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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 at

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:

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:

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 at

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 at,%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

Managing Ethical Risks Part 11

Finally, familiarity and complacency cause lawyers to mistreat those closest to them. People tend to treat those with whom they are in close relationships worse than they treat others. We see examples of this everyday in our families, in public, and in business settings. A child or spouse may speak to us in a way that they would never speak to one of their friends.  A first date gets dinner and a movie; a fourth anniversary may get a, "oh yeah, happy anniversary." A person that we have hired to perform a service may do so slower than promised, miss appointments, or otherwise behave in unsatisfactory ways that they would never reveal to a person who is considering hiring them, but has not yet done so. At work, people that work together closely may speak to each other in ways that they would never speak to other employees with whom they do not have a close a relationship.


The reasons behind this dynamic are probably as numerous as the experiences themselves. However, a common denominator is that people tend to take close relationships, and the people with whom they have them, for granted. They believe that they can count on such a person to stick around even if they are not giving them their best game.

Lawyers and clients with long-standing relationships are not immune to this dynamic. A lawyer with an urgent message from an existing client and a potential new client may return the latter's call first, taking for granted the existing client will understand. A client with too much to do may defer getting discovery responses back to a long-standing lawyer in favor of other projects, because he or she knows that the lawyer will understand and the client can count on a lawyer to get the work done even if left with little time to do it. Lawyers may find themselves placing a long-standing, “comfortable” client's work in a position of lower priority than that of a new client that the lawyer wants to impress.

In the attorney-client context, one can never tell whether a given manifestation of this dynamic will (i) have no consequence, (ii) sour but not sever a relationship, (iii) result in the loss of that relationship, or (iv) produce an unanticipated harm that may give rise to a malpractice claim.  From every perspective, not just a risk management perspective, it makes sense for a lawyer to be vigilant about treating long-standing clients with as much enthusiasm and with as high a degree of service as the lawyer would treat a new client that the lawyer is still trying to impress.

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:

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

Comply with Federal and State Asbestos Regulations

"What Cleaning and Restoration Professionals Need to Know to Comply with Federal and State Asbestos Regulations"

Even as the use of asbestos in new materials has waned since the 1970s, it remains in countless products, buildings and materials. To protect employees from health hazards and to avoid potential civil liability and criminal penalties, everyone involved in the cleaning and restoration industry should be aware of the prevalence of asbestos at job sites.

The rules related to restoring a building containing asbestos are complicated and differ depending on a jobsite’s location. Contractors should familiarize themselves with the relevant laws and the specific local enforcement policies for a jobsite before engaging in such work.

The Environmental Protection Agency (EPA) and the U.S. Consumer Product Safety Commission have banned several asbestos products, and many manufacturers have since voluntarily limited the use of asbestos. Nevertheless, it remains present throughout the country, particularly in buildings constructed before 1980. It is commonly found in insulation, floor tiles, ceiling tiles, roofing, paints and coating materials, fireproofing, and many other materials.

Products can contain widely varying concentrations of asbestos, ranging from 100 percent to trace amounts. Products with less than one percent of asbestos generally are not treated as asbestos for regulatory purposes.

In the past few decades, federal and state governments have enacted complicated regulatory regimes by which asbestos abatement is governed. Everyone in the cleaning and restoration industry should understand and comply with these rules or be prepared to face significant fines, civil liability and even criminal penalties. Before starting a project that might disturb asbestos, company owners and managers must be familiar with the full range of federal and state (and even local) regulations that govern licensing, certification, notification, worker safety, and disposal.

The federal government regulates asbestos exposure in buildings chiefly through two agencies, the Occupational Safety and Health Administration (OSHA) and the EPA. OSHA sets standards for worker protection involving construction, including the renovation or demolition of buildings, while the EPA sets broader standards to protect workers and the environment from asbestos. Restoration contractors need to comply with regulations promulgated by both agencies when working at a job site where that asbestos-containing material (ACM) may be present.

In addition to federal asbestos requirements under OSHA and the EPA, contractors must consider often-overlapping requirements at the state level. Each state has its own rules, and asbestos-related regulations can differ significantly. Contractors must review the laws of the state where the job site is located and determine what regulations apply.

The legal system is no substitute for the training, diligence and integrity needed to ensure that asbestos health hazards are properly handled. Before engaging in any work that could impact asbestos, it is important to understand the specific scope of the work to be performed, the governmental regulations that apply to your business and the applicable industry standards of care.

Consult with licensed asbestos professionals to ensure compliance with the applicable regulations. Most importantly, take the necessary steps to protect workers, as well as yourself, and be sure to comply with the restoration industry’s code of ethics.

(This post was adapted from a two-part article in Cleaning & Restoration magazine.  Authored by David M. Governo and Colin N. Holmes, Part 1 originally appeared in the March/April 2014 issue and Part 2 appeared in the May 2014 issue.)

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

Recent Developments in Court Decisions on E-discovery Issues

The duty to preserve and collect data that may be discoverable once litigation is reasonably anticipated is well established.  The following are highlights form recent Court decisions affecting the eDiscovery process. In Riley v. City of Prescott,Arizona, CV-11-08123-PCT-JAT (D. Ariz. Feb 18, 2014), Judge James Teilborg granted Plaintiff’s Motion for Discovery sanctions against the City of Prescott in the form of a spoliation instruction to the jury.  The Court found that the City of Prescott became obligated to preserve emails between city employees and Plaintiff’s employer prior to the date plaintiff first publicized his protest against the City.  From the facts presented, the Court found that multiple emails potentially relevant to the litigation were deleted from the Mayor of Prescott’s city-assigned email account and spoliation of those emails had occurred.  The City argued that there was no evidence emails were deleted, except in the exercise of normal City practice and this did not constitute destruction with any culpable state of mind.  But the Court found that Prescott’s Mayor acted willfully and in bad faith when he continued to refuse production of email accounts and these emails were thereafter deleted.  Plaintiff established, through a subpoena to Google, the existence of nine emails which indicated that Prescott’s Mayor was corresponding with his assistant during a critical period prior to the litigation and that the Defendant produced none of these emails.  The Court found that an adverse inference instruction was warranted to the extent Defendant’s spoliation affected Plaintiff’s ability to prove her claim.

In McCann v. Kennedy Universal Hospital, Inc., 2014WL282693 (D.N.J. January 24, 2014), Judge Joel Schneider was faced with a Motion for Sanctions from Plaintiff because of Defendant’s alleged failure to preserve emergency room lobby surveillance footage.  Plaintiff claimed that he arrived at the Defendant’s hospital in great pain and was left untreated for hours.  He alleged that the hospital staff left him lying on the floor for more than ten minutes after he entered the emergency room.  The following day, Plaintiff emailed the hospital threatening to sue for unfair and inhumane treatment.  Plaintiff filed suit against the hospital and requested production of the emergency room surveillance camera footage.  The hospital had erased the footage claiming that this was the normal course of business.  Plaintiff claimed the hospital spoliated evidence.  Judge Schneider determined that Defendant did not have a duty to preserve the surveillance footage because Plaintiff’s email did not trigger the hospital’s duty to maintain this evidence.  The Court found that Plaintiff’s email only indicated that he “intended to sue.”  Id at 6.  Judge Schneider determined that Defendant did not erase the footage in bad faith or with the intent to destroy relevant evidence.  Id at 7.

In Calderon v. Corporation Puertorrique a De Salud, 2014WL171599 (D.P.R. January 16, 2014), United States District Court Judge Francisco Besosa granted Defendant’s Request for a Spoliation instruction based on Plaintiff’s admission that he deleted text messages and failed to produce approximately thirty eight relevant text messages which Defendant obtained by subpoenaing Plaintiff’s mobile carrier.  The Court determined that Plaintiff intentionally spoliated evidence because he failed to produce and/or deleted text messages amounting to a conscious abandonment of potentially useful evidence which may have been unhelpful to his case.

Finally, District Court Judge David Bury entered summary judgment against Defendant as a spoliation sanction in Slep-Tone Entertainment Corp. v. Granito, 2014WL65297 (D. Ariz., January 8, 2014).  Plaintiff had requested that Defendant produce computer hard drive information containing karaoke tracks which Plaintiff alleged contained approximately 150,000 counterfeit tracks.  Defendant claimed that the hard drives could not be produced because they had been wiped clean one to two months prior to the lawsuit.  Plaintiffs sought, as a sanction, summary judgment against Defendant because of the alleged spoliation.  Defendant filed a counter motion for summary judgment on grounds that Plaintiff could not prove he possessed counterfeit karaoke tracks.  Judge Bury entered summary judgment in favor of Plaintiff stating that Defendant had control over the evidence, had a duty to preserve the hard drives once he was served with the Complaint, and that Defendant had a culpable state of mind when he utilized specialized software to completely wipe the drives clean of information.

By: William G. Caravetta, Partner at Jones, Skelton & Hochuli, PLC
Bill Caravetta handles both national and state-wide bad faith class action litigation, bad faith litigation, insurance coverage disputes, coverage opinions and complex civil litigation. Mr. Caravetta has substantial experience in advising corporate risk managers on insurance coverage issues, indemnity agreements and risk transfer options through commercial contracts. 

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