This year, Nevada enacted a statute, NRS 597.995 invalidating arbitration agreements that do not include “specific authorization” showing the party has affirmatively agreed to arbitrate. The statute’s legislative history indicates it was motivated by frustration with mandatory arbitration provisions in “click to agree” software licenses, mobile telephone contracts and similar consumer agreements.
But, there are unintended consequences. A great many types of contracts contain provisions treated by courts as arbitration agreements even if they are not the typical consumer-business agreements. For example, in most states (but not Nevada), fire insurance policies are required to include appraisal clauses under which disputes regarding the amount of a covered loss are to be determined by binding appraisal. Courts in many jurisdictions, including Nevada, treat policy appraisals as a form of arbitration. See, Silverman v. Fireman’s Fund American Ins. Cos., 604 P.2d 805 (Nev. 1980).
There is nothing in the legislative history of the Nevada statute to indicate the legislature even thought about its application to first party appraisal clauses. The Nevada Division of Insurance is taking the position the statute applies to insurance policies. Indeed, the statute is not restricted to consumer agreements; the only limitation is the use of “person,” which may not necessarily be restricted to natural persons, namely humans.
Invalidating appraisal clauses where there is no “specific authorization” by the policyholder is almost certainly an unintended consequence of this statute. If Nevada had a statutory fire insurance policy, NRS 597.995 would not apply to those statutorily mandated terms.
Unfortunately, this type of legislative action without full consideration of the ramifications of a pending bill is not unusual and it’s not limited to any particular state. In this instance, the Nevada legislature does not convene again until 2015, so there will not be a legislative “fix” for this issue.
In Miller v. Ortho-McNeil Pharmaceutical, Inc., No. 3:11oe40008 (N.D. Ohio November 5, 2013), the United States District Court for the Northern District of Ohio, Western Division granted defendant pharmaceutical manufacturers’ combined motion for summary judgment, motion for judgment on the pleadings, and motion to dismiss. Writing for the Court, Judge David A. Katz found that the plaintiff’s claims were barred by the learned intermediary doctrine and the applicable statute of limitations. The plaintiff’s claim also set forth facts insufficient to state a plausible claim for relief under Fed. R. Civ. P. 12 (c). Interpreting Mississippi law, the Court, therefore, found multiple reasons for granting the defendants’ combined motions.
Sarah Miller (“Plaintiff”) received the Ortho Evra contraceptive patch from two (2) different providers over the span of two (2) years. The first provider, Certified Nurse Practitioner Donna Cobb, knew the potential side-effects associated with the Ortho Evra patch, including the elevated risk of blood clots. During Plaintiff’s examination in 2006, Ms. Cobb discussed various possible complications with Plaintiff that could result from Ortho Evra, including blood clots. Ultimately, Ms. Cobb believed the benefits of the contraceptive patch outweighed its risks, and she prescribed Ortho Evra to Plaintiff. Plaintiff saw the second provider, Certified Nurse Practitioner Traci Speights, in 2007 and 2008. Ms. Speights was aware that Ortho Evra could increase a patient’s risk for thrombotic disease and pulmonary embolism. Ms. Speights had learned of the patch’s potential side-effects from the FDA-approved package inserts accompanying Ortho Evra, a Dear Healthcare Professional Letter (DHCP), and pharmaceutical representatives. Ms. Speights reviewed the warnings with Plaintiff, and encouraged Plaintiff to re-read the labeling and handouts included with the packet when prescribing her the patch.
In April 2008, Plaintiff suffered a pulmonary embolism, and filed suit against the manufacturers and distributors of Ortho Evra (“Defendants”) in August 2011. Plaintiff’s case was one of many, which the Judicial Panel on Multidistrict Litigation assigned to the United States District Court for the North District of Ohio. Defendants filed a combined Motion to Dismiss, Motion for Judgment, and Motion to Dismiss.
The Court granted Defendants’ motions, finding that Plaintiff’s claims were barred for several reasons. First, the Court held that the FDA-approved package inserts and DHCP letter sufficiently satisfied the Learned Intermediary Doctrine, and adequately discharged Defendants’ duty to warn. In reaching its conclusion, the Court explained that the Learned Intermediary Doctrine recognizes that a manufacturer has a duty to warn physicians, not laymen. The Court rejected Plaintiff’s argument that the warnings provided were inadequate. The Court noted that, while the adequacy of a warning is typically an issue for the trier of fact, a warning may be adequate as a matter of law where the adverse effect suffered by the patient was one that the manufacturer specifically warned against. In this case, Plaintiff suffered pulmonary embolism, and both professionals were aware of these warnings, and even counseled Plaintiff about those warnings. Furthermore, Plaintiff failed to show any disputed issue of fact regarding causation because she did not show that a different warning would have changed the decision to prescribe Ortho Evra.
The Court also found that Plaintiff’s Complaint was insufficient to state a claim under Fed. R. Civ. P. 12 (c). Rather than offer facts that supported a plausible claim for relief, Plaintiff merely provided conclusory allegations. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Plaintiff also failed to bring her claim within Mississippi’s three (3) year statute of limitations. Plaintiff sustained her injury in April 2008, and filed suit in August 2011. The Court rejected Plaintiff’s argument that Mississippi recognizes the Discovery Rule, and ultimately held that her claim was barred.
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Submitted by: Marisa A. Trasatti & Wayne C. Heavener, Semmes, Bowen & Semmes (Baltimore, MD)
Maryland Appellate Court Affirms Defendants’ Motion for Summary Judgment Properly Granted Where Plaintiff Failed to Produce Sufficient Circumstantial Evidence of Lead at Subject Property
In West v. Rochkind, 212 Md. App. 164 (2013), the Circuit Court for Baltimore City granted summary judgment in favor of Defendants, NBS, Inc., and Stanley Rochkind (hereinafter, collectively “Defendants”), who owned and operated a residential property, 1814 Lorman Street, from May 4, 1990, through June of 2001. The Plaintiff alleged that he sustained injury from having ingested lead paint while living with his grandparents at 1814 Lorman Street from his birth in 1989 through February 10, 1992. The case was necessarily based on circumstantial evidence because no lead paint tests were ever conducted on 1814 Lorman Street and the property had since been razed. Discovery revealed that Plaintiff either resided or spent substantial amounts of time at a variety of different residences during the first six (6) years of his life – 1814 Lorman Street, plus an additional three (3) other properties. The trial court ruled that Plaintiff had not made out a prima facie case of negligence against the Defendants. The trial court reasoned that, given Plaintiff’s uncertain residential history and the lack of any direct evidence that 1814 Lorman Street ever contained lead paint, Plaintiff could not point to 1814 Lorman Street as the source of his lead poisoning. The Court of Special Appeals agreed and affirmed the judgment of the circuit court.
In the appeal, the Court of Special Appeals looked to its prior decision in Dow v. L & R Properties, Inc., 144 Md. App. 67 (2002), on the issue of whether the Plaintiff had produced sufficient circumstantial evidence to create a genuine dispute of material fact as to whether the subject property contained lead, and thus, to defeat a Defendant’s Motion for Summary Judgment, even without direct proof of lead in the form of tests conducted at the property. The Court emphasized that under Dow, a lead paint plaintiff may establish a prima facie case of negligence based solely on circumstantial evidence. In this case, however, where there was no direct evidence that 1814 Lorman Street even contained lead paint, Plaintiff may only rely on that critical fact, as a necessary part of his circumstantial evidence, if he can show by the process of elimination that 1814 Lorman Street was the only possible cause for the critical effect of lead poisoning. The existence of lead paint at 1814 Lorman Street can only be inferred from the Plaintiff’s condition if lead paint at Lorman Street is shown to have been the only possible explanation for the Plaintiff’s condition. Put another way, even in the absence of direct proof, the presence of lead paint at a particular site can be inferred by the process of elimination, but only if there is: 1) the effect of lead poisoning in the plaintiff and 2) the fact that the site in question was the exclusive possible source of the plaintiff's lead paint exposure. Such was not the case here.
In this case, at best, the Plaintiff could show that he may have been exposed to lead at any or all of the three (3) or four (4) residences where he spent substantial time as a child. By definition, that does not trigger the process of elimination, and he thereby failed to establish the threshold premise that lead was even present in the paint at Lorman Street. Under those circumstances, whether he spent a significant amount of time or only a negligible amount of time or no time at all at Lorman Street was immaterial, because he failed to establish the necessary premise on which the ultimate conclusion of probable causation logically depended. Therefore, the trial court properly granted Defendant’s Motion for Summary Judgment.
Submitted by: Marisa A. Trasatti and Colleen K. O’Brien, Semmes, Bowen & Semmes, Baltimore, Maryland
Title: Negligence Claims against Pharmacy found to Fall within California’s One-Year Statute of Limitations for Professional Negligence
In Manion v. Vintage Pharmaceuticals, LLC, No. C-13-2996 (N.D. Cal. Oct. 16, 2013), the United States District Court for the Northern District of California found that plaintiffs’ claims against defendant pharmacies for failure to notify plaintiffs of a recall on an allegedly defective drug fell within California’s one-year statute of limitations for professional negligence. The Court determined that pharmacies provide professional services for which they are licensed when notifying customers of drug recalls. The Court granted defendant pharmacies’ Motion to Dismiss, but granted plaintiffs leave to amend their Complaint.
This case arises out of an unintended pregnancy that was allegedly the result of defective packaging. Ashley Manion and Brian Dodd (“Plaintiffs”) had a daughter together on June 3, 2012, which was the result of an unplanned pregnancy. Prior to her daughter’s birth, Ms. Manion purchased the birth control pill Tri-Previfem from a CVS Pharmacy in Napa, California in July and August 2011. In September 26, 2011, CVS notified Ms. Manion of a recall for Tri-Previfem pills. On May 23, 2013, Plaintiffs brought suit against several pharmaceutical manufacturers and distributors, including CVS Pharmacy, Inc. and Longs Drug Stores of California LLC (collectively, “CVS”). In their Complaint, Plaintiffs allege that the Tri-Previfem they purchased was packaged incorrectly, such that there was a mismatch between the actual sequence of the pills and the sequence indicated by the package. As a result, Ms. Manion allegedly took placebo pills when she should have been taking active pills. Plaintiffs filed suit in the Superior Court of the State of California for the County of Napa, and CVS removed the case to federal court on June 28, 2013.
Plaintiffs only cause of action against CVS was for negligence. In particular, Plaintiffs alleged that CVS breached its duty to notify their customers of the recall on Tri-Previfem by waiting until September 26, 2011 to notify Plaintiffs. CVS filed a Motion to Dismiss under Fed. R. Civ. P. 12(b)(6), arguing that Plaintiffs’ claim was barred by the applicable statute of limitations. CVS claimed that Plaintiffs’ cause of action was barred under Cal. Civ. Code § 340.5, which states that “the time for the commencement of action shall be . . . one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered” claims of an injury arising from “professional negligence” by a “health care provider.” In opposition, Plaintiffs argue that Civ. Code § 340.5 does not apply, but rather that California’s general two-year limitations period for injuries caused by negligence should apply. See Cal. Civ. Code § 335.1.
The Court granted CVS’s Motion to Dismiss the Plaintiffs’ Complaint, with leave to amend. As a preliminary matter, the Court recognized that CVS is a “health care provider” within the meaning of Civ. Code § 340.5 because its pharmacists are licensed under Cal. Bus. & Prof. Code §§ 4110 and 4018. Rejecting Plaintiffs’ argument that their claims constituted ordinary rather than professional negligence, the Court held that CVS rendered professional services not only when it dispensed the allegedly defective pill, but also in providing notice to customers of the drug’s recall. The Court determined that Plaintiffs’ injury, for the purposes of Civ. Code § 340.5, was the conception, rather than the birth, of Plaintiffs’ child. The limitations period began to run when Ms. Manion either actually discovered, or through the use of reasonable diligence, should have discovered, that she was pregnant. The Court permitted Plaintiffs leave to amend their Complaint, in order to plead additional facts showing when and how Plaintiffs discovered Ms. Manion’s “surprise” pregnancy. This permitted Plaintiffs an opportunity to plead facts that would effectively toll the one-year period under Civ. Code § 340.5 until the time Ms. Manion knew, or should have known, that she was pregnant.
Submitted by: Marisa A. Trasatti & Wayne C. Heavener, Semmes, Bowen & Semmes (Baltimore, MD)
Title: Expert testimony that Mold causes neurocognitive and musculoskeletal injuries inadmissible in Maryland Courts.
Plaintiffs, employees for the Baltimore Washington Conference of the United Methodist Church, filed workers’ compensation claims for physical injuries, including “neurocognitive and musculoskeletal symptoms, as a result of exposure to mold in the Baltimore Washington Conference’s office.” Plaintiffs offered the testimony of Dr. Ritchie Shoemaker, a family physician and self-professed expert on mold, on the issue of causation. Montgomery Mutual, the Defendant, moved to exclude Dr. Shoemaker’s testimony on the basis that it was not generally accepted by the medical and scientific community and, therefore, inadmissible under the standard set by Frye-Reed. The trial Court denied the motion, without holding a Frye-Reed hearing, and judgment was entered against Defendant after a trial on the merits in which Dr. Shoemaker’s testimony was critical.
InMontgomery Mut. Ins. Co. v. Chesson, 399 Md. 314, 318, 923 A.2d 939, 941 (2007) (“Chesson I”), the Court of Appeals ordered that the case be remanded for the purpose of conducting the Chesson I hearing. The trial court conducted the Frye-Reed hearing on Dr. Shoemaker’s methodology and theory of causation, and held that “Dr. Shoemaker’s ‘Repetitive Exposure Protocol’ was a differential diagnosis, which itself was ‘reliable’ and ‘properly performed,’ bringing it within general acceptance of the relevant scientific community.” Defendant appealed the holding. The Court of Special Appeals overturned the ruling, and the Court of Appeals granted certiorari.
The Court began with an overview of Maryland’s Frye-Reed standard for the admissibility of testimony presenting “novel” questions of science. The standard’s test requires, in part, that the proffered theory be generally accepted by the scientific community. “A trial judge also cannot admit expert testimony based on scientific methodology without consideration of whether the analysis itself is flawed and posits an ‘analytical gap.’”
The Court then reviewed the Frye-Reed hearing testimony of both Dr. Shoemaker, and the defense’s expert, Dr. Hung Cheung, who was qualified as an expert in internal medicine, occupational medicine, environmental medicine, toxicology, and indoor air quality. Dr. Shoemaker testified regarding his “Repetitive Exposure Protocol” – the differential diagnosis process that he developed, which supported his theory. Dr. Shoemaker noted that prior to 2005 his process and theory were controversial, but claimed that after 2005, they gained acceptance in the relevant scientific community. Conversely, Dr. Cheung testified that the medical literature clearly showed that Dr. Shoemaker’s process and theory were never generally accepted, and that the process contained critical analytical gaps. Specifically, Dr. Shoemaker’s process failed to take into account the level of mold exposure in diagnosing and treating mold-related health problems, which was necessary “as part of a careful environmental and medical history.”
The Court further noted that numerous other jurisdictions had excluded Dr. Shoemaker’s testimony, including the District Court for the District of Columbia, Virginia, Florida, and Alabama. The Court then held that “Dr. Shoemaker’s technique, which reflects a dearth of scientific methodology, as well as his causal theory, therefore, are not shown to be generally accepted in the relevant scientific community.” The Court affirmed the judgment of the Court of Special Appeals reversing the trial Court’s holding, effectively vacating the original judgments rendered in Plaintiffs’ favor.
Submitted by: Marisa A. Trasatti and Gregory S. Emrick, Semmes, Bowen & Semmes, Baltimore, Maryland
Title: Aggrieved HMO Member May File Maryland Consumer Protection Act Case Against HMO for “Balance Billing”
In Scull v. Groover, Christie & Merritt, P.C., Slip Op. No. 71 (Md., Sept. 30, 2013), the issue was what, if any, remedy an HMO member has when a health maintenance organization (“HMO”) “balance bills,” i.e., charges an HMO member a fee for covered services in addition to those allowed by an HMO, in light of the Maryland Health Maintenance Act prohibiting such activity. In particular, does the HMO member have an implied private cause of action against the health care provider under the HMO Act? In addition, while there is an explicit private cause of action under the Consumer Protection Act, are medical billing practices exempt from that Act under exclusions for the “professional services” of medical practitioners?
Here, the Court held that an HMO member who has been billed by a provider for a covered service does not have an implied private right of action under the HMO Act. But, the HMO member is not precluded from bringing a lawsuit under the Consumer Protection Act.
This case arose when the Plaintiff, an attorney, received a bill for an x-ray exam from the provider for $121.00. To arrive at that charge, the bill indicated an initial charge of $242.00, with credits in the amounts of $91.73 and $29.27 for “Adjustments” and “Insurance Payment,” respectively. The bill stated that the provider was unable to collect from his insurance due to the Plaintiff having “other primary coverage.” The provider’s billing agent advised the Plaintiff that the HMO had reversed the payment it had made to the provider, and that he should submit his claim to Medicare. The HMO, however, informed Plaintiff that he was covered for the x-ray exam and that payment had, in fact, been made to the provider. Plaintiff relayed this information to the provider’s billing agent, who adjusted his account to a $0.00 balance. Nonetheless, Plaintiff received a second bill from the provider for $121.00 months later. Plaintiff paid the bill. Three (3) months later, however, Plaintiff received a check back from the provider for $121.00 explaining that the provider conducted an audit and found a credit owing to Plaintiff. Plaintiff did not cash the refund check, because in his view, the provider had refunded the money only because it knew he was an attorney and was attempting to moot any potential litigation which would challenge the provider’s alleged practice of balance billing.
Plaintiff filed a lawsuit against the provider alleging that the provider illegally “balance billed” him, an HMO member, in violation of the HMO Act, and the “balance billing” was an “unfair and deceptive practice” in violation of the Maryland Consumer Protection Act. The Complaint sought certification as a class action on behalf of all HMO enrollees who were balance-billed by the provider in the last three (3) years. The provider filed a motion to dismiss for failure to state a claim upon which relief could be granted. The trial court dismissed the Complaint without prejudice. Plaintiff filed a Second Amended Complaint omitting the cause of action under the HMO law and elaborating on the Consumer Protection Act claim. The trial court dismissed Plaintiff’s Amended Complaint with prejudice. The Court of Special Appeals affirmed the trial court’s dismissal. The Court of Appeals affirmed in part, and reversed in part.
While the Court of Appeals agreed that there was no implied private right of action under the HMO Act, it held that medical billing is not a “professional service” exempt from the Maryland Consumer Protection Act; and accordingly, the Plaintiff may pursue a claim against the provider under that law. As to the HMO Act, the Court held that the Legislature did not create an explicit cause of action in the HMO Act for HMO members against health care providers for violation of the balance billing prohibition, and the Court did not find any implied cause of action there either. In terms of the Maryland Consumer Protection Act claim, the Court noted that it does not apply to “professional services” of individuals in certain occupations, such as “medical practitioners,” but the Court reasoned that the billing practices of a professional corporation that employs physicians are not “professional services” exempt from the Act. Thus, the Act’s exclusion for professional services does not require dismissal of an action alleging billing practices that are unfair or deceptive because they violate the prohibition against balance billing in the State HMO law.
The provider argued for the first time at the Court of Appeals that the Plaintiff’s claim under the Maryland Consumer Protection Act also failed because no consumer goods or services were involved, its invoice was not an attempt to collect a consumer debt, the invoice was not unfair or deceptive, and Plaintiff suffered no injury or loss. The Court noted that on its face, the invoice involved appeared to be a “consumer debt” but acknowledged that the remaining issues raised by the provider with respect to the elements of a Consumer Protection Act claim would require factual elaboration on remand.
Submitted by: Marisa A. Trasatti & Colleen K. O’Brien, Semmes, Bowen & Semmes (Baltimore, MD)
United States Court of Appeals for the Fourth Circuit Dismisses Complaint Alleging International Trafficking of Illicit Pharmaceutical Drugs
In Unspam Technologies, Inc.v. Chernkuk BND PHP, No. 11-2406 (4th Cir. May 3, 2013), the United States Court of Appeals for the Fourth Circuit affirmed a decision by the district court dismissing claims of an international conspiracy for lack of personal jurisdiction. In reaching its decision, the Court found that the plaintiffs failed to allege facts sufficient to invoke the Court’s personal jurisdiction over multiple international defendants. Furthermore, the Court held the plaintiff’s claims to be speculative and conclusory.
In 2007, plaintiff John Doe (“Doe”) tried to buy prescription drugs from an online pharmacy called “Canadian Pharmacy;” he never received his purchase. Instead, Doe he received voluminous amounts of spam mail. Plaintiff Unspam Technologies, doing business as Project Honey Pot (“Honey Pot”) tracks and identifies spam emails in an effort to combat the trafficking of spam mail. Honey Pot claimed to have processed spam emails from online pharmacies associated with a global conspiracy to sell illegal prescription drugs over the internet.
Doe and Honey Pot (collectively, “Plaintiffs”) commenced an action to enjoin defendants Andrey Chernuk and Boris Livshits — two (2) pharmacists allegedly behind “Canadian Pharmacy” — along with several international banks in Azerbaijan and Latvia from attempting to sell prescription drugs online. Plaintiffs alleged that a Russian-based internet payment systems provider called Chronopay conducted illegal prescription drug transactions through various international banks, and solicited the elicit sales through entities like “Canadian Pharmacy.” Plaintiffs joined four international banks allegedly involved in Chronopay’s scheme. Plaintiffs’ complaint alleged that Defendants’ conduct constituted an international conspiracy, and brought claims under the False Marketing Act, the Racketeer Influenced and Corrupt Organization Act, and the Virginia Computer Crimes Act.
Defendant banks filed motions to dismiss for lack of personal jurisdiction, and ineffective service. The district court granted Defendants’ motions with respect to Bank Standard and Azerigazbank, both of which were located in Baku. The court granted Plaintiffs leave to file an amended complaint, but Plaintiffs failed to do so. After dismissing the two (2) Baku banks, the court ordered Plaintiffs to show cause as to why the remaining international Defendants should not be similarly dismissed for lack of personal jurisdiction. Plaintiffs voluntarily dismissed the remaining individual Defendants, and the district court granted the remaining Defendant banks’ motions to dismiss. Shortly thereafter, Plaintiffs filed a notice of appeal from the district court’s orders dismissing the Defendant banks.
The Court of Appeals for the Fourth Circuit examined whether the district court had personal jurisdiction over the Defendant banks. The Court noted that the concept of personal jurisdiction had evolved in recent years in order to accommodate the internet. The Court found a three-part inquiry was necessary to determine whether a defendant is subject to jurisdiction in a State due to its electronic transmissions:
(1) the extent to which the defendant purposely availed itself of the privilege of conducting activities in the State; (2) whether the plaintiffs' claims arise out of those activities directed at the State; and (3) whether the exercise of personal jurisdiction would be constitutionally reasonable.
Unspam Technologies, Inc.v. Chernkuk BND PHP, No. 11-2406 (4th Cir. May 3, 2013). The Court found that Plaintiffs failed to demonstrate any of these three (3) criteria. Furthermore, the Court held that the facts that Plaintiffs did allege were conclusory and speculative. Namely, the Plaintiffs provided no plausible basis to connect the banks to the spam emails specifically complained of in Honey Pot’s complaint. While the Court acknowledged that Plaintiffs provided logical possibilities of wrongdoing, the complaint failed to allege sufficient facts to show that Defendant banks participated in the alleged conspiracy. Therefore, the Court affirmed the district court’s order dismissing Plaintiff’s complaint for lack of personal jurisdiction.
Submitted by Marisa A. Trasatti and Wayne C. Heavener of Semmes, Bowen & Semmes
Title: Florida Appellate Court Upholds Multi-Million Dollar Compensatory and Punitive Damages Awards Against Tobacco Company
In Lorillard Tobacco Co. v. Alexander, 2013 WL 4734565 (Fl. App. Sept. 4, 2013), Plaintiff Dorothy Alexander (“Mrs. Alexander”), the wife of a smoker who died from smoking-related lung cancer, filed claims of strict liability, fraudulent concealment, conspiracy to commit fraud by concealment, and negligence against cigarette manufacturer, Lorillard Tobacco Company (“Lorillard”). After a three (3)-week trial, a jury found in favor of Mrs. Alexander on all claims and awarded her a total of $20 million in compensatory damages and $25 million in punitive damages, while finding her husband twenty (20) percent comparatively liable. Judge Peter R. Lopez of the Circuit Court of Miami–Dade County remitted the total compensatory damages to $10 million, such that Mrs. Alexander was awarded $8 million in compensatory damages after computation of comparative fault. Lorillard timely appealed to the District Court of Appeal of Florida for the Third District.
Mrs. Alexander filed suit against Lorillard based on the death of her husband, Coleman, from smoking-related lung cancer. The complaint included claims against Lorillard for negligence, strict liability, fraudulent concealment, and conspiracy to commit fraud by concealment, and sought compensatory and punitive damages. During the trial, Mrs. Alexander, a former nurse, testified that Coleman began smoking in sixth grade and smoked one (1) to two (2) packs of cigarettes each day. She explained that she tried to convince Coleman to stop smoking; and up until 1985, Coleman told her that he believed smoking, particularly smoking filtered cigarettes, was safe and that he did not think the tobacco companies would make a product that would kill people. Coleman specifically told Mrs. Alexander that he had switched to Lorillard’s Kent cigarettes in 1958 because he believed they were safer than other brands because of their filter design. Sometime in 1985, however, Coleman began to believe that smoking was harmful, and he tried but was unable to stop smoking because he was addicted to cigarettes. The plaintiff's addiction expert confirmed that Coleman was addicted to cigarettes. Mrs. Alexander was Coleman’s nurse and primary caretaker until his death in 1995. She stated that by the time of Coleman’s death, he was incontinent and could no longer move or breathe without help.
The jury found against Lorillard on all claims, but found Coleman twenty (20) percent at fault and returned a verdict awarding Mrs. Alexander $20 million in compensatory damages and $25 million in punitive damages. Lorillard moved for a new trial on several issues and also moved for remittitur of the compensatory and punitive damages awards. The trial court denied all motions except for Lorillard’s motion to remit the compensatory damages, which it remitted to $10 million. Lorillard appealed on grounds of error, claiming that it was entitled to a new trial on compensatory damages rather than the remittitur that it sought and received post-trial.
On appeal, the Florida appellate court relied upon the Florida Supreme Court decision in Engle v. R.J. Reynolds Tobacco Co., 945 So.2d 1246, 1263 (Fla. 2006), which held that although the class-action case filed against tobacco companies and tobacco industry organizations by smokers and their survivors could not proceed as a class-action lawsuit on the issues of individual causation and apportionment of damages, certain findings on common liability would stand and would be provided res judicata effect in subsequently filed individual cases. Id. at 1254–55. Thus, once Coleman was established as a member of the Engle class and Lorillard as one (1) of the tobacco industry Engle defendants, the following findings were given preclusive effect: (1) smoking causes certain cancers and medical conditions; (2) nicotine is addictive; (3) Lorillard placed cigarettes on the market that were defective and unreasonably dangerous; (4) Lorillard concealed or omitted material information concerning the health effects and addictive nature of smoking; (5) Lorillard agreed to conceal or omit this information with the intention that the public would detrimentally rely on the information; (6) Lorillard sold or supplied cigarettes that were defective; (7) Lorillard sold or supplied cigarettes that did not conform to the representations of fact made by Lorillard; and (8) Lorillard was negligent.
Applying these criteria, the appellate court concluded that the record was “replete with evidence of Lorillard's conduct,” which the jury and the trial court could find “sufficiently reprehensible to warrant the imposition of sanctions in the form of the $25 million punitive damages award.” The court affirmed that Mrs. Alexander provided more than sufficient evidence to show Lorillard’s conduct, both individually and as a member of the tobacco industry, of continuous, repeated, and aggressive attempts to discredit the scientific research revealing the harmful and addictive nature of cigarettes and to cast doubt on the validity of the scientific research by mounting advertising and public relations campaigns. According to the court, there was also evidence of more than a half-century of Lorillard’s “indifference to or . . . reckless disregard of the health or safety of others.” On these grounds, the appellate court affirmed the lower court’s verdict and held that the punitive damages award of $25 million was not constitutionally excessive under the Engle-progeny cases with similar facts.
Submitted by: Marisa A. Trasatti & Jhanelle A. Graham of Semmes, Bowen & Semmes
D.C. Court of Appeals Holds Trial Court Should Not Have Dismissed All of Condominium Purchasers’ Claims Against Developer After Unit Allegedly Flooded-Wetzel v. Capital City Real Estate, LLC
This appeal focused on whether the trial court properly granted the Defendant’s Motion to Dismiss as to the Plaintiffs’ multiple-count Complaint. Plaintiffs, the condominium unit purchasers, sued the Defendant, a real estate developer, after their condominium unit allegedly flooded. The flooding, which occurred in a 3 to 6 month period after the purchase, allegedly caused extensive damage, mold costing thousands of dollars to remediate, and destroyed the first flood area of the unit.
The purchasers filed a Complaint against the developer for fraud, violations of the District of Columbia Consumer Protection Act (CPA), violations of the District of Columbia Consumer Protection Procedures Act (DCPPA), breach of contract, breach of express warranty, and strict liability. The trial court dismissed all of Plaintiffs’ claims after the Defendant filed a Motion to Dismiss. The appellate court reversed in part, holding that the trial court erred in dismissing the fraud, DCPPA, and strict liability claims, but that the trial court correctly dismissed the CPA, breach of contract, and breach of express warranty claims.
Plaintiffs’ fraud claim should not have been dismissed. Plaintiffs’ Complaint alleged that the Defendant made several false representations, including that (1) the property was free from structural defects, (2) Defendant had secured proper permits for renovation of the property, and (3) the exterior masonry had a life of fifty (50) additional years, and that Defendant misrepresented the quality and character of the property’s walls. The Complaint alleged that Defendant knew the property’s true nature and actively worked to conceal this truth to sell the Property to an unsuspecting buyer at a price far higher than what the Property was actually worth. The Complaint alleged that in reliance on the representations, the Plaintiffs purchased the Property. Finally, the Complaint alleged that Defendants’ alleged misrepresentations resulted in damages including the thousands of dollars spent on mold reclamation, the cost to repair the structure, loss of use, and diminished value of the property. In accepting the allegations as true, the Court held that Plaintiffs sufficiently pled their claim for fraud.
Another count of Plaintiffs’ Complaint alleged that Defendant violated the District of Columbia Consumer Protection Procedures Act (DCPPA). The complaint stated that Defendants’ misrepresented the approval, certification, and characteristics of the basement walls; concealed previous long-term and extensive, uncorrected water damage; represented that the basement and walls were of a quality and grade that they were not; misrepresented that the basement and walls were free from defect; failed to disclose the material facts that there was damage to the basement or walls, there had been previous water damage, and there was no permit to build the deck; and misrepresented that the exterior masonry had a life of fifty (50) or more years. Additionally, the Complaint alleged that Defendant actively advertised and marketed the allegedly defective property as if it were in newly restored condition without defect; intentionally misrepresented the property in several statements while having complete knowledge as to the true condition of the property and the true nature of the permit status; and misrepresented the condition of the Property in advertisements it published in an attempt to sell a subpar piece of Property. Plaintiffs alleged they relied on those misrepresentations in deciding to purchase the property. Overall, the complaint alleged that Defendant made no fewer than 98 misrepresentations in violation of five (5) separate provisions of the DCPPA. In light of the allegations that Defendant was actively involved in renovating the property, and, as a professional developer, was aware of its defects, the complaint stated a legally viable claim under the DCPPA.
The District of Columbia follows the Restatement (Second) of Torts § 402A (1965) as to strict liability. Real estate is a “product” within the meaning of the Restatement. Further, not just the seller, but any party integral to the producing and marketing enterprise that placed the defective product into the stream of commerce may be found strictly liable. The Complaint alleged that Defendant, an experienced developer with significant experience in buying, renovating, and selling renovated real estate, knowingly put a defective product into the stream of commerce by advertising and allowing the property to be purchased by Plaintiffs. Additionally, the Complaint alleged the condominium unit was dangerous, which ultimately rendered a substantial portion uninhabitable, i.e., not reasonably fit for its intended purpose. Finally, the Complaint alleged that the defect was the direct and proximate cause of Plaintiffs’ injuries which included a level of mold growth that resulted in unacceptably hazardous air quality, resulting in loss of use and personal injury. Because Plaintiffs’ Complaint alleged facts, that, if proved, asserted a claim for strict liability, the dismissal of this claim was erroneous.
The Plaintiffs’ claims for breach of contract and breach of express warranty though, failed. The Plaintiffs’ claimed that Defendant “fail[ed] to accept responsibility” for necessary repairs, in breach of the express limited warranty in the Purchase Agreement and Public Offering Statement. Although the Complaint alleged that Plaintiffs signed an agreement with Defendant that included a limited repair warranty, the limited warranty referred to was not signed by and did not involve the Defendant. The documents were signed by the Plaintiffs and the seller—not the developer Defendant. Therefore, Plaintiffs did not make out a claim for breach of contract or breach of express warranty and those claims were properly dismissed by the trial court.
Finally, the CPA claim was properly dismissed because it applied only to actions to enforce rights arising from a consumer credit sale or a direct installment loan. Since the Complaint did not allege that Plaintiffs had financing with the developer, the CPA claim failed and was properly dismissed.
Therefore, the appellate court reversed in part, holding that the trial court erred in dismissing the fraud, DCPPA, and strict liability claims, but that the trial court correctly dismissed the CPA, breach of contract, and breach of express warranty claims.
KEY WORDS: Wetzel v. Capital City Real Estate, LLC, fraud in purchase of real estate, motion to dismiss, defendant liable for strict products liability in sale of real estate, CPA, DCPPA, District of Columbia Consumer Protection Procedures Act, District of Columbia Consumer Protection Act.
DESCRIPTION: Trial court erred by dismissing some, but not all of condominium purchasers’ claims against real estate developer after unit flooded.
SUMMARY: In Complaint filed by purchasers against real estate developer after condominium unit flooded shortly after purchase, trial court erred in dismissing the fraud, DCPPA, and strict liability claims, but correctly dismissed the CPA, breach of contract, and breach of express warranty claims.
Submitted by Marisa A Trasatti and Colleen K. O”Brien, Semmes, Bowen & Semmes,
This is the seventh and last in a series of posts in the FDCC Blog on issues arising under professional liability policies. The aim of this series is to provide sufficient background information to allow the defense attorney to identify relevant issues frequently raised by professional liability policies and to formulate a plan for addressing them. This is not a treatise on how different jurisdictions view professional liability issues. For that, the reader should review the DRI’s 2012 publication Professional Liability Insurance: A Compendium of State Law. There are, of course, other issues of importance not discussed here.
Part 7: Some Exclusions
Most professional liability policies contain exclusions intended to exclude uninsurable risks as well as risks typically covered by Commercial General Liability policies and other policies the insured should acquire. In addition to the restitution exclusion discussed in Part 6, two other exclusions of particular interest are the dishonest, fraudulent and criminal conduct exclusion and the insured versus insured exclusion. This post will focus on those exclusions, instead of being a comprehensive review of all common exclusions.
What makes the dishonest, fraudulent and criminal conduct exclusion in a professional liability policy different from its counterparts in other types of policies is that many professional liability policies contain an express promise by the insurer to continue to fund the defense until there is an admission or adjudication of dishonest, fraudulent or criminal conduct on the part of the insured. The insurer, however, retains a right to reimbursement of all defense costs when such an admission or adjudication occurs.
The insured versus. insured exclusion eliminates coverage for claims in which the claimant is also an insured, or is a trustee, receiver, assignee or other party who has succeeded to the rights of an insured. This exclusion has been the subject of significant litigation, particularly in bank failure cases where receivers, such as the FDIC are pursuing professional liability claims against former officers, directors or employees of the bank. It also arises in other circumstances where there is a bankruptcy or receivership and claims are then made against former managers of the business. See, Hyde v. Fidelity & Deposit Co. of Maryland, 23 F.Supp.2d 630 (D. Md. 1998) (receiver of Bank as plaintiff); TIG Specialty Insurance Co. v. Koken, 855 A.2d 900 (Comm. Pa. 2004) (Insurance Commissioner as liquidator was successor of insured/liquidated company).
These are only two of the exclusions often found in professional liability policies. Both present both opportunities and pitfalls for counsel. An attorney representing a claimant may elect to plead the case differently to reduce the risk the dishonest, fraudulent, etc. exclusion may apply. The attorney for the professional liability insurer must be aware of whether the exclusion contains a provision obligating the insurer to fund the defense until the alleged dishonesty or similar conduct is adjudicated adversely to the insured.
Just as reading the policy is essential, so is reading the published cases. There is a large body of law addressing the insured vs. insured exclusion. Many of those cases, however, turn on the specific, and at times unique, language of the particular policies and on the specific status of the parties to the underlying action.
This is the last post in this seven part series.