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Removal of Personal Injury Case

In In re Norfolk Southern Railway Co., a case involving the removal of a personal injury case to Virginia Federal Court and subsequent remand to Virginia State Court, the Fourth Circuit Court of Appeals held that the order remanding the case according to 28 U.S.C. § 1445(a) was the type of ruling included under 28 U.S.C. § 1447(c), and as such, was not reviewable by appeal or via mandamus, under 28. U.S.C. § 1447(d).  Accordingly, the Court dismissed the appeal and denied the mandamus petition. Judge Traxler wrote the opinion, in which Judges Niemeyer and Duncan joined.

By way of factual background, after applyingfor and being awarded federal workers' compensation benefits under the Longshore and Harbor Workers' Compensation Act (LHWCA), Gilbert Bynum, an injured railroad worker, filed suit in state court against his employer, Norfolk Southern Railway Co., pursuant to the Federal Employers' Liability Act (FELA).  Norfolk Southern removed the case to federal court arguing that the LHWCA covered Bynum’s injury and barred any recovery under FELA, and asserting that whether Bynum's injury was covered by the LHWCA was exclusively a federal question.

After removal, Bynum moved to remand the case to state court, alleging that the district court lacked jurisdiction to determine coverage under the LHWCA34  because Congress had specifically eliminated the jurisdiction of the federal district court concerning the LHWCA, and asserting  that his claim was not removable pursuant to 28 U.S.C. § 1445(a).  That same day, Norfolk Southern filed a motion in the district court to dismiss Bynum's complaint, arguing that, although his claim was filed under FELA, his injury actually fell within the scope of the LHWCA's coverage and the LHWCA therefore provided the exclusive remedy for his injury.

Noting that 28 U.S.C. § 1445(a) prohibits the removal of a civil action arising under FELA which is filed in state court against a railroad, the district court concluded that Bynum's FELA claim must be remanded to state court.  Accordingly, the district court granted Bynum's remand motion and denied as moot Norfolk Southern's motion to dismiss. Norfolk Southern appealed to the Fourth Circuit, and also filed a petition for a writ of mandamus requesting the Court to vacate the district court's order and either dismiss the case or, alternatively, remand the case to the district court to address the merits of its federal defense to the FELA claim.  The Court agreed to consider the mandamus petition together with the related appeal, and thus the two cases were consolidated.  Bynum subsequently moved to dismiss the appeal as barred by 28 U.S.C. § 1447(d) and to have the mandamus petition denied for the same reason.

On appeal, the Court first addressed whether it was authorized to review the merits of the district court’s remand order, concluding that it was not.  The Court noted that the district court's decision was based on the simple fact that a FELA claim brought in state court cannot be removed to a federal court under § 1445(a).  The Court explained that § 1447(c) authorizes remand based on lack of subject matter jurisdiction and remand based on any defect other than lack of subject matter jurisdiction that was raised by a party within 30 days after the filing of the notice of removal.  The Court further explained that § 1447(d) generally bars appellate review of a remand that is ordered on one of those bases.  The Court noted, however, that the § 1445(a) bar does not deprive courts of subject matter jurisdiction over cases to which it applies.  The Court thus faced the question of whether nonremovability based on § 1445(a) is a “defect other than lack of subject matter jurisdiction” within the meaning of § 1447(c).  The Court concluded that it was.  To the Court, it was apparent from the context of § 1447, that “defect” referred to a failure to comply with the statutory requirements for removal provided in 28 U.S.C. §§ 1441–1453.  Because that scope encompassed § 1445(a), the Court concluded that the § 1447(d) bar applied, and thus, the Court lacked jurisdiction to review the remand order on appeal.

Second, the Court addressed whether it was authorized to grant mandamus relief, concluding that it was not.  The Court noted that § 1447(d)’s restriction on review of remand orders applies to review “on appeal or otherwise,” and that the Supreme Court has interpreted that language to forbid the use of mandamus to circumvent the requirements of § 1447(d).  The Court added that granting mandamus relief would also be inappropriate because Norfolk Southern had not made the requisite showing that its “right to the issuance of the writ is clear and indisputable.”  Specifically, the Court found that Norfolk Southern had not shown that it was clearly entitled to have the district court dismiss Bynum's FELA claim rather than remand it to the state court.  Thus, because § 1447(d) barred review of the district court’s order by appeal or via mandamus, the Court dismissed Norfolk Southern’s appeal and denied its mandamus petition.

In re Norfolk Southern Railway Co., Nos. 13–2112 & 13–2127 (United States Court of Appeals for the Fourth Circuit, June 23, 2014), available at:  http://www.ca4.uscourts.gov/Opinions/Published/132112.P.pdf

Submitted by:  Marisa A. Trasatti and Richard J. Medoff, Semmes, Bowen & Semmes

Nursing Home Negligence

In Nursing Home Negligence Case, West Virginia’s Highest Court Relaxes the State’s Limits on Punitive Damages and Clarifies the Scope of West Virginia’s Medical Professionals Liability Act, Nursing Home Act, and Law of Fiduciary Duty

In Manor Care, Inc. v. Douglas, a case involving the appeal of a $91.5 million jury verdict in a nursing home negligence case, the Supreme Court of Appeals of West Virginia held that: (1) the verdict form did not allow the jury to award damages to non-parties; (2) the Medical Professionals Liability Act (“MPLA”) did not provide the exclusive remedy for the plaintiff’s negligence claims; (3) the Nursing Home Act (“NHA”) portion of the verdict form was fatally vague; (4) nursing homes do not owe a fiduciary duty to provide adequate healthcare; and (5) the punitive damages award was constitutional after being reduced by the Court. The Court affirmed, in part; reversed, in part; and remanded the case to the trial court for further proceedings consistent with its opinion.  Chief Justice Davis wrote the majority opinion, in which Judge Moats joined; however, Justice Benjamin wrote an opinion concurring in part and dissenting in part, Justice Workman wrote a concurring opinion, and Justice Loughry wrote a lengthy dissenting opinion.

By way of factual background, on September 4, 2009,eighty-seven-year-old Dorothy Douglas was admitted to Heartland Nursing Home ("Heartland") in Charleston, West Virginia.  Although Ms. Douglas had Alzheimer’s, she was able "to walk with the use of a walker, able to recognize and communicate with her family, well-nourished, and well-hydrated," when she entered Heartland.  After nineteen (19) days in Heartland, "Ms. Douglas had become dehydrated, malnourished, bed ridden, and barely responsive ... she had fallen numerous times, sustained head trauma and bruises, and suffered from sores in her mouth and throat..." After those nineteen (19) days in Heartland, Ms. Douglas was transferred to a hospice care facility where she passed away eighteen (18) days later as a result of severe dehydration.

Mrs. Douglas' son sued the owner of Heartland as well as the companies responsible for Heartland's budgeting and staffing (collectively, the "defendants").  Mr. Douglas asserted claims including medical negligence, corporate negligence, violations of the NHA, and breach of fiduciary duty.  After a ten-day trial, the jury returned a verdict in favor of Mr. Douglas in the amount of $11.5 million in compensatory damages and $80 million in punitive damages.  The defendants filed a motion for judgment as a matter of law, which the trial court denied.  The defendants appealed, claiming errors related to the language and format of the verdict form, to the legitimacy of Mr. Douglas' fiduciary duty and NHA claims, and to the jury's punitive damages award.

On appeal, the Supreme Court first addressed the verdict form.  The defendants argued the inclusion of Mrs. Douglas' children on the verdict form improperly permitted the jury to award damages to "nonparties," claiming the only proper plaintiff was the estate’s personal representativeunder West Virginia's Wrongful Death Act, W.Va. Code 55-7-5 et seq.  The Court was not persuaded, however, noting that the personal representative was merely a nominal plaintiff and any recovery would pass to her beneficiaries, the Douglas children, under the wrongful death statute, not to the estate.

Second, the Court addressed the plaintiff's corporate negligence claim against the nursing home for failing to properly manage the staff of Heartland.  The defendant's argued this claim was subject to the MPLA's presuit procedural requirements and cap on noneconomic damages; however, the Court disagreed.  The Court noted that the MPLA only applied to claims "based upon health care services rendered or which should have been rendered," and not to claims "related to business decisions, such as proper budgeting and staffing, by entities that do not qualify as healthcare providers under the MPLA."

Third, the Court considered the plaintiff’s statutory claim for violations of the NHA.  The defendants argued that the plaintiff's claim that Ms. Douglas died as a result of NHA violations was also covered by the MPLA.  The Court did not address this issue, however.  Instead, the Court found that the verdict form's language with regard to the NHA claim was "fatally" vague as it simply asked if any NHA violations "substantially contributed to injury to Dorothy Douglas?"  Consequently, the Court dismissed the plaintiff's NHA claim and vacated the accompanying $1.5 million award for compensatory damages.

Fourth, the Court considered the plaintiff's breach of fiduciary duty claim.  The defendant's argued this claim lacked "legal or evidentiary support," and urged the Court not to expand the law of fiduciary duty to cover nursing homes.  The Court sided with the defendants on this issue, concluding that nursing homes do not owe a fiduciary duty to provide adequate healthcare.  Accordingly, the Court dismissed the plaintiff's fiduciary duty claim and vacated the $5 million of damages awarded under it.

Finally, the Court reviewed the jury's $80 million punitive damages award for compliance with federal due process.  The Court, following the guidelines established in Garnes v. Fleming Landfill, Inc., 186 W.Va. 656 (1991), reduced the punitive damage award to "approximately $32 million."  The Court reached that figure by applying the 7:1 ratio of punitive to compensatory damages the jury had originally awarded the plaintiff, to the $4,594,615 of compensatory damages which remained after the Court vacated the plaintiff's NHA and fiduciary duty causes of action.  In making that decision, the Court noted that the “outer limit” on the allowable ratio of punitive to compensatory damages “of roughly 5 to 1” discussed in TXO Production Corp. v. Alliance Resource Corp., 187 W.Va. 457 (1992), was merely a "guide" rather than a "strict standard.  The Court gave the plaintiff thirty (30) days to choose either to accept the reduced punitive damage award or to submit to a new trial.  Accordingly, the Court affirmed, in part; reversed, in part; and remanded the case to the trial court for further proceedings consistent with its opinion.

Judge Workman issued a concurring opinion, agreeing with the majority's decision to set aside the plaintiff's NHA claim, but disagreeing with the majority's reasoning. Judge Workman chastised the majority for discarding the plaintiff's NHA claim and accompanying damages improperly "like so much garbage simply because it claims to be confused by it," and instead found that the claim was duplicative as it provided compensation for injuries for which the plaintiff's had already received compensation.

Justice Benjamin issued an opinion concurring in part and dissenting in part. Justice Benjamin stated the verdict form was "woefully inadequate" and did not provide a "proper[] legal basis" for an award of punitive damages, as the verdict formed contained "a punitive damages multiplier on a verdict in which the jury only made findings of simple negligence."

Justice Loughry issued a dissenting opinion, complaining that the verdict form was an "inscrutable mess."  Overall, Justice Loughry would have reversed the entire judgment and remanded the case for a new trial.

Manor Care, Inc. v. Douglas, No. 13–0470 (Supreme Court of Appeals of West Virginia, June 18, 2014), available athttp://www.courtswv.gov/supreme-court/docs/spring2014/13-0470-corrected.pdf

Submitted by:  Marisa A. Trasatti and Richard J. Medoff, Semmes, Bowen & Semmes

Constructive Delivery Did Not Exist

Constructive Delivery Did Not Exist When Husband Deeded House to Himself and His Wife, Informed His Wife, and Placed the Unrecorded Deed in Couple’s Shared Filing Cabinet.

In Daniels v. Daniels, the Maryland Court of Special Appeals affirmed the decision of the Baltimore County Circuit Court in favor of the personal representative of the decedent’s estate.  The personal representative brought suit against the decedent’s surviving spouse seeking to quiet title to a residence and have the residence included as an asset of the estate.  Although the surviving spouse proved donative intent and acceptance of the gifted deed, she was unable to establish the other necessary elements of conveyance: delivery and relinquishment.  Judge Sharer authored the opinion, to which Judges Meredith and Nazarian joined.

James H. Daniels (Decedent) and Lana Daniels (Appellant) were married for forty (40) years and resided together on Hammonds Ferry Road.  Decedent also owned a house on Frederick Road (Residence), which is the property at issue.  Recorded in 1987, Decedent and his mother owned the Residence as joint tenants.  Upon the mother’s death in 2005, Decedent became the surviving owner.  On March 3, 2006, Decedent executed a new deed to the Residence, naming himself and Appellant as tenants by the entireties.  Although advised to do so, Decedent failed to record the deed; rather, he placed the paper in a filing cabinet in the Hammonds Ferry home with the couple’s other important documents, such as insurance policies and the deed to their Hammonds Ferry home.  Appellant proffered that the deed went unrecorded because, as there was no lien on the property, Decedent may have assumed that recordation was not necessary.  After executing the deed, which was witnessed and notarized, Decedent informed Appellant that he “had added her name to the deed.”  While searching the filing cabinet upon Decedent’s death for his life insurance policy, Appellant discovered the unrecorded deed.  Appellant then recorded the deed after Decedent’s death.  As Decedent died intestate, his daughter from a former marriage, Brenda (Appellee), qualified to be the personal representative of his estate.  After recordation of the deed, Appellee filed suit to quiet title on the grounds that the unrecorded deed was not effective for lack of delivery, therefore the property should be an asset of the estate.

In conveying a valid and effective title to real property, each element is equally indispensable, thereby requiring the donee to prove execution, donative intent, delivery, acceptance by the donee, and full relinquishment of control.  Delivery of the title documents, presumably a deed, may be actual or constructive.  Neither party disputed the execution of the deed and Appellant conceded that there was no actual delivery.  There is a common law presumption in favor of a gift to the other spouse when a spouse titles property as tenants by the entireties.  Coupled with Appellee’s acknowledgement of the executed deed, the court found that she had accepted the gift.  Further, appellate court maintained the trial court’s findings that donative intent existed.  The trial judge stated, “I, I am sorry because . . . [t]here’s been no question in the Court’s mind that [Decedent] intended to transfer the interest to his, his spouse of forty years. But I am without power to change that under the law.” 

Appellant argued that Decedent’s actions constituted constructive delivery; more specifically, she argued that “construct delivery of a deed occurs when the husband deeds his property to himself and his wife, as tenants by the entireties, informs his wife, and places the unrecorded deed with the couple’s important papers.”  In rejecting this argument, the court explained that delivery requires some act by the grantor that puts the deed beyond his power to revoke.  If the grantor retained some control over the deed, there was no delivery.  It is immaterial whether the grantor passed the instrument to the grantee or a third party, so long as the grantor relinquished all dominion and control over the deed. 

Daniels v. Daniels, --- A.3d ---, 2014 WL 2873937 (Maryland Court of Special Appeals, June 24, 2014), available at: http://www.mdcourts.gov/opinions/cosa/2014/0415s12.pdf.

Decedent did not fully divest himself of control over the deed, thus maintaining a right of recall because he could have, at any time, taken the deed back from the filing cabinet and tore it up.  The court explained that, in order to accomplish relinquishment, Decedent could have given the deed to Appellant with instructions for future recordation, Decedent could have handed over the deed for placement in her own files or own safety deposit box, or Decedent could have given the deed to his step-daughter with instructions for future recordation.  Instead, Decedent placed the deed in a cabinet to which he had equal access, without completely divesting himself of and completely investing Appellant with control of the deed.  The lack of constructive delivery rendered the deed void and inoperative, thus it was properly an asset of the estate.

Submitted by:  Marisa A. Trasatti and Morgan N. Gough, Semmes, Bowen &Semmes

In Asbestos Personal Injury Case

In Asbestos Personal Injury Case, Fourth Circuit Holds That District Court Could Not Strike Remand Order and Retrieve Remanded Case from State Court as Sanction Against Plaintiffs

Barlow v. Colgate Palmolive Co. & Mosko v. Colgate Palmolive Co, Nos. 13-1839 & 13-1840 (United States Court of Appeals for the Fourth Circuit, April 30, 2014), available athttp://www.ca4.uscourts.gov/Opinions/Published/131839.P.pdf

In Barlow v. Colgate Palmolive Co. and Mosko v. Colgate Palmolive Co., two (2) cases involving the removal of an asbestos personal injury case to Maryland Federal Court and subsequent remand to Maryland State Court, the Fourth Circuit Court of Appeals held that the order remanding the case for lack of subject matter jurisdiction was not reviewable on appeal or otherwise, under 28 U.S.C. § 1447(d).  The Court rejected Defendants’ collateral attack on the remand orders seeking sanctions against Plaintiffs’ counsel under Fed. Rules Civ. P. 11 and 60 for making alleged misrepresentations to the federal court relating to the existence of subject matter jurisdiction.  The Court affirmed the order of the district court insofar as it ruled that it lacked jurisdiction.  Judge Davis wrote the majority opinion, in which Judge Cogburn joined, however, Judge Floyd wrote a dissenting opinion agreeing with the Defendant’s position. 

By way of factual background, Joyce Barlow and Clare Mosko separately sued Colgate and a variety of other companies in Maryland state court, asserting that each of the defendants’ products had at some point exposed them to asbestos.  With respect to Colgate, the plaintiffs’ theory was that its “Cashmere Bouquet” line of powder makeup products contained unhealthy levels of asbestos and had thereby contributed to the plaintiffs’ health problems.  Despite plaintiffs’ joinder of in-state defendants, Colgate removed the two cases to federal court on the basis of diversity of citizenship, asserting fraudulent joinder as to the in-state defendants, and alleging that the plaintiffs’ deposition testimony and interrogatory responses demonstrated that they did not intend to pursue a claim against any defendant other than Colgate, a citizen of Delaware and New York. 

After removal, the plaintiffs’ lawyers moved to remand the cases to state court, arguing that they had viable claims against the nondiverse defendants.  The district court agreed, finding that although only Colgate’s Cashmere Bouquet products had been identified by the plaintiffs as the source of their asbestos exposure, there was still more than a “glimmer of hope,” that the plaintiffs could identify a basis to recover against the nondiverse defendants as discovery proceeded.  The cases were remanded.

Just days after the remand orders were handed down, counsel for the plaintiffs asked the State Court to consolidate the two (2) cases because, among other reasons,“[a]ll [plaintiffs] allege exposure to asbestos-containing Cashmere Bouquet powder products only and do not allege exposure to any other asbestos, asbestos-containing products or asbestos-containing dust in any other form.” (emphasis added).  Colgate then promptly moved in the district court for vacatur of the remand order as a sanction.  The district court denied the motion, finding that reconsideration of the remand order is prohibited by the removal statute and pertinent Circuit law.  The district court stated further that it was “not convinced that counsel’s conduct is sanctionable” because the alleged misrepresentations were “attributable to different attorneys in markedly different litigation contexts.”

On appeal, Colgate contended that it was error for the district court to rule that it did not have the authority to consider whether plaintiffs’ counsel committed misconduct and whether such misconduct warranted relief from the Remand Orders.  Colgate maintained that the district court had authority, pursuant to its inherent authority and Rules 11 and 60(b)(3) of the Federal Rules of Civil Procedure, to strike the remand orders as a sanction for counsel’s alleged misrepresentation regarding the existence of subject matter jurisdiction. 

The federal removal statute generally prohibits review of orders remanding removed cases.  To the majority, it was a long standing principle that entry of an order remanding a case to state court divests the district court “of all jurisdiction in [the] case and preclude[s] it from entertaining any further proceedings of any character, including the defendants’ motion to vacate the original remand order.”  This provides for finality so that jurisdictional litigation comes to an end and the parties can proceed to the merits and avoid unnecessary delay and expense.  If Congress wanted to carve out an attorney-misconduct exception to the prohibition on review of remand orders, it would have done so.  Thus, because the remand orders were not reviewable on appeal or otherwise, the district court correctly ruled that it lacked jurisdiction to revisit its remand orders.  The Court affirmed the order of the district court insofar as it ruled that it lacked jurisdiction.  Judge Floyd dissented, however, citing to numerous cases where other circuits and even the Supreme Court had spoken on the propriety of Rule 11 sanctions even when a district court was without jurisdiction. 

In a scathing dissent, Judge Floyd opined that the district court had, at a minimum, jurisdiction to consider Colgate’s Rule 11 motion for sanctions and to fashion appropriate relief, if any.  In addition, since Colgate never argued that the district court erred in remanding the cases—only that the district court erred in subsequently denying Colgate’s post-remand motions—§ 1447(d) did not prohibit the Court from vacating the remand orders pursuant to Fed. R. Civ. P. 60(b)(3) if it was determined that such relief was warranted.  According to Judge Floyd: “If a litigant could flout his duty of candor before a district court and secure remand by misrepresentation, knowing that such remand is never subject to vacatur, he would lose all incentive to present the facts of a case honestly to the court during removal. Righting this wrong and protecting the sanctity and integrity of judicial proceedings overrides the value of any purported finality of a remand order.”  Under the facts of this case, it would be an abuse of a district court’s discretion to not award sanctions.  Overall, Judge Floyd would have: 1) reversed the district court’s denial of Colgate’s Rule 11 motion for sanctions and would have sanctioned plaintiffs and their counsel; 2) would reverse the district court’s denial of Colgate’s Rule 60(b)(3) motion for lack of jurisdiction; and, 3) would vacate the remand orders and return the cases back to the district court. 

Submitted by:  Marisa A. Trasatti and Colleen K. O’Brien, Semmes, Bowen & Semmses

Construction Bankruptcy Case

In Construction Bankruptcy Case, Fourth Circuit Holds That Subcontractors Can Perfect Materialman and Mechanic’s Liens After General Contractor Filed For Bankruptcy. Branch Banking & Trust Company v. Construction Supervision Services, Inc. (In re: Construction Supervision Services, Inc.) No. 13-1560 (United States Court of Appeals for the Fourth Circuit, May 22, 2014), available at:  http://www.ca4.uscourts.gov/Opinions/Published/131560.P.pdf

In Branch Banking & Trust Company v. Construction Supervision Services, Inc., the Fourth Circuit Court of Appeals held that subcontractors with unperfected state law materialman and mechanic’s liens could perfect their liens after the general contractor filed for bankruptcy under 11 U.S.C. §§ 362(b)(3) and 546(b).  The Court rejected Defendant’s contention that the subcontractors lacked an “interest in property” under Sections 362(b)(3) and 546(b) because they had not yet served notice of, and thereby perfected, their liens when the bankruptcy petition was filed.  The appellate court agreed with the district court’s affirmance of the bankruptcy court’s ruling that the subcontractors were not prohibited by the automatic stay imposed by 11 U.S.C. § 362(a)(4) to perfect their liens.  Judge Wynn wrote the opinion, in which Judges King and Shedd joined.

By way of factual background, in January 2012, Construction Supervision Services (“CSS”), a full-service construction company, filed a Chapter 11 bankruptcy petition.  CSS, acting as a general contractor, placed orders with several subcontractors for building materials and fuel.  The subcontractors delivered the requested materials to CSS on an open account basis, later invoicing CSS for the amounts owed them.  After CSS’s January 2012 bankruptcy filing, the subcontractors sought to serve notice of, and thereby perfect, their state law materialman and mechanic’s liens on funds others owed CSS.  Branch Banking & Trust Company (“BB&T”), which had loaned CSS over one million dollars, secured by, among other things, CSS’s accounts and real property, objected to the subcontractors’ post bankruptcy petition notice and perfection of their liens.

Section 362(a)(4) of the federal bankruptcy code provides for an automatic stay of any attempts by creditors to collect their claims against a debtor who has filed a bankruptcy petition; however, exceptions exist. Section 362(b)(3) provides an exception for “any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee’s rights and powers are subject to such perfection under section 546(b)….”  Section 546(b), in turn, subjects the bankruptcy trustee’s rights and powers to generally applicable laws that “permit perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection . . . .”  In essence, Sections 362(b)(3) and 546(b) provide an exception for those with an interest in property that predates the bankruptcy petition but is not yet perfected at the time the debtor files for bankruptcy if, in the absence of the bankruptcy filing,  the perfected interest would be effective under state law against a third party acquiring rights prior to that perfection.

BB&T argued that the subcontractors lacked an interest in property because they had not yet served notice of, and thereby perfected, their liens by the time CSS filed its bankruptcy petition.  The subcontractors argued that the stay did not block them from noticing and perfection post-petition because doing so fell under the Section 362(b)(3) exception.  The bankruptcy court ruled against BB&T, holding that the subcontractors had an interest in property upon delivery of the requested materials, i.e., before lien notice and perfection, and thus the subcontractors were not stayed from providing notice and perfecting their liens under Section 362(b)(3).  BB&T appealed to the district court, which affirmed the order of the bankruptcy court.  BB&T further appealed to the Fourth Circuit Court of Appeals.

On appeal, BB&T contended that because the subcontractors failed to notice their liens on funds before CSS filed for bankruptcy, the subcontractors lacked an “interest in property” at the time CSS filed its petition, and therefore the Section 362(b)(3) exception was not applicable.  The appeal turned on the meaning of the phrase “an interest in property,” referred to in Sections 362(b)(3) and 546(b).  If the subcontractors had an “interest in property” when CSS filed for bankruptcy, the parties agreed that it would then be permissible for the subcontractors to give notice and perfect their interests post-petition under Section 362(b)(3).

To the Court, it was clear that the Fourth Circuit precedent had established that the broad term “interest in property” encompassed more than just liens.  The Court noted that while “interests” and “liens” are related, they are nonetheless logically distinct as a lien is a mechanism to secure an interest that already exists.  The question left for the Court to answer was whether the subcontractors had an “interest in property” despite their not yet having served notice of, i.e., perfected, their  liens under North Carolina law prior to CSS’s filing for bankruptcy.  To answer that question, the Court looked to the pertinent North Carolina law.  Under North Carolina General Statutes 44A-18, like the materialman or mechanic’s lien statutes of most states, the liens vested as soon as construction materials were delivered.  There was no dispute that the subcontractors delivered materials and equipment to CSS for its building work before CSS filed for bankruptcy.  Because the subcontractors were entitled to a lien securing the funds earned as a result of having delivered said materials and equipment to CSS, and that entitlement to a lien arose upon delivery, the Court concluded that the subcontractors had an “interest in property” when CSS filed its bankruptcy petition.

In reaching its conclusion, the Court rejected BB&T’s argument that any rights or interests that the subcontractors had were meaningless until noticed, and thereby perfected, because, without a perfected lien, the subject funds could be diluted or extinguished.  The Court noted that just because a right or interest may be lost does not mean it therefore fails to exist. Thus, because the subcontractors had an interest in property at the time CSS filed its bankruptcy petition, and because the parties agreed all other conditions for Section 362(b)(3)’s bankruptcy stay exception were met, the bankruptcy court and district court correctly ruled that the Section 362(b)(3) exception to the automatic stay was applicable.  The Court affirmed the district court’s affirmance of the bankruptcy court’s order.

By Marisa A. Trasatti and Richard J. Medoff, Semmes, Bowen & Semmes

Sail Zambezi

Trial Court interpreted proper maritime law correctly, and properly excluded damage summary Sail Zambezi, Ltd. v. Maryland State Highway Administration, --- A.3d --- (April 30, 2014) (not yet published), available at: http://www.mdcourts.gov/opinions/cosa/2014/1888s12.pdf

Sail Zambezi, Ltd.'s sole asset was a 60 foot Oyster boat that was captained by Guy Kalron. On October 16, 2010, the owner of Sail Zambezi took his wife and a friend out for a day of sailing. During the trip, the boat passed the Spa Creek Bridge, and after several hours of sailing returned to the bridge. Sail Zambezi waited in the harbor until the next scheduled opening when the bridge tender opened it to allow the waiting boats through. After the downstream boats had passed the bridge, the Sail Zambezi followed another boat under the bridge. While the other boat was able to clear the bridge, the bridge tender closed the bridge while the Sail Zambezi was still in the closure path, causing damage to the oyster boat. The bridge tender indicated he had never seen the Sail Zambezi on any of the mirrors or monitors, and the boat had never signaled that it was there, as required by federal regulation. Sail Zambezi filed suit for the damages to the boat, against the Maryland State Highway Association ("SHA"), who was responsible for the operation of the drawbridge. SHA filed a third-party complaint against Kalron as the captain of the boat for failing to signal properly. During the trial, two issues arose that lead to appellate review. First, the parties disputed the interpretation of the regulations contained in 33 C.F.R. § 117.19-21 governing procedures surrounding boat operator's obligations at drawbridges. Sail Zambezi argued that the regulation exempted the Spa Creek Bridge from the requirement applied to the other bridges in the State, by not requiring the boat to signal that it intended to pass the bridge, since the regulation provided for definitive times that the bridge would open. SHA argued there was no exemption and the boat was required to signal a request to open the bridge, regardless of the times indicated. The Trial Court issued a jury instruction based on SHA's interpretation. Secondly, the Court addressed the issue of the admissibility of Sail Zambezi's evidence of damages. Sail Zambezi stated that it intended to prove its damages by moving the invoices for its repairs into evidence, and entering a spreadsheet that summarized the invoices that was prepared by Kalron, both as business records. SHA opposed the admission, arguing that the invoices were not business records because they were created by another company and received by Sail Zambezi. The spreadsheet was also inadmissible because it was based on the inadmissible invoices, and was not itself a business record because it was created for litigation. While the Court permitted Sail Zambezi to use the summary to refresh Kalron's memory on the stand, the documents were not admitted into evidence. The jury returned a verdict finding both Sail Zambezi and SHA comparatively negligent under Maritime Law, apportioning 85 percent fault to Sail Zambezi and 15 percent to SHA. However, the jury also concluded that no dollar damages had been proven. Sail Zambezi appealed. The Court of Special Appeals noted that the determination of the federal regulation was a question of law reviewed de novo. In finding that SHA's position was correct, the Court noted the plain language of the statute did not exempt the Spa Creek Bridge from the requirement that a boat signal to pass, but merely set predetermined opening times for the bridge. Further, it noted that holding otherwise would create havoc with the boats and road traffic attempting to cross the bridge, as it would be impossible to tell whether a boat was going to go through the bridge, or merely wait in the harbor. The Court then addressed the evidentiary matter and noted that since Sail Zambezi had not availed themselves of the procedures in MD. CODE ANN., CTS. & JUD. PROC. § 10-105, they were obligated to present testimony sufficient to authenticate the spreadsheet as a business record, and expert testimony explaining the reasonableness of the expenses. The Court noted that it would have been improper to admit the spreadsheet, which was based on inadmissible invoices, as a business record. Further, it did not have the presumption of trustworthiness because it was created by Kalron for the sole purpose of the litigation. The Court of Special Appeals held that the trial court was correct in his holdings and affirmed the judgment. By: Gregory S. Emrick Associate, Semmes, Bowen & Semmes

Maryland Federal District Court

Maryland Federal District Court Grants In Part Insurers’ Motion for Summary Judgment as it Pertained to the Reasonableness of Insurance Claims Settlement

National Union Fire Insurance Company of Pittsburgh, PA., et al. v. Porter Hayden Company, et al., Civil Nos. CCB-03-3408, CCB-03-3414(April 11, 2014), available athttp://www.ca4.uscourts.gov/Opinions/Unpublished/131708.U.pdf

In National Union Fire Insurance Company of Pittsburgh, PA., et al. v. Porter Hayden Company, et al.,National Union Fire Insurance Company of Pittsburgh, Pa. and American Home Assurance Company (collectively, “the Insurers”) sought summary judgment to bar coverage for settlements made by the Porter Hayden Bodily Injury Trust (“the Trust”), arguing that: (1) those settlements violated the “voluntary obligation” provision and (2) the settlements were unreasonable. Also pending before the court was Porter Hayden Company’s (“Porter Hayden”) motion for summary judgment.  After hearing the arguments of the parties, the Honorable District Judge Catherine C. Blake granted in part the Insurers’ motion for summary judgment—as to their ability to challenge the reasonableness of the Trust’s settlements, and denied the motion as to Porter Hayden shouldering the ultimate burden of persuasion to show that the settlements were reasonable.  Further, Porter Hayden’s motion was granted in part, as it pertained to whether the Trust paid claimants reasonable values to resolve claims and whether the Insurers had waived their right to object to settlements paid by the Trust, and denied in part, as to the Insurers’ waiver of the voluntary obligation provision.

By way of background, Porter Hayden ceased installing asbestos-containing insulation materials after involvement in thousands of lawsuits for alleged injuries related to asbestos exposure.  In March 2002, Porter Hayden filed a petition for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Maryland. On June 30, 2006, the bankruptcy court confirmed Porter Hayden’s Third Amended Second Modified Plan of Reorganization (“the Plan”).  Although the Insurers initially objected to the Plan, they eventually withdrew their objections in exchange for Porter Hayden’s stipulation that confirmation of the Plan would not deprive them of any defenses under applicable non-bankruptcy law.  The Plan established the Trust to resolve asbestos claims against Porter Hayden pursuant to Trust Distribution Procedures (“TDP”).  The TDP outlined “the qualifications for an asbestos claim, the evidence needed to support the existence of such a claim, standards ranking the relative severity of claims . . . , and an associated schedule of values for each severity-level of claim.”  According to the Insurers, Level I nonmalignant claims do not require a showing of physical impairment in the form of decreased lung function.  Instead, Level I nonmalignant claims require X-ray changes, which may only reflect the condition of pleural plaques that do not cause pain and have no health significance. The Insurers maintained that these kinds of claims are not compensable in the Maryland tort system. In Maryland, a claim cannot move off the inactive docket without a showing of physical impairment.

In February 2009, before the Trust began resolving claims, Porter Hayden wrote a letter to the Insurers, requesting their assistance in evaluating and resolving claims. The letter indicated that Porter Hayden had already given the Insurers access to submissions through a claims database, provided multiple reports regarding the submissions, and invited their participation in evaluating submissions.  Nevertheless, Porter Hayden was providing the Insurers with “one last opportunity” to be involved. Porter Hayden did not hear from the Insurers regarding the resolution of any asbestos claims.

In analyzing the Insurers’ Motion for Summary Judgment, the Maryland district court cited Federal Rule of Civil Procedure 56(a) for the applicable summary judgment standard.  That rule provides that summary judgment should be granted “if the movant shows that there is no genuine dispute as to any material fact . . . .” Fed. R. Civ. P. 56(a) (emphasis added). Whether a fact is material depends upon the substantive law.  Anderson v. Liberty Lobby, Inc., 477 U.S. 242,247–48 (1986).  Accordingly, “the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment.” Id.

Next, the court addressed the Insurers’ argument that the Trust assumed obligations to claimants without their consent, in violation of the policies’ voluntary obligation provision.  The district court rejected this argument, citing to U.S. Fid. & Guar. Co. v. Nat’l Paving and Contracting Co., 228 Md. 40, 48, 178 A.2d 872, 875 (1962), which states:

It is settled law that where there is a denial of liability and a refusal to defend on the part of the insurer . . . , the insured is no longer bound by a provision of a policy prohibiting settlement of claims without the insurer’s consent, or a provision making the insurer’s liability dependent on the obtaining of a judgment against the insured. The insured under such circumstances may make a reasonable compromise of the suit without losing his right to recover from the insurer under the policy.

The federal district court stated that Porter Hayden notified the Insurers of the claims presented to the Trust, but, like the insurers in Nat’l Paving, “the Insurers simply chose not to respond.”  Accordingly, the court held that the Insurers waived the voluntary obligation provision, and were not permitted to rely on that provision to disclaim coverage.  Nevertheless, although the Insurers were not permitted to disclaim coverage under the voluntary obligation provision, the court determined that they were permitted to challenge the reasonableness of the settlements.  The Insurers preserved the right to challenge the settlements’ reasonableness when they entered into the stipulation with Porter Hayden that confirmation of the Plan would not deprive them of any applicable non-bankruptcy law defenses.  Moreover, according to the district court, Nat’l Paving held that even an insurer that refuses to defend the insured reserves the ability to challenge the reasonableness of the insured’s settlement.  Nat’l Paving, 228 Md. at 48, 178 A.2d at 875 (stating that, “where there is a denial of liability and a refusal to defend on the part of the insurer,” the insured may make a “reasonable compromise of the suit”); see also Gildenhorn v. Columbia Real Estate Title Ins. Co., 271 Md. 387, 394–95, 317 A.2d 836, 840 (1974).

Turning to which party had the burden of proof as to reasonableness, the court determined that the Insurers had the burden of production, but Porter Hayden had the ultimate burden of proof.  Applying the reasoning of Port E. Transfer v. Liberty Mut. Ins. Co., 330 Md. 376, 624 A.2d520 (1993), the court recognized the difficulties inherent in requiring a party settling many claims to show the reasonableness of each settlement. Nonetheless, the court could not conclude, based on Port E. Transfer, that the Insurers must shoulder the ultimate burden of persuasion.  Accordingly, to the extent that the Insurers’ motion for summary judgment sought a ruling that they may challenge the reasonableness of the Trust’s settlements and that Porter Hayden bore the ultimate burden of persuasion on reasonableness, the motion was granted by the district court.  The court stated that it could not, however, determine whether the Trust’s settlements were reasonable or unreasonable as a matter of law.  Rather, the court reiterated that the Insurers had the burden of production at trial; and if they satisfied this burden, then Porter Hayden would have the ultimate burden of proof to show the settlements were reasonable.  For these reasons, the Insurers’ motion for summary judgment was  granted in part and denied in part, and Porter Hayden’s motion for summary judgment—as it pertained to the reasonableness of the Trust’s settlements and whether the Insurers had waived their right to object to those settlements—was granted in part and denied in part.

Submitted by Marisa A. Trasatti and Jhanelle A. Graham, Semmes, Bowen & Semmes, Baltimore, Maryland

Court Forgives Plaintiff for Failing to Respond

Court Forgives Plaintiff for Failing to Respond to Discovery from Defendant, But Cautions Against Further Delays

Onyeneho v. Farmers Ins. Exchange, No. JKB-12-3692 (United States District Court for the District of Maryland, May 13, 2014), available athttp://www.mdd.uscourts.gov/Opinions/Opinions/Onyeneho%20v%20Farmers%20Ins%20Exchng%2012-3692%20m&o%20deny%20vol%20DWOP,%20deny%2041b%20DWP%200514.pdf

In Onyeneho v. Farmers Ins. Exchange, the Court granted the Defendant’s Motion to Compel, but denied the Defendant’s Motion to Dismiss for Lack of Prosecution, where Plaintiff failed to respond to Defendant’s discovery requests. 

Proceeding pro se, Plaintiff filed this case alleging employment discrimination and retaliation against Defendant.  The Scheduling Order provided that all depositions and other discovery were to be completed by December 20, 2013.  On December 16, 2013, Defendant filed a letter requesting a sixty-day extension of the discovery period on grounds that it had served discovery requests on Plaintiff in September 2013, which were due in October 2013, however, as of December 2013, Defendant had received no discovery responses even though it had correspondence with Plaintiff about the discovery requests.  Defendant requested additional time to try to resolve the discovery dispute, or if unsuccessful, to file a Motion to Compel.  The Defendant’s Motion was granted.  Thereafter, in January 2014, Defendant filed a Motion to Dismiss for Lack of Prosecution, or, alternatively, to Compel Plaintiff’s Discovery Responses.  In February 2014, an attorney entered an appearance on Plaintiff’s behalf, and a Consent Motion to Extend the Time for Plaintiff to respond to Defendant’s Motion to Extend the time for Completion of Discovery, which indicated that the discovery problems could be “easily resolved” by counsel’s entry of appearance and by the parties’ additional time to conduct discovery, which could be readily addressed without wasting Court time or resources.  The Court extended the discovery deadline until April 2014.  After another brief extension of the response deadline as to Defendant’s Motion, Plaintiff filed both a response as well as a Motion for Voluntary Dismissal without Prejudice.  Following a final briefing on the motions, Defendant requested that all case deadlines be stayed until after the Court ruled on the two pending motions.

Judge Bredar denied Plaintiff’s Motion for Voluntary Dismissal Without Prejudice on the grounds that Plaintiff showed a “profound” lack of diligence in litigating the case, both while pro se and after being represented by counsel.  To the Court, there was no judicial economy in dismissing the case and allowing Plaintiff to have a “fresh start” with the filing of a new Complaint.   It would have been unduly prejudicial to Defendant to be subjected to another round of litigation when the first round—already in progress—had already proven an inadequate vehicle for resolution of the dispute. 

The Court also denied Defendant’s Motion to Dismiss for Lack of Prosecution under Fed. R. Civ. P. 41(b), which allows involuntary dismissal with prejudice if a Plaintiff fails to prosecute or to comply with the Federal Rules or Court Order.  The Fourth Circuit has cautioned that dismissal with prejudice is a “harsh sanction” which should not be invoked lightly in view of the public policy of deciding cases on their merits.  While Plaintiff and his counsel bore most of the responsibility for the delay in the case, the degree of prejudice to Defendant was fairly minimal, and Defendant would be fully able to defend itself on the merits as long as Plaintiff made full and complete discovery responses.  Further, there was not a drawn out history of deliberately proceeding in a dilatory fashion, and sanctions less drastic than dismissal were more appropriate under the circumstances.  Therefore, the Court denied the Motion to Dismiss, but granted Defendant’s alternative Motion to Compel.  The Court, however, put Plaintiff and his counsel “on notice” that any future failure to comply with either the governing rules or the Court’s orders would “weigh heavily” against Plaintiff should involuntary dismissal with prejudice again be contemplated, either because of a defense motion or because the Court acts sua sponte.

Submitted by:  Marisa A. Trasatti and Colleen K. O’Brien, Semmes, Bowen & Semmes

Real Estate Cooperative Was Not Contractually Required

 Real Estate Cooperative Was Not Contractually Required to Repair Unit Owner’s Pipes

Robinson-Huntley v. George Washington Carver Mutual Homes Association, Inc., Record No. 131065(Court of Appeals of Virginia, April 17, 2014), available at:  http://www.courts.state.va.us/opinions/opnscvwp/1131065.pdf

In this appeal, the Court considered whether a contract obligated a real estate cooperative to make certain plumbing repairs requested by Plaintiff.

Plaintiff Carol Robinson-Huntley inherited an interest in the George Washington Carver Mutual Homes Association, Inc. (“the Association”), a real estate cooperative created in 1949.  She executed a mutual ownership contract (“the Contract”) with the Association.  A paragraph of the Contract (“the Provide and Pay Provision”) required that “[t]he Association shall . . . provide and pay for property including the [m]ember’s dwelling,  except that the [m]ember shall make minor interior repairs and provide all interior and decorating.”

In 2011, Plaintiff began experiencing significant plumbing problems in her unit.  Deteriorated pipes needed to be replaced which would cost $6,000.  Plaintiff informed the Association but the Association refused to pay for the needed repairs.  Plaintiff filed a Complaint alleging that the Provide and Pay Provision obligated the Association to replace the pipes. 

Following a bench trial, the Court entered judgment for the Association on the Provide and Pay argument, finding that the Provide and Pay Provision did not obligate the Association to replace pipes.  Plaintiff appealed. 

The appellate court concluded that the Contract between Plaintiff and the Association was ambiguous, and so it consulted extrinsic evidence.  An earlier version of the Contract had included an explicit requirement to repair, which had been removed from the contract signed by Plaintiff.  Also, in a practical sense, Plaintiff was unable to prove that the Association had in the past made repairs similar to the kind that she sought.  Therefore, the appellate court affirmed the determination by the trial court that the Association was not obligated to replace the pipes.

Submitted by Marisa A. Trasatti and Colleen K. O’Brien, Semmes, Bowen & Semmes, Baltimore, Maryland

Removal of safety guard was not a modification

Removal of safety guard was not a “modification” of product where guard had been previously rendered useless through normal wear and tear.

Plaintiff, a 16-year old girl, was assisting her father in using a tractor-driven digger to drill post holes in her yard. Plaintiff’s step-father, Gary Hoover, had borrowed the digger from a family friend, Smith, but was not aware that Smith had previously removed a safety shield from the gearbox and never replaced it.   While assisting her stepfather, Plaintiff’s jacket was caught by a nut on the rotating drive line which dragged Plaintiff into the gearbox.  Plaintiff suffered severe injuries including severing her arm  above the elbow.   Plaintiff brought suit against the manufacturer of the digger and the manufacturer of the missing safety guard for products liability.  Plaintiff also filed a complaint against Smith for removing and failing to replace the shield, which the court consolidated after the manufacturers filed third-party actions against Smith. 

At the close of discovery, the Defendants moved for summary judgment, claiming that under New York law, they were not liable, because Smith made post-sale modifications.  Defendants argued that the digger was safe when sold, and Smith’s alterations of removing the shield and not replacing it made the product dangerous.  The Defendants further argued that Smith misused and abused the machine letting the shield come into contact with the ground with such force as to cause it to become damaged.

 The Plaintiff responded with an affidavit from her expert in support of her position that the digger contained manufacturing defectives despite Smith’s removal of the shield. The shield protected the user from the gearbox, but had broken on Smith’s machine during “normal” usage when the digger would get stuck and pull the shield into the ground, causing it to break.  All parties agreed the accident would not have occurred if the shield had been in place.  Plaintiff argued that the digger’s shield should have been designed to either last the life of the machine, or prevent usage when it was removed to prevent misuse.  Further, the shield was “inadequately tested” and “not reasonably safe,” according to Plaintiff’s expert, because it failed after two to three years of “normal use,” during which it was foreseeable that the shield would contact the ground and become damaged. Plaintiff also alleged that it was reasonably foreseeable by the manufacturer that the user would remove the shield when it was broken and not replace it.

 The trial court held that the Plaintiff had met its burden to overcome summary judgment and permitted the case to go to trial on the product liability counts.  At the conclusion of the trial, the jury found in Plaintiff’s favor and awarded her $8,811,587.29, and apportioned liability:  35 percent to the digger distributor, 30 percent to manufacturer of the digger, and 30 percent to Smith, 3 percent to the Plaintiff’s stepfather, and 2 percent to the seller of the digger.  The other defendants had settled the claims against them on the third day of trial.  The Defendants moved to have the verdict set aside, which the trial court denied.  The Defendants timely appealed to the Appellate Division, who affirmed the trial court’s holding on the motion for summary judgment.   The Defendants thereafter appealed to the Court of Appeals of New York.

 To begin its analysis, the Court of Appeals reviewed New York’s law regarding products liability claims.   When a plaintiff is injured by a defectively designed product the manufacturer and others in the chain of distribution are held strictly liable.  “[A] defectively designed product is one which, at the time it leaves the seller’s hands, is in a condition not reasonably contemplated by the ultimate consumer and is unreasonably dangerous for its intended use,” and “whose utility does not outweigh the danger inherent in its introduction into the stream of commerce.”  However, a manufacturer’s liability will be severed if the consumer makes substantial materials alterations or modifications to the product, thus making it unsafe.   The manufacturer’s obligation was to put a

 The Court then held that Plaintiff had presented evidence sufficient to defeat summary judgment based on the substantial modification defense, as there was evidence that the damaged shield was removed because it failed to provide protection from the rotating gears.  While the court disagreed with the Plaintiff that “no safety device is reasonably safe unless it is designed to last the lifetime of the product on which it is installed, defendants did not adequately refute Plaintiff’s assertions that the plastic shield failed prematurely under the circumstances presented here.”   The Court further held that Defendants had failed to show that they were entitled to judgment as a matter of law on the basis that Smith’s misuse was unforeseeable or that Smith’s failure to replace the shield was a substantial modification, absolving Defendants of liability. Notably, the court observed that “this may have been a different case if defendants had established as a matter of law that the shield was reasonably designed yet expected to wear and required replacement prior to the accident.”  The Court affirmed the Appellate Divisions holding.

 Judge Smith dissented and argued that the case of Robinson v. Reed-Prentice Division of Package Machinery Company, 49 N.Y.2d 471 (1980), was controlling and directly on point.  Defendant Smith’s act of removing a safety device, in violation of the warnings on the machine and in the manual, was a substantial alteration under Robinson.   The Defendants were only obligated to “use reasonable care to design a product that is safe at the time it leaves the manufacturer’s hands. A manufacturer is not liable for dangers created by substantial alterations to the product thereafter.   That principle should have controlled this case.”

 Submitted by: Marisa A. Trasatti and Gregory S. Emrick, Semmes, Bowen & Semmes, Baltimore, Maryland

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