law. Id. In considering the conflict of laws issue, the Court observed that the case presented a “true” conflict: Missouri law protected its domiciliary, the employer, from contribution claims, while www.goldbergsegalla.com
New York law allowing contribution claims against the employer would be more favorable to the distributor, a New York domiciliary. Id., 595 N.Y.S.2d 919, 612 N.E.2d at 283. Each state had a legitimate interest in applying its own law: Missouri had an interest in maintaining the integrity of its workers’ compensation scheme, which was part of the state’s efforts to restrict the cost of industrial accidents and to afford a fair basis for predicting what these costs would be, id., 595 N.Y.S.2d 919, 612 N.E.2d at 282–83; on the other hand, New York had an interest in basic fairness to litigants by allowing a defendant that paid more than its fair share of a judgment to recover the difference from a codefendant, id., 595 N.Y.S.2d 919, 612 N.E.2d at 283. These competing legitimate interests of the two states presented an irreconcilable, “true” conflict because “[i]t is evident that one State’s interest cannot be accommodated without sacrificing the other’s.” Id. Applying the second Neumeier rule, the Court determined that the law of Missouri, where the plaintiff was injured, governed. Id., 595 N.Y.S.2d 919, 612 N.E.2d 277 at 283. PRE-JUDGMENT INTEREST While the question of pre-judgment interest is reasonably considered a loss-allocating rule, unfortunately, it is not well-settled as to which interests analysis test applies to the determination of which pre-judgment interest to apply. In considering this issue, several courts have swept the question into their analysis for the main claim, which for claims alleging tortious conduct would be conduct-regulating. On the other hand, some District Courts in New York have held that pre-judgment interest is an aspect of loss-allocation and should have its own analysis under the doctrine of dépeçage. Compare Conceria Vignola SRL v. AXA Holdings, LLC, 2010 WL 3377476, at *4 (S.D.N.Y. 2010) (“The allowance of prejudgment interest is controlled by the law of [the state] whose law determined liability on the main claim.”) and Schwartz v. Liberty Mut. Ins. Co., 539 F.3d 135, 147 (2d Cir. 2008) (citing Entron, Inc. v. Affiliated FM Ins. Co., 749 F.2d 127, 131 (2d Cir. 1984) with Granite Ridge Energy, LLC v. Allianz Global Risk U.S. Ins. Co., 979 F.Supp.2d 385, 391–92 (S.D.N.Y. 2013) (“the law governing the determination of liability in a dispute does not necessarily govern the determination of prejudgment interest.”); Caruolo v. John Crane, Inc., 226 F.3d 46, 59 (2d Cir. 2000) (“Prejudgment interest,
like other damages issues, is an aspect of loss-allocation” and thus, should be decidedly under loss-allocating rules, not conduct-regulating rules”); and Schwimmer v. Allstate Ins. Co., 176 F.3d 648, 650 (2d Cir.1999)). CONCLUSION The question of what law to apply in cases involving brokers who are alleged to have engaged in tortious conduct (or conduct alleged to amount to a breach of their contractual obligations) in one state, causing injury in another, is not a question with a simple answer. Given the tortured history of the rulings on this issue in the New York state and federal courts, confusion may continue to reign for some time before this is all sorted out. However, there are fairly defined rules to apply for cases venued in New York state and federal courts sitting in New York. And in particular, the issue of where the tort has occurred, for purposes of this conflicts of laws analysis, should no longer create ongoing confusion. In any event, the elements of a particular claim, the burden of proof, the questions concerning how comparative fault will be considered in determining the allocation of loss among the parties, and whether and in what percentage pre-judgment interest may apply can all have dramatic impacts on how a case may be decided, and the damages calculated. It is therefore critical that counsel who encounter claims involving allegations of broker misconduct in one jurisdiction and injury in another engage in the work necessary to analyze the law applicable to each claim and defense. And it is just as critical to fully research, analyze and weigh the pros and cons of the competing laws, so you are armed with this knowledge as you pursue your various options.
July 2018 | 15
Top 5 Employment Law Lessons Learned From The Office make any employment attorney cringe. However,
there are some valuable lessons to be learned on
and Jan. Dating in the office can lead to a variety of employment
By Reshma Khanna Most of the storylines from the timeless show The Office are outlandish in the extreme, and will
Office Romance Throughout the various seasons of the office, you see many office romances from the iconic Jim and Pam, to
Andy and/or Dwight and Angela, Kelly and Ryan, and Michael
serious issues that may come up in the workplace — hopefully in
issues, so it essential for an employer to set clear polices for such
a less extreme manner than with our friends at Dunder Mifflin.
circumstances whether it be that it is strictly prohibited, prohibited
if it is between a supervisor/subordinate, or not prohibited but re-
porting it is mandatory. Here, it is helpful to have the above sexual
In an episode called “Diversity Day,” Michael Scott’s use
tunity policy in place strictly prohibiting and making clear that
the company does not tolerate discrimination. Training should
Workplace violence is unacceptable, and employers should have
be done by someone knowledgeable in the field.
a workplace policy in place that clarifies violence by any party
of inappropriate stereotypes has brought on a diversity
training exercise. Suffice to say using stereotypes and having an employee like Michael perform diversity training is not appropriate. Instead, it is important to have an equal employment oppor-
harassment policy in place because they go hand in hand.
Workplace Violence In the episode called “Survivor Man,” Dwight shows us the various weapons he has both at his desk and that
he has hidden throughout the office from knives to pepper spray.
is not tolerated, identifies prohibited conduct, and specifically
prohibits weapons in the office.
and make crude remarks during the training. Sexual harass-
ment training in the workplace is vital, especially in the current
the property manager, who is in a wheelchair, and continues
#MeToo climate we are in. Employers should have a clear sexual
to make wholly inappropriate comments. A more acceptable
harassment policy in place, defining sexual harassment, advising
approach to the topic is for employers to have a clear disability
that it is not tolerated, and providing a way to report the harass-
accommodations policy in place stating that they comply with
ment, if experienced.
all applicable disability laws and providing clear protocol for
In the episode “Sexual Harassment,” the Human Resources representative, Toby, is tasked to review the
sexual harassment policies and have the staff watch a sexual harassment training video. Michael and some of the staff mock
Disability Discrimination In a fan-favorite episode called “The Injury,” Michael injures his foot in a George Foreman grill — which brings
on a “disability awareness” meeting, wherein Michael brings in
requesting a reasonable accommodation. Goldberg Segalla has tremendous experience in counseling and training, and would be happy to assist in these areas. 16 | PLM
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Civil Rights Action Against Correctional Institute Dismissed Court addresses vicarious liability, breach of contract, and professional negligence.
Ziegler v. Correct Care Systems, 2018 WL 1470786 (M.D. Pa., 2018) Matthew R. Shindell In this case, the plaintiff instituted a civil rights action pursuant to 42 U.S.C. § 1983 against a correctional institute and alleged it was deliberately indifferent to his medical needs. Specifically, it was alleged a physician working for a health care group retained by the institute negligently failed to monitor the plaintiff’s heart. Months after he requested the use of a heart monitor, he presented to the medical department with complaints of chest pain and difficulty breathing. He was subsequently transported to an outside hospital and underwent a procedure to replace his cardiac stents. The correctional institute filed a motion to dismiss the plaintiff’s claims, which sound in vicarious liability, breach of contract, and professional negligence, pursuant to Federal Rule of Civil Procedure 12(b)(6). The court noted the correctional facility cannot be found vicariously liable for a private corporation such as the health care group for negligent medical treatment unless there was a policy or custom that caused constitutional deprivations. The motion to dismiss any claims related to the vicarious liability of the correctional institute was granted because the plaintiff failed to allege any improper policies or procedures were related to his injuries. The correctional institute argued the breach of contract action should be dismissed because the plaintiff was not in privity to the contract at issue and therefore had no standing. A plaintiff does have standing for such an action if he is a third-party beneficiary of the contract. Both parties must express an intention to benefit the third party to enable him to institute a breach of contract action. The plaintiff’s claim was dismissed because the contract was silent in this regard.
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Finally, the court was asked to dismiss the professional negligence claim because the plaintiff failed to file a certificate of merit in a timely manner. This document must be filed 60 days after the complaint is filed, and must state that an appropriate professional believes there is a reasonable probability that the defendant’s actions fell below the standard of care. Here, the plaintiff never filed a certificate of merit nor sought an extension to do so. Hence, this claim was dismissed. IMPACT: To bring forth a vicarious liability claim against a correctional facility under Section 1983 for the negligence of a health care provider, a plaintiff must prove his injuries are related to improper policies and procedures. Furthermore, a third party may not bring forth a breach of contract action against a correctional facility unless he is privy to the agreement or it has express language permitting such an action. Finally, a plaintiff’s professional liability claim will be dismissed for failure to file a certificate of merit 60 days after the complaint is filed.
Dismissal of Legal Malpractice Action Upheld Plaintiff failed to disclose it in bankruptcy petition.
Moran Enterprises, Inc. v. Margaret Hurst, et al., Supreme Court, Appellate Division, Second Department, New York, April 4, 2018 Jennifer L. Feldscher
The court further explained that for the doctrine to apply, there must be a final determination in the bankruptcy proceeding In this legal malpractice case, Moran Enterprises, endorsing the party’s inconsistent position concerning her Inc. alleged claims against attorney Margaret Hurst assets. However, a discharge from bankruptcy is not required. for breach of contract, legal malpractice, conversion, The bankruptcy court may “accept” the debtor's assertions by and unjust enrichment arising out of Hurst’s reprerelying on them in a variety of ways. Here, in dismissing Moran’s sentation of Moran in certain matters, including the third bankruptcy proceeding, the bankruptcy court had relied on filing of a second Chapter 11 bankruptcy, which was dismissed. Moran’s representations of its assets. After Hurst’s representation of Moran ended due to Hurst leaving her practice, Moran retained new counsel, who then filed a third Chapter 11 bankruptcy petition. In the petition, the asset schedules stated that Moran’s only asset was certain real property and failed to list any causes of action against Hurst. In the legal malpractice action, Hurst moved for leave to amend her answer to assert a defense that “Plaintiff’s Claims Are Barred Due to Failure to Disclose in Third Bankruptcy.” Hurst also moved for summary judgment based upon this defense. Summary judgment was awarded, and on appeal the Appellate Division, Second Department affirmed.
IMPACT: This decision reaffirms that judicial estoppel may preclude a legal malpractice claim from going forward if the claim was not disclosed in a plaintiff’s prior bankruptcy petition.
The appellate court’s reasoning was that the doctrine of judicial estoppel precludes a party from taking a position in one legal proceeding that is contrary to that which it took in a prior proceeding simply because its interests have changed. The purpose of the doctrine is to protect the integrity of the judicial process and bankruptcy system and to avoid the risk of inconsistent results.
July 2018 | 19
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