International Association of Defense Counsel
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Chicago, Illinois 60606 USA
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and at Additional
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JANUARY 2010
Defense Counsel Journal (ISSN 0895-0016)
JANUARY 2010
Defense Counsel Journal
Vol. 77
The International Association of Defense Counsel is the oldest international association of lawyers
representing corporations and insurers. Its activities benefit the approximately 2,500 invitation-only,
peer-reviewed members and their clients through networking, educational and professional opportunities as well as benefiting the civil justice system and the legal profession. The IADC takes a leadership role in many areas of legal reform and professional development.
Founded in 1920, the IADC’s membership comprises the world’s leading corporate and insurance
lawyers including partners in large and small law firms, senior counsel in corporate law departments
and insurance executives. They engage in the practice and management of law involving the defense,
prosecution and resolution of claims affecting the interest of corporations and insurers. The Association maintains a comprehensive list of publications and training programs, including the quarterly
Defense Counsel Journal. It provides educational offerings including its Midyear and Annual Meetings, Regional Meetings, the Trial Academy, the Corporate Counsel College, International Corporate
Counsel College, and the Professional Liability Roundtable. The IADC founded the Defense Research
Institute (DRI) and co-founded Lawyers for Civil Justice.
IADC DEFENSE COUNSEL JOURNAL, Vol. 77, No. 1, Pages 1-156
About the International Association of Defense Counsel
No. 1
Pages 1-156
President’s Page
The Need for Discovery Reform
Finding Middle Ground:
Reconciling The Disparate Approaches Courts Have Taken
in Determining Liability When A Purchaser
Declines Optional Safety Equipment
The Construction Defect Hot Potato:
The Interplay Between the Performance Bond and CGL Policy
– A Surety’s Perspective
Medical Monitoring in North America: Does this Horse Have Legs?
Professional Liability and International Lawyering: An Overview
Railroad Tort Liability After the “Clarifying Amendment:”
Are Railroads Still Protected By Preemption?
Conning the IADC Newsletters
Reviewing the Law Reviews
Issued Quarterly by
International Association
of Defense Counsel
Defense
Counsel
Journal
January 2010
Volume 77, No. 1
Pages 1-156
International Association of Defense Counsel
303 West Madison
Suite 925
Chicago, IL 60606 USA
Telephone: 312.368.1494
Fax:
312.368.1854
E-mail:
[email protected]
Web site: http://www.iadclaw.org
ANNOUNCEMENTS AND DEPARTMENTS
Table of Contents...............................................................................................1
President’s Page................................................................................................3
IADC Tenets of Professionalism.......................................................................5
IADC Officers and Board of Directors..............................................................7
Defense Counsel Journal Board and Committee Vice Chairs............................8
Calendar of Meetings........................................................................................9
Conning the IADC Newsletters.....................................................................120
Reviewing the Law Reviews.........................................................................146
FEATURE ARTICLES
FINDING MIDDLE GROUND: RECONCILING
THE DISPARATE APPROACHES COURTS HAVE TAKEN
IN DETERMINING LIABILITY WHEN A PURCHASER
DECLINES OPTIONAL SAFETY EQUIPMENT.......................................11
By Richard G. Stuhan and Charles W. Pugh
Reviewing the two competing lines of cases governing situations where a
purchaser declines an optional safety device and is subsequently injured in a
manner that could have been prevented if the optional safety device had been
in place, and recommending an alternative standard reconciling the need for
consumer safety with the realities of the marketplace.
THE CONSTRUCTION DEFECT HOT POTATO:
THE INTERPLAY BETWEEN THE PERFORMANCE BOND
AND CGL POLICY – A SURETY’S PERSPECTIVE..................................30
By Shannon J. Briglia and Edward Etcheverry
Highlighting the distinctions that arise in claims made for defective workmanship under a CGL policy or under a surety performance bond to discuss the
inherent differences between insurance and suretyship.
MEDICAL MONITORING IN NORTH AMERICA:
DOES THIS HORSE HAVE LEGS?...........................................................50
By David I.W. Hamer
Exploring theoretical issues underlying the medical monitoring controversy
and the current state of the law in North America, with an emphasis on providing potential defendants with an idea of the litigious threats they may face.
PROFESSIONAL LIABILITY AND INTERNATIONAL LAWYERING:
AN OVERVIEW......................................................................................69
By J. Benjamin Lambert
Addressing the professional liability challenges faced by United States
lawyers working on transnational matters, including the impact of foreign law
differences on possible bases for professional liability.
RAILROAD TORT LIABILITY AFTER THE “CLARIFYING
AMENDMENT:” ARE RAILROADS STILL PROTECTED
BY PREEMPTION?.....................................................................................92
By Aaron Ries
Considering whether new regulations continue to provide railroads with preemptive protection from state tort law causes of action in light of recent
statutory and judicial action limiting preemption.
Defense Counsel Journal (ISSN: 0895-0016) is published quarterly (January, April, July, October) by the
International Association of Defense Counsel, 303 West Madison, Suite 925, Chicago, IL 60606, telephone
312.368.1494, fax 312.368.1854, e-mail: [email protected]. Periodical postage paid at Chicago, IL and additional mailing offices.
The subscription price of $90 annually is included in the dues of the members of the IADC. POSTMASTER:
Please send address changes to Defense Counsel Journal, 303 West Madison, Suite 925, Chicago, IL 60606.
Cite as: 77 DEF. COUNS. J. -- (2010).
Copyright © 2010 by the International Association of Defense Counsel. All rights reserved.
Defense Counsel Journal is a forum for the publication of topical and scholarly writings on the law, its development and reform, and on the practice of law, particularly from the viewpoint of the practitioner and litigator in
the civil defense and insurance fields. The opinions and positions stated in signed material are those of the author
and not by the fact of publication necessarily those of the International Association of Defense Counsel. Material
accepted for publication becomes the property of the IADC and will be copyrighted as a work for hire.
Contributing authors are requested and expected to disclose any financial, economic, or professional interests or
affiliations that may have influenced positions taken or advocated in the efforts.
Submit manuscripts to the Managing Editor at the above address in hard copy or via e-mail. Defense Counsel
Journal follows The Bluebook: A Uniform System of Citation (18th ed.), and footnotes should be placed at the
end of the article’s text.
President’s Page
The Need for Discovery Reform
By James M. Campbell
The right to trial by jury in civil disputes is unique to the United States. I have experienced and
witnessed first hand the greatness of the jury trial system in many states across America.
Although not perfect, in my judgment and based on my experience, I cannot imagine a better
system by which to resolve civil disputes. However, extreme delay and immense expense in
getting a case to trial and verdict are among the threats to the jury trial system. At some point,
the costs of providing civil litigants with a public forum to resolve disputes will simply become
too large for society to bear, and the right to trial by jury will be lost. We must do what we can
to prevent that from happening.
The current discovery rules and the way that those rules are used, misused, applied, and interpreted by litigants, trial judges, and appellate courts are at the core of the problem. Federal Rule
of Civil Procedure 1 directs that the rules “should be construed and administered to secure the
just, speedy, and inexpensive determination of every action and proceeding.” Unfortunately, in
far too many courts and jurisdictions, the discovery rules have been neither construed nor
administered to achieve the stated scope and purpose in Rule 1. Consider the following:
1. The current rules permit discovery to proceed and require litigants to respond simply
because the adverse party serves interrogatories, document requests, or deposition notices.
Virtually no controls or limits are placed on the scope of the discovery requests, and the
responding party is placed in the position of having to limit the discovery by seeking a protective order or prevailing in a motion to compel. In a sense, discovery is permitted until a
magistrate, trial judge, or perhaps an appellate court says “no” to the requesting party.
Wouldn’t the “just, speedy and inexpensive” resolution of litigation be far better served by
a system that requires a party seeking discovery to have the magistrate, trial judge, or appellate court say “yes” after a showing of good cause for the requested discovery?
2. Far too frequently, the pretrial issues in civil litigation focus on discovery. In addition to
those cases in which wave after wave of discovery requests are filed with no trial date or
end to the pretrial process in place, the pretrial process becomes a forum in which the adequacy and the completeness of discovery responses becomes the only issue under discussion with no attention paid to the merits of the case. In what should be considered the ultimate waste of time and resources, litigants frequently seek to establish discovery abuse by
claiming that documents or information in their possession from other sources was not produced in response to discovery served in the case before the court. Why is discovery of
information known to the inquiring party needed and how does the allocation of limited
judicial resources to such issues advance the goal of resolving the substantive matters
involved in the case?
3. The costs imposed on litigants by the current application and administration of discovery
can be, and frequently are, astronomical. Given that virtually all litigants correspond, conduct business and store information electronically, the requirements imposed by e-discovery rules and obligations multiply the costs involved in the process geometrically.
Incredibly, the argument that a litigant can return to the corporate office, “press a button”
Page 4
and produce the requested documents or information still carries the day in many motion
sessions and discovery hearings. Orders requiring discovery issue despite the cost, burden
and, in some instances, the impossibility of complying with the requests being fully
explained and detailed in affidavits and in live testimony. Shouldn’t the party requesting
the discovery in those circumstances have to pay for the efforts required to retrieve the
information? Shouldn’t the discovery requests be limited to substantive issues and allegations defined at the outset of the case? Finally, shouldn't the burden imposed by the discovery requests be proportional to the amount at issue in any given case?
4. In those cases that survive the discovery process and reach trial, the litigants return to that
which is important to the resolution of the case and to those core issues and facts that the
trial lawyers will present in their efforts to persuade the jury. Examples abound where
years of discovery during which huge volumes of documents were produced following
contested discovery proceedings result in trials at which a handful of documents were
offered in evidence. Why isn’t a system that identifies the issues and requires the production of those documents and that information that permits a fair and reasonable trial on the
merits a better alternative to the current situation?
On March 11, 2009, the American College of Trial Lawyers issued its final report regarding
the need to reform the rules of civil procedure regarding the discovery process. The American
College initiated its review of discovery rules because of “increasing concerns” that discovery
in civil litigation was causing “unacceptable delays and prohibitive expense.” The report concludes that there is a need for “a cultural change in the legal profession and its clients. The system simply cannot continue on the basis that every piece of information is relevant in every
case....At present, the system is captive to cost, delay and, in many instances, gamesmanship.”
The conclusions made by the American College are significant not only because of the stature
of the organization in the legal community but also because its members consist of prominent
and accomplished members of both the plaintiffs and defense bar. Trial lawyers know that
change is needed in order to preserve the civil justice system
The Judicial Conference Rules Committee, responsible for recommending changes to the
Federal Rules of Civil Procedure, has undertaken an ambitious program to revamp the rules
governing discovery in response to the American College report. The IADC, in conjunction
with other defense organizations, has joined in the effort to change the discovery rules and to
make efforts to better and preserve the civil justice system. The efforts are focused on:
1. Elimination of notice pleading and implementation of a requirement to plead facts sufficient to support the legal claims and theories asserted in the complaint and in affirmative
defenses;
2. Early identification of the substantive issues involved in the dispute (a mechanism to identify those issues which will be tried);
3. Limitations of discovery to those substantive issues involved in the dispute;
4. Procedures for the early dismissal of lawsuits unsupported by the available evidence;
5. Improved rules regarding e-discovery;
6. Rules that require discovery to be proportional to the amount in dispute; and
7. Rules that require the inquiring party to pay for the costs involved in producing information during discovery.
In addition, the IADC will support efforts to provide specific examples and data to support the
need for rules reform. The IADC will stand ready to provide testimony at hearings and proceedings during which the need for rules reform is discussed and debated. The process will be
long and involved, but those of us who want to preserve the jury trial system and help restore
trust and confidence in the civil justice system will stay the course and support the effort.
Page 5
IADC Tenets
of Professionalism
The International Association of Defense Counsel is aware that applicable rules or codes of
professional responsibility generally provide only minimum standards of acceptable conduct.
Since we aspire to the highest ideals of professionalism, we hereby adopt these tenets and
agree to abide by them in the performance of our professional services for clients.
1. We will conduct ourselves before the court in a manner which demonstrates respect for the
law and preserves the decorum and integrity of the judicial process.
2. We recognize that professional courtesy is consistent with zealous advocacy. We will be
civil and courteous to all with whom we come in contact and will endeavor to maintain a collegial relationship with our adversaries.
3. We will cooperate with opposing counsel when scheduling conflicts arise and calendar
changes become necessary. We will also agree to opposing counsel's request for reasonable
extensions of time when the legitimate interests of our clients will not be adversely affected.
4. We will keep our clients well-informed and involved in making the decisions that affect
their interests, while, at the same time, avoiding emotional attachment to our clients and their
activities which might impair our ability to render objective and independent advice.
5. We will counsel our clients, in appropriate cases, that initiating or engaging in settlement
discussions is consistent with zealous and effective representation.
6. We will attempt to resolve matters as expeditiously and economically as possible.
7. We will honor all promises or commitments, whether oral or in writing, and strive to build
a reputation for dignity, honesty and integrity.
8. We will not make groundless accusations of impropriety or attribute bad motives to other
attorneys without good cause.
9. We will not engage in discovery practices or any other course of conduct designed to
harass the opposing party or cause needless delay.
10. We will seek sanctions against another attorney only when fully justified by the circumstances and necessary to protect a client's lawful interests, and never for mere tactical advantage.
11. We will not permit business concerns to undermine or corrupt our professional obligations.
12. We will strive to expand our knowledge of the law and to achieve and maintain proficiency in our areas of practice.
13. We are aware of the need to preserve the image of the legal profession in the eyes of the
public and will support programs and activities that educate the public about the law and the
legal system.
Register Today!
www.iadclaw.org
Page 7
Officers
and Board of Directors
PRESIDENT
James M. Campbell, Boston, Massachusetts
PRESIDENT-ELECT
Joseph W. Ryan, Jr., Columbus, Ohio
IMMEDIATE PAST PRESIDENT
Robert D. Hunter, Birmingham, Alabama
VICE PRESIDENT OF CORPORATE
George Edward Pickle, Jr., Humble, Texas
VICE PRESIDENT OF INSURANCE
Timothy J. Gephart, Minneapolis, Minnesota
VICE PRESIDENT OF INTERNATIONAL
Alessandro P. Giorgetti, Milan, Italy
SECRETARY-TREASURER
Michael Connelly, Houston, Texas
D. Jeffrey Campbell
Morristown, New Jersey
DIRECTORS
TERMS ENDING JULY 2010
William J. Perry
London, England
Donald F. (Fritz) Zimmer, Jr.
San Francisco, California
TERMS ENDING JULY 2011
John R. Penhallegon
Baltimore, Maryland
Quentin F. Urquhart, Jr.
New Orleans, Louisiana
Rebecca J. Wilson
Boston, Massachusetts
TERMS ENDING JULY 2012
Molly H. Craig
Charleston, South Carolina
Lela M. Hollabaugh
Nashville, Tennessee
George J. Murphy
Philadelphia, Pennsylvania
PAST PRESIDENTS
1920-23
1923-26
1926-32
1932-34
1934-35
1935-36
1936-37
1937-38
1938-39
1939-40
1940-41
1941-43
1943-44
1944-46
1946-47
1947-48
1948-49
1949-50
1950-51
1951-52
1952-53
1953-54
1954-55
1955-56
1956-57
1957-58
MYRON W. VAN AUKEN
MARTIN P. CORNELIUS
EDWIN A. JONES
GEORGE W. YANCEY
WALTER R. MAYNE
J. ROY DICKIE
MARION N. CHRESTMAN
P. E. REEDER
MILO H. CRAWFORD
GERALD P. HAYES
OSCAR J. BROWN
WILLIS SMITH
PAT H. EAGER, JR.
F. B. BAYLOR
PAUL J. MCGOUGH
LOWELL WHITE
KENNETH P. GRUBB
L. DUNCAN LLOYD
WAYNE E. STRICHTER
JOSEPH A. SPRAY
ALVIN R. CHRISTOVICH
J. A. GOOCH
STANLEY C. MORRIS
LESTER P. DODD
JOHN A. KLUWIN
FORREST A. BETTS
1958-59
1959-60
1960-61
1961-62
1962-63
1963-64
1964-65
1965-66
1966-67
1967-68
1968-69
1969-70
1970-71
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
G. ARTHUR BLANCHET
CHARLES E. PLEDGER, JR.
DENMAN MOODY
PAYNE KARR
WILLIAM E. KNEPPER
RICHARD W. GALIHER
KRAFT W. EIDMAN
WALLACE E. SEDGWICK
HARLEY J. MCNEAL
EGBERT L. HAYWOOD
GORDON R. CLOSE
W. FORD REESE
SAMUEL J. POWERS, JR.
EDWARD J. KELLY
ALSTON JENNINGS
WALTER A. STEELE
THEODORE P. SHIELD
JERRY V. WALKER
HENRY BURNETT
DARRELL L. HAVENER
ROBERT E. LEAKE, JR.
JOHN R. HOEHL
NEIL K. QUINN
WILLIAM K. CHRISTOVICH
ROBERT D. NORMAN
GRANT P. DUBOIS
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
THOMAS H. SHARP, JR.
WILLIAM H. WALLACE
HENRY B. ALSOBROOK, JR.
W. RICHARD DAVIS
GEORGE B. MCGUGIN
MORRIS R. ZUCKER
JAY H. TRESSLER
DAVID J. BECK
HENRY A. HENTEMANN
MICHAEL A. POPE
KEVIN J. DUNNE
EDWARD J. RICE, JR.
GEORGE GORE
CHARLES F. PREUSS
REX K. LINDER
GEORGE H. MITCHELL
GREGORY C. READ
WILLIAM C. CLEVELAND
JOAN FULLAM IRICK
J. WALTER SINCLAIR
GEORGE S. HODGES
GREGORY M. LEDERER
BRUCE R. PARKER
L. GINO MARCHETTI, JR.
ROBERT D. HUNTER
Page 8
Defense Counsel Journal
Board and Committee Vice Chairs
EDITOR AND CHAIR OF THE BOARD OF EDITORS
Richard L. Neumeier, Esq. Morrison Mahoney LLP, 250 Summer Street, Boston, MA 02210
MANAGING EDITOR
Robert F. Greenlee, Esq., IADC, 303 West Madison, Suite 925, Chicago, IL 60606
BOARD OF EDITORS
MICHAEL F. AYLWARD
LETA E. GORMAN
DOUGLAS R. RICHMOND
SHAUN MCPARLAND BALDWIN PHYLLIS M. HIX
G. EDWARD RUDLOFF, JR.
WILLIAM T. BARKER
ELIZABETH HAECKER RYAN
MICHAEL J. HOLLAND
DAVID G. BROCK
ANNETTE CHRISTINE WARFIELD HUGHES SCOTT W. SAYLER
CHRISTOPHER D. BROWN
ANDREW KOPON, JR.
PHILIP A. SECHLER
MICHAEL E. BROWN
MITCHELL LEE LATHROP
THOMAS F. SEGALLA
CHARLES W. BROWNING
JOHN P. LAVELLE, JR.
FERNANDO EDUARDO SEREC
PETER M. CALLAHAN
JAMES K. LEADER
LAWRENCE D. SMITH
D. JEFFREY CAMPBELL
CARL A. MAIO
MARY CHRISTINE SUNGAILA
MICHAEL E. CLARK
S. GORDON MCKEE
EMILIA L. SWEENEY
JAMES P. CONNORS
ELIZABETH ULLMER MENDEL
ROBERT T. VEON
GRAY CULBREATH
NICHOLAS C. NIZAMOFF
DENNIS J. WALL
JAMES B. DOLAN
MARK S. OLSON
J. CALHOUN WATSON
PETER M. DURNEY
WILLIAM J. PERRY
REBECCA J. WILSON
JEFFREY J. ELLIS
JOHN C. S. PIERCE
LEONARD F. ZANDROW, JR.
MICHAEL J. FARRELL
RICHARD T. PLEDGER
DANIEL W. GERBER
TODD PRESNELL
COMMITTEE VICE CHAIRS OF JOURNAL ARTICLES AND PUBLICATIONS
Alternative Dispute Resolution
Mitchell Lee Lathrop
Appellate Practice
John B. Drummy
Aviation and Space Law
Jeffrey J. Ellis
Business Litigation
Jonathan A. Berkelhammer
Class Actions and Multi-Party
Litigation
Kara T. Stubbs
Construction Law and Litigation
Stephen S. McCloskey
Drug, Device and Biotechnology
Michelle M. Fujimoto
Employment Law
Mac B. Greaves
Environmental, Energy and
Maritime Law
Patrick G. Rowe
Fidelity and Surety
Richard T. Pledger
Insurance and Reinsurance
Ivan M. Rodriguez
International
S. Gordon McKee
Legislative, Judical and Government
Affairs
Pat Long Weaver
Medical Defense and Health Law
Thomas J. Hurney, Jr.
Product Liability
John Thomas Lay, Jr.
Professional Liability
Luanne Lambert Runge
Technology
Alex J. Hagan
Toxic And Hazardous
Substances Litigation
Bruce J. Berger
Trial Techniques and Tactics
Matthew D. Keenan
Back issues of Defense Counsel Journal are available from William S. Hein & Co., 1285 Main St., Buffalo, N.Y. 14209 Defense Counsel Journal is indexed in Index to Legal Periodicals, published by H.W. Wilson Co., 950 University Ave.,
Bronx, N.Y. 10452 and in Current Law Index, sponsored by American Association of Law Libraries and published by
Information Access Co., 362 Lakeside Drive, Foster City, Calif. 94404 Defense Counsel Journal is available in microform from University Microfilms Inc., 300 Zeeb Road, Ann Arbor, Mich., and in CD-ROM form from ABI/Inform, also a
service of University of Microfilms Inc. Defense Counsel Journal is included in the online and CD-ROM services of
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Periodicals Directory, published by R.R. Bowker, 121 Chanlon Road, New Providence, N.J. 07974; in Insurance Almanac,
published by Insurance Printing & Underwriting Co., 50 E. Palisade Ave., Englewood, N.J. 07631; in Serials Directory: An
International Reference Book, published by EBSCO Industries Inc., Box 1943, Birmingham, Ala. 35201; in
INSURLAW/Insurance Periodicals Index Thesaurus & User’s Guide, published by NILS Publishing Co., P.O. Box 2507,
Chatsworth, Calif. 91311; and in INFOSERV, an online service of Faxon Co., 15 Southwest Park, Westwood, Mass. 02090.
Page 9
Calendar
of Meetings
2010 Midyear Meeting
February 13 - 18, 2010
Naples Grande Beach Resort
Naples, Florida USA
Corporate Counsel College
April 22 - 23, 2010
The Ritz-Carlton
Chicago, Illinois USA
Professional Liability Roundtable
May 13, 2010
Gleacher Center, University of Chicago
Chicago, Illinois, USA
2010 Annual Meeting
July 10 - 15, 2010
Hotel Arts
Barcelona, Spain
38th Annual Trial Academy
July 31 - August 6, 2010
Stanford Law School
Stanford, California USA
The full schedule for IADC Regional Meetings and
Webinars is at www.iadclaw.org.
Schedule and registration information
will be online in early 2010.
www.iadclaw.org
Finding Middle Ground: Reconciling
The Disparate Approaches Courts Have
Taken in Determining Liability When A
Purchaser Declines Optional Safety
Equipment
By
E
Richard G. Stuhan
and Charles W. Pugh
VERYBODY IS familiar
with the sight of a truck
chugging down the freeway,
pulling a trailer. But most people
fail to notice that the trailer is
not evenly balanced on its
wheels. To the contrary, the
front of the trailer extends
considerably beyond the front
wheels. As long as the trailer is
tethered to the truck or resting
against the loading dock, this
cantilevered design is not a
problem. When, however, the
trailer is neither attached to the
truck nor positioned at the
loading dock, it can tip forward
if the front load is heavier than
the rear load. Recognizing this
risk,
virtually
all
trailer
manufacturers offer a retractable
front leg for use when the trailer
is in its freestanding position.
But this device is customarily
offered as optional equipment
because some purchasers never
load or unload the trailer in a
freestanding position and, hence,
have no need for this device.
Why does this matter?
Suppose a freestanding trailer
tips forward as it is being un-
Mr. Stuhan
is
a
partner in
the
t
Cleveland
office of
Jones Day
and
has
devoted a
substantial
portion of his practice to
products liability litigation. His
practice
has
included
representation of R.J. Reynolds
Tobacco Company in cases
brought by smokers seeking to
recover for illnesses allegedly
caused by smoking; Northern
Ohio Red Cross Blood Services
in cases brought by persons who
claimed to have developed AIDS
as a result of blood transfusions;
and the Lincoln Electric
Company in a case in which
plaintiffs alleged that defective
weld wire contributed to damage
to structural steel buildings
during
the
Northridge
earthquake. For several years,
he
served
as
national
coordinating
counsel
for
Fruehauf Trailer Corporation in
its products liability litigation.
Page 12
DEFENSE COUNSEL JOURNAL–January 2010
loaded from the back, seriously
injuring the trailer owner’s
employees.
Suppose further
that, at the time of purchase, the
owner had the option of ordering
a front support device from the
trailer
manufacturer,
but
declined to exercise that option.
Should the trailer manufacturer
be absolved of liability because
it offered an optional safety
device
that
would
have
prevented the injury, but the
owner declined to purchase it?
Or
should
the
trailer
manufacturer be held liable for
not installing the device as part
of the basic package?
One
of
the
authors
confronted this precise problem
in a negligence and strict
liability action tried to verdict a
few years ago. In that case,
plaintiff workers were injured
while unloading solar panels
from a freestanding trailer that
tipped forward. While the
defendant trailer manufacturer
prevailed at trial, a defense
verdict was by no means a
foregone conclusion. When a
product causing an injury could
have been purchased with an
optional safety device that likely
would have prevented the injury,
courts have arrived at vastly
different conclusions about
where liability should lie.
One line of cases holds that,
where the manufacturer notifies
the purchaser of the availability
of the optional safety device and
Mr. Pugh is
an
associate in
Jones Day’s
t Cleveland
office. His
practice
covers
a
wide variety
of civil litigation, including
contractual disputes, products
liability cases, and corporate
criminal investigations.
The
views expressed in this article
are the authors’ opinions and do
not necessarily represent the
views of Jones Day.
the purchaser declines it, the
manufacturer is absolved of
liability for an injury that would
have been prevented by the
optional safety device.
For
brevity’s sake, we will refer to
this view as the “buyer’s
choice” position. Another line
of cases holds that the
manufacturer cannot delegate its
duty to produce a reasonably
safe product, irrespective of the
availability of optional safety
devices. We will call this view
the “seller’s duty” position.1
1
Another issue raised by this debate
stems from the fact that a seller
frequently acts as an intermediary
between the manufacturer and the
purchaser. This complicates things
from a
liability
perspective.
Reasonable minds could differ as to
whether (a) the manufacturer and
Finding Middle Ground
Interestingly,
the
leading
jurisdictions for each respective
position stare at each other
across the Hudson River: New
York has emerged as the leading
proponent for the “buyer’s
choice” position, while New
Jersey is the state that pioneered
the “seller’s duty” position.
Both positions subsequently
seller are in the same position vis-àvis the purchaser with respect to
optional safety equipment and (b)
whether a better case can be made
against the manufacturer or the
seller for injuries that could have
been prevented by optional safety
equipment. On the one hand, “[t]he
manufacturer
is
especially
knowledgeable about a product’s
capabilities and limitations and the
foreseeability of harm [and] . . . is in
the best position to effectuate
needed
safety-related
improvements.” Ghrist v. Chrysler
Corp., 547 N.W.2d 272, 275 (Mich.
1996). On the other hand, unlike the
manufacturer, who, at best, can
produce literature detailing the
availability of optional safety
devices, the seller has contact with
the
purchaser
and
has
a
corresponding opportunity to inform
the purchaser of the product’s
available optional safety devices.
This issue is beyond the scope of
this paper. For the purposes of this
article, the discussion will be limited
to whether liability should be borne
by the manufacturer or the purchaser
when the purchaser declines an
optional safety device and is
subsequently injured.
Page 13
have been adopted by other
jurisdictions across the nation.2
While
the
competing
positions were articulated nearly
thirty
years
ago,
the
jurisprudence
has
neither
changed nor developed much in
the interim. By and large, courts
confronted with the issue have
adopted one position or the
other, finding the viewpoint
adopted “well-reasoned.” Few
decisions even discuss the
competing line of cases, much
less discuss why the position
adopted is better reasoned than
the opposing point of view.
None of the decisions critically
examine whether the policies
underlying the rule adopted
remain valid decades later.
Courts confronted with this issue
have not attempted to reconcile
these competing schools of
thought.
In this article, we review
both lines of cases and discuss
the public policy arguments
supporting both positions. We
recommend a standard to govern
situations where a purchaser
declines an optional safety
device and is subsequently
injured in a manner that could
have been prevented if the
2
The RESTATEMENT OF TORTS is
silent on this issue. Neither the
RESTATEMENT (SECOND) nor the
discussion
draft
of
the
RESTATEMENT (THIRD) addresses
optional safety equipment, much
less takes a position on which of the
competing rules is preferable.
Page 14
DEFENSE COUNSEL JOURNAL–January 2010
optional safety device had been
in place.
The standard we
propose draws from both schools
of thought and attempts to
reconcile society’s interest in
promoting consumer safety with
the economic realities of today’s
marketplace.
I.
The “Buyer’s Choice”
Courts adhering to the
“buyer’s
choice”
position
impose responsibility on the
purchaser for failing to obtain
optional safety equipment that
likely would have avoided — or,
at least, mitigated — injury if it
had been in place. The
manufacturer who wishes to
benefit from this position must
make a two-fold showing. First,
the manufacturer must show that
it notified the purchaser about
the optional safety device.
Second, the manufacturer must
demonstrate that the purchaser
made an informed decision to
decline the optional safety
device.3
The “buyer’s choice” line of
decisions appears to arise from
3
Although the locus of the burden
of proof on this issue is not clearly
discussed, courts expect the
defendant-manufacturer
to
demonstrate that it advised the
purchaser of the optional safety
device and that the purchaser made
an informed decision not to buy it.
Biss v. Tenneco, Inc., 409 N.Y.S.2d
874, 876 (N.Y. App. Div. 1978).
Biss v. Tenneco, Inc.4 In that
case, the court affirmed the
dismissal of a suit brought
against a machine manufacturer
by the spouse of an individual
who was killed when the loader
he was operating collided with a
telephone pole.5 An optional
rollover protection structure was
offered for the loader, but was
not purchased.6 The court held
that, if the purchaser is told of
the availability of an optional
safety device, he has the duty to
exercise reasonable care in
deciding whether to buy that
device.7 The court concluded
that the purchaser was “in the
best position to exercise an
intelligent judgment to make the
trade-off between cost and
function, and it is he who should
bear the responsibility if the
decision on optional safety
equipment
presents
an
unreasonable risk to users.”8
The court reasoned that to hold
otherwise would turn the
manufacturer into an insurer,
who would be liable to injured
parties if the purchaser decided
against obtaining the optional
safety device for any reason.9
4
Biss v. Tenneco, Inc., 409
N.Y.S.2d 874 (N.Y. App. Div.
1978).
5
Id. at 875.
6
Id. at 876.
7
Id. at 876-877.
8
Id. at 877.
9
Id. See also Scallan v. Duriron Co.,
Inc., 11 F.3d 1249, 1254 (5th Cir.
1994) (upholding the rejection of the
Finding Middle Ground
Similar reasoning informed
the New York Supreme Court in
Scarangella v. Thomas Built
Buses, Inc., which arose when
the
plaintiff-employee
was
struck by her employer’s bus
while it was being driven in
reverse.10 A back-up alarm could
purchaser’s design defect claim
because the purchaser was in the
best position to evaluate the need for
optional safety devices and the
manufacturer could not be forced to
insure the purchaser’s decisions),
superseded by statute, Acts 1988,
No. 64, § 1, La. Rev. Stat. Ann. § 9:
2800.56, as recognized in Perez v.
Michael Weinig, Inc., No. Civ.A.
304CV0448, 2005 WL 1630018 at
*2-*6 (W.D. La. July 7, 2005).
10
717 N.E.2d 679, 680 (N.Y. App.
Div. 1999). It is easier to accept the
“buyer’s choice’ rationale when the
buyer himself is the injured party.
When the purchaser decides to
forego optional safety equipment to
save money (or for some other
reason) and then sustains an injury,
it seems fair to hold him responsible
for the consequences of his choice.
Often, however, the victim is not the
purchaser
but,
rather,
the
purchaser’s employee. Under these
circumstances, the equities are
different. Worker’s compensation
laws in effect in virtually every state
limit an employee’s recovery from
his employer, and it is only natural
that the employee would seek to be
“made whole” by the equipment
manufacturer.
The position
proposed by this article would limit
employee recovery, based on his
employer’s choice.
While we
recognize
that
the
proposed
approach might lead to apparently
Page 15
have been installed on the bus,
but the plaintiff’s employer
chose not to buy this optional
safety device.11 In granting the
defendant
manufacturer’s
motion for a directed verdict, the
court held that where:
(1)
the
purchaser
is
knowledgeable about the product
and knows of the availability of
the optional safety device;12
inequitable results in certain
circumstances, the root of this
inequity lies more in employee
recovery limitations of workers
compensation statutes than in the
proposed rule. The position that the
employee should be deemed to have
stepped into the shoes of his
employer
when
determining
responsibility is consistent with
decisions holding that, for the
purposes of an implied warranty
claim against a manufacturer, privity
extends
to
the
purchaser’s
employees. See, e.g., James v.
Southern Cal. Edison Co., 1996 WL
467687, at *1 (9th Cir. Aug. 15,
1996), (citing Peterson v. Lamb
Rubber Co., 353 P.2d 575, 580 (Cal.
1960)). If an employee stands in the
shoes of an employer when bringing
an implied warranty action, it seems
fair to hold that the employee also
stands in the shoes of the employer
when the employer makes decisions
about whether to purchase an
optional safety device.
Stated
otherwise, privity should operate in
both directions.
11
Scarangella, 717 N.E.2d at 680.
12
“Scarangella and its progeny do
not state that the buyer must be
aware at the time of purchase that
one or more safety options are
available. Rather, the test is whether
Page 16
DEFENSE COUNSEL JOURNAL–January 2010
(2) there exist normal
circumstances of use where the
product is not unreasonably
dangerous in the absence of the
optional safety device;13 and
the buyer simply has knowledge that
such safety upgrades are indeed
available prior to the accident,
without reference to when such
knowledge must be obtained.”
Quintanilla v. Komori Am. Corp.,
No. 04-5227 (ETB) 2007 WL
1309539, at *14 (E.D. N.Y. May 4,
2007), (citing Scarangella, 717
N.E.2d at 683 (emphasis added)).
13
The court’s intentions are not
entirely clear owing to the rather
obtuse language it used in
articulating the second “condition”
for invocation of the “buyer’s
choice” rule. One reading is that
this theory would not absolve the
manufacturer
of
liability
in
circumstances where an ordinary
consumer would conclude that the
failure to make the optional safety
device standard equipment rendered
the product unreasonably dangerous
— a position similar to the
modification to the “buyer’s choice”
rule we urge later in this article.
Most people would conclude that
under the circumstances in which
cars are normally used, a
manufacturer should not be allowed
to make brakes available as an
optional safety device rather than as
standard equipment. We believe
that our proposed formulation of this
concept — that the buyer’s choice to
forego optional safety equipment
entitles the manufacturer to a
rebuttable presumption that its
conduct was proper — better and
more clearly articulates this
(3) the purchaser is able to
evaluate the risks and benefits of
not having the optional safety
device, given the purchaser’s
specific use of the product, the
purchaser, rather than the
manufacturer, “is in the superior
position to make the risk-utility
assessment,
and
a
wellconsidered decision by the
[purchaser] to dispense with the
optional safety equipment will
excuse the manufacturer from
In
the
years
liability.”14
following Scarangella, courts
have continued to uphold this
basic
conditional
“buyer’s
choice” rationale.15
exception to the general rule than
did the court in Scarangella.
14
Id. at 683.
15
See, e.g., Campos v. Crown
Equip. Corp., 35 Fed. App’x. 31, 32
(2d Cir. 2002) (affirming summary
judgment for a manufacturer against
an employer that had purchased a
forklift without optional safety
equipment because the employer
was a knowledgeable consumer,
there was a normal use for which the
forklift would have been safe
without
the
optional
safety
equipment, and the employer was in
the best position to balance the risks
and benefits of the safety options);
Rogers v. Westfalia Assoc. Techs
Inc., 485 F. Supp.2d 121, 128
(N.D.N.Y. 2007) (holding that the
manufacturer of a conveyer system
was not liable for injuries sustained
by the purchaser’s employee
because the purchaser had declined
to purchase optional “fall-out”
safety protection for the equipment
Finding Middle Ground
The purchaser’s ability to
make a cost/benefit analysis was
also central to the decision in
Davis v. Caterpillar Tractor Co.,
a case brought by a farmer who
was severely injured when he
ran into a dead tree while driving
a tractor manufactured by the
defendant.16 At the time of sale,
the plaintiff had declined to
purchase either a rollover
protective structure or a falling
object protective structure.17
The Colorado Court of Appeals
reversed the judgment of the trial
court that had found in favor of
plaintiff
on
theories
of
negligence and strict liability.18
The court noted that, because the
plaintiff chose to purchase a
tractor without the optional
safety device, he should have
expected that the tractor he
bought was less safe than it
would have been had it been
equipped with the protective
“Since [the]
structures.19
plaintiff was in the best position
to evaluate and eliminate the
danger by purchasing an
overhead
protective
safety
option, he should accordingly
bear the loss resulting from his
failure to do so.”20
and the three Scarangella conditions
had been satisfied).
16
719 P.2d 324, 325 (Col. App.
1985).
17
Id.
18
Id.
19
Id. at 327.
20
Id. A number of
other
jurisdictions also have adopted the
Page 17
position that, where a manufacturer
apprises a purchaser about the
availability of an optional safety
device and the purchaser declines to
buy the optional safety device, the
manufacturer is absolved of liability
stemming from injuries that would
have been prevented by the optional
safety device. See, for example,
Austin v. Clark Equip. Co., 48 F.3d
833, 837 (4th Cir. 1995) (affirming a
lower court determination that the
manufacturer could not be held
liable for failing to install additional
safety alarms and lights on a carpet
lift when the purchaser had
specifically declined to purchase
such
features);
Wagner
v.
International Harvester Co., 611
F.2d 224 (8th Cir. 1979) (applying
Minnesota law, court held that the
manufacturer fully satisfied its duty
of reasonable care by making
rollover protection available and
advertising
it
as
optional
equipment); Anderson v. P.A.
Radocy & Sons, Inc. 865 F. Supp.
522, 531 (N.D. Ind. 1994) (applying
Indiana law, the court noted that “a
party cannot be liable for failing to
equip its products with an optional
device that the employer of the
plaintiff knowingly rejected,” (citing
Scallan, 11 F.3d at 1254)); Morrison
v. Kubota Tractor Corp., 891
S.W.2d 422, 429 (Mo. App. 1994)
(upholding a directed verdict for the
defendant tractor manufacturer in a
negligence action based on the
manufacturer’s practice of offering
an important additional safety
feature as an option and encouraging
customers to purchase it); Rainbow
v. Albert Elia Bldg. Co., 436
N.Y.S.2d 480, 483 (N.Y. App. Div.
1981) (holding that plaintiff
motorcyclist “was in the best
Page 18
II.
DEFENSE COUNSEL JOURNAL–January 2010
The “Seller’s Duty”
The progenitor of the
“seller’s duty” line of case law,
Bexiga v. Havir Manufacturing
Corp.,21 represents the opposite
end of the spectrum. The New
Jersey Supreme Court concluded
in that case that absolving a
manufacturer of liability when a
customer opts not to purchase
equipment necessary to prevent
injury essentially shifts the duty
to produce a reasonably safe
product from the manufacturer
to the customer. The court held
that the manufacturer may not
delegate this duty — even in
situations
where
the
manufacturer
notifies
the
purchaser of the availability of
an optional safety device and the
purchaser knowingly declines to
buy the safety device.
In Bexiga, the plaintiff’s
hand was crushed by the ram of
a power punch press that was
purchased and maintained by the
The
plaintiff’s employer.22
evidence showed that power
punch presses of this type
generally were sold without any
safety devices.23 Although it
position to exercise an intelligent
judgment in making the trade-off
between cost and function and thus
to decide whether crash bars were
reasonably necessary on his
motorcycle for his purposes”).
21
290 A.2d 281 (N.J. 1972).
22
Id. at 282.
23
Id. at 283-84.
was industry custom for the
purchaser later to install safety
devices on the punch press,
Bexiga’s employer did not
install any safety devices on the
press that caused his injury.24
The trial court dismissed
plaintiff’s claims, but the New
Jersey
Supreme
Court
reversed.25 The court held that,
where a manufacturer produces a
“finished product which . . .
should be provided with safety
devices because without such it
creates an unreasonable risk of
harm, and where such safety
devices can feasibly be installed
by the manufacturer,” the
manufacturer should not be
immunized by the “buyer’s
choice” not to obtain the safety
devices.26 The court reasoned
that “[t]he only way to be certain
that [safety] devices will be
installed on all machines —
which clearly the public interest
requires — is to place the duty
on the manufacturer where it is
feasible for him to do so.”27
Bexiga
represents
an
entirely different analytical
approach to the problem than the
Biss line of cases. While Biss
treats the issue as a matter of
economic
analysis
—
considering which party is best
situated to weigh the risks and
benefits — Bexiga adopts a
position
that
maximizes
24
Id.
Id. at 286.
26
Id. at 285.
27
Id.
25
Finding Middle Ground
consumer safety. This approach
generally reinforces the activist
reputation of the New Jersey
Supreme Court.
But even Bexiga carved out
exceptions to the “seller’s duty”
it imposed. First, a manufacturer
could prevail by demonstrating
that it was not feasible to install
the safety device in question.28
Although the court did not
elaborate on what it meant by
“not feasible,” the phrase may be
seen to apply to situations where
installing the safety device is not
technologically possible and/or
would
be
prohibitively
expensive. Second, the court
provided that the manufacturer
could avoid liability if it could
show that “the incorporation by
the manufacturer of a safety
device would render the machine
unusable for its intended
purpose.”29 This might occur,
28
Id. See also Verge v. Ford Motor
Co., 581 F.2d 384, 389 (3d. Cir.
1978) (an automotive manufacturer
could not be held liable for failing to
install a backup buzzer on a
particular truck model because such
installation was not feasible given
the variety of potential uses for the
vehicle).
29
Bexiga, 290 A.2d at 285. At the
time of the decision, products
liability law in most jurisdictions
required only that manufacturers
make products safe for their
intended use.
Since that time,
however,
liability
has
been
expanded so that the manufacturer is
responsible for “not only the
machine’s intended purpose but also
Page 19
for example, if a safety shield on
a punch press precluded the user
from shaping metal parts of a
size that customers demanded.
Following
Bexiga,
the
Minnesota
Supreme
Court
applied the “seller’s duty”
position in Bilotta v. Kelley Co.,
Inc. There, the plaintiff/
respondent suffered severe brain
damage when he was pinned by
a forklift after the dockboard fell
out from under the forklift at a
loading dock.30 While some
models
of
dockboards
for all reasonably foreseeable uses
and misuses as long as the safety
devices do not impact the ultimate
utility of the product and it is
feasible to install such devices.”
Thomas E. Powell II, Products
Liability and Optional Safety
Equipment — Who Knows More?,
73 NEB. L REV. 843, 875 (1994).
See also Miller v. Ingersoll-Rand
Co., 148 Fed. App’x. 420, 424 (6th
Cir. 2005) (“[A] design defect is
established by proof that the product
is not reasonably safe for the uses
intended, anticipated, or reasonably
foreseeable,” quoting Prentis v. Yale
Mfg. Co., 365 N.W.2d 176, 186
(Mich. 1984)).
No court has
suggested that this expansion of
manufacturer’s liability — i.e., to
both
intended
and
certain
unintended uses of the product —
should be accompanied by a
corresponding
expansion
of
Bexiga’s second exception to the
seller’s duty rule, and there is no
reason why as a matter of logic it
should.
30
346 N.W.2d 616, 620 (Minn.
1984).
Page 20
DEFENSE COUNSEL JOURNAL–January 2010
manufactured by appellant had
“panic stop” safety devices, no
panic stop was included on the
model
purchased
by
the
plaintiff’s employer.31 Although
the Minnesota Supreme Court
vacated the trial court’s verdict
for the plaintiff and ordered a
new trial — because the trial
court had erroneously instructed
the jury on the design-defect
claim32 — it endorsed the
principle that “a manufacturer
may not delegate its duty to
design a reasonably safe
product.”33 The court opined
that passing the risk of loss to
the purchaser — even where the
purchaser is knowledgeable
about the optional safety devices
— would be “inconsistent with
the manufacturer’s duty to
produce a reasonably safe
product.”34 Although it seemed
to recognize that standardization
of a safety device might
adversely affect sales by raising
prices and taking more time, the
court concluded that such
considerations must give way to
the public interest in product
safety:
As respondent notes, such a
defense would permit an
entire industry to market
unreasonably
dangerous
“stripped down” devices
and offer as optional all
safety devices. Liability for
improper choice of a safety
device or failure to purchase
a particular safety device
would then fall on the
purchaser.
This result
would
circumvent
the
general
duty
of
the
manufacturer to provide a
reasonably safe design for
its products.35
31
Id. The facts of Bilotta render the
case a less-than-perfect example of
this line of decisions. Although the
contractor (plaintiff’s employer) had
initially specified a model equipped
with panic stops for the warehouse’s
loading docks, the defendant
manufacturer’s
distributor
substituted a model without the
panic stops in order to save time and
costs in construction and meet
anticipated competitive bids. Thus,
plaintiff did not choose to forego
optional safety equipment; rather,
plaintiff (or his employer) accepted
the manufacturer’s recommendation
to dispense with the optional device.
We believe that the case for
manufacturer liability is stronger
here than in the situation originally
posed (i.e., the purchaser is offered
optional safety equipment but
decides on her own not to buy it).
32
Id. at 623.
33
Id. at 624.
Just as Bexiga recognized
limitations on the rule it
articulated, so, too, Bilotta
carved out an exception. The
court held that, if a product
could be used for more than one
purpose, the manufacturer would
not be required to install safety
devices covering every potential
34
35
Id.
Id. at 624-625.
Finding Middle Ground
use of the product — particularly
not where a safety device for one
use would compromise the
product’s ability to perform
other functions.
As another
court explained in applying
Bilotta’s reasoning:
Bilotta did not reject the
optional
safety
device
defense where a multipurpose machine would be
impaired by application of a
standard safety device.
Bilotta merely found that
the dockboards in that case
were not multi-functional
and a standard safety device
would not have impaired the
machine’s operation.36
While the court’s thinking is
open to different interpretations,
it would appear that, where a
product is “multi-functional,”
Bilotta would require the
manufacturer to provide only
those safety devices that are
compatible with all foreseeable
uses of the product and would
not impair the product’s
operation for any of those uses.
36
Westbrock v. Marshalltown Mfg.
Co., 473 N.W.2d 352, 357 (Minn.
Ct. App. 1991). This exception
appears similar to Bexiga’s second
exception – for safety devices that
would render the machine unusable
for its “intended purpose.” See
Bexiga, 290 A.2d at 285.
Page 21
Duke v. Gulf and Western
Manufacturing. Co.37 adopted
the “seller’s duty” rule, but
rejected the multi-functional
purpose exception recognized in
the Minnesota case law. In that
case, the plaintiff injured his
hand while working on his
employer’s die-press, which
lacked a point-of-operation
guard.38 The court of appeals
affirmed the trial court’s award
of a judgment in favor of the
plaintiff.39 In so ruling, the court
declined to adopt the rule
proposed by the defendantmanufacturer where, “as a matter
of law, because a manufacturer
cannot know the exact use a
purchaser may make of a multipurpose press, it is not required
to install point-of-operation
guards and, on the contrary, the
duty rests with the employer.”40
The court’s rationale, however,
was based on economics rather
than consumer safety. Citing
Roy v. Star Chopper Co., Inc., 41
37
660 S.W. 2d 404 (Mo. Ct. App.
1983).
38
Id. at 408.
39
Id. at 407.
40
Id. at 414-415.
41
442 F. Supp. 1010, 1021 (D.R.I.
1977), aff’d, 584 F.2d 1124 (1st Cir.
1978), cert. denied, 440 U.S. 916
(1979). Roy sits at the extreme end
of this line of cases. It held that,
even when an employer-purchaser
expressly
represents
to
the
manufacturer that it will install the
safety
devices
itself,
the
manufacturer is still liable to the
injured employee if the employer-
Page 22
DEFENSE COUNSEL JOURNAL–January 2010
the court concluded “that the
manufacturer is better able to
distribute the costs of accidents
and develop an all-purpose
safety device.”42
purchaser does not ultimately install
the safety device. The court noted
that “[b]y imposing liability to
injured users despite the express
representation by the employer, the
manufacturer is encouraged to check
that the purchaser with whom he has
dealt directly did indeed carry out its
undertaking.” Id. Roy appears to be
an aberration, as it has not been
cited by any state or federal court for
the proposition that liability is
extended to the manufacturer even
in situations where the purchaser has
expressly undertaken to install the
optional safety device. As the court
itself noted, “[t]he Court freely
concedes that this decision steers an
uncharted course, not only with
regard to Rhode Island law but also
with regard to tort law generally.”
Id. at 1022.
42
660 S.W.2d at 416. A number of
other courts also have concluded
that a manufacturer has a nondelegable duty to design a
reasonably safe product — a duty
which is not discharged by making a
safety device available as optional
equipment. See D’Angelo v. ADS
Mach. Corp., 128 Fed. App’x. 253,
258 (3d Cir. 2005) (acknowledging
Pennsylvania’s general rule that a
manufacturer has a non-delegable
duty to provide a safe product);
Mason v. Ashland Exploration, 965
F.2d 1421, 1427 (7th Cir. 1992)
(noting that under Illinois law,
manufacturers have a non-delegable
duty to produce a product that is
reasonably safe); Hansen v. Baxter
Healthcare Corp., 764 N.E.2d 35
(Ill. 2002) (“A manufacturer has a
nondelegable duty to produce a
product that is reasonably safe.”)
(citing Doser v. Savage Mftg. &
Sales, Inc., 568 N.E.2d 814 (Ill.
1990)); Widson v. International
Harvestor Co., Inc., 153 Cal. App.3d
45, 53 (Cal. Ct. App. 1984) (holding
that “[a] product is defective if it is
delivered without a safety device
which is reasonably necessary to its
foreseeable use, even if the safety
device was offered as optional
equipment”); Shawver v. Roberts
Corp., 280 N.W.2d 226 (Wis. 1979)
(noting that “[i]t is a fundamental
principle of strict tort liability that
the duty to design and manufacture a
reasonably safe product may not be
delegated by the manufacturer to the
dealer, purchaser, or user”) (internal
citations omitted); Chwirut v.
Cleveland Punch & Shear Works
Co., No. 38168 1979 WL 209869, at
*3 (Ohio Ct. App., Feb. 15, 1979)
(holding that even in situations
where industry standards and
custom require the purchaser to
install the safety device, the
manufacturer would not be relieved
of liability “[i]f the manufacturer
could reasonably foresee that the
employer would fail to install such
safety equipment”). See also 2
MADDEN & OWEN ON PROD. LIAB.
§19.3 (3d ed.) (“As a general
proposition, it may be said that if the
safety of a product can be
considerably enhanced by adding a
practical, relatively inexpensive
safety device that does not
appreciably diminish the product’s
usefulness, then the manufacturer is
obligated to add the device, and to
make it mandatory.”).
Finding Middle Ground
III.
Who is Correct?
Courts
espousing
the
“seller’s
duty”
viewpoint
evaluate the issue of optional
safety devices differently than
courts which have adopted the
“buyer’s
choice”
position.
While arguments have been
made in support of both
positions, we believe that public
policy favors a modified version
of the “buyer’s choice” position.
More specifically, if the
manufacturer shows that it has
notified the purchaser of the
optional safety device and the
purchaser
gave
informed
consent, the manufacturer should
be entitled to a rebuttable
presumption that its conduct was
proper. The burden then would
shift to the purchaser, which can
rebut the presumption by
showing that the safety device
was integral to the product at
issue by custom, by recognized
use, or otherwise.
Although we favor the
“buyer’s choice” position, we
readily acknowledge that sound
public policy reasons support the
“seller’s duty” position. First,
the manufacturer is generally in
a better position to know all
potential dangers of a product,
especially dangers that are not
readily
apparent
to
the
purchaser.43 The seller’s duty
position holds accountable the
Page 23
party with superior knowledge.
Second, as a general proposition,
it seems appropriate for a
purchaser to expect that the
product he is purchasing is
reasonably safe without having
to acquire additional safety
devices.
Indeed, from the
customer’s perspective, it would
seem counterintuitive that a
product purchased might be
unsafe without add-ons. Third,
there are some safety devices
that are so integral to the
function and safety of a product
that they cannot legitimately be
offered on an optional basis. A
handgun without a safety would
be such an example. Finally,
requiring the manufacturer to
install safety devices is the only
way to guarantee that the
devices will be installed in every
product.44 This approach would
protect purchasers who are either
unwilling to spend more for
optional safety equipment or
who are unable to recognize and
appreciate the need for an
optional safety device.
But
compelling
public
policy arguments also support
the “buyer’s choice” position.
First, the “buyer’s choice”
position reflects how business is
actually transacted in this
country. Sophisticated consumers
understand that enhanced safety
requires trade-offs — increased
costs, altered appearance, and
reduced functionality, to name
43
See Powell, supra note 29, at
845.
44
See Bexiga, 290 A.2d at 285.
Page 24
DEFENSE COUNSEL JOURNAL–January 2010
just a few. No products liability
law forces all consumers to drive
Volvos. Instead, consumers may
buy Smartcars even though they
are not likely to fare as well in a
front-end collision. The “buyer’s
choice” position reflects the
reality that consumers make
safety choices all the time and
frequently do not pick the safest
alternative.
Second,
the
purchaser
knows how he will use the
product
better
than
the
manufacturer.45 The purchaser’s
decision of whether to equip a
product with an optional safety
device implicates a variety of
considerations,
including
budgetary
concerns,
the
configuration of competing
products,
and
determining
whether an optional safety
device is necessary given the
expected use of the product.
Particularly
with
multifunctional devices, the purchaser
is often better positioned to
decide whether to purchase the
optional safety device. 46
45
See Powell supra note 29, at 84546. See also Arnoldy v. Forklift
L.P., 927 A.2d 257, 266 n. 4 (Pa.
Super. Ct. 2007) (“[T]he reasoning
behind requiring the ‘end user’ to
dictate situation specific safety
devices is that the end user is the
one in the best position to determine
which devices would be most
effective under their particular
circumstances”).
46
While the buyer’s choice defense
has been applied most frequently in
cases involving products that have a
Third, the “buyer’s choice”
position promotes economic
efficiencies.
Making
the
purchaser
responsible
for
determining whether the optional
safety device is necessary avoids
scenarios
in
which
the
manufacturer is unnecessarily
required to install optional safety
devices
that
both
the
manufacturer and the purchaser
would deem superfluous given
the purchaser’s intended use for
the product.47 Relieving the
manufacturer
of
the
responsibility for installing
unnecessary
safety
devices
lowers
the
manufacturer’s
production costs, which in turn
reduces the purchase price.
Purchasers concerned about the
bottom line prefer a well-built
product that is appropriate for
their needs. As a matter of
variety of functions, it also has been
applied to products with a single
function. See Rainbow, 436 N.Y.2d
at 483. These decisions reflect
(a) the common sense notion that the
purchaser knows more than the
manufacturer does about the
purchaser’s ultimate use of the
product, irrespective of whether the
product is multifunctional or unifunctional, and (b) the general shift
in product liability law to the
position that even products designed
to be uni-functional may be used in
ways not anticipated by the
manufacturer.
47
See Wagner v. International
Harvester Co., 611 F.2d 224, 231
(8th Cir. 1979); Powell, supra note
29, at 876.
Finding Middle Ground
economic analysis, it is hard to
justify forcing a purchaser to pay
for safety devices that are
unnecessary for his intended use
of the product.48
Fourth, the “buyer’s choice”
approach requires the purchaser
to assume at least some
responsibility
for
choices
knowingly
made
-a
fundamental principle of our tort
48
Seller’s duty cases often imply
that offering a safety device as
optional, rather than standard,
equipment is driven by a
Mephistophelian desire to keep
production costs as low as possible,
irrespective of the effect that
decision has on product safety.
Such a view, we believe, unfairly
impugns manufacturers. First, it is
sometimes in the manufacturer’s
financial best interest to offer a
safety device as mandatory, rather
than optional equipment. If the
manufacturer provided the safety
device as standard equipment, he
would presumably charge more for
the product, with an appropriate
markup on the safety device. Only
where the manufacturer would be
alone among his competitors in
including the safety device as
standard equipment — because his
model would be more expensive
than competitive models — is there
a financial incentive to offer a safety
device as an option. Second, the
evidence
suggests
that
manufacturers offer safety devices
on an optional basis to make their
products adaptable for a variety of
uses, rather than out of callous
disregard for safety. See 2 MADDEN
& OWEN ON PROD. LIAB. §19.3 (3d.
ed).
Page 25
system.
By not taking a
sophisticated
purchaser’s
informed decision into account,
the seller’s duty approach
essentially
provides
the
purchaser with a windfall.49 It
makes the consumer’s choice
irrelevant — it does not matter
whether the purchaser chooses
not to obtain an optional safety
device. As the court recognized
in Biss, holding a manufacturer
liable even after a purchaser has
knowingly rejected the optional
safety
device
“casts
the
manufacturer and supplier in the
role of insurers answerable to
injured parties in any event,
because the purchaser of the
equipment for his own reasons,
economic or otherwise, elects
not to purchase available options
to ensure safety.”50
49
Another perspective on the
“seller’s duty” approach is that it
gives a purchaser who elects not to
obtain optional safety equipment a
“free” warranty. Imposing liability
on a manufacturer for an injury that
could have been avoided by optional
safety equipment not purchased
effectively puts consumers who
decline such equipment in the same
position as consumers who pay for
the equipment. From an economic
perspective, it seems unfair that
consumers who decline optional
safety equipment get essentially the
same warranty as consumers who
pay for the equipment.
50
Biss, 409 N.Y.S.2d at 877.
Page 26
IV.
DEFENSE COUNSEL JOURNAL–January 2010
Finding a Sensible
Middle Ground
Deciding who is responsible
for injuries that could have been
avoided if a purchaser had
installed
optional
safety
equipment has drawn courts
confronted with the issue in
opposite directions.
The
difficulties presented by the
issue are shown by the fact that
courts adopting each of the
opposing positions have imposed
limitations or carved out
exceptions to the rules they
adopted.
Recognizing the public
policy
considerations
that
support each position, this article
seeks a middle ground, taking
into account each of the
countermanding considerations.
From the “buyer’s choice”
approach comes the principle
that, as a matter of fundamental
fairness, a purchaser who rejects
safety equipment offered as an
option should bear at least some
responsibility for injuries that
the optional safety device could
have avoided, especially if the
buyer was a party with sufficient
sophistication to make an
informed decision. From the
“seller’s duty” approach comes
the acknowledgement that in
some
circumstances,
the
manufacturer cannot delegate its
duty to provide a safe product.
We seek to reconcile these
competing considerations by
proposing that, in order to avail
itself of the “buyer’s choice”
defense, the manufacturer must
demonstrate 51 that:
(1) it notified the purchaser
of the availability of the
optional safety device
prior to purchase;52 and
(2) the purchaser made an
informed decision to
51
Existing precedent generally
ignores whether the manufacturer
has the burden of proving that the
purchaser
knowingly
rejected
optional safety equipment or
whether the plaintiff must disprove
notice and/or knowledge as part of
his prima facie case.
While
arguments can be made on behalf of
either formulation, this article
proposes imposing the burden on the
manufacturer.
52
As noted above, Scarangella and
its progeny require that the buyer
becomes aware of the optional
safety device prior to the accident,
but not necessarily prior to purchase.
See Quintanilla, 2007 WL 1309539,
at *4. In the interest of efficiency,
we reject this approach and advocate
instead that the manufacturer must
provide pre-purchase notification of
optional
safety
equipment.
Although the scenario where the
manufacturer differs from the
distributor actually selling the
product is beyond the scope of this
article, this notification could
potentially be accomplished in these
instances by the manufacturer
prominently displaying written
material regarding the optional
safety device(s) on the packaging of
the product.
Finding Middle Ground
decline the optional
safety device.
This proposal assumes that
the facts and circumstances of
specific cases will establish the
dimensions of “adequate notice”
and “informed consent.” We are
not prepared to say notice to be
“adequate” must always be in
writing.
The circumstances
surrounding particular products
or particular transactions may
make written notice impractical.
At the same time, the prudent
manufacturer will likely choose
to notify purchasers of optional
safety equipment in writing to
demonstrate its prima facie basis
for asserting this defense.
Similarly, this proposal does
not purport to announce “brightline” rules for what constitutes
informed consent.
Generally
speaking, we believe that the
purchaser may be considered
adequately informed when he is
advised,
through
the
manufacturer’s literature or
point-of-sale
communications
with
the
manufacturer’s
representative, of (a) the risks
that he faces if he opts not to
secure the optional safety
device;53 (b) how, if at all, the
optional safety device will affect
the product function; and (c)
53
Where the seller can provide data
on the likelihood and/or severity of
injury absent the optional safety
device, we expect that the
information will be communicated
to the purchaser.
Page 27
how much the optional safety
device will add to the cost of the
product.54
If
it
satisfies
these
conditions, the manufacturer
would be entitled to a rebuttable
presumption that it acted
properly. This presumption may
be rebutted by a showing that the
safety device is so integral to the
function of the product that no
rational
seller
would
contemplate selling the product
without it. Simply stated, the
“buyer’s
choice”
approach
should apply in all scenarios
except those where no rational
seller would consider selling the
product without the safety
device as standard equipment.55
54
Another consideration is whether
the steps the manufacturer must take
depend on the sophistication of the
purchaser. While a seller would
likely have sufficient contact with a
purchaser
to
determine
the
purchaser’s familiarity with the
product he is purchasing, the
manufacturer in most instances will
not have face-to-face contact with
the purchaser. Accordingly, the
manufacturer should be required in
its literature to explain the
availability and significance of
optional safety devices in enough
detail to enable an average,
reasonable purchaser to make an
informed decision about whether to
purchase an optional safety device.
55
In situations where regulatory
agencies dictate specific safety
features, but the safety device at
issue is not on the list, the proposed
analysis becomes more complicated.
One may argue that the absence of a
Page 28
DEFENSE COUNSEL JOURNAL–January 2010
We believe the Biss court
intended a standard of this nature
when it created an exception to
the “buyer’s choice” rule where
there
are
no
“normal
circumstances of use in which
the product is . . . not
unreasonably dangerous without
the optional equipment.”56 For
example, no rational seller
would consider selling an
automobile without brakes.57
specific feature on a list of required
safety devices is conclusive
evidence that the feature at issue
was not “so integral to the function
of the product that no rational seller
would contemplate selling the
product without it.” The impact of
government regulations – or, in this
instance, the absence of government
regulations – raises issues, including
pre-emption, that lie beyond the
scope of this article.
56
See Scarangella,717 N.E.2d at
683.
57
This illustration raises the
question of what constitutes a
“safety device.” Some features have
no purpose other than safety and,
hence, would clearly qualify. A
hand guard for use with a punch
press or a rollover bar would fall
into this category. But other devices
have functions in addition to safety.
For example, car brakes not only
promote safety by enabling you to
avoid a collision with oncoming
traffic, but also foster driver
convenience by allowing you to stop
the vehicle where you want to park
instead of going wherever inertia
takes you. Purchasers may be more
likely to take an optional safety
device when it also performs
While worthy of academic
consideration,
we
believe
alternative formulations of this
limitation result in unacceptable
outcomes. If the standard for a
rebuttable presumption were set
higher,
the
specter
of
unreasonably dangerous stripped
down machines, as projected in
Bilotta, would materialize.58 If
the standard were lower,
sophisticated purchasers would
be forced to pay for the standard
inclusion of safety devices they
would
have
declined
to
purchase, given a choice. The
proposed standard balances
society’s legitimate interest in
product safety against the
equally legitimate public interest
in containing costs and holding
consumers
responsible
for
informed purchasing decisions.
V.
Conclusion
Under the approach we
propose, a manufacturer would
not incur liability arising from
any injury that likely would have
been prevented by an optional
safety device if it can
demonstrate that (1) it took
appropriate steps, including, for
example, providing literature
and training to authorized
another function – e.g., comfort or
convenience. Otherwise, the fact
that a device has both safety and
other functions does not alter the
analysis.
58
See Bilotta, 346 N.W.2d at 62425.
Finding Middle Ground
dealers, to ensure that the
purchaser was aware of the
availability and purpose of the
optional safety device prior to
purchase; (2) the purchaser
knowingly declined to purchase
the optional safety device; and
(3) a rational seller would
contemplate selling the product
without the optional safety
device. This approach, which
creates a rebuttable presumption
that a manufacturer can offer a
safety device as optional
equipment if it satisfies the three
conditions we have articulated,
borrows the best features from
the
current
competing
alternatives and introduces a
measure of certainty that is
currently lacking. Although
manufacturers may find the
proposed approach preferable to
the status quo, it is hardly a “get
out of jail free” card.
A
presumption
favoring
the
manufacturer is not irrebuttable,
and its invocation relies on the
fact-specific conditions listed
above.
The
proposal
leaves
unanswered several important
questions for juries to resolve,
including: When is notice
adequate?
How
much
information must a purchaser
have before he is deemed to be
sufficiently
informed
to
responsibly reject optional safety
equipment? And under what
circumstances is an optional
safety device so integral to the
function of a product that no
Page 29
rational seller would consider
selling the product without the
safety device? Hence, we expect
that, when a defendant invokes
the “buyer’s choice” defense, the
viability of that defense will
generally be tested at trial and
will rarely be determined via
dispositive motion.
The Construction Defect Hot Potato: The
Interplay Between the Performance Bond
and CGL Policy – A Surety’s Perspective
By: Shannon J. Briglia and
Edward Etcheverry
O
WNERS OF PROJECTS
under construction protect
against unexpected loss by
requiring contractors to provide
certain types of insurance,
including a current commercial
general liability policy (“CGL”).
A CGL policy protects the
owner from the negligent acts of
the contractor causing property
damage or bodily injury during
the performance of the contract
and for a limited period of time
thereafter. All public owners
and many private owners also
require the contractor to provide
performance and payment bonds
to protect against the risk that
the contractor will fail to
complete the project or fail to
pay his subcontractors. These
two forms of financial protection
can sometimes overlap, making
critical an understanding of what
protection they provide and the
circumstances under which each
form of protection is available.
A surety called upon to
complete a project also needs to
have a thorough understanding
of insurance coverage in place in
the event that the original
contractor’s negligence caused
property damage or bodily
injury. When a newly installed
roof leaks, damaging the drywall
Shannon J.
Briglia is a
founding t
member of
the construction t
law firm of
Briglia
t
McLaughlin, PLLC, where she
concentrates her practice in the
resolution of public and private
construction disputes. Ms. Briglia
frequently represents sureties but
also has a thriving practice
representing owners, contractors
and subcontractors. With more
than 20 years of experience in the
construction industry, Ms. Briglia
represents clients in federal and
state court trials and appeals,
arbitration, mediation and before
commissions and boards of
contract appeal. Ms. Briglia is a
member of the American Bar
Association,
Forum
on
Construction. She is a member of
the Board of Governors of
Virginia State Bar’s Construction
and Public Contracts Sections.
Ms. Briglia is the past chair of the
Defense
Research
Institute’s
Fidelity & Surety Law Steering
Committee and the past Secretary
of the Virginia Bar Association’s
Council on Construction and
Public Contracts. She currently
serves as a Vice-Chair of the
IADC’s Fidelity and Surety
Committee.
The Construction Defect Hot Potato
and interior finishes, a property
owner’s typical first reaction is
to call his insurance company
and make a claim for the
damage.
If any of these
occurrences happen while a
surety is completing the project
following default in performance
by a contractor, then the surety
needs to ensure its principal
gives notice of a claim under the
policy.
Insurance may not be the
only source of recovery for the
owner where defective work
performed by the bonded
contractor results in damage to
the building or parts of the
project. If a surety bond has
been required of the general
contractor or subcontractor, and
the damage is the result of
defective work by the contractor
providing the bond, recourse
may also be available against the
performance bond. The surety
who corrects defective work as
part of a completion effort
should evaluate whether the
costs associated with correcting
the defect or addressing the
damage caused by the defect can
be recovered from an insurance
carrier. This article discusses
the inherent differences between
insurance
and
suretyship,
highlighting the distinctions that
arise in claims made for
defective workmanship under a
CGL policy or under a surety
performance bond.
Page 31
Edward
t
Etcheverry t
is a partner
with
t
Etcheverry t
Harrison, t
LLP, in Fort
Lauderdale,
Florida, and
his practice is dedicated to
representing the various parties
involved in the construction and
surety industries. Mr. Etcheverry
is the current Chairperson for
the IADC Surety and Fidelity
Section, an active member of the
ABA Tort and Insurance
Practice Committee, Fidelity
and Surety Law Committee; The
Forum on the Construction
Industry; National Bond Claim
Association; Surety Claims
Institute;
Florida
Surety
Association;
Defense
Bar
Association; and Dade County
Bar Association.
I.
The Construction Defect
Hot-Potato
A. Is There Overlap
Between Insurance
and Suretyship?
In general, a CGL policy
provides coverage for the
negligence of a contractor which
results in injuries to people or
property belonging to someone
else. It does not provide
indemnity for pure breaches of
contract by the insured, even
those arising out of the faulty
Page 32
DEFENSE COUNSEL JOURNAL–January 2010
workmanship of the insured. The
standard CGL form widely used
throughout the construction
industry, prepared by the
Insurance
Services
Office
(“ISO”),
covers
“property
damage,” including “loss of use”
of property caused by an
Under this
“occurrence.”1
definition, defective work causes
property damage to a covered
property if it damages the
materials involved, the property
surrounding the defective work,
or causes a loss of use of the
property. CGL does not cover
the cost of replacing or
correcting the defective work
itself ⎯ in the above scenario,
the roof ⎯ except to the extent
that the materials themselves are
damaged. Most importantly, the
ISO CGL limits recovery to
damage
caused
by
an
“occurrence,” which is typically
defined as an accident. The ISO
CGL policy contains several
important exclusions, including
an exclusion for failure by the
insured
to
complete
the
construction work.
A
seminal
decision
summarized coverage provided
by a CGL policy as follows:
“[u]nder well-established case
law, a CGL policy does not
cover faulty workmanship, only
1
Available by subscription at
http://www.iso.com/Products/ISOne
t/Forms-Library-on-ISOnetstandardized-insurance-policyforms.html.
faulty workmanship that causes
damage to other property.”2 The
distinction is that the CGL
policy covers damage resulting
from an accident caused by
faulty workmanship, not damage
resulting from the costs required
to
correct
the
faulty
workmanship itself. Typically, a
CGL policy terminates upon a
specific date set forth in the
policy or when the work is
completed.
In contrast, a surety
performance bond ensures that if
a contractor defaults, the surety
is obligated to assume the duty
to perform the construction work
or to pay for labor and materials
incorporated into the project. If,
as is usually the case, the
contract requires the contractor
to perform his work in
accordance with the plans and
specifications in a good and
workmanlike manner, a surety’s
duty under a performance bond
will likely extend to correcting
defective
or
faulty
The surety’s
workmanship.3
obligation to correct patent
defective work will be limited to
2
Kalchthaler v. Keller Constr. Co.,
224 Wis.2d 387, 395, 591 N.W.2d
169 (Wis. Ct. App. 1999) (citation
omitted).
3
See Hunters Pointe Partners Ltd.
P'ship v. United States Fidelity &
Guar. Co., 486 N.W.2d 136, 138
(Mich. Ct. App. 1992); McDevitt &
Street Co. v. K-C Air Conditioning
Serv., 418 S.E.2d 87, 93 (Ga. Ct.
App. 1992).
The Construction Defect Hot Potato
defects identified during the
warranty period, while the
obligation to correct latent
defects is limited only by the
applicable state statute of
repose.4
Page 33
Occasionally, courts have
expressed
confusion
when
requested to identify the
distinction between insurance
and suretyship. For example, in
Sanitary District of Chicago v.
U.S. Fidelity & Guaranty Co.,5 a
surety was held liable under its
performance bond for damages
to an adjacent landowner's
property in tort arising out of the
negligent blasting operations of
the contractor. Similarly, a
number of courts addressing a
claim against a bond which
incorporates
a
contract
containing a broad indemnification provision have found the
surety
liable
to
provide
indemnification for risks that are
normally covered by insurance.6
Most courts, however, keep the
distinction
straight,
acknowledging the public policy
benefit in preserving the
performance bond from being
exhausted by tort claims to the
detriment of those for whom the
bond is supposed to provide
Likewise, most
protection.7
courts correctly conclude that
the CGL is not intended to serve
as a performance bond or a
guaranty of goods or services.8
Confusion is most likely to
arise in a case where the owner
has suffered damage to its
property resulting from defective
workmanship.
The property
owner may seek recovery both
from his contractor and the
surety. If the defective work was
performed by a subcontractor,
the contractor, in turn, may seek
recovery from its own CGL
carrier, the subcontractor, or the
subcontractor's CGL carrier. In
states with a direct action statute,
like Wisconsin, where the owner
can pursue the contractor's CGL
carrier directly, the property
owner may pursue initially the
4
7
B. Confusion Over
Coverage
See Hunters Pointe, 486 N.W. 2d
at 138; Burton Dixie Corp. v.
Timothy McCarthy Const. Co., 436
F.2d 405 (5th Cir. 1971).
5
Sanitary Dist. of Chicago v. U.S.
Fidelity & Guaranty Co., 392 Ill.
602, 610, 65 N.E.2d 364, 368 (Ill.
1946).
6
See, for example, Capua v. W.E.
O'Neal Const. Co., 367 N.E. 2d 669
(Ill. 1977); Sorensen v. Ewing, 448
P.2d 110 (Ariz. Ct. App. 1968).
See, for example, Healy Plumbing
& Heating Co. v. Minneapolis St.
Paul Sanitary Dist., 284 Minn. 8, 16,
169 N.W.2d 50, 55 (Minn. 1969)
(rejecting tort claim by one prime
contractor against another for
damages caused by the negligent
failure to protect the work of the
first prime contractor).
8
See, for example, Gulf Mississippi
Marine Corp. v. George Engine Co.,
697 F.2d 668, 670 (5th Cir. 1983).
Page 34
DEFENSE COUNSEL JOURNAL–January 2010
contractor, its CGI insurance
carrier and the surety.9
Often, courts faced with this
situation focus on whether
“faulty
workmanship”
is
“property damage” under a
standard CGL policy.10 Under
these circumstances, the decision
on whether damage is classified
as property damage covered
under the CGL policy depends
upon how the damage is pled.
Where the theories of recovery
are
premised
solely
on
“allegations that the subject
property was never constructed
properly in the first place,” and
9
See Kalchthaler, 224 Wis.2d at
391.
10
Compare Kalchthaler, 224 Wis.2d
at 397 (finding that water entering
leaky windows which damaged
draperies and wallpaper was
considered property damage) with
Wm. C. Vick Const. Co., v. Penn.
Nat '1 Mutual Cas. Ins. Co., 52 F.
Supp.2d 569, 582 (E.D.N.C. 1999)
(holding
that
defective
roof
membrane which allowed water to
infiltrate into building was not
property damage) and American
Fire & Cas. Co. v. Broeren Russo
Const., 54 F. Supp.2d 842, 847
(C.D. III. 1999) (following Vick
Construction in finding that water
leaking
through
an
Exterior
Insulated Finish System (EIFS) was
not covered); see also Patrick J.
O’Connor, Deciding to Litigate: the
Surety’s Rights Against Property
and Liability Insurers of the
Obligee,
Principal
and
Subcontractors, in MANAGING AND
LITIGATING THE COMPLEX SURETY
CASE, at n.28 (ABA, 2d. ed. 2007).
the damages sought are repair
costs or completion costs, then it
is far more likely that the court
will reject the contention that
they are property damage
covered under the CGL policy.11
The Vick Construction court
provided a bright line test to
determine if damage qualifies as
property damage:
These requirements [the
definition
of
property
damage in the policy], in this
court's opinion, infer that the
property allegedly damaged
has to have been undamaged
or uninjured at some
previous point in time. This
is
inconsistent
with
allegations that the subject
property
was
never
constructed properly in the
first place.12
Despite careful pleading
designed to invoke coverage,
precedent supports both sides of
the
question
whether
a
contractor's
defective
performance is an “occurrence”
triggering
coverage
under
standard
insurance
CGL
policies.
Although
cases
discussing whether defective
workmanship
can
be
an
“occurrence” are inconsistent, if
the defective workmanship
results in bodily injury, it is
11
Vick Construction, 52 F. Supp.2d
at 582-583.
12
Id. at 582.
The Construction Defect Hot Potato
more likely that coverage will be
found.13 In part relying on how
the allegations were framed, the
Vick Construction court found
that:
“[o]ccurrence
does
not
include the normal, expected
consequences
of
poor
workmanship. While over
the years, the definition of
occurrence
has
been
broadened
to
include
‘continuous or repeated
exposure to conditions’ as
well as sudden catastrophes,
it still connotes the idea of
‘accident’ . . . .”14
Conversely, the Kalchthaler
court relied on allegations of
windows leaking and causing
damage to tangible property,
which constitute an “accident”
as
defined
by
Webster's
dictionary and, hence, an
“occurrence” as defined by the
policy.15
The Florida Supreme Court
has recently issued a series of
decisions that clarify the scope
of CGL coverage and provide
some insight into when, or
whether, CGL coverage might
be available to a surety called on
to remedy defective work. In
United States Fire Insurance Co.
Page 35
v. J.S.U.B., Inc.,16 the Court
squarely addressed whether the
post-1986 CGL Policy form’s
completed operations coverage,
“provides coverage when a
claim is made against the
contractor for damage to the
completed project caused by a
subcontractor’s work.”17 The
Court determined that the policy
did provide coverage, addressing
both how the coverage provided
by the policy itself, and how the
“your
work”
exclusion,
including the exception for
subcontractor work, apply when
evaluating the scope of the
coverage.
J.S.U.B. was a real estate
developer that built a series of
single-family homes.
After
completion,
the
homes
developed damage to their
foundations, drywall and interior
Some of these
areas.18
conditions also caused damage
to personal property of the
homeowners, such as wallpaper
installed on the drywall that had
cracked.19 An investigation
showed that the damage was
caused by settlement, due to a
subcontractor’s improper soil
testing and compaction.20 The
homeowners sued J.S.U.B. for
damages,
asserting
various
16
13
See O’Connor, supra note 10, at
268-274.
14
Vick Construction, 52 F. Supp.2d
at 585 (citation omitted).
15
Kalchthaler, 224 Wis.2d at 397.
United States Fire Ins. Co. v.
J.S.U.B., Inc., 979 So.2d 871 (Fla.
2007).
17
Id. at 891.
18
Id. at 875.
19
Id.
20
Id.
Page 36
DEFENSE COUNSEL JOURNAL–January 2010
contract, warranty, and building
code violation claims.21 J.S.U.B.
corrected
the
defective
conditions, paid the damages
related to personal property, and
then sought coverage under the
policy.22 The insurer took the
position that it would cover the
damages to the homeowners’
personal property, but would not
cover the cost to repair the
structural defects to the homes
themselves,
such
as
the
foundation
and
drywall
damage.23
The court presented a
lengthy discussion of the history
of the CGL forms, and in
particular of the addition of the
subcontractor exception to the
“your work” exclusion in the
1986 policy. The court noted
that the policyholder community
wanted
coverage
for
subcontractor defective work
and the 1986 revisions were the
insurance industry’s method to
provide such coverage.24 The
court concluded that the 1986
modifications to the policy
language established that the
defective
work
of
a
subcontractor did constitute an
“occurrence” under the policy’s
coverage.25 More importantly,
the subcontractor defective work
was an “occurrence” regardless
of whether it damaged the
property of a third person or the
property
of
the
insured
contractor.
In one of the most
interesting sections of the
decision, the Court addressed the
insurer’s
argument
that
considering
subcontractor
defective work to constitute a
covered occurrence “converts
the policies into performance
bonds.”26 The Court noted that a
bond benefits a third party (the
project owner) while CGL
insures the contractor itself. A
bond assures full performance of
the construction contract, which
is a far broader obligation,
covering
a
variety
of
deficiencies
in
contract
performance, than mere payment
for “property damage.”
The
Court concluded that deeming
subcontractor defective work to
be an “occurrence” did not
equate the coverage of the CGL
policy
with
that
of
a
performance bond.27
The Court, however, went
on to hold that “occurrence”
does not equate to “coverage” in
the CGL context. Rather, it is
the first step in determining
coverage, and coverage only
exists if the occurrence results in
“property damage.”28 It is in this
context that the Court drew a
sharp demarcation between the
defective work itself and damage
21
Id.
Id. at 876.
23
Id.
24
Id. at 879.
25
Id. at 882.
22
26
Id. at 887.
Id. at 887-888.
28
Id. at 888.
27
The Construction Defect Hot Potato
to property caused by the
defective work. The Court noted
that “faulty workmanship or
defective work that has damaged
the otherwise non-defective
completed project” is covered
property damage, but “if there is
no damage beyond the faulty
workmanship or defective work,
then there may be no resulting
‘property damage.’”29
The Court demonstrated
examples of this distinction by
referring to several previous
decisions.30 For example, the
cost of removing and replacing
cedar siding that was the
incorrect grade of cedar did not
constitute covered “property
damage.” The cost of removing
and replacing defective stucco
was not “property damage,” but
the cost to repair water damage
to other parts of the building due
to the defective stucco did
constitute “property damage.”
Under the actual facts of
J.S.U.B., the cost to repair the
building foundations, drywall
and other property damaged as a
result of the defective site work
were
covered
“property
damage.” The Court did make
clear, however, that the insured
29
Id. at 889.
Id. (citing West Orange Lumber
Co. v. Indiana Lumbermens Mut.
Ins. Co., 898 So.2d 1147, 1148 (Fla.
Dist. Ct. App. 2005); Auto Owners
Ins. Co. v. Tripp Constr., Inc., 737
So.2d 600, 601 (Fla. Dist. Ct. App.
1999)).
30
Page 37
had not made a claim for the cost
of repairing the site work itself.31
Thus, the Court maintained
a distinction between insurance
and suretyship by limiting and
carefully defining the term
“property damage.”
Still, the
Court did allow for the
possibility that there could be
significant overlap between CGL
coverage and a surety bond’s
coverage. For example, if one
subcontractor’s defective work
damages other trades, or other
parts of the project that are
themselves
otherwise
nondefective, then a CGL carrier
might be called upon to repair
such damage.
Still, the Florida Supreme
Court left an important question
unanswered.
What if the
subcontractor’s defective work
caused property damage that
manifested itself before the
project as a whole was
completed? This is certainly a
possibility on major projects
where, for example, pile driving,
site work, shell construction, or
waterproofing
might
be
complete long before the project
as a whole is finished.
The
Court’s ruling was phrased as
“physical
injury
to
the
completed project that occurs as
a result of defective work can
constitute ‘property damage’ as
defined in a CGL policy.”32
31
32
Id. at 890-891.
Id. at 891.
Page 38
DEFENSE COUNSEL JOURNAL–January 2010
Ryan Incorporated Eastern
v.
Continental
Casualty
Company,33 however, implicitly
approved an interpretation that
no coverage would exist where
the property damage occurred
prior to the time the insured
contractor completed its work.
In Ryan, damage to grass
occurred to a golf course under
construction, allegedly due to
contaminated grass supplied by a
subcontractor.34 The surety for
the contractor settled the
owner’s claim, and the surety
and contractor then sued the
CGL carrier for coverage. On
appeal, the court noted that the
record did not establish without
dispute whether the damage to
the grass occurred before or after
the contractor had completed all
of its work, but approved the
general principle that no CGL
coverage would exist under the
“completed
operations”
provision if the damage occurred
prior to the date the contractor
completed its work.35 The
Florida
Supreme
Court,
reviewing the decision on
unrelated grounds,36 explicitly
noted the appellate court’s
holding on the date of
33
Ryan Inc. Eastern v. Continental
Casualty Co., 910 So.2d 298 (Fla.
Dist. Ct. App. 2005).
34
Id. at 299.
35
Id. at 300.
36
See Continental Casualty Co. v.
Ryan Inc. Eastern, 974 So.2d 368
(Fla. 2008) (reviewing award of
attorney’s fees).
completion issue and expressed
no disapproval.37
The Court revisited the issue
of CGL coverage in AutoOwners Insurance Company v.
Pozzi
Window
Company,38
considering
the
crucial
distinction of CGL coverage for
replacement of a building
component rendered defective
due to faulty installation, as
opposed to a component that was
inherently defective and installed
properly. The property owner
purchased windows, which were
installed by a subcontractor.39
The windows leaked, damaging
substantial portions of the
owner’s residence, as well as the
windows to the extent that they
had to be removed and replaced.
The CGL carrier paid for the
damages to the residence, but
refused to pay for the
replacement
windows.
The
Court found that the record did
not resolve whether the windows
themselves were defective, or
were not defective and leaked
because of defective installation
and held that such a distinction
was “critical” to determine CGL
coverage.40
If the windows themselves
were defective, the Court held
that the cost of their replacement
was not the result of “property
37
Id. at 373.
Auto-Owners Ins. Co. v. Pozzi
Window Company, 984 So.2d 1241
(Fla. 2008).
39
Id. at 1243.
40
Id. at 1247.
38
The Construction Defect Hot Potato
damage” but simply the cost of
rectifying defective work itself.
The Court held that the “mere
inclusion
of
a
defective
component, such as a defective
window or the defective
installation of a window, does
not
constitute
property
damage.”41 Thus, if the claim
was for the replacement of
windows that were defective
both prior to installation and as
installed, then there would be no
distinct “property damage”
subject to CGL coverage.
Conversely, if the claim was for
the replacement of windows that
were not defective, but were
damaged
by
defective
installation, then there would be
physical injury to separate
tangible property and the cost of
the
windows
would
be
covered.42 The Court noted that
the windows had been purchased
separately by the homeowner,
and the subcontract was for
installation only. The Court left
unanswered the question of what
would happen if the subcontract
was “supply and install” and the
subcontractor purchased the nondefective windows as part of its
subcontract but damaged them
during installation.
One
federal
decision,
applying Florida law, has
addressed the issue of coverage
when the subcontractor’s actual
defective work is very minor,
41
42
Id. at 1248.
Id.
Page 39
but requires that other portions
of the completed project be
destroyed and re-constructed in
order to access and repair the
defective work. In Auto Owners
Insurance Co. v. Travelers
Casualty and Surety Company,43
a contractor built a boat
manufacturing facility. Part of
the
project
included
an
underground galvanized pipe to
transmit acetone from one area
of the facility to another.44 A
pipe installed by a subcontractor
developed a leak, and the owner
abandoned the pipe in favor of
an overhead pipe. Because the
pipe caused a toxic acetone leak,
the owner was required to
destroy the floor of the plant, dig
up the pipe, and re-construct the
floor.45 The demolition and reconstruction work was extremely
costly compared to the actual
cost to repair the leak in the
galvanized pipe.
The contractor’s surety
made the repairs, then sought
coverage from the contractor’s
CGL policy. In particular, the
surety argued that the cost of
destroying and repairing the
floor
constituted
“physical
damage” to property other than
the subcontractor’s work, so the
CGL carrier should have
covered that portion of the loss.
The court, however, did not
43
Auto Owners Ins. Co. v. Travelers
Cas. and Surety Co., 227 F. Supp.2d
1248 (M.D. Fla. 2002).
44
Id. at 1255.
45
Id. at 1257.
Page 40
DEFENSE COUNSEL JOURNAL–January 2010
accept this interpretation of the
CGL coverage.
The court
noted that the “proper measure
of damages” for defective
construction includes the cost of
correcting the defect.46 The cost
of repairing the leaky pipe would
“necessarily include” the cost to
dig up the facility and replace
the floor in order to reach the
pipe itself. The court held that
such costs were “liability to
correct the defect . . . and not
liability for damages as a result
of the defect.”47 Thus, if the
surety for the insured contractor
has to damage “other property”
in order to repair a defect that, in
itself, did not actually damage
anything, then the costs of such a
repair are not recoverable from
the CGL carrier.
As a result of the confusion
raised in cases involving
defective or faulty workmanship,
practitioners specializing in
insurance defense or suretyship
should be aware of the
distinctions between insurance
and suretyship and should
consider the possibility of
recovery
from
alternative
sources. Even if an owner elects
to sue the contractor and the
surety, the potential liability of
the insurance carrier should be
considered and notice provided
to that carrier. Conversely, if the
owner sues only the contractor,
the contractor should consider
46
Id. at 1270-1271.
47
Id.
whether either the carrier or the
surety should be brought into the
suit. The contractor should also
consider strategic advantages
and disadvantages of bringing
suit to recover insurance
proceeds or bond proceeds.
Depending on the facts of the
case, careful pleading could
trigger coverage under one or the
other.
II. Understanding
the
Differences
Between
Insurance and Suretyship
Insurance and suretyship
arise from different commercial
needs. Insurance is purchased to
transfer financial risk, while
sureties are engaged to enhance
the financial security of the
obligee on behalf of the
principal. As a result, the
services rendered by these two
industries become operative at
different times and address
different needs. Sureties pay
only after all other sources have
been exhausted, while insurance
pays whenever a covered event
occurs, unless an exclusion
under the policy applies. These
diverging historical purposes
have
created
additional
differences discussed below.
A. Mechanical
Configuration of the
Dispute
The configuration of the
dispute provides the most
The Construction Defect Hot Potato
obvious distinction between
insurance and suretyship. A
typical insurance dispute arises
when a third party to the contract
of insurance is physically injured
or his property is damaged. As a
general rule, although the
insurance carrier will be the
“real” party in interest in a claim
or suit seeking coverage under a
CGL policy for the damages, the
only named parties are the
claimant whose property was
injured and the person who
negligently caused the injury or
who is legally responsible for the
party who was negligent. An
exception to this general rule
occurs in the few states,
including Florida, Louisiana and
Wisconsin, which provide a
direct cause of action to be
brought against an insurance
carrier. In those states, the
carrier will be both a named
party and the real party in
interest.48
In contrast, a claim or suit
against a surety performance
bond will arise when the obligee
on the bond or a claimant under
the bond gives notice of a right
or claim to payment or files suit.
The surety will be given direct
written notice of the claim and
will be a named party in any
subsequent suit. Suit may be
filed against the surety alone, or
against both surety and principal.
Suit against a surety of a
48
44 AM. JUR.2D INSURANCE § 1445
(2009).
Page 41
bankrupt principal may be
initiated or prosecuted in the
absence
of
the
bankrupt
principal.49
There are several practical
effects of the mechanical
difference of being a named
party. As a party, a surety is
subject to discovery. This means
that the claimant may seek
broader ranging information
from the surety, including
depositions
taken
of
its
personnel and the production of
many more documents. As a
party, the surety may more
frequently be sanctioned. The
non-party insurance carrier may
be somewhat more protected
from discovery, as the rules for
non-party
subpoenas
and
witnesses will apply. In many
jurisdictions, the carrier will not
be subject to any discovery at
all. More importantly, a surety
is subject to the presumptive
prejudice of the fact finder
knowing there is a “deep
pocket.” This sharply contrasts
49
See Pitts v. Unarco, 698 F.2d 313
(7th Cir. 1983), cert denied, 464
U.S. 1003 (1983) (holding that, in
general, the automatic stay applies
only to the debtor); but see U.S. ex
rel. Central Bldg. Supply v. W.F.
Wilke, Inc., 685 F. Supp. 936, 938
(D. Md. 1988) (finding that
enforcing the automatic stay against
a Miller Act surety would “flout the
purpose of the Act” but that the stay
may extend to non-Miller Act
sureties where the surety has an
absolute right to indemnity from the
debtor).
Page 42
DEFENSE COUNSEL JOURNAL–January 2010
with the principal applicable in
most states that deems any
mention of insurance before the
fact
finder
presumptively
prejudicial
and
provides
automatic grounds for a mistrial.
Post judgment, the surety is
subject to court authorized
collections proceedings such as
debtor's interrogatories and
garnishments. As it is unlikely
that any surety would actually
refuse to pay a judgment and
submit itself to such collection
proceedings (and trigger the
insurance commissioner's wrath
and immediate disqualification),
this latter distinction is more
theoretical than practical.
A surety may also be
compelled to arbitrate its
liability after the contractor
defaults. Many courts across the
country, including the First,
Fifth, Sixth, and Eleventh
Circuit Courts of Appeal have
compelled sureties to arbitrate
where
the
underlying
construction contract contains an
arbitration provision, and the
contract is incorporated by
reference into the bond.50 Other
courts refuse to compel sureties
to arbitrate, finding that because
the arbitration provision in the
contract, which typically does
not identify the surety as a party
to the arbitration, does not
specifically require the surety to
50
PHILIP L. BRUNER & PATRICK J.
O’CONNOR,
JR.,
BRUNER
&
O’CONNOR ON CONSTRUCTION LAW
§ 20.71 (West Group 2002).
arbitration. The incorporation of
the contract by reference does
not equate to consent by the
surety to arbitrate.51 Insurance
carriers will never face the
mandatory call of arbitration.
B. Duty to Defend
The
most
substantive
difference between insurer and
surety arises in the context and
application of the duty to
defend.52 As outlined below, the
insurer’s duty to defend has very
little in common with the
surety’s
duty
to
defend,
beginning with who owes the
duty to whom and ending with
when the duty is triggered.
(i) The Duty to Defend in
the Context of
Insurance.
“The duty of an insurer to
defend its insured is based upon
the coverage contracted for in
the insurance policy.”53 When
51
Id.
The topic of differences in the
duty to defend between insurance
and suretyship are covered in more
detail in Jerome M. Joseph,
Differences Between Insurance and
Suretyship in Early Stages of
Construction Investigation and
Litigation
in
CONSTRUCTION
LITIGATION, INSURANCE AND SURETY
ISSUES, Defense Research Institute
Seminar (1999).
53
Vick Construction, 52 F. Supp.2d
at 578 (quoting Peerless Ins. Co. v.
52
The Construction Defect Hot Potato
evaluating the insurer’s duty to
defend, any doubt as to coverage
is usually resolved in favor of
An insurance
the insured.54
carrier must defend its insured if
it determines that its policy
covers the claim asserted.55 The
duty is triggered by the carrier's
determination of coverage after
demand.
Some courts limit the
carrier's inquiry to the four
corners of the pleadings and the
policy,56 while others require the
carrier to not only rely on the
pleadings, but to also look to all
sources to determine if coverage
is available to the insured.57 If all
sources indicate there is no
coverage, there is no duty to
defend.58 If the question of
potential coverage under the
policy is unclear, the insurer
may avoid liability for wrongful
refusal to defend either by
bringing a declaratory judgment
action to determine its liability
or by proceeding under a
Strother, 765 F. Supp. 866, 869
(E.D.N.C. 1990) (citation omitted)).
54
Id. (citations omitted).
55
CGL Occurrence Policy § I.A.1,
ISO Standard Form Commercial
General Liability Policy (1988),
supra note 1.
56
See Taylor v. Travelers Ins. Co.,
40 F.3d 79, 81 (5th Cir. 1994)
(invoking the “eight corners rule”).
57
See Gray v. Zurich Ins. Co., 419
P.2d 168, 173 (Cal. 1966).
58
See, e.g., Stillwater Condo. Assn.
v. American Home Assurance Co.,
508 F. Supp. 1075 (D. Mont. 1981).
Page 43
reservation of rights.59 The duty
to defend is broader than the
duty to indemnify, and the
insurer is required to defend the
entire suit if any portion of it is
A
covered by policy.60
determination that the duty
exists results in the complete
relinquishment of control by the
insured.61 Many states require a
formal tender of defense by the
insured ⎯ a demand that the
insurer assume the defense.62
Other courts find that the duty to
defend automatically triggers
with notice of a claim.63
Usually, notice and demand
occur simultaneously.
(ii) The Duty to Defend in
the Context of
Suretyship
In
sharp
contrast
to
traditional insurance, the surety
does not owe a duty to defend its
principal. Instead, through the
59
CONSTRUCTION AND DESIGN LAW,
Chapter 30, Insurance § 30.18, p. 65
(The Michie Co. 1993).
60
St. Paul Fire & Marine Ins. Co. v.
Sears, Roebuck & Co., 603 F.2d 780
(9th Cir. 1979).
61
Crist v. Ins. Co. of North
America, 529. F. Supp. 601, 603 (D.
Utah 1982) (the insurer's duty to
defend corresponds to the insured's
duty to relinquish control of the
defense and one cannot rise without
the other).
62
Todd Schenk, Payment of PreTender Defense Costs, FOR THE
DEFENSE, July 1999 at 28, 29.
63
Id. at 30.
Page 44
DEFENSE COUNSEL JOURNAL–January 2010
contractual obligations owed to
the surety under the general
agreement
of
indemnity
(“GAI”), provided as an
inducement to execution of
bonds, the principal owes the
duty to defend the surety once
demand is made by an obligee.64
The principal's duty to defend
the surety is triggered by the
obligee or claimant's demand for
performance by the surety or a
concession by the principal of its
own default.
The obligation to defend
and the triggering of the surety's
liability must be based upon the
principal’s
unequivocal
declaration of default.65 If the
surety pays claims or performs
under the bond prior to a default,
it may be deemed a volunteer
and
lose
any
right
to
From
a
indemnification.66
practical perspective, a surety
may, in advance of a declaration
of default, consent to attend a
meeting to discuss the potential
grounds for default or to conduct
a preliminary investigation.
Some bond forms, such as the
AIA Document A312-1984 §
1.2. 3.1, may require such
pre-default
participation.
Intervention
of
a
surety
pre-default is more likely in a
jurisdiction with a strong policy
of enforcing bad faith claims
against sureties.67
C. Pre-Litigation
Investigation
A third distinction between
insurance and suretyship is the
ability to conduct factual
investigations of the claim/suit.
Both insurance carriers and
sureties
undertake
an
investigation upon notification
of a claim or suit. In advance of
or as a part of the investigation,
insurers are required to expressly
issue a reservation of rights, and
sureties typically issue a
reservation of rights as well. An
insurer normally reserves its
rights against the insured
(including any additional named
insureds).
A surety usually
reserves its rights against the
obligee or payment bond
claimant, as the party giving
notice to the surety of the claim
or suit.
64
American Motorists Ins. Co. v.
United Furnace Co., Inc., 876 F.2d
293, 301 (2d Cir. 1989); Borey v.
National Union Fire Insurance Co.,
934 F.2d 30, 33 (2d Cir. 1991).
65
See L&A Contracting v. Southern
Concrete Services, 17 F.3d 106, 111
(5th Cir. 1994).
66
See Ragghianti v. Sherwin, 196
Cal. App.2d 345, 16 Cal. Rptr. 583
(Cal. Ct. App. 1961).
67
See THE MOST IMPORTANT
QUESTIONS A SURETY CAN ASK
ABOUT
BAD
FAITH
CLAIMS
(Lawrence Lerner ed., American Bar
Association
1993)
(identifying
which states recognize bad faith
claims against sureties).
The Construction Defect Hot Potato
(i) Investigation
Performed Under
Either an Express or
General Reservation
of Rights
In the insurance context, a
reservation of rights must be
issued with specificity at the risk
of the carrier losing the right to
challenge its liability for
The policy
damages later.68
behind this requirement is that, if
coverage is available, the insurer
expects and will pay the loss. A
surety usually issues a more
general reservation, because
sureties only pay if they have to
and only as a last resort. In all
instances, policy demands the
principal remain primarily liable
for the loss.
(ii) The Duty to
Cooperate During the
Investigation
In both insurance and
suretyship a duty to cooperate
with an investigation is imposed.
A typical insurance policy
requires the insured to cooperate
with its insurer and to make its
books, records and witnesses
available to the insurer. Breach
of the duty to cooperate can void
coverage.
Intentional
nonproduction of information to
68
See Miller v. Elite Ins. Co., 100
Cal.App.3d 739, 754, 161 Cal.Rptr.
322, 330 (Cal Ct. App. 1980); Allied
Mutual Ins. Co. v. Hingst, 360 F.
Supp. 1204, 1209 (D.N.D. 1973).
Page 45
avoid a declination of coverage
may be viewed as fraud.69 A
typical GAI requires the
principal to cooperate with the
defense of any claims and to
produce and make available its
books and records at any time.
The difference between the
two lies in who owes the duty. In
the insurance scenario, the
insured, or protected person,
owes the duty to the carrier
granting
protection.
In
suretyship, the protected person,
the obligee or claimant, does not
owe the duty to cooperate;
rather, the principal owes it to
the surety. Moreover, in
insurance the right of the insurer
to review the insured's books and
records
arises
upon
the
triggering of coverage. With
suretyship, this right to review
and inspect exists at all times,
whether or not there has been a
default. Most GAIs also provide
the surety with the right to
access financial information
pertaining to the principal from
third parties. There is no
corresponding right in traditional
insurance.
D. Crossclaims and
Third Party Claims by
the Surety
Surety law departs markedly
from insurance law with regard
to the surety's right to be
69
See, e.g., N.J. Stat. Ann. § 17:33A
4(3) (2009).
Page 46
DEFENSE COUNSEL JOURNAL–January 2010
indemnified by the principal and
its
individual
indemnitors.
Where a principal's default leads
to a claim or suit against the
surety and the surety is or may
be required to make good the
principal’s default, the surety
may take affirmative steps to
enforce its right to indemnity.
The surety has the right to
indemnification for all losses
and costs it incurs because of the
bonded contract until it is
exonerated from liability to the
obligee. It may seek to
specifically
enforce
the
indemnity
agreement;
seek
damages for breach of contract;
or pursue other equitable relief
such as injunctive relief or other
protection.
The surety may act within
the context of the pending suit
by the obligee by filing a
crossclaim against the principal
for indemnity, exoneration and
specific performance of the
indemnity agreement. If the
principal is not a party to the
suit, the surety may interplead
him/her as a third party
defendant. If the obligee's suit is
in state court, compulsory
counter/crossclaim rules may
require the surety to seek relief
against the principal in the
existing action. Assuming there
is diversity of citizenship
between the surety and the
indemnitors, and more than
$75,000 in dispute, the surety
may also have the option of
filing a separate suit against the
principal in federal court.70
Courts routinely enforce the
obligation of indemnitors to
indemnify the surety as required
by the typical GAI.71
The only real exception to
enforcement of an indemnity
agreement is “when the payment
has been made ‘through fraud or
lack of good faith’ on the part of
the surety . . .”72 Proving fraud
or lack of good faith requires
more than evidence of poor
business judgment or negligence
by the surety ⎯ “neither lack of
diligence nor negligence is the
equivalent of bad faith . . .”73
Instead it requires proof of some
improper motive or dishonesty
on the part of the surety.74 An
interesting corollary to the
surety's
right
to
pursue
indemnity is that if the principal
defaults on more than one
bonded project, the GAI gives
70
28 U.S.C. § 1332.
See Fid. & Deposit Co. v. Bristol
Steel & Iron Works, Inc., 722 F.2d
1160, 1163 (4th Cir. 1983); Cont’l
Casualty Co. v. Am. Sec. Corp., 443
F.2d 649 (D.C. Cir. 1970), cert
denied, 402 U.S. 907 (1971);
Northwestern Nat’l Ins. Co. v.
Alberts, 822 F. Supp. 1079
(S.D.N.Y. 1993); U.S. Fid. & Guar.
Co. v. Lipsmeyer Constr. Co., 754
F. Supp. 81 (M.D. La. 1990); Cont’l
Cas. Co. v. Guterman, 708 F. Supp.
953 (N.D. Ill. 1989); Engbrock v.
Fed. Ins. Co., 370 F.2d 784, 786
(5th Cir. 1967).
72
Bristol Steel, 722 F.2d at 1163.
73
Engbrock, 370 F.2d at 787.
74
Id.
71
The Construction Defect Hot Potato
the surety the right to bring
separate,
subsequent
suits
against the indemnitors. This
provision is enforceable and
gives the surety significant
flexibility in protecting its
rights.75
As a consequence of the
surety's right to indemnity from
the
principal
and
other
indenmitors, the surety is nearly
guaranteed to be adverse to the
principal in a resulting action.
Although significant ethical
questions
arise
concerning
whether the same attorney may
represent both surety and
principal when they become
adverse to each other, commonly
one counsel represents both
surety and principal.
E. Rights and Defenses
i. Both Insurers and
Sureties Inherit
Rights and Defenses
The insurer's rights are
found in its policy and any
pertinent statutes. The surety’s
rights are founded in its bond,
the underlying construction
contract, the General Agreement
of Indemnity and any pertinent
statutes. The surety also has
equitable rights, including, most
importantly, the right of
subrogation. The subrogation
right may also give the surety
75
Republic Ins. Co. v. Culbertson,
717 F. Supp. 415 (E.D. Va. 1989).
Page 47
the
ability
to
pursue
reimbursement
from
the
principal’s CGL policy.
In
addition to certain unique
defenses, both insurers and
sureties inherit the defenses of
their insureds or their principals.
These
defenses
must
be
evaluated to determine whether
coverage under the CGL policy
or the bond is available.
1.
Rights
The right of subrogation is
primary right an insurer obtains
through its policy of insurance.
Subrogation permits the insurer
to
pursue
collection
or
reimbursement of losses paid to
the insured or on behalf of the
insured from other parties that
are legally liable for the
damages. It is frequently
exercised.
In
construction
litigation, subrogation usually
arises where a third-party, such
as a design professional or
subcontractor,
is
legally
responsible for property damage
to a property owner. The insurer
pays for the injured parties'
damages and assumes such
parties' rights to pursue the
design
professional
or
subcontractor.
Because
the
insurer is subrogated to the
rights of the insured, it inherits
the defenses of the third party,
Page 48
DEFENSE COUNSEL JOURNAL–January 2010
potentially including waiver of
the right of the subrogation.76
An insurer has no right to
subrogation in claims against
insureds or co-insureds under the
policy.77 Thus, to lessen the risk
of a later claim, contractors and
subcontractors often attempt to
be named as additional or
co-insureds.78 The majority of
courts reviewing the extent of
immunity granted have found
that status as a named or
co-insured completely bars any
right of subrogation.79
Sureties also have the right
of subrogation once they pay
under a performance or payment
bond.80 Sureties who suffer a
loss as a result of their
principal’s negligence have been
granted
subrogation
rights
against the principal’s CGL
76
See AIA Document A201-1987,
§11.3.7; AIA Document A201-1997,
§11.4.7; and EJCDC Doc. No. 1910
8, § 5.11 (1990), available by
subscription at http://www.aia.
org/contractdocs/index.htm
and
http://content.asce.org/ejcdc/.
77
CONSTRUCTION AND DESIGN LAW
§ 30.19a, at 68.
78
Id.
79
Id. at n.23.
80
See George J. Bachrach and John
V. Vurch, The Surety’s Subrogation
Rights, in THE LAW OF SURETYSHIP
(George G. Gallagher ed., 2d. ed.,
ABA 2000); Lawrence Lerner and
Keith Witten, Salvage/Subrogation
Considerations, in THE BOND
DEFAULT MANUAL, 365, 374
(Duncan L. Clore ed. American Bar
Association 1995).
policy.81 Any claim the principal
has against the insurer for
damages to property damaged by
faulty work may be pursued by
the surety. If an accident occurs
which damages the principal's
work, depending on the policies
in place, the surety may also
have a claim against the builder's
risk carrier for some or all of the
costs to repair the damage.82
2.
Defenses
As noted above, the insurer
has all the defenses of its insured
plus procedural defenses offered
by the policy (such as notice,
statute of limitation, laches). It
may also have separate coverage
defenses against its insured. The
surety also has all the defenses
of its principal,83 plus several
additional substantive defenses,
including: (i) material changes to
the contract;84 and (ii) improper
81
See Western World Ins. Co. v.
Travelers Indem. Co., 358 So.2d
602 (Fla. Dist. Ct. App. 1978)
(subrogation for payment of claims
for bodily injury); American Ins.
Co. v. Ohio Bur. Of Workers'
Comp., 577 N.E.2d 756, 62 Ohio
App.3d 921 (Ohio Ct. App. 1991).
82
Martha Crandall Coleman,
Considerations with Respect to
Insurance Coverage, in THE BOND
DEFAULT MANUAL, 317, 326
(Duncan L. Clore ed. American Bar
Association1995).
83
A. STERNS, LAW OF SURETYSHIP §
7.1 (5th ed. Elder 1951).
84
Keene Corp. v. Int’l Fidelity Ins.
Co. 736 F.2d 388 (7th Cir. 1984)
The Construction Defect Hot Potato
action by the owner materially
damaging the surety, such as
improper release of progress
payments, retainage, or delayed
or wrongful termination of the
contract.85
III. Conclusion
Insurance and suretyship are
different animals, established for
different
purposes
and
possessing different attributes,
attitudes
and
practices.
(unilateral extension of contract time
by obligee without surety's consent
did not discharge surety in the
absence of prejudice); Southwood
Builders v. Peerless Ins. Co., 235
Va. 164 (Va. 1988) (material
deviation, in and of itself,
establishes sufficient prejudice to
discharge surety).
85
See U.S. Fid. & Guar. Co. v.
United States, 16 Cl.Ct. 541 (Cl. Ct.
1989) (eight part test to determine if
owner unreasonably released funds
after notice from surety); Ohio
Casualty Ins. Co. v. United States,
12 Cl.Ct. 590 (Cl. Ct. 1987)
(owner's delay in terminating
resulting
in overpayment
to
contractor and reducing contract
balance prejudiced surety); Dragon
Constr. Inc. v. Parkway Bank &
Trust, 678 N.E.2d 55 (Ill. App. Ct.
1997) (termination of contract after
hiring
replacement
contract
discharged
surety);
but
see
Transamerica Ins. Co. v. City of
Kennewick, 785 F.2d 660 (9th Cir.
1986) (“unauthorized” premature
payment, if made in good faith by
obligee, does not automatically
relieve the surety of liability).
Page 49
Independent bodies of case law
have developed to address the
myriad issues arising related to
each. Occasionally, as in the
case of a construction defect, the
two collide. An owner should
evaluate and consider claims
under either or both the
contractor’s CGL policy or the
performance bond. A surety
who is sued by an obligee or
who has sustained a loss as a
result of its principal’s default on
a bonded project should
carefully evaluate whether it has
a remedy against the principal’s
CGL policy by reason of
subrogation. Because of the
broad nature of the insurer’s
duty to defend, a surety who is
sued by the obligee for defective
work may be able to pursue a
claim against the policy (through
its principal or via subrogation)
and effectively pass on the
substantial expenses of litigation
defense to the CGL carrier, even
though the claim may ultimately
be found not covered by the
policy.
Medical Monitoring in North America:
Does this Horse Have Legs?
By
David I.W. Hamer
I
N THE BEGINNING, the tort
of negligence required proof
of injury before requiring
compensation:
“Proof
of
negligence in the air, so to
speak, will not do.”1
Then claims for the cost of
medical monitoring arrived on
the North American scene in the
1980s.
The thrust of these
claims was: where a defendant’s
tortious
conduct
increases
plaintiffs’ risk of developing
diseases, that defendant should
be liable for the cost of
monitoring the plaintiffs’ health
required to detect the early onset
of disease linked to that conduct.
The most radical form of these
claims asserted that a defendant
is liable for the medical
monitoring costs of a plaintiff
even where the plaintiff has
suffered no physical injury at all.
The basic theory of medical
monitoring held that defendants
may be liable for the medical
monitoring costs of plaintiffs
who have not and might not
suffer an injury.
Medical monitoring claims
continue to be controversial, and
their universal acceptance in
1
Palsgraf v. Long Island R. Co., 162
N.E. 99, 248 N.Y. 339, 340 (N.Y.
1928); (quoting POLLOCK, TORTS,
11th ed., p. 455).
IADC
t
Member t
David
t
Hamer is a
partner in
the litigation group
of
t
McCarthy
Tétrault t
LLP, in Toronto. Mr. Hamer
helped found the McCarthy
Tétrault’s
National
Class
Actions Practice Group as a first
co-chair. He is co-author of the
definitive book for class action
defendants, DEFENDING CLASS
ACTIONS IN CANADA. Mr. Hamer
is frequently invited to lecture on
various litigation issues, most
recently on cross-border class
actions at the ABA’s National
Institute on Class Actions in
November, 2008 and on medical
monitoring in the context of toxic
torts and hazardous substances
for the International Association
of Defense Counsel in February,
2009. The research and editorial
assistance of articling students
Gillian Kerr and Michele Brady
in the preparation of this paper
are gratefully acknowledged.
North American courts remains
uncertain. Although readers
undoubtedly are familiar with
the topic, acceptance of medical
monitoring claims varies widely
among states. During the nearly
ten years since the last medical
Medical Monitoring in North America
monitoring ruling by the U.S.
Supreme Court,2 the parameters
of the debate have been
established. However, the issues
raised by medical monitoring
claims are far from being
resolved.
This article explores both
theoretical issues underlying
medical monitoring controversy
and the current state of the law
on this topic in North America
(with a side glance at England).
By addressing the policy debate
surrounding medical monitoring
and analyzing the elements of
medical monitoring class action
claims required by courts that
accept these claims, this article
provides potential defendants
with an idea of the litigious
threats they may face and
effective ways to respond.
I.
The Policy Debate:
Desirable or Disastrous?
Typically
launched
as
elements of class action suits,
some courts and commentators
greeted medical monitoring
claims as a way to allocate
health care expenses more
efficiently. In the context of an
environmental tort, the Supreme
Court of Kentucky has outlined
2
Metro-North Commuter R.R. v.
Buckley, 521 U.S. 424 (1997);
Amchem Products, Inc. v. Windsor
521 U.S. 591 (1997); the Court
rejected medical monitoring claims
on both occasions.
Page 51
four policy justifications in favor
of allowing medical monitoring:
(1) allowing recovery
fosters access to medical
testing and facilitates early
diagnosis and treatment; (2)
recognizing such claims
deters
irresponsible
distribution
of
toxic
substance;
(3)
early
monitoring may prevent
future costs and reduce the
potential liability of the
tortfeasor; and (4) . . . basic
notions of fairness [are
satisfied] by assuring that
wrongfully
exposed
plaintiffs recover the costs
of medical treatment.3
More cautious observers
have noted the many dangers
posed by these claims.4 By
3
Wood
v.
Wyeth-Ayerst
Laboratories, 82 S.W.3d 849, 857
(Ky. 2002); see also James A.
Henderson, Jr. and Aaron D.
Twerski, Asbestos Litigation Gone
Mad: Exposure-Based Recovery for
Increased Risk, Mental Distress, and
Medical Monitoring, 53 S.C. L. REV.
815 (2002). Although Henderson
and Twerski oppose medical
monitoring claims, they allow that
these claims do offer some potential
benefits.
4
See, for example, Victor E.
Schwartz, Leah Lorber and Emily J.
Laird, Medical Monitoring: The
Right Way and the Wrong Way,70
MO. L. REV. 349 (2005); Herbert L.
Zarov, Sheila Finnegan, Craig A.
Woods, and Stephen J. Kane, A
Page 52
DEFENSE COUNSEL JOURNAL–January 2010
eliminating “injury” as an
essential element of the tort
claim, the scope of a defendant’s
liability becomes seemingly
Under a medical
limitless.5
monitoring tort, defendants are
liable not only to those to whom
they caused injury, but also to
those whom they simply put at
risk of injury. If the threshold
for qualifying as “at risk” is low,
it is possible to imagine class
actions involving millions of
plaintiffs. Indeed, the United
States Supreme Court has noted
Medical Monitoring Claim for
Asymptomatic Plaintiffs: Should
Illinois Take the Plunge? 12
DEPAUL J. HEALTH CARE L. 1
(2009). Note also that there is some
debate whether medical monitoring
forms part of the cause of action or
if it is merely a measure of damage.
This debate is discussed in detail in
section III(B) infra.
5
Indeed, the limitless scope of
liability may become even more
striking if the legal reasoning
underlying
successful
medical
monitoring claims applies to novel
(non-medical) situations.
Some
U.S. plaintiffs have analogized the
risk of identity theft to the risk of
developing diseases in an effort to
support their claim for credit
monitoring costs. So far, these
claimants have been unsuccessful
(see Ruiz v. Gap, Inc, 622 F.
Supp.2d 908 (N.D. Cal. 2009);
Stollenwerk v. Tri-West Health Care
Alliance, 254 Fed. App’x. 664 (9th
Cir. 2007); Belle Chasse Auto. Care,
Inc. v. Advanced Auto Parts, Inc.,
No. 08-1568, 2009 WL 799760
(E.D. La. March 24, 2009)).
that medical monitoring claims
absent physical injury could
permit “tens of millions” of
individuals to recover medical
monitoring costs.6
The limitless scope of
liability
is
obviously
troublesome for defendants, but
it should also be of serious
concern to plaintiffs.
By
allowing medical monitoring
claims, courts transfer a portion
of defendants’ limited resources
to plaintiffs who have not
suffered and will not suffer an
injury. This increases the risk
that by the time plaintiffs with a
manifested injury sue the
defendant, that defendant’s
resources will be depleted.
Further, medical monitoring
plaintiffs in class actions may be
unfairly disadvantaged in a
settlement that may fail to adjust
for inflation, account for changes
in medical understanding, or
allow class members any
practical right to opt-out of
settlement.7
Opponents
of
medical
monitoring also point out that
these awards may not increase
social utility at all:
[M]any
scientists
and
medical professionals advise
against medical monitoring
for categories of diseases
where symptoms generally
develop in patients at or
6
7
Buckley, 521 U.S. at 442.
Amchem, 521 U.S. at 626-627.
Medical Monitoring in North America
before the time medical
monitoring can detect the
diseases, such as some
forms
of
cancer
or
nephrotoxicity
resulting
from lead exposure.
In
these categories, medical
monitoring
becomes
“questionable and costly,”
not to mention redundant,
because
it
alerts
professionals to a problem
no sooner than they would
be alerted otherwise by a
patient
experiencing
symptoms of the disease.8
At best, medical monitoring
tests in these circumstances are
unhelpful to their recipients. At
worst, medical monitoring tests
harm their recipients, either by
providing them with false
negative results, decreasing the
plaintiff’s incentive to be
sensitive to early symptoms, or
by providing false positive
results, putting plaintiffs through
unnecessary stress and grief.9
Opponents
of
medical
monitoring also highlight the
radical impact these claims have
on the tort system: no longer is
it necessary for a plaintiff to
have a present physical injury to
plead a successful claim in
negligence.
Recognizing the
significant changes that liability
for medical monitoring would
8
Schwartz et al, supra note 4, at
353.
9
Id. at 356–357.
Page 53
bring to the legal system, many
courts have refused to recognize
these claims in the absence of
explicit legislative authorization.
Given the competing policy
issues present in these cases,
those courts recognize that
legislatures are the more
appropriate bodies to balance
these issues.
Some courts do approve
medical
monitoring
claims
without legislative basis,10 but
decisions across jurisdictions are
inconsistent.
Uncertain
application of law unnecessarily
increases the cost and frequency
of
litigation.
Inconsistent
application has also led to claims
of forum-shopping by plaintiffs.
Consider one case where the
plaintiffs resided in the state of
New Jersey, complained of a
surgery conducted in Delaware,
but chose to bring the claim in
Pennsylvania which, like New
Jersey but unlike Delaware,
10
Some argue that legislative
authority for medical monitoring
was granted in the U.S. with the
passage of the Comprehensive
Environmental
Response,
Compensation and Liability Act, 42
U.S.C. § 9601 et seq. (CERCLA).
However, many U.S. courts have
interpreted this legislation narrowly,
refusing to recognize it a basis for
medical monitoring claims. See
JAMIE CASSELS AND CRAIG JONES,
THE LAW OF LARGE-SCALE CLAIMS:
PRODUCT LIABILITY, MASS TORTS
AND
COMPLEX LITIGATION IN
CANADA, 179 (Irwin, 2005).
Page 54
DEFENSE COUNSEL JOURNAL–January 2010
recognized claims for medical
monitoring.11
Medical monitoring claims
arguably require courts to alter
the fundamentals of the tort
system, which may produce
unintended
consequences.
Judicial attempts to extend rights
to plaintiffs may in effect
deprive them of recourse when it
is most needed. By allowing
class members to recover
medical monitoring costs prior
to suffering a physical injury,
courts may deprive others of the
ability to bring a claim in
negligence where the fault, but
not the manifestation of injury,
occurred outside the limitation
period. The Supreme Court of
Kentucky highlighted this irony
in its justification for refusing a
medical monitoring claim in
Wood
v.
Wyeth
Ayerst
Laboratories.12 The Court in
Wood first cited Louisville Trust
Co.
v.
Johns-Manville
in which the
Products,13
defendants argued that plaintiffs’
claim
involving
asbestos
exposure
was
time-barred
because exposure had occurred
outside of the limitation period.
The Louisville Trust court
rejected this defense, noting that
the plaintiff could not have been
expected to bring suit at the time
of exposure because at that time
he had no symptoms or
knowledge of injury. 14
In Wood, The Supreme
Court of Kentucky affirmed this
reasoning, holding that a medical
monitoring claim could not
succeed.
Reminding the
plaintiffs that this ruling may
later be helpful to them, the
Court noted that if:
the [medical monitoring]
tests revealed the presence
of physical disease resulting
from the drug ingestion, a
strong argument could be
made that the victims are
precluded from recovering
additional damages because
11
Guinan v. A.I. DuPont Hospital
for Children, 597 F. Supp.2d 517
(E.D.Pa.
2009)
(The
Court
determined that, although the
insurance contract was governed by
Pennsylvania
law,
the
most
meaningful connection was with
Delaware, and that state’s law
should apply.).
12
Wood, 82 S.W.3d at 853.
13
Louisville Trust Co. v. JohnsManville Products, 580 S.W.2d 497
(Ky. 1979); but see Donovan v.
Philip Morris USA Inc., 455 Mass.
215 (Mass. 2009), in which the court
eliminated the “single controversy
rule” that required a party to include
all related claims in the same action.
The monitoring claim was separated
from a claim for developing the
disease which could be brought in
the future, so that a plaintiff
claiming damages for medical
monitoring would not barred from
bringing a subsequent claim for
damages related to contracting the
disease itself.
14
Louisville Trust, 580 S.W.2d. at
500.
Medical Monitoring in North America
they have already recovered
on the claim of negligence.15
Despite these problems
associated
with
medical
monitoring claims, many courts
have accepted them.
The
treatment of these claims in
North American jurisdictions is
described in the following
section.
II. The State of the Law in
North America:
An
Uncertain Mosaic
Courts throughout in the
United States have considered
medical
monitoring
claims
extensively. That said numerous
state supreme courts to address
these claims have analyzed them
inconsistently, with some states
recognizing medical monitoring
as a stand-alone claim and others
rejecting it.16 In 1984, a New
York Supreme Court first held
that a medical monitoring claim
could sustain a claim for
15
Wood, 82 S.W.3d. at 859.
For an extensive outline of the
divided authority among the U.S.
state courts, see Paz v. Brush
Engineered Materials Inc., 949
So.2d 1 (Miss. 2007); see also D.
Scott Aberson, Note, A Fifty-State
Survey of Medical Monitoring and
the Approach the Minnesota
Supreme Court Should Take when
Confronted with the Issue, 32 WM.
MITCHELL L. REV. 1095 (2006).
16
Page 55
damage.17 Several months later,
the Court of Appeals for the
District of Columbia first
sustained a judgment against
defendant
for
medical
monitoring
costs
without
requiring proof of physical
injury in the plaintiffs.18
Before and after these cases,
other courts explicitly rejected
medical monitoring as a basis for
a claim in tort. Most notably,
the U.S. Supreme Court refused
a claim for medical monitoring
brought under the Federal
Employers Liability Act.19 The
clear trend in most U.S.
jurisdictions has been to reject
medical
monitoring
claims
where there is no present
17
Askey v. Occidental Chem. Corp.,
102 A.D.2d 130 (N.Y. App. Div.
1984).
18
Friends For All Children v.
Lockheed Aircraft Corp., 746 F.2d
816 (D.C. Cir. 1984). Some
commentators distinguish this case
from other medical monitoring case
because the plaintiffs were involved
in a plane crash attributable to the
defendant’s manufacturing. In other
words, although the plaintiffs did
not suffer an injury, they did suffer a
physical traumatic event attributable
to the plaintiff. For this reason,
many people point to Ayers v.
Township of Jackson, 525 A.2d 287
(N.J. 1987), a case involving
exposure
to
toxic
chemical
emanating from a township landfill,
as the first U.S. case awarding
damages in a medical monitoring
claim.
19
See Buckley, 521 U.S. at 444.
Page 56
DEFENSE COUNSEL JOURNAL–January 2010
physical injury.20 Despite this
trend, the law in this area is far
from settled. In Guinan v. A.I.
DuPont Hospital for Children,
for example, the court accepted
the novel theory that a tort claim
for medical monitoring can be
applied in the context of a claim
involving medical procedures
and devices.21
Canadian courts have had
much less experience with
medical monitoring. The scarce
jurisprudence
that
exists
suggests that Canadian courts
remain relatively open to these
claims.
Several class action
suits
advancing
medical
monitoring claims have been
certified for settlement purposes,
though few judgments address
the underlying novelty or
controversy.22 Two judgments
that
have
acknowledged
problems
associated
with
medical monitoring claims have
looked to U.S. case law for
guidance. Of these, Wilson v.
20
For further detail, see generally
Schwartz et al, supra note 4, at 361.
21
Guinan, 597 F. Supp.2d at 539
(Defendant
doctors
used
an
approved medical device in a
procedure, in a manner not yet
approved by the Food and Drug
Administration).
22
See, for example, Hoy v.
Medtronic Inc., 94 B.C.L.R. (3D)
169 (B.C.S.C.), aff’d [2003] 7
W.W.R. 681 (B.C.C.A) and Heward
v Eli Lilly & Co., [2007] O.J. No.
404 (ON S.C.J.), aff’d 295 D.L.R.
(4th) 175.
Sevrier settled,23 and the other
claim is pending, not having yet
been heard on its merits.24 In
Wilson, plaintiffs who had
ingested the pharmaceutical
company defendant’s impugned
products had not yet been, and
possibly never would be,
diagnosed with a related disease.
In its settlement, the defendant
agreed to establish a fund of $25
million to cover plaintiffs’
medical monitoring costs, with a
further $15 million to be made
available if the initial $25
million was insufficient to
satisfy class members’ claims.25
English courts, for their
part, have not yet dealt with
claims for medical monitoring,
but a recent case seems to
indicate that such claims will not
be likely be recognized. In
Grieves v. FT Everard & Sons
Ltd.,26 the Court of Appeal
rejected a damages claim for
asbestos exposure leading to
pleural plaques, a harmless
condition that can lead to a more
malignant disorder. A majority
of the Court stated firmly that no
23
Wilson v. Servier, [2000] 50 O.R.
(3d) 219. (ON S.C.J.);
24
Ring v. The Queen, [2007] 2007
NLTD 146 (S.C. Nfld & Lab.). The
certification order has been appealed
but the appeal has not been heard as
of the date of writing [2009 NLTD
39 at para 1].
25
Wilson, 252 D.L.R. (4th) at 742
(ON S.C.J.).
26
Grieves v. FT Everard & Sons
Ltd. [2006] EWCA Civ 27.
Medical Monitoring in North America
claim could be made in respect
of the chance of contracting a
future disease if it were not
caused by some actual, initial
injury. The Court stated that
“policy” justified this outcome.27
The House of Lords upheld this
decision on appeal.28
III. Jurisprudence:
Establishing a Claim
Medical monitoring claims
most often arise within class
action suits, and arguably,
plaintiff classes may plead
medical monitoring claims as an
additional
justification
for
certifying a class action in the
first place. Indeed, individual
plaintiffs proceeding outside the
parameters of a class action only
rarely bring claims for medical
monitoring,29 and members of a
successful class often choose not
to get monitored anyway.
To successfully make a
claim for medical monitoring
plaintiffs must surmount two
large hurdles: first, they must
certify the action as a class
proceeding; and second, absent
settlement,
they
must
successfully prove their claim in
tort.
Page 57
A. Class Certification
Each jurisdiction has its
own legislation specifying the
requirements for certification of
a class action.
In general,
certification requirements are
more stringent in the U.S. than
they are in Canada.30 Although
the language of certification
requirements
varies
by
jurisdiction (and has been
interpreted
variously
by
jurisdiction), three of the four
underlying
principles
are
common: (i) there must be an
identifiable class; (ii) the claims
or defenses of the group must
raise common issues; and, (iii)
the pleadings must disclose a
cause of action. However, in the
United States, common issues
are required to predominate,
while in Canada, the class
proceeding must only be
“preferable” for the resolution of
the common issues.
(i) Identifiable Class
To determine an identifiable
class, plaintiffs must provide an
adequate class definition. The
criteria used must be objective,
30
27
Id. at para. 24.
[2008] 1 A.C. 281.
29
For an example of a claim for
medical monitoring in a non-class
action context, see Murillo v.
Francisco, 2009 R.I. Super. LEXIS
129 (R.I. Sup. Ct. 2009).
28
Although Canadian class action
legislation was modeled on the U.S.
Federal Rules of Civil Procedure,
the Canadian rules are generally
more amenable to class certification.
For
additional
detail,
see
MCCARTHY TÉTRAULT, DEFENDING
CLASS ACTIONS IN CANADA, ch.4
(CCH 2d ed., 2007).
Page 58
DEFENSE COUNSEL JOURNAL–January 2010
such that the court would be able
to identify whether a given
person is a member or a nonmember of the class. In the
“toxic tort” line of medical
monitoring cases, for example,
plaintiffs have proposed at least
two ways in which class lines
can be delineated: by level of
exposure or along geographic
lines.
United States:
In Meyer v. Fluor Corp., the
plaintiffs identified a class
according to level of exposure,
where the class was restricted
“to persons who have received
specified, medically significant
levels of exposure to the toxins
discharged
from
the
[defendant’s]
smelter.”31
Conversely, in Boggs v. Divested
Atomic Corp., the United States
District Court for the Southern
District of Ohio accepted
certification based on location of
rejecting
the
plaintiffs,32
defendants’ objections that the
class should be limited to people
with actionable injuries. Instead,
the court found that for the
purposes of class membership,
the fact of exposure within the
defined geographical area was
sufficient.33
31
Meyer v. Fluor Corp., 220 S.W.3d
712, 719 (Mo. 2007).
32
Boggs v. Divested Atomic Corp.,
141 F.R.D. 58 (S.D. Ohio 1991).
33
Id. at 62. Note, however, that the
cause of action, a radiation leak,
would be applicable for every
Canada:
Geographically-based class
membership was applied in Ring
In Ring, the
v. Canada.34
Newfoundland and Labrador
court defined the class to include
any person who resided in the
toxic area for any period time
after 1956, so long as the person
“claimed” they were exposed to
dangerous levels of chemicals.
While the Canadian Supreme
Court in Hollick v. Toronto
(City) also accepted geographic
class membership, it cautioned
that plaintiffs must show “that
the class is not unnecessarily
broad – that is, the class could
not be defined more narrowly
without arbitrarily excluding
some people who share the same
interest in the resolution of the
Most
common issue.”35
recently, certification for, inter
alia, a medical monitoring claim
with a geographically-based
class definition was denied on
the basis that it was overly broad
and did not bear a rational
relationship to the common
issues asserted by all class
members. 36 The court noted that
defendant within the geographical
radius.
34
Ring, supra note 24 at paras. 119
– 133.
35
Hollick v. Toronto (City), [2001]
3 S.C.R. 158 at p. 173.
36
Bryson.v. Canada (A.G.), [2009]
N.B.J. No. 237. The proposed class
was defined as “all persons who
were/are residents and/or employed
and/or visited within 10 kilometers
Medical Monitoring in North America
the geographically - based
proposed class “has virtually no
meaningful restriction and would
potentially include hundreds of
thousands of claimants including
many who had no actual
exposure to the chemicals. . . .”37
As
a
general
rule,
defendants benefit from defining
the class along exposure lines
rather than geographic ones.
This decreases the likelihood of
frivolous claims and limits the
number of uninjured people who
qualify as class members. When
faced with a certification
application attempting to define
the class along geographic lines,
defendants generally challenge
the definition for being overly
broad, arguing that, in order to
qualify as a class member, the
applicant must show exposure to
at least the minimum level of
toxins required to pose a threat
of causing the condition for
which the plaintiff class desires
screening.
of the perimeter of the Canadian
Armed Forces Base in Gagetown,
and/or within the Base itself,
between January 1956 and the
present time, and: (i) who claim to
have suffered injury…as a result of
exposure to one or more Toxic
Chemicals….; and/or (ii) who claim
to have suffered damge to
property…as a result of exposure to
one or more Toxic Chemicals…”
(para. 39).
37
Id. at para. 48.
Page 59
(ii) Common Issues
One of the unique attributes
of medical monitoring class
action claims is the lack of
“commonality” among class
members. Despite maintaining
that the proposed class shares
common medical concerns, in
these types of claims some class
members have a relevant
physical injury at the time of
certification, while others in the
class have not developed and
will never develop a related
injury. The claim for medical
monitoring in these cases is not
“common” to the class, as
medical monitoring benefits only
those members who gain by
“detecting latent diseases early
in their development”,38 and is
redundant for class members that
have already been diagnosed
with the disease. Indeed, the
Northern District of Oklahoma
recently noted that, “[t]he
interests
of
asymptomatic
plaintiffs are not necessarily
aligned with those who assert
personal injuries.”39
United States:
Despite this key distinction
amongst
class
members,
certification
for
medical
monitoring claims is rarely
rejected based on lack of
38
Cassels and Jones, supra note 10,
at 178.
39
Cole v. ASARCO, Inc., 256
F.R.D. 690, 698 (N.D. Okla. 2009)
Page 60
DEFENSE COUNSEL JOURNAL–January 2010
commonality.40
The medical
monitoring claim is usually one
of several claims being brought
by the class,41 and courts often
find other common issues, the
resolution of which will advance
the progress of the litigation,
sufficient to allow certification.
In In re Prempro,42 however,
class certification was denied on
the basis that the medical
40
Medical monitoring cases often
require individual assessment of
damages, limiting the impact of the
noted lack of “commonality”.
Generally, courts certify the class
and then “disaggregate” to assess
damages (see Cassels and Jones,
supra note 10, at 175).
41
A recent case illustrates that
certification is much more difficult
to obtain when the court considers
only a medical monitoring claim. In
Rowe v. E.I. Dupont De Nemours &
Co., No. 06-1810, 2008 WL
5412912 (D.N.J. December 23,
2008), the plaintiffs sought class
certification based on their longterm exposure to perfluorinated
materials. Although the plaintiffs
advanced claims on bases other than
medical monitoring, the Court
determined that they had failed offer
any analysis on these issues, and
considered class certification based
solely on the medical monitoring
claim.
The
Court
refused
certification, noting that “three of
the essential elements of medical
monitoring
relief
namely,
significant exposure, increased risk
of disease, and necessity of medical
monitoring - implicate numerous
individualized issues.” (Id. at *11).
42
In re Prempro, 230 F.R.D. 555
(E.D. Ark. 2005).
monitoring claim was asserted
on behalf of a class of women
from 24 states.43 To be certified,
the court would have had to
manage the separate laws of
each of the 24 states and wade
through a host of factual issues
among the claimants.
Canada:
In Canada, the threshold for
finding common issues tends to
be lower than in American
courts.44 Consider Wilson v.
Servier, where an Ontario court
certified a claim for medical
monitoring, where the only
commonality between class
members was that they had
ingested one of two anorectic
drugs. Certification proceeded
notwithstanding the “undoubted
complexity
of
follow-on
individual issues.”45
(iii) Common Issues
Predominate or
Preferable Procedure
United States:
The general requirement
that common questions among
class members predominate over
individual ones can be difficult
to fulfill in the medical
43
Id. at 562, 566.
See Western Canadian Shopping
Centres Inc. v. Dutton, [2001] 2
S.C.R. 534 at para. 39; Carom v.
Bre-X Minerals Ltd. (1999) 44 O.R.
(3d) 173.
45
Wilson, supra note 23, at paras.
133-135.
44
Medical Monitoring in North America
monitoring context. In Amchem,
for example, class members
were exposed to different
asbestos-containing products, “in
different ways, over different
periods, and for different
amounts of time.”46 On this
basis, the Supreme Court
concluded that while class
members did have in common
exposure to asbestos, individual
questions
abounded,
and
certification was inappropriate.
Canada:
In Canada, the hurdles
inherent in the certification
process are easier to overcome
because the United States rule
that common questions have to
predominate over individual
ones does not exist. The question
in Canada is whether a class
proceeding is the “preferable
procedure” for the resolution of
The
common
issues.47
preferability requirement has
two principal elements, namely,
whether the class action would
be a “fair, efficient, and
manageable”
method
of
advancing the claim, and
whether a class action would be
preferable to other available
means of resolving the claims of
class members.48 Determining
whether the process is “fair,
46
Amchem, 521 U.S. at 609.
See, for example, Class
Proceedings Act, 1992, S.O. 1992,
c. 6.
48
Rumley v. British Columbia,
[2001] 3 S.C.R. 184 (S.C.C.).
47
Page 61
efficient and manageable” (for
both
the
plaintiffs
and
defendants) requires the court to
look at the entire case in context,
to determine whether proceeding
by way of class action would
advance the litigation in the
context of the case as a whole.49
(iv) Cause of Action
Finally, a court must
conclude
that
medical
monitoring could constitute a
valid claim at law for
certification to be grant.50 To
meet this requirement, a medical
monitoring
pleading
must
disclose a cause of action that
would potentially meet all the
requirements of a tort claim.
49
DEFENDING CLASS ACTIONS IN
CANADA, supra note 30, ch.4; see
also Hollick, 3 S.C.R. 158 at 159.
50
Of course, certification will not be
refused simply on the grounds that
the cause of action as not yet been
recognized by a court in that
jurisdiction. See, for example,
Bryson v. Canada (A.G.), [2009]
N.B.J. No. 237 (Q.B.), in which S.J.
McNally J. held that the certification
should not be denied on the basis
that medical monitoring claims
have not been recognized in
Canadian jurisdictions. Certification
was ultimately denied by S.J.
McNally J. for reasons relating to
the class definition.
Page 62
DEFENSE COUNSEL JOURNAL–January 2010
B. Elements of a Tort
Claim
This
article
addresses
circumstances where claims for
medical monitoring are included
within the cause of action, as
opposed to claims where the
medical monitoring forms an
element of the requested relief.
Medical monitoring is less
controversial and more often
accepted when it is applied only
as a remedy.51 Indeed, some
suggest that allowing medical
monitoring as its own cause of
action confuses the concepts of
To
remedy and injury.52
51
See Badillo v. American Brands
Inc., 16 P.3d 435, 440 (Nev. 2001)
(“Courts have recognized medical
monitoring more often as a remedy
than as a cause of action. When
recognized as a remedy, medical
monitoring is usually tied to a cause
of action in trespass, nuisance, strict
liability, or negligence . . . Most
commonly it is tied to a cause of
action in negligence . . .”).
52
See Henry v. Dow Chemical Co.,
701 N.W.2d 684, 691 (Mich. 2005)
The Court in Dow Chemical stated
“that the need to pay for medical
monitoring is itself a present injury
sufficient to sustain a cause of action
for negligence. In so doing,
plaintiffs attempt to blur the
distinction between “injury” and
“damages.”
While plaintiffs
arguably demonstrate economic
losses that would otherwise satisfy
the “damages” element of a
traditional tort claim, the fact
remains that these economic losses
are wholly derivative of a possible,
evaluate this argument, the
medical monitoring claim must
be considered in light of the
standard elements of a tort
claim: causation, fault and
injury.
(i) Causation
There is no agreed upon
standard as to what constitutes
“causation”
in
medical
monitoring cases. For example,
in Askey the plaintiffs satisfied
the causation requirement by
establishing with “a reasonable
degree of medical certainty” that
medical monitoring expenditures
were “reasonably anticipated” as
a result of their exposure.53 In
Bower v. Westinghouse Electric
Corp, the plaintiffs satisfied the
causation
requirement
by
establishing that “as a proximate
result of the exposure”, it was
“reasonably necessary” for the
plaintiff to undergo periodic
diagnostic
medical
Perhaps
examinations.54
revealing the logic underlying
this loose standard of causation,
in Ayers v. Township of Jackson,
the New Jersey Supreme Court
noted that medical monitoring
claims arose in response to the
difficulty in proving causation in
cases relating to injuries that
future injury rather than an actual,
present injury.”
53
Askey, 102 A.D.2d at 137.
54
Bower v. Westinghouse Elec.
Corp., 522 S.E.2d 424, 433 (W. Va.
1999).
Medical Monitoring in North America
initially manifest many years
after exposure.55 In addition to
several other benefits of
recognizing
pre-symptom
medical monitoring claims,
Justice Stein, speaking for the
Court,
noted
that
such
recognition “may also have the
beneficial effect of preventing or
mitigating
serious
future
illnesses and thus reduce the
overall costs to the responsible
parties.”56
(ii) Fault
Whether the defendant is at
fault receives little attention in
medical monitoring cases. This
is likely so because the courts
which
accept
medical
monitoring reason that the fault
requirement remains the same
regardless of the nature or extent
of the injury.
In Potter v.
Firestone Tire and Rubber
Company,
the
California
Supreme Court held that medical
monitoring
“is
simply
a
compensable item of damage
when liability is established
under traditional tort theories of
In Bower, the
recovery.”57
Supreme Court of West Virginia
expands
on
this
notion,
explaining “that the underlying
liability must be established
based upon a recognized tort-
Page 63
e.g., negligence, strict liability,
trespass, intentional conduct,
etc.”58 In other words, it is not
enough that the plaintiffs show
that the defendant’s action
caused the plaintiffs to require
medical monitoring. Plaintiffs
must also show that the
defendant’s action constituted a
fault under another recognized
head of tort.
(iii) Injury
Traditionally, to plead a tort
claim, the plaintiff or plaintiffs
must prove that harm or injury
had occurred prior to the trial. If
harm was likely to occur in the
future but had not yet
manifested, the plaintiff’s claim
was not yet ripe. If, on the other
hand, some minor harm had
manifested, the plaintiff could
recover, and the court could also
award damages for speculative
future harm emanating from the
same fault.59
By
accepting
medical
monitoring claims, some courts
have effectively abandoned this
well-established principle. To
do so, they have reworked the
“injury” element of the claim to
allow medical monitoring claims
as a form of “injury”. The
manner in which they have done
so has been inconsistent.
55
Ayers, 525 A.2d at 311.
Id.
57
Potter v. Firestone Tire and
Rubber Company, 6 Cal.4th 965,
1007 (Cal. 1993).
56
58
Bower, 522 S.E.2d at 433.
Cassels and Jones, supra note 10,
at 178.
59
Page 64
DEFENSE COUNSEL JOURNAL–January 2010
Some courts have focused
on the costs of medical
monitoring and reasoned that
these costs constitute an
economic injury suffered by the
plaintiff. In Potter, the Supreme
Court of California reasoned
that:
[i]t is difficult to dispute
that an individual has an
interest
in
avoiding
expensive
diagnostic
examinations just as he or
she has an interest in
avoiding physical injury.
When
a
defendant
negligently invades this
interest, the injury to which
is neither speculative nor
resistant to proof, it is
elementary
that
the
defendant should make the
plaintiff whole by paying
for the examinations.60
Defendants in Canadian
courts may attack this definition
of “injury”, since health care in
Canada is generally government
funded, and plaintiffs cannot
claim damage from most health
care expenses.61 Unfortunately,
60
See Potter, 6 Cal.4th at 1007
(quoting Friends for All Children,
746 F.2d at 826). See also Buckley
521 U.S. at 424, which addressed
this argument in the context of the
Federal Employers Liability Act.
61
In Krangle (Guardian ad litem of)
v. Brisco, [2002] 1 S.C.R. 205, the
Supreme Court of Canada clarified
that claims will not succeed for
health authorities, such as
provincial health care plans, may
still claim under this theory for
medical monitoring costs as
Moreover, the
subrogees.62
number
of
services
and
treatments covered by provincial
health care plans are declining.
This has led some commentators
to speculate that the frequency of
medical monitoring claims in
Canada will increase.63 Finally,
the courts may order a defendant
to pay to the plaintiff a portion
of a government-funded service
in order to compensate the
plaintiff for the risk that the
service will not be government
funded in the future.64
Possibly in an effort to
avoid
the
complexities
associated with claiming for
recovery of economic loss, some
courts have focused on the
physical injury associated with
medical monitoring claims,
because present physical injury
is the exact element that is
expenses that are covered by
government health care programs..
62
Jeffrey Berryman, Up in Smoke,
What Role Should Litigation Play in
Funding Canada’s Health Care, 12
HEALTH L.J. 125, at para. 13 (2004).
63
Cassels and Jones, supra note 10,
at 172.
64
In Krangle, the Supreme Court of
Canada held that the defendant
doctor must pay an $80,000
contingency award in case the
government-funded
benefits
available at the time of trial became
unavailable in the future. (Krangle,
2002] 1 S.C.R.at paras 28-29.
Medical Monitoring in North America
missing from these types of
claims, these courts focused
instead on the potential for
future injury. There exists a
wide range of standards in the
application of this definition. In
Herber v. Johns-Manville Corp.,
for example, the court required
that the plaintiff demonstrate “a
greater than average risk” of
developing a future disease.65 In
Merry v. Westinghouse Electric
Corp., however, the plaintiffs
needed only to demonstrate the
“potential” for future injury. 66
Making the injury even easier to
prove, in Bower, the court
affirmed that in a medical
monitoring claim, the plaintiff
need not demonstrate that he or
she suffered a dangerous level of
exposure as a result of the
defendant’s activity , since “[n]o
particular level of quantification
is necessary to satisfy this
[increased risk] requirement.”67
IV.
Conclusion:
Uncertainty
Lingering
As it stands today, thirteen
states, as well as Guam,68
65
Herber v. Johns-Manville Corp.,
785 F.2d 79, 83 (3d Cir. 1986).
66
Merry v. Westinghouse Electric
Corp., 684 F. Supp. 847, 850 (M.D.
Pa. 1988).
67
Bower, 522 S.E.2d at 433,
(quoting Hansen v. Mountain Fuel
Supply Co., 858 P.2d 970, 979
(Utah 1993)).
68
Arizona, California, Florida, New
Jersey, New York, Oklahoma,
Page 65
recognize medical monitoring
cases without the requirement of
present physical injury. Another
nineteen state courts, plus the
Virgin Islands,69 have ruled that
medical
monitoring
claims
cannot be accepted absent a
present
physical
injury.
Eighteen states and the District
of Columbia have either not
addressed medical monitoring,
or continue to have conflicting
decisions on the issue.
In Canada the state of the
law is similarly unclear. Only 4
out of 10 provinces’ courts have
broached the topic in decisions,70
Pennsylvania, Utah, and West
Virginia (in addition, Federal Courts
in Guam, Colorado, Illinois, Ohio,
and Vermont have made predictions
that state law would recognize a
claim for medical monitoring).
69
Alabama, Kentucky, Louisiana,
Michigan, Minnesota, Mississippi,
Nevada, North Carolina, Oklahoma,
Oregon, Tennessee, Virginia (in
addition, Federal Courts in Georgia,
Nebraska, North Dakota, Texas,
Washington, Kansas, and South
Carolina have made predictions that
state law would not recognize a
claim for medical monitoring).
70
British Columbia, Newfoundland,
Ontario, and Quebec. Plaintiffs have
filed class actions substantially
similar to the one certified in the
Newfoundland case Ring v. Canada
(Attorney General) [2007] N.J. No.
273
in
the
provinces
of
Saskatchewan, British Columbia,
Manitoba, Ontario, Nova Scotia and
New Brunswick. It is unclear,
however, whether these proceedings
also contain a medical monitoring
Page 66
DEFENSE COUNSEL JOURNAL–January 2010
and of these four, two provinces’
decisions have made only
passing references to medical
monitoring in the context of
settlement agreements. While
Ontario and Newfoundland
judgments have discussed the
topic in more detail, the
parameters of the discussion
have been largely established
with
reference
to
U.S.
jurisprudence.
Canada’s
Supreme Court has yet to weigh
in on the issue.
With the disparate treatment
of medical monitoring claims
across the U.S. and paucity of
Canadian jurisprudence on the
topic, defense counsel cannot
predict with certainty whether a
client will have exposure to
medical monitoring claims. For
this reason, courts or legislators
should provide much-needed
guidance in the matter, thereby
decreasing litigious uncertainty
and reducing the risk of forum
shopping. In the meantime, one
can only speculate whether this
horse has legs.
In the face of the
uncertainty, North American
defense attorneys should be
cognizant of the disparate
treatment these claims receive
across the continent.
Wellreasoned judgments from outside
a forum may influence a
domestic
court’s
decision.
Moreover, defense attorneys
component, as these provinces have
yet to render decisions.
should be prepared to challenge
these actions on all fronts: the
requirements for certification
(identifiable class; cause of
action; common issues; and
predominance or preferable
procedure); and, if certified, on
the constituent elements of the
tort (fault, causation, and injury).
Medical Monitoring in North America
Page 67
APPENDIX A
States who recognize medical
monitoring without necessity
of present physical injury
Arizona
Burns v. Jaquay Mining Corp.,
156 Ariz. 375, 752 P.2d 28
(Ariz. Ct. App. 1987).
West Virginia
Bower v. Westinghouse Elec.
Corp., 206 W. Va. 133 (W.V.
1999).
Federal Court Decisions
Guam: Abuan v. General Elec.
Co., 3 F.3d 329 (9th Cir. 1993).
California
Potter v. Firestone Tire &
Rubber Co., 6 Cal. 4th 965, 863
P.2d 795 (Cal. 1993).
Colorado: Cook v. Rockwell
International Corp., 755 F. Supp.
1468, 1477 (D. Colo. 1991).
Florida
Petito v. A.H. Robins Co., 750
So. 2d 103 (Fla. Dist. Ct. App.
1999).
Delaware: Guinan v. A.I.
DuPont Hospital for Children,
597 F. Supp.2d 485 (E.D. Penn
2009).
New Jersey
Ayers v. Jackson, 106 N.J. 557,
525 A.2d 287 (N.J. 1987).
Mauro v. Raymark Industries,
Inc., 116 N.J. 126, 561 A.2d 257
(N.J. 1989).
Illinois: Leib v. Rex Energy
Operating Corp., 2008 U.S. Dist.
LEXIS 102847 (S.D. Ill. Dec.
19, 2008).
Ohio: Day v. NLO, 851 F. Supp.
869 (S.D. Ohio 1994).
New York
Allen v. General Elec. Co., 32
A.D.3d 1163, 821 N.Y.S.2d 692
(N.Y. App. Div. 2006).
Vermont: Stead v. F.E. Myers
Co., Div. of McNeil Corp., 785
F. Supp. 56 (D. Vt. 1990).
Pennsylvania
Redland
Soccer
Club
v.
Department of the Army, 548
Pa. 178 (Penn. Sup. Ct. 1997).
States that require a present
physical injury for medical
monitoring claims
Utah
Hansen v. Mountain Fuel Supply
Co., 858 P.2d 970 (Utah 1993).
Alabama
Houston County Health Care
Auth. v. Williams, 961 So.2d
795 (Ala. 2006).
Page 68
DEFENSE COUNSEL JOURNAL–January 2010
Kentucky
Wood v. Wyeth-Ayerst Labs, 82
S.W.3d 849 (Ky. 2002).
Louisiana
Louisiana Civil Code, La. Civ.
Code, art. 2315 (2001).
Michigan
Henry v. Dow Chemical Co.,
701 N.W.2d 684, 686 (Mich.
2005).
Minnesota
Bryson v. Pillsbury Co., 573
N.W.2d 718 (Minn. 1998).
Mississippi
Paz v. Brush Engineered
Materials, Inc., 949 So. 2d 1
(Miss. 2007).
Nevada
Badillo v. American Brands,
Inc., 117 Nev. 34, 16 P.3d 435
(Nev. 2001).
North Carolina
Curl v. Am. Multimedia, Inc.,
187 N.C. App. 649 (N.C. 2007).
Oklahoma
Cole v. ASARCO, Inc., 256
F.R.D. 690 (N.D. Okla. 2009).
Oregon
Lowe v. Philip Morris USA,
Inc., 183 P.3d 181 (Ore. 2008).
Rhode Island
Miranda v. DaCruz, 2009 R.I.
Super LEXIS 129 (Sup. Crt. R.I.
2009).
Tennessee
Bostick v. St. Jude Medical, Inc.,
2004 WL 3313614 (W.D. Tenn.
2004).
Virginia
Ball v. Joy Technologies, Inc.,
958 F.2d 36, 39 (W. Va. 1991).
Federal Court Decisions:
Georgia: Parker v. Brush
Wellman, 230 Fed. App’x 878
(11th Cir. 2007).
Nebraska: Avila v. CNH
America LLC, 2007 WL
2688613 (D.Neb. 2007).
North Dakota: Mehl v.
Canadian Pac. Ry., 227 F.R.D.
505 (D.N.D. 2005).
Texas: Norwood v. Raytheon
Co., 414 F. Supp.2d 659
(W.D.Tex. 2006).
Washington:
Duncan
v.
Northwest Airlines, Inc., 203
F.R.D. 601 (W.D.Wash. 2001).
Kansas: Burton v. R.J. Reynolds
Tobacco Co., 884 F. Supp. 1515,
1523 (D. Kan. 1995).
South Carolina: Rosmer v.
Pfizer, Inc., 2001 WL 34010613,
at 5 (D.S.C. 2001).
Professional Liability and International
Lawyering: An Overview
By: J. Benjamin Lambert
I
NTERNATIONAL LAW is
rapidly developing as an
independent field in practically
every country as the isolated legal
markets of generations past give
way to a global market. In such a
climate,
issues
raised
by
international law are intertwined
with every-day domestic practice,
both in the United States and
abroad. Most practitioners, no
matter how specialized their
practice area and market,
encounter international legal
issues, whether by questions
raised
by
clients
with
international interests or by
required
compliance
with
practice-relevant
international
agreements or standards.
United States law schools
now often require students to take
at least one international course,
and most have study abroad
programs, certificate programs or
international law journals.1 As a
result, new attorneys have greater
1
See, for example, http://www.law.
columbia.edu/focusareas/intlaw_port
al; http://www.wcl.american.edu/ilsp/
http://www.law.umaryland.edu/progr
ams/international/; http://www.bc.edu
/schools/law/services/academic/progr
ams/curriculum/international.html.
These are among the international
offerings at ABA credited law
schools.
Benjamin Lambert
is a 2010 Juris
Doctor candidate
at the University
Of Tulsa College
Of Law. He is a
native
of
Missouri and a
graduate of Missouri Southern
State
University
in
Joplin,
Missouri, where he was the 2007
Outstanding Graduate for History
and earned a Bachelor of Arts in
History and Spanish.
At the
University of Tulsa College of Law,
Mr. Lambert has donated over four
hundred hours of pro bono and
public service time in his local
community and abroad.
Mr.
Lambert is the Winner of the 2009
IADC Student Legal Writing
Contest.
exposure to international legal
issues before entering practice.
Despite these trends, questions
concerning
the
professional
liability exposure of U.S. lawyers
engaged in international practice
continue to be ignored both in the
classroom and in the pages of law
reviews.2
2
In contrast to professional liability
issues, ethical issues involving
international practice have been
addressed by various articles. See
generally, Mark I. Harrison and Mary
Gray
Davidson,
The
Ethical
Implications of Partnership and
Other
Associations
Involving
American and Foreign Lawyers, 22
Page 70
DEFENSE COUNSEL JOURNAL–January 2010
Determining when a U.S.
lawyer handling international
issues has taken action that may
give rise to professional liability
exposure requires a thorough
determination of the laws of
relevant jurisdictions.
Further
complicating
matters,
“international lawyers” may be
divided into three categories
(which sometimes overlap), each
facing different challenges: (i)
attorneys who work abroad; (ii)
those who work domestically
servicing international clients;
and (iii) domestic attorneys who
outsource legal work to foreign
legal service providers.
This
article considers the professional
liability challenges faced by
United States lawyers in each of
these categories, addressing the
possible bases for professional
liability, the impact of foreign
law differences and certain
limited ways to reduce the cost of
potential liability.3
PENN ST. INT’L L. REV. 639 (2004);
M. McCary, Bridging Ethical
Borders: International Legal Ethics
with an Islamic Perspective, 35 TEX.
INT’L L.J. 289 (2000).
3
This article addresses issues faced
by the United States attorney
practicing United States law. This
article does not, nor is it intended to,
address issues faced by United States
educated attorneys (whether U.S.
citizens or foreign nationals)
practicing the laws of a foreign
country, regardless of the attorney’s
geographical location.
I.
Working
in
International Arena
the
United
States
attorneys
working abroad and domestic
attorneys
working
with
international clients encounter
similar legal issues, and many
laws apply to both without regard
for their actual geographical
locations. However, for purposes
of
establishing
professional
liability,
differences
exist
between these two classes of
lawyers, and these differences
may act to limit or increase the
likelihood of being faced with
civil action.
The United States attorney
abroad is often an in-house
attorney
working
for
a
multinational that either conducts
business in the United States or is
headquartered in the United
States. For foreign companies, an
expatriate attorney may be
responsible for compliance with
applicable United States law,
expediting
the
employer’s
entrance into the United States
market, financial or real estate
issues or international trade.
These attorneys are generally
physically located outside the
United States but are responsible
to their client for matters of
United States law.
Expatriate
attorneys working at a foreign
law firm or a foreign office of a
United States firm will have a
greater variety of clients, but their
practice areas and potential
causes of liability are similar to
Professional Liability and International Lawyering
those of expatriate in-house
counsel. Accordingly both will
be treated similarly.
Jurisdiction is an overlooked
cause of concern of professional
liability for the U.S. lawyer
working abroad. The international
lawyer (living and/or working
abroad) needs to consider which
countries may assert jurisdiction
over his legal work, and
accordingly, which laws and
professional liability rules to
which he is subject.
While
lawyers
abroad
may
not
anticipate that the United States
would assert jurisdiction over
their actions, on the basis of
nationality alone most United
States lawyers working abroad
will be subject to United States
law. Lawyers practicing abroad
may also be subject to the laws
and/or
professional
liability
standards of other jurisdictions.
Under public international
law, three different theories allow
a country to assert jurisdiction
and apply their laws over persons.
These
are
nationality,
territoriality and universality.4
4
Unless an attorney is responsible for
heinous human rights violations or
war crimes, he need only concern
himself
with
nationality
and
territoriality. See Demjanjuk v.
Petrovsky, 776 F.2d 571, 582 (6th
Cir. 1985), cert. denied, 475 U.S.
1016 (1986) (“This ‘universality
principle’ is based on the assumption
that some crimes are so universally
condemned that the perpetrators are
the enemies of all people”). See also
Page 71
Territoriality, the most familiar of
these, is geographically oriented,
providing that “[a] nation has the
right of sovereignty within its
borders.”5 A person is subject to
the laws and jurisdiction of the
country in which they are
physically present regardless of
their nationality, meaning that the
lawyer abroad is subject to the
laws of the country in which he
practices. The nationality theory,
the most important theory for
United States lawyers abroad,
provides “that citizens are subject
to the laws of their country, no
matter where [in the world] the
RESTATEMENT (THIRD) OF FOREIGN
RELATIONS LAW OF THE UNITED
STATES (“a state has jurisdiction to
define and prescribe punishment for
certain offenses recognized by the
community of nations as of universal
concern, such as piracy, slave trade,
attacks on or hijacking of aircraft,
genocide, war crimes, and perhaps
certain acts of terrorism”).
5
BRYAN GARNER, BLACKS LAW
DICTIONARY, 1610 (9th ed. 2009).
“Three maxims formulated by the
seventeenth-century Dutch scholar
Ulrich Huber undergird the modern
concept of territoriality: (1) a state’s
laws have force only within the
state’s boundaries; (2) anyone found
within the state’s boundaries are
subject to the state’s authority; and
(3) comity will discipline sovereign
exercises of authority so that the
territorial effect of each state’s laws
is respected.” PAUL GOLDSTEIN,
INTERNATIONAL
COPYRIGHT;
PRINCIPLES, LAW, AND PRACTICE 64
(Oxford, 2001).
Page 72
DEFENSE COUNSEL JOURNAL–January 2010
citizens are.”6 The United States
can assert jurisdiction and hold its
citizens responsible for violations
of United States law whether or
not they are within the country’s
borders and regardless of whether
such actions were legal in the
country where they took place.
While
sovereign
state
governments alone traditionally
have the right to assert
jurisdiction under the nationality
theory in exercising laws,
especially
criminal
statutes,
United States courts have
developed ways to assert personal
jurisdiction over U.S. citizens
abroad. Federal courts utilize the
“minimum contacts” standard
applicable for interstate cases for
this instance and similar rules
have been adopted by various
states.7 It is important to note,
6
BLACKS LAW DICTIONARY, 1123
(9th ed. 2009).
7
International Shoe Co. v. State of
Washington,
Office
of
Unemployment Compensation and
Placement et al., 326 U.S. 310
(1945). “[D]ue process requires only
that in order to subject a defendant to
a judgment in personam, if he be not
present within the territory of the
forum, he have certain minimum
contacts with it [the forum’s
jurisdiction] that the maintenance of
the suit does not offend ‘traditional
notions of fair play and substantial
justice.’” (citing Milliken v. Meyer,
311 U.S. 457, 463 (1940)). At least
19 states have adopted some form of
the minimum contacts test, under the
same name. See, AL ST RCP 4.2
(2003); Batton v. Tennessee Farmers
however, that federal courts have
also found that they cannot assert
diversity jurisdiction over a U.S.
citizen domiciled abroad.8 Under
the minimum contacts test, the
lawyer’s contacts must be shown
Mut. Ins. Co., 736 P.2d 2 (Ark.
1987); Standard Tallow Corp. v.
Jowdy, 459 A.2d 503 (Conn. 1983);
Kane v. Coffman, 2001 WL 914016
(Del. Super. Ct. August 10, 2001);
Homeway Furniture Co. of Mount
Airy, Inc. v. Horne, 822 So.2d 533
(Fla. Dist. Ct. App. 2002); Beasley v.
Beasley, 396 S.E.2d 222 (Ga. 1990);
E.A. Cox Co. v. Road Savers Int’l
Corp., 648 N.E.2d 271 (Ill. App.
1995)
;
Aquadrill
Inc.
v.
Environmental
Compliance
Consulting Servs., 558 N.W.2d 391
(Iowa 1997); Woodring v. Hall, 438
P.2d 135 (Kan. 1968); A.F. Briggs
Co. v. Starrett Corp., 329 A.2d 177
(Me. 1974); State v. Granite Gate
Resorts, 568 N.W.2d 715 (Minn. Ct.
App. 1997); Telephonic, Inc. v.
Rosenblum, 543 P.2d 825 (N.M.
1975); Replacements, Ltd. v.
MidweSterling, 515 S.E.2d 46 (N.C.
App. 1999); NH ST § 510:4 (2003)
(New Hampshire); World-Wide
Volkswagen Corp. v. Woodson, 585
P.2d 351 (Okla. 1978); Freeman v.
Duffy, 983 P.2d 533 (Or. 1999);
Kenny v. Alexson Equipment Co.,
432 A.2d 974 (Pa. 1981); RI St. § 95-33 (2002) (Rhode Island); Bard
Building Supply Co. v. United Foam
Corp., 400 A.2d 1027 (Vt. 1979).
8
Sadat v. Mertes, 615 F.2d 1176,
1180 (7th Cir. 1980); Berhalter v.
Irmisch, 75 F.R.D. 539, 540 (W.D.
N.Y. 1977); Dadzie v. Leslie, 550 F.
Supp. 77, 79 (E.D. Pa. 1982).
Professional Liability and International Lawyering
to be continuous, systematic and
substantial.9
Under these theories, the
United States attorney abroad
with requisite minimum contacts
to a state or the United States
may be subject to the laws and
jurisdiction of multiple countries
at any one time. The attorney
abroad must concern himself both
with compliance to the laws of
the country he is in as well as
with the laws of the United
States.
II. Bases for
Liability
Professional
Because an attorney abroad
must comply with the rules of
professional conduct of multiple
jurisdictions, an attorney should
consider all bases of professional
liability that may arise.
In
addition to the rules of
professional liability associated
with the jurisdictions in which he
or she is licensed to practice, the
attorney engaged in international
work may be subject to additional
rules.
For example, ordinary
activities may implicate ethical
considerations related to issues of
confidentiality, conflicts, consent
and outsourcing as such rules are
formulated under the Model
Rules of Professional Conduct.
Tort liability for malpractice,
negligent referral, and negligent
supervision may arise from such
common practices as translations
9
International Shoe, 326 U.S. at 159.
Page 73
and advising joint ventures.
International lawyers must also
consider their contractual and
fiduciary duties (whether based
on an employment contract for
the in-house counsel or an
engagement letter for the firmbased attorney).
A. Professional Liability
and the Model Rules of
Professional Conduct
Most attorneys engaged in
the practice of international law
are licensed in one of a handful of
states, including New York, the
District of Columbia, California,
Texas and Florida. These states,
like most U.S. jurisdictions, have
adopted professional conduct
rules based upon the Model Rules
of Professional Conduct (Model
While attorneys
Rules).10
necessarily must review and
consider the rules of professional
conduct
relating
to
the
jurisdiction(s) in which they are
licensed, this analysis applies the
Model Rules to address common
challenges that arise in the
practice of an international
lawyer.
10
Most states have adopted
professional conduct rules reliant on
the Model Rules, some adopting the
Model Rules wholesale. However,
there are minor variations between
states. The Model Rules will be
addressed in this article. However,
opinions of state bar associations
cited address the statutes in effect in
their respective jurisdictions.
Page 74
DEFENSE COUNSEL JOURNAL–January 2010
The
practice
of
legal
outsourcing
provides
an
increasingly common basis for
ethical considerations arising
under the Model Rules. For the
purposes of this article, legal
outsourcing is the practice of
engaging foreign attorneys and
non-lawyer
assistants
based
overseas (foreign legal service
providers) to conduct United
States and/or foreign legal work.
Ethics rules generally apply when
an attorney hires a foreign
attorney, whether for preparation
of work to be completed in the
United States or to act as local
counsel on a matter in a foreign
jurisdiction. These rules apply
with equal force to the actions of
the foreign attorney, whether he
works on his own, in a firm, or
with other local attorneys.
Attorneys
with
an
international practice often work
collaboratively
with
foreign
attorneys, and in the legal
outsourcing
context,
United
States
attorneys
will
be
responsible for the actions of
foreign attorneys. Model Rule
5.1 addresses the responsibilities
arising from management of other
attorneys and provides scenarios
in which one attorney may be
responsible for the actions of
another attorney. Under Model
Rule 5.1(a) a law firm’s
responsibility to enact measures
to ensure the firm’s conformance
to the Model Rules will apply
equally to an attorney or firm
which has engaged another firm
to outsource services.11 Model
Rules 5.1(b) and (c) offer
additional guidance on ways that
failure to properly monitor
international work lead to ethical
violations.
Model Rule 5.1(b) states that
any “lawyer having direct
supervisory
authority
over
another lawyer shall make
reasonable efforts to ensure that
the other lawyer conforms to the”
Model Rules.12 As a result, an
United States attorney must take
reasonable steps to ensure that
any foreign lawyer or non-lawyer
assistant for which he has any
supervisory
responsibility
conforms to the Model Rules. In
the outsourcing context, the
Ethics Committee of the San
Diego County Bar Association,
citing Model Rule 5.1(b), has
opined “[r]etaining [an outside
firm/company] . . . does not
relieve the attorney from the duty
to act competently. The attorney
retains the duty to supervise work
performed . . . [when] that work
Failure to
is outsourced.”13
monitor outsourced legal services
(or local counsel, if the
relationship is clearly supervisory
in nature) will give rise to
11
MODEL RULES OF PROF’L CONDUCT
R. 5.1(a) (2008).
12
MODEL RULES OF PROF’L CONDUCT
R. 5.1(b) (2008).
13
San Diego County Bar Ass’n,
Formal Legal Ethics Op. 2007-1
(2007)
(hereinafter
SDCBA),
http://iusjuris.com/2007_04_SanDieg
o_OutsourcingOpinion.pdf.
Professional Liability and International Lawyering
professional liability if the actions
of foreign counsel fail to meet the
standards of professional conduct
of the supervisor’s jurisdiction.
Model Rule 5.1(c) extends
liability beyond the supervisory
capacity in certain cases where an
attorney ratifies legal services
provided by a foreign attorney.
“A lawyer shall be responsible
for another lawyer’s violation of
the Rules of Professional Conduct
if: (1) the lawyer orders or, with
knowledge of the specific
conduct, ratifies the conduct
involved.”14 The use of “ratifies”
suggests that attorneys who are
working together, and at the same
level, could be held liable for
their colleague’s actions if they
agree with or allow their
colleague to proceed in an
inappropriate manner without
taking measures to correct the
conduct, regardless of a lack of
supervisory
power
or
responsibilities.15
14
MODEL RULES OF PROF’L CONDUCT
R. 5.1 (c) (2008) (emphasis added).
15
The language and requirements
from Model Rules Rule 8.3 uphold
this assumption. Under Rule 8.3(a)
“[a] lawyer who knows that another
lawyer has committed a violation of
the Rules of Professional Conduct
that raises a substantial question as to
that lawyer's honesty, trustworthiness
or fitness as a lawyer in other
respects, shall inform the appropriate
professional authority.” Rule 8.3(b)
makes it clear that this does not apply
to matters that fall within Rule 1.6 on
Confidentiality of Information. See
Page 75
Model Rules Rule 5.3, as
codified in state codes of
professional
responsibility,
mandates certain responsibilities
regarding non-lawyer assistants.
The New York Code of
Professional
Responsibility
defines “non-lawyer” as any
lawyer (whether from the U.S. or
abroad) not licensed to practice in
the state of New York, as well as
non-lawyer assistants such as
secretaries
and
paralegals.16
Modeled on Rule 5.1, Rule 5.3(a)
generally requires that the lawyer
or law firm take measures to
reasonably assure that a nonlawyer’s
actions
are
in
compliance with the Model
Rules.17 Lawyers who employ
non-lawyers are responsible for
the actions of the non-lawyers
and must take reasonable steps to
ensure that their actions comply
with applicable rules.
In 2006, the New York City
Bar Association Committee on
Professional and Judicial Ethics
considered the obligations of a
New York attorney outsourcing
legal work to foreign “non-
MODEL RULES OF PROF’L CONDUCT
R. 8.3 (2008).
16
N.Y.C. Bar Ass’n Comm. On
Professional and Judicial Ethics,
Formal
Op.
2006-3,
(2006),
http://www.abcny.org/Ethics/eth2006
.htm, (citing NY St. Bar Ass’n
Comm. on Professional Ethics,
Opinion 721 (1999)) (hereinafter
NYCBA).
17
MODEL RULES OF PROF’L CONDUCT
R. 5.3(a) (2008).
Page 76
DEFENSE COUNSEL JOURNAL–January 2010
lawyers” (which, in New York,
includes
foreign
licensed
lawyers) under New York Rules
of Professional Conduct. They
determined that a New York
lawyer is ethically obligated to
“(a) supervise the non-lawyer and
ensure that the non-lawyer’s work
contributes to the lawyer’s
competent representation of the
client; (b) preserve the client’s
confidences and secrets when
outsourcing; (c) avoid conflicts of
interest when outsourcing; (d) bill
for outsourcing appropriately;
and (e) obtain advance consent
for outsourcing.”18 In addition,
the New York City Bar
Association
imposed
an
affirmative obligation to avoid
aiding a non-lawyer in the
unauthorized practice of law,
explaining that the prohibition
“aims to protect our citizens
against the dangers of legal
representation and advice given
by persons not trained, examined
and licensed for such work,
whether they be laymen or
lawyers
from
other
jurisdictions.”19
The Bar Associations of San
Diego County and Los Angeles
County have found similar duties
for lawyers practicing in their
jurisdictions. The Los Angeles
Bar has added a “duty to exercise
independent judgment,”20 as well
as an ethical duty to the court,
18
NYCBA Formal Op. 2006-3.
NYCBA Formal Op. 2006-3.
20
L.A. County Bar Ass’n, Op. 518
(2006) (hereinafter LACBA).
19
explaining that “[a]n attorney is
responsible for all of the
attorney’s submissions to court.
Any inaccuracies could21 be a
violation of several California
ethical laws. The New York Bar
stated it best, saying that a U.S.
lawyer who outsources work
‘must at every step shoulder
complete responsibility for the
non-lawyer’s [including foreign
licensed
lawyers]
work.’”22
None of these bar associations
found outsourcing to be a per se
violation of ethics rules, perhaps
in part owing to the difficulty of
differentiating under the rules of
professional conduct between
outsourcing and the retention of
local counsel.
Each opinion
“maintain[ed] that foreign legal
outsourcing should be subject to
the same ethical requirements as
domestic use” of non-lawyer
assistants and other lawyers.23
In the context of outsourcing,
these opinions provide further
guidance to United States lawyers
who contemplate, or have been
asked to contemplate, such an
engagement. Prior to confirming
an engagement a practitioner
should “(a) obtain background
21
Id.
Steven J. Mintz, Ethics Opinions
Allow Foreign Legal Outsourcing,
LITIGATION NEWS ONLINE (July
2007)
http://www.abanet.org/litigation/litig
ationnews/2007/july/0707_article_ou
tsourcing.html,
citing
NYCBA
Formal Op. 2006-3.
23
Id.
22
Professional Liability and International Lawyering
information . . . and obtain the
professional résumé of the nonlawyer; (b) conduct reference
checks; (c) interview the nonlawyer in advance . . . to ascertain
the
particular
non-lawyer’s
suitability for the particular
During the
assignment.”24
engagement,
a
supervising
attorney should “communicate
with the non-lawyer . . . to ensure
that [they] understand the
assignment and . . . [are]
discharging
the
assignment
according to the lawyer’s
expectations.”25 A United States
attorney should consider “in
advance the work that will be
done and reviewing after the fact
what in fact occurred, assuring its
soundness.”26 Upon conclusion
of an engagement, the United
States attorney should “review
the brief or other work provided
by [the foreign lawyer] and
independently verify that it is
accurate, relevant, and complete,
and the attorney must revise the
brief, if necessary, before
submitting it to . . . the court.”27
In addition, in some jurisdictions,
“[i]n order to satisfy the duty of
competence, an attorney should
have an understanding of the
legal training and business
practices in the jurisdiction where
the work will be performed.”28
Gaining understanding of the
“legal training and business
practices” in an outsourcing
jurisdiction may require an
attorney to perform a good deal
of
background
research,
especially if the attorney has
limited experience with the
jurisdiction. Ultimately, each of
these ethics opinions makes a
similar point—an attorney may
not simply engage a foreign
licensed attorney and then rely
without
independent
review
solely on the foreign attorney:
“under no circumstances may the
non-California attorney ‘tail’ wag
the California attorney ‘dog’.”29
B.
NYCBA Formal Op. 2006-3.
25
Id.
26
Id.
27
Id. (citing LACBA Ethics Op.
518).
Civil Liability Theories
Any
violation
of
the
applicable rules of professional
conduct also may lead to civil
liability. Given the financial and
reputational impact of such suits,
practitioners take equal care to
avoid civil suits as they do ethics
violations.
Given
the
international travel and other
related costs that may be incurred
to defend these suits, domestic
civil liability presents an even
thornier problem for attorneys
with an international practice.
Under United States law, bases
28
24
Page 77
SDCBA Formal Legal Ethics Op.
2007-1 (2007).
29
Mintz, Ethical Opinions Allow
Foreign Legal Outsourcing, supra
note 22 (citing SDCBA Formal Legal
Ethics Op. 2007-1).
Page 78
DEFENSE COUNSEL JOURNAL–January 2010
for a lawsuit by a former client or
other aggrieved party against an
international lawyer may sound in
tort, contract and breach of
fiduciary duty.
1.
Tort and Contractual
Liability
In the event of a violation of
the rules of professional conduct,
attorneys may be liable under
theories of negligent supervision
and negligent referral, and courts
have also imposed liability for the
acts of foreign attorneys under
vicarious liability and joint
venture theories.
An international attorney may
be liable for professional
malpractice based on “an
allegation by a client that the”
attorney “failed to perform his or
her services in accordance with
the
applicable
professional
standard of care.”30 Though the
standard of care for liability
varies by jurisdiction, generally
the “reasonably prudent person”
standard
will
apply
to
international practice, much as it
does in domestic practice.31 In
the international context, failure
to properly obtain consent before
retaining outsourced or local
counsel32 and negligent selection
of foreign counsel are particularly
likely to give rise to claims of
negligence.
A domestic attorney does not
become negligent merely by
referring to local counsel or by
outsourcing legal work, as long as
he or she appropriately obtains
client approval and consent. In
fact, where an attorney lacks the
expertise or specialized skill and
knowledge to proceed in a certain
area of the law, some courts have
held that the attorney may have a
duty to refer his client to an
attorney with the requisite skill
and knowledge.33 The duty to
refer is analyzed on a “case by
case” basis. For example, in the
medical malpractice context, the
California Court of Appeals has
held “the fact that the specialty
exists does not mean that every . .
. case must be referred to a
specialist. Many . . . matters are
so generally known that they can
well be handled by general
practitioners.”34
As part of the duty to refer,
some courts have recognized the
existence of tortious negligent
referral. The Pennsylvania Court
of Appeals, for example, has
concluded that “when the
referring physician knows or has
reason to know the specialist is
incompetent” he may be liable
30
DAN L. GOLDWASSER, M. THOMAS
ARNOLD & JOHN H. EICKEMEYER,
ACCOUNTANTS’ LIABILITY, 4-3
(Practicing Law Institute, 2008).
31
Morrison v. MacNamara, 407 A.2d
555, 560 (D.C. 1979).
32
Tormo v. Yormark, 398 F. Supp
1159, 1173 (D. N.J. 1975).
33
Horne v. Peckham, 97 Cal.App.3d
404, 414 (Cal. App. Ct. 1979).
34
Id. at 415.
Professional Liability and International Lawyering
“under
general
negligence
principles.”35 Nevertheless, the
domestic attorney does not
become “ipso facto liable for any
negligence of the foreign
attorney” as long as he was not
negligent in the selection and
supervision of the foreign
attorney.36
Attorneys may also become
liable for the actions of another
attorney under the theory of
vicarious liability.
Vicarious
liability, the “[l]iability that a
supervisory party (such as an
employer)
bears
for
the
actionable
conduct
of
a
subordinate or associate . . . based
on the relationship between the
two parties,”37 would arise from
the supervisory responsibility of
the domestic attorney required
under
applicable
rules of
professional conduct. Vicarious
liability also exists as a result of
an imputed “joint venture”,
defined as “an association of two
or more persons to carry out a
single business enterprise for
profit, for which purpose they
combine their property, money,
effects, skill, and knowledge. It
arises out of a contractual
relationship
between
the
35
Tranor v. Bloomsburg Hospital, 60
F. Supp.2d 412, 416 (M.D. Pa. 1999).
36
Tormo, 398 F. Supp. at 1174,
(citing Wildermann v. Wachtell, 267
N.Y.S. 840 (N.Y. Sup. Ct. 1933)).
37
See “Liability,” BLACK’S LAW
DICTIONARY, at 998.
Page 79
parties.”38 “Joint ventures and
partnerships
are
governed
generally by the same basic legal
principles.”39 The parties of the
joint venture are “jointly and
severally liable for all obligations
pertaining to the venture, and the
actions of the joint venture bind
the individual co-venturers.”40
The
Supreme
Court
of
Mississippi has held that client
consent does not destroy a joint
venture where the “division of
responsibility is not clearly
spelled out.”41
International lawyers may
also become subject to contract
liability under various theories,
arising from circumstances in
which they “failed to perform a
specific service” stated in a
contract, either express or
implied, “failed to perform [the
terms of the contract] in a timely
fashion . . . [,] failed to perform in
a satisfactory manner or failed to
meet the stated goal of the
In addition, as
contract.”42
mentioned above, the attorney
may be held liable under contract
38
Armor v. Lantz, 535 S.E.2d 737,
739 (W.Va. 2000) (citing Price v.
Halstead, 355 S.E.2d 380 (W.Va.
1987)).
39
Id. at 743.
40
Id.
41
Duggins v. Guardianship of
Washington Through Huntely, 632
So.2d 420, 426 (Miss. 1993).
42
GOLDWASSER
ET AL,
ACCOUNTANTS’ LIABILITY, supra
note 30, at 3-10.
Page 80
DEFENSE COUNSEL JOURNAL–January 2010
for failure “to comply with
professional standards.”43
2.
Breach of Fiduciary
Duty
When outsourcing or utilizing
foreign local counsel, a United
States attorney also may become
subject to breach of fiduciary
duty claims. The attorney
working abroad should take
special consideration of fiduciary
duty claims, because many
factors make this type of claim
more difficult to defend than tort
or contract claims.
Unlike accountants and other
professionals, the attorney-client
relationship is a fiduciary
relationship as a matter of law.44
A fiduciary relationship is hard to
define; as one court stated, “[t]he
precise contours of a fiduciary
relationship are incapable of
However, a
expression.”45
fiduciary
relationship
exists
“where there has been a special
confidence reposed in one who,
in equity and good conscience, is
bound to act in good faith and
with due regard for the interests
of the one reposing the
confidence.”46 A fiduciary duty
entails a “duty of utmost good
faith, trust, confidence, and
43
Id.
See, e.g., Thigpen v. Locke, 363
S.W.2d 247, 253 (Tex. 1963).
45
Keenan v. D.H. Blair & Co., 838 F.
Supp. 82, 89 (S.D.N.Y. 1993).
46
Paul v. North, 380 P.2d 421, 426
(Kan. 1963).
44
candor owed by a . . . lawyer or
corporate officer . . . to the . . .
client or shareholder; a duty to act
with the highest degree of
honesty and loyalty toward
another person and in the best
interests of the other person.”47
The duty of care requires that
an attorney “exercise the degree
of skill and knowledge commonly
possessed by” attorneys,48 a
higher than ordinary standard,
when making recommendations
to his clients. If the international
attorney
claims
specialized
knowledge or skill superior to
others within the legal profession,
he may be held to an even higher
standard requiring that he
“exercise in a reasonable manner
the superior skills [or] knowledge
claimed” by the attorney.49 The
attorney must also disclose all
relevant facts relating to matters
that are within the scope of the
fiduciary relationship.50 Here the
basic requirement is that the
attorney conducts himself “at a
level higher than that trodden by
the crowd.”51
47
See “Duty,” BLACK’S LAW
DICTIONARY, at 581.
48
GOLDWASSER
ET AL,
ACCOUNTANTS’ LIABILITY, supra
note 30, at 7-16.
49
Id.
50
GOLDWASSER
ET AL,
ACCOUNTANTS’ LIABILITY, supra
note 30, at 7-15.
51
Meinhard v. Salmon, 164 N.E. 545
(N.Y. 1928) (discussing fiduciary
duties for corporate directors).
Professional Liability and International Lawyering
The attorney’s duty of
loyalty, while not necessarily
more stringent, has more
requirements and more potential
for breach. The duty of loyalty
includes “[a] person’s duty not to
engage
in
self-dealing
or
otherwise use his or her position
to further personal interests rather
than those of the beneficiary
(client).”52 Stated differently, this
duty “requires the fiduciary to act
solely for the benefit of the
person to whom the duty is owed
with respect to all matters within
the scope of the fiduciary
Loyalty is
relationship.”53
considered “the essence of the
fiduciary relationship” requiring
the attorney “to subordinate [his]
own interests to those of the
[client].”54 Simply put, “[t]he
distinguishing or overriding duty
of a fiduciary is the obligation of
undivided loyalty.”55
52
See “Duty,” BLACK’S LAW
DICTIONARY, at 581.
53
GOLDWASSER
ET AL,
ACCOUNTANTS’ LIABILITY, supra
note 30, at 7-14.
54
Robert Cooter and Bradley J.
Freedman,
The
Fiduciary
Relationship:
Its
Economic
Character and Legal Consequences,
66 N.Y.U. L. REV. 1045, 1074 (1991)
(citing Bayer v. Beran, 49 N.Y.S.2d
2, 5 (N.Y. Sup. Ct. 1944); City Bank
Farmers Trust Co. v. Gannon, 51
N.E.2d 674, 675-76 (N.Y. 1943)).
55
See, for example, Australian
Securities
and
Investments
Commission v. Citigroup (2007), 62
A.C.S.R. 427 (Fed. Ct. Austl.).
Page 81
Potential
claimants
find
numerous advantages in claiming
a breach of fiduciary duty over a
claim in tort or contract. One
“major advantage” of a breach of
fiduciary duty claim over a
negligence claim is that “many
claims for breach of fiduciary
duty do not require expert
testimony.”56 Compared with a
breach of contract claim,
fiduciary duties may “extend
beyond the obligations expressly
assumed by the [professional] as
part of the contract with the
client.”57
In many cases involving
fiduciary duties, the burden of
proof may shift from the plaintiff
to the defendant-lawyer.58 In
addition, “In many breach of
fiduciary duty cases, the plaintiff
is not limited to compensatory
damages.”59 Unlike contract and
negligence claims, the plaintiff
may be able to recover lost profits
as well as obtain punitive
damages.60 In several states, the
statute of limitations for breach of
fiduciary duty claims is longer
than
for
contract
and
negligence.61 Finally, “failure to
disclose [any relevant fact that
relates to a matter within the
56
GOLDWASSER
ET AL,
ACCOUNTANTS’ LIABILITY, supra
note 30, at 7-2 (discussing contracted
liability of accountants).
57
Id. at 7-3.
58
Id.
59
Id.
60
Id.
61
Id.
Page 82
DEFENSE COUNSEL JOURNAL–January 2010
scope of the relationship] may
toll the statute of limitations.”62
In one notable instance, an
accountant’s failure to disclose
relevant facts even tolled the
statute of limitations until the
relationship ended.63
III. International Legal Issues
A. Translations and the
Meaning of Words
Many foreign-based attorneys
and domestic attorneys working
with
foreign
clients
are
conversant in the foreign
language in which they most
often work. However, the terms
of contracts and other legal
documents
can
become
sufficiently complicated, arcane
or complex as to require special
skill in preparing a translation. In
such situations, an attorney may
prudently choose to hire a
translator. The simple task of
hiring a licensed translator
qualified to work with the legal
profession, or a local attorney to
perform the translation, contains
hidden pitfalls.
Idiomatic expressions, local
usage, unfamiliar legal principles
and colloquialisms all may lead
to the mistranslation of sensitive
legal documents, in which “the
misuse of a single word can
change an entire provision of a
62
Id.
Russell v. Campbell, 725 S.W.2d
739, 748 (Tex. App. 1987) writ of
error refused.
63
contract or alter its meaning
While a
under the law.”64
prospective translator or local
attorney
may
speak
both
languages fluently, be a native
speaker of one, and have
excellent academic qualifications,
the attorney should (and may be
required to) consider his or her
exposure to the language beyond
university or colloquial speech.
An attorney should determine if
the translator ever lived in a
country that speaks the language
in question and, if not, if he or
she had a significant amount of
contact with native speakers of
the language. Having a nativelike understanding of the subtle
nuances of a language may be
essential in correctly translating
legal
documents.
Other
important factors to consider are
the translator’s familiarity with
the legal structure and economy
of the country. An attorney who
is at least conversant in the local
language and has prior experience
with similar translations may be
64
Ethan Burger, International Legal
Malpractice: Not Only Will the Dog
Eventually Bark, It Will Also Bite, 38
ST. MARY’S L.J. 1025, 1034-1035
(2007) (citing Ethan Burger and
Carol M. Langford, The Future of
Legal Ethics: Some Potential Effects
of Globalization & Technological
Change
on
Law
Practice
Management in the Twenty-First
Century, 15 WIDENER L.J. 267, 270
(2006) (indicating that terms have
different meanings in different legal
systems)).
Professional Liability and International Lawyering
able to catch some mistakes.65
The competence of the translator
is particularly important in the
context of the attorney who
completely lacks any capacity for
the local language.66
Failure to use a translator or
local counsel in providing legal
services for foreign language
materials may give rise to
liability claims under ordinary
negligence theories, especially
given the prevalence of legal
translation services. Failure to
exercise reasonable care in the
evaluation and supervision of
translations by translators or local
counsel
poses
additional
dilemmas for the United States
attorney ethically bound to
supervise their work. While an
attorney who has exercised
reasonable diligence in the
selection of a qualified translator
may not be liable for mistakes of
translation, the degree of
supervision required by United
States counsel for foreign
language legal services provided
by local counsel has not been
exhaustively
addressed.
Attorneys
without
language
proficiency who hire local
65
Id.
Id. at 1035, (citing Ethan Burger
and Frank Orban III, International
Legal Malpractice in a Global
Economy: A Growing Phenomenon,
29 INT’L LEGAL PRAC. 157, 160 (July
2004)) (explaining that senior
attorneys who lack language capacity
rely on local attorneys that may be far
less experienced).
66
Page 83
counsel to provide legal services
and translation in a foreign
language
may,
in
some
circumstances, find themselves
unable to provide the level of
supervision for these services that
state ethics rules based on Model
Rules Rule 5.1(b) require.
Another
language-related
source of liability may arise from
the meaning of words.
The
meaning of particular words may
vary greatly even in countries that
speak the same language. The
meaning of a word may change
depending on the specific context
in which it is being used.67
Without
realizing
their
misunderstanding, negotiators on
both sides “may believe they
have crafted a workable solution
to a particular issue when in fact
neither side has the same
understanding
of
the
This important
agreement.”68
issue arises most commonly for
attorneys
handling
sensitive
matters when there are language
barriers present between clients
and counsel or between opposing
parties. Accordingly, attorneys
should take extra steps to ensure
the quality and integrity of
translations, including using only
legal-translation
certified
professionals, having translations
double-checked
by
equally
qualified translators, or having
outside attorneys fluent in both
languages review the documents
67
68
Id. at 1034-1035.
Id.
Page 84
DEFENSE COUNSEL JOURNAL–January 2010
and relay their understanding of
the terms of the documents.
Problems with translations
and the meaning of words have
arisen in at least four U.S.
Supreme Court cases between
182969 and 2008. The first two
cases (from 1829 and 1832) dealt
with land grants by the King of
Spain in territory ceded to the
United States in the Louisiana
Purchase territory and Florida,
respectively, while these areas
were still under Spanish control.
An 1819 treaty conveying the
area to the United States
addressed these land grants. The
treaty was prepared and executed
in both Spanish and English and
parties in interest claimed,
unsuccessfully, that both versions
of the treaty were the “original
language, and neither [was] a
translation” of the other.70
However, the Spanish version
stipulated that all land grants
“shall remain confirmed,”71 while
the English version stated that the
land grants “shall be ratified”
making it “necessary that there
should be a [domestic] law
ratifying them.”72
In 1906, the Court addressed
the form of payment agreed to in
a Puerto Rican real estate deed.
The deed provided for payment at
69
Foster v. Nelson, 27 U.S. 253
(1829).
70
United States v. de la Maza
Arredondo, 31 U.S. 691, 750 (1832)
Thompson, J. dissenting.
71
Id. at 741.
72
Id. at 742.
“the rate of 100 centavos . . . for
each peso.”73 The Court notes
that at the time of the case one
Puerto Rican peso was equivalent
to sixty U.S. cents.74 However,
when translating the deed, the
translator translated centavos into
This
the English “cents.”75
resulted in the translation reading,
that payment was required at the
rate of 100 U.S. cents for each
Puerto Rican peso. In part, the
ultimate outcome of the case
hinged on the Court’s assessment
of the (ultimately) incorrect
translation.
Most recently, in Medellin v.
Texas, three dissenting Justices
noted the issue of conflicting
meaning of phrases under a
multinational
agreement
on
consular rights and the U.N.
Charter. Justice Breyer noted that
the majority’s interpretation of
the phrase “undertakes to
comply” suggested that some
further action by Congress was
intended in order to make the
treaty obligations binding under
U.S. law. In contrast, Justice
Breyer’s dissent evaluated to the
Spanish version of the U.N.
charter, which used the phrase
“compromete
a
cumplir”
(promise to complete) indicating
“a present obligation to execute,
without any tentativeness of the
sort the majority finds in the
73
Succession of Juan Serralles v.
Esbri, 200 U.S. 103, 110 (1906).
74
Id. at 111.
75
Id. at 110.
Professional Liability and International Lawyering
English word ‘undertakes.’”76
The dissent also cited instances
when the Court turned to foreign
language versions of a treaty “to
clear up ambiguity in [the]
Here the
English version.”77
translation of the Charter’s
language, if accepted, would have
rendered the Charter selfexecuting instead of requiring
ratification.
B.
Differing Legal
Principles
The international attorney
may
find
himself
in
circumstances where he is subject
to the laws and professional
standards
of
multiple
jurisdictions. Any United States
lawyer working abroad should
take special note of these
differences. The relevancy of
different legal principles might
arise equally where a domestic
lawyer is working on his own,
where he has outsourced legal
services or where he has retained
local counsel.
In addition to the duties
imposed by the rules of
professional conduct of the
United
States
licensing
jurisdiction,
other
countries
impose ethical obligations not
commonly imposed in the United
States. The ethical rules of the
European Union specifically
76
Medellin v. Texas, 128 S.Ct. 1346,
1384 (2008) Breyer, J. dissenting.
77
Id. at 1384.
Page 85
require that lawyers from one
jurisdiction working in another
“comply not only with the rules
of
professional
conduct
applicable in his home Member
State but also those of the host
Member State” and state that if
the lawyer fails to do so he will
“incur disciplinary sanctions and
exposure
to
professional
liability.”78 In this instance, the
European Court of Justice (ECJ)
has universally applied the
international law theory of
jurisdiction based on nationality.
The ECJ also explicitly
imposes a duty to refer or to seek
assistance where the attorney
“know[s] or ought to know they
are not competent to handle” the
matter.79 In contrast to the United
States, when a European attorney
is retained to handle a real estate
matter, and the attorney has no
real estate experience, he is
ethically bound to refer his clients
to another attorney or retain
another lawyer.80
Due to the multi-lingual
makeup of the European Union,
the ECJ places heavy significance
on linguistic matters. Lack of
knowledge of the local language
is a type of incompetence
requiring the lawyer to refer or
seek assistance.
The general
78
Wilson v. Ordre des Avocats du
barreau de Luxembourg, [2006] ECR
I-8613 paragraph 74, 2006 WL
2682390 (ECJ).
79
Id.
80
Harrison, 22 PENN ST. INT’L L.
REV. at 644.
Page 86
DEFENSE COUNSEL JOURNAL–January 2010
principles of the attorney-client
relationship require “a European
lawyer
to
have sufficient
linguistic knowledge or recourse
to
assistance
where
that
knowledge is insufficient.”81
Proving sufficient knowledge
may even require the attorney to
take a language proficiency
The ECJ, however,
exam.82
recognizes that the language
requirement is flexible because in
“international cases [where the
law of another Member State, and
not the host state apply] . . . may
not require” the same level “of
knowledge of the languages of
the” host state “as that required to
deal with matters in which the
law” of the host state applies.83
In other words, a British solicitor
working in France may not be
required to be fluent in French,
when he is handling British law
matters.
Differences exist even in the
laws of jurisdictions sharing a
common legal background. In
the United States it is widely
known that “expert testimony is
generally required to establish the
standard of care in a legal
malpractice action.”84 In legal
malpractice
actions
expert
81
Wilson v. Ordre des Avocats, 2006
WL 268239 at para. 74.
82
Id. at para. 77.
83
Id. at para. 75.
84
In re Frazin, 2008 WL 5214036
(Bkrtcy.N.D.Tex. September 23,
2008) (citing Mazuca & Assoc. v.
Schumann, 82 S.W.3d 90 (Tex. App.
2002)).
testimony is required “to establish
compliance with the standard of
skill and care ordinarily exercised
by an attorney.”85 However, a
general exception states, “Expert
testimony is not necessary in
cases
where
the
conduct
complained of can be evaluated
adequately by a jury.”86In Hong
Kong, in contrast, the “general
guiding legal principles” state
that “[e]xpert evidence is
generally relevant and admissible
to assist the court in deciding
whether the acts or omissions of a
professional
defendant
constituted
negligence.”87
“Solicitors’
[attorney’s]
negligence cases are generally an
exception” to the rule.88 Hong
Kong courts “rarely [admit]”
expert testimony “on the question
of whether a solicitor has
discharged his duty of skill and
care, holding that courts generally
possess
the
necessary
professional expertise to decide
In addition,
the question.”89
“[t]he extent of legal duty in any
85
Id. (citing Zenith Star Ins. Co. v.
Wilkerson, 150 S.W.3d 525 (Tex.
App. 2004)).
86
Olfe v. Gordon, 286 N.W.2d 573
(Wis. 1980) (citing Hill v. Okay
Construction Co., Inc., 252 N.W.2d
at 116 (Minn.1977)).
87
Oxyvital Ltd. v. Deacons, [2008]
HKEC 1973, paragraph 23(1); 2008
WL 4928609 (CFI), (emphasis in
original) (citing JACKSON & POWELL
ON PROFESSIONAL LIABILITY 6-007).
6-008 (6th ed., 2007)).
88
Id.
89
Id. at para. 23(2).
Professional Liability and International Lawyering
given situation must . . . be a
question of law for the court.”90
Expert evidence is admissible
only where the malpractice claim
involves a “debate on established
professional
practices,
or
allegations
of”
malpractice
relating to a “specialized or
complex branch of the law.”91
Conflicting legal principles
may occasionally give rise to
“Catch-22” situations relating to
the
fiduciary
duties
of
confidentiality and loyalty. The
principle of confidentiality in the
attorney-client relationship is
recognized
and
universally
respected,92 and Model Rule of
Professional
Conduct
1.6
prohibits lawyers from revealing
“information relating to the
representation of a client unless
the
client
consents
after
However,
consultation.”93
confidentiality standards vary
between jurisdictions. In China
in 1996, the Chinese government
“sent orders to foreign law offices
in China requiring quarterly
reports on information usually
90
Id. at para. 23(3) (citing Midland
Bank v. Hett, Stubbs & Kemp [1979]
Ch 384E at 402).
91
Id. at para. 24.
92
McCary, 35 TEX. INT’L L.J. at 312,
(citing LAW WITHOUT FRONTIERS, A
COMPARATIVE SURVEY OF THE RULES
OF PROFESSIONAL ETHICS APPLICABLE
TO THE CROSS-BORDER PRACTICE OF
LAW, Appendix 11, 360-364 (Edwin
Godfrey ed., 1995) (International Bar
Association Series)).
93
MODEL RULES OF PROF’L CONDUCT
R. 1.6.
Page 87
considered
confidential
by
American lawyers such as ‘client
lists, locations of projects under
consideration, affiliations with
Chinese law firms, business
reference lists, and the value of
deals
in
negotiations.”94
Compliance with this government
imposed standard would have
violated United States ethics rules
and the fiduciary duty of
confidentiality.
The converse of these issues
arises when representing with
clients subject to shari’a. Islamic
principles of confidentiality are
largely on par with U.S.
standards,95 but some principles
of shari’a may “demand that a
lawyer abide by a higher standard
of duty in maintaining a client’s
confidentiality.”96 For instance, a
“Muslim client or party would
naturally expect confidentiality to
94
Harrison, 22 PENN ST. INT’L L.
REV. at 651 (citing Yujie Gu, Note,
Entering the Chinese Legal Market:
A Guide for American Lawyers
Interested in Practicing Law in
China, 48 DRAKE L. REV. 173, 18687 nn. 147, 148 (1999)); see also
China Wants Lawyers' Confidential
Info, DOW JONES INT’L NEWS SERV.,
Sept. 18, 1996 (on file with the Drake
Law Review).
95
M. McCary, 35 TEX. INT’L L.J. at
312.
96
M. McCary, 35 TEX. INT’L L.J. at
313 (citing Azizah al-Hibri, The
Muslim Perspective on the ClergyPenitent Privilege, 29 LOY. L.A. L.
REV.
1723,
1725-26
(1996)
(discussing a higher duty of
confidentiality for an Imam)).
Page 88
DEFENSE COUNSEL JOURNAL–January 2010
apply ‘not merely to matters
communicated in confidence by
the client but also to all
information
relating
to
representation,
whatever
its
source.’"97 This could, possibly,
extend to discussing the abstract
facts of their case in a
hypothetical matter with a fellow
attorney who is not involved in
the representation or an associate
in the same firm. “In complex
representation involving Islamic
issues, lawyers operating under
the Model Rules [of Professional
Conduct] are charged with
recognizing
these
higher
An attorney
standards.”98
representing clients who are
subject to shari’a should consult
with their clients about the
attorney’s perceived duty of
confidentiality.
Failure to
appropriately address this higher
standard of confidentiality could
result in a violation of the
fiduciary relationship.
Ethics
committees
have
maintained a duty on lawyers to
maintain client confidentiality
when outsourcing legal service.
However, sufficient monitoring
of local counsel’s behavior may
be especially difficult when
dealing
with
counterparts
thousands of miles away.
Differing standards like those
mentioned
above,
if
not
considered in advance, may occur
97
Id. (citing MODEL. RULES
PROF”L CONDUCT R. 1.6, cmt. 3).
98
Id. (citing MODEL RULES
PROF”L CONDUCT R. 1.1, 1.3).
OF
OF
apply
in
an
outsourcing
relationship leading to ethical and
fiduciary violations. Attorneys
contemplating outsourcing should
also research the provider’s home
jurisdiction’s confidentiality laws
and should explain and verify
compliance of the United States
duty owed to clients in any
outsourcing arrangement.
IV. Limiting Liability
Generally, because attorneys
may not add provisions that serve
to limit their liability to letters of
representation,
“ordinary
principles of contract law do not
apply to attorney agreements with
clients.”99 “The basic contractual
relationship between client and
lawyer is itself subject to an
overriding power in courts to
affect the terms of the
relationship . . . in ways favorable
to the client.”100 The Model Code
of Professional Responsibility
stated a “lawyer shall not attempt
to exonerate himself from or limit
his liability to his client for his
personal malpractice.”101 Model
99
Lawyers’ Responses: Shifting the
Costs of Liability, 107 HARV. L. REV.
1651 (1994) (citing In re Dunn, 98
N.E. 914, 915-16 (N.Y. 1912)).
100
Charles W. Wolfram, MODERN
LEGAL ETHICS, 235-36 (1986).
101
Model Code Prof. Resp. DR 6102(a) (ABA 1978); see also In re
Application of Oklahoma Bar Ass’n
to Amend Oklahoma Rules of
Professional Conduct, 171 P.3d 780
(Okla. 2007) (prohibiting agreements
Professional Liability and International Lawyering
Rules Rule 1.8 modified the Code
slightly, “allow[ing] prospective
limits on attorney liability when
‘permitted by law’ and when the
client
is
independently
Courts have
represented.”102
suspended, fined and publicly
reprimanded
attorneys
for
attempting to limit their liability
via contractual provisions.103
Although an international
attorney cannot contractually
limit the scope of her potential
liability,
she
may
make
arrangements to provide for a
convenient forum, reducing the
potential costs associated with
this liability. The international
attorney often deals with clients
from more than one state or
country. She may have many
clients
from
multiple
jurisdictions. This means that
should clients decide to bring
suit, the attorney could find
himself being hailed into courts
in jurisdictions all across the
which prospectively limit a lawyer’s
malpractice liability).
102
Lawyers Responses, 107 HARV. L.
REV. at 1665 (citing MODEL RULES
OF PROF’L CODE R. 1.8(h)).
103
See generally In re Cohen, 331
So.2d 306, 307-08 (Fla. 1976)
(publicly reprimanding attorney for
trying to limit his liability before
agreeing to representation); In re
Cissna, 444 N.E.2d 851, 852 (Ind.
1983) (per curiam); People v. Foster,
716 P.2d 1069 (Colo. 1986)
(suspending lawyer for three years
for inserting a provision limiting
liability in a stock purchase
agreement).
Page 89
globe.
In
addition
to
inconvenience, courts are likely
to apply the local laws of their
jurisdiction when deciding such a
suit.
An attorney may protect
himself
under
these
circumstances
by
providing
mandatory arbitration, choice of
law
and
forum
selection
provisions in her standard
engagement
letter.
“An
agreement to arbitrate does not
prospectively limit the lawyer's
liability to a client for
malpractice, but rather ‘merely
shift[s] determination of the
malpractice claim to a different
Because such a
forum.’”104
provision does not limit liability,
it falls with the “permitted by
law” language of Model Rule
1.8(h). These provisions should
specify both forum and choice of
law.
“A mandatory-arbitration
clause (or any forum-selection
clause) might in a particular case
give the lawyer an advantage
over the client. But a clause that
has only the possibility of
reducing by some small percent
the chances of an attorney's being
found liable is categorically
different from a clause that truly
limits liability-for example, a
clause that either directly limits
liability (e.g., a hold-harmless
clause) or a clause that so
104
Tolliver v. True, 2007 WL
2909393 (D.Colo. September 28,
2007) (citing McGuire, Cornwell &
Blakely v. Grider, 765 F. Supp. 1048,
1051 (D.Colo. 1991)).
Page 90
DEFENSE COUNSEL JOURNAL–January 2010
handicaps a client in a
malpractice suit as to be a
practical limitation on liability
(e.g., a clause requiring suit to be
filed within days of the
malpractice's occurring).”105 The
Fifth Circuit has held that a
“forum-selection clause in the
attorney-client
agreement
is
enforceable.”106 Here the court
seems to use the terms “forumselection” and “choice-of-law”
interchangeably.
Inserting arbitration, choiceof-law, and choice-of-forum
provisions materially reduces the
potential burden of litigation
defense.
By doing so, and
advising the client of the
provision, the attorney can
105
Ginter ex rel. Ballard v. Belcher,
Prendergast & Laporte, 536 F.3d 439,
443 (5th Cir. 2008); see also Conn.
Bar Ass’n, Ethics Op. 99-20, at *1 n.
2 (1999) (An “arbitration clause
addresses only the forum for the
adjudication of a malpractice claim,
and has no limiting effect on the
lawyer's liability to the client”); OH.
Bd. Of Comm’rs on Grievances and
Discipline, Op. 96-9, at *4 (1996)
(noting that arbitration provisions do
not limit an attorney’s liability but
merely “shifts resolution of the . . .
dispute from a court of law to a
different forum”); Ok. Bar Ass'n
Legal Ethics Comm., Op. No. 312 at
*2-*5 (2000) (determining that
arbitration clauses are allowable, but
an attorney has a duty to explain the
differences between arbitration and
court proceedings to the client); NY
County Lawyers' Assoc. Comm. On
Prof'l Ethics, Op. 723, at *2 (1997).
106
Ginter, 536 F.3d at 445.
streamline his practice by
knowing that he only has to
research the laws of one
jurisdiction, and that due to a
choice-of-forum clause, potential
liability suits can only be brought
in one jurisdiction. Such clauses
also discourage frivolous suits
against the attorney. This is
especially true of forum selection
clauses
in
international
agreements, which are “prima
facie valid and should be
enforced unless enforcement is
shown . . . to be unreasonable
under the circumstances.”107
Disgruntled clients may
ignore forum selection clauses
and may file suit in other
jurisdictions.
In
these
jurisdictions, the local “court may
decline to enforce a choice of law
provision [or forum-selection
provision] where the chosen law
contravenes a public policy . . . of
the state whose law would
otherwise apply and which has a
materially greater interest in the
matter.”108 Because in making
this decision the court is likely to
107
CJS Contracts § 237 (citing
Lipcon v. Underwriters at Lloyd’s,
London, 148 F.3d 1285 (11th Cir.
1998), cert. denied, 119 S.Ct. 851
(1999)); see also M/S Bremen v.
Zapata Off-Shore Co., 407 U.S. 1
(1972) (federal law presumes the
validity of forum-selection clauses
and the party seeking to invalidate
such clauses bears a “heavy burden
of proof”).
108
17A AM. JUR. 2D CONTRACTS §
262.
Professional Liability and International Lawyering
look at whether “the chosen law
has a significant or substantial
relationship to the contract, the
chosen law bears a reasonable
relationship to the transaction or
the parties, the jurisdiction
selected has sufficient contacts
with the transaction [and] there is
another reasonable basis for the
choice,”109 Practitioners should
associate both forum selection
and choice of law clauses with a
jurisdiction
in
which
the
practitioner maintains substantial
contacts, such as the jurisdiction
in which he or she is licensed to
practice.
V. Conclusion
The international arena can
be complicated, complex and
difficult to navigate, especially in
the context of professional
liability. When working in the
international arena, whether
working
abroad,
through
outsourcing
or
international
clients, the attorney must take
into
consideration
the
professional liability laws to
which he may be subject, or to
which his or her local or
outsourced counsel may be
subject, as well as which
jurisdictions may assert their laws
over him. Professional ethics
rules, malpractice and other tort
theories, contract principles and
fiduciary duties, some of which
vary or contradict one another by
109
Id.
Page 91
jurisdiction,
all
must
be
considered by the international
attorney. Given the constraints
the courts have placed on
attorneys in limiting their own
liability, every practicing attorney
addressing a representation with
international components should
be aware of professional liability
laws and how they apply in the
international arena.
Railroad Tort Liability After the
“Clarifying Amendment:” Are Railroads
Still Protected By Preemption?
By: Aaron Ries
I
T IS 6:30 A.M. in central
Chicago. A train transporting
five chlorine-filled rail cars, each
with
a
90-ton
capacity,
approaches the Union Street
interlocking on its way through
the city.1 Without warning, an
explosion rips through the tracks
underneath the train, sending
several chlorine tankers sliding
onto adjacent lines.2 Minutes
later, before the railroad’s
dispatch center in Fort Worth,
Texas can signal an all stop, a
local commuter train slams into
the train at 30 miles per hour.3
1
RISK
MGM’T
SOLUTIONS,
CATASTROPHE,
INJURY,
AND
INSURANCE: THE IMPACT OF
CATASTROPHES
ON
WORKERS
COMPENSATION, LIFE, AND HEALTH
INSURANCE 58 (2004), available at
www.rms.com/newspress/pr_04290
4_casualtystudy.asp
[hereinafter
CATASTROPHE STUDY].
2
Id. at 58.
3
Id. (noting that information is
relayed to Fort Worth before being
locally
dispatched).
Local
regulations require trains to travel
slowly near interlockings such as the
one in this hypothetical scenario,
however
recent
speed-related
accidents demonstrate that accidents
have been caused by trains travelling
as much as 59 miles per hour over
the speed limit in Chicago. See
Associated Press, Speed Cited in
Aaron
Ries is an
associate t
at
the
Houston t
office of
Fridge t
Resendez t
and Wise,
LLC, where he focuses on
general business litigation. Mr.
Ries is a 2009 graduate of the
University of Houston Law
Center, where he served as
Senior Articles Editor on the
Houston Journal of International
Law, and a 2002 graduate of
Austin College, where he
majored in History and German.
Mr. Ries’s article was judged
First Runner-Up in the 2009
Student Legal Writing Contest.
The impact punctures one of
the tanker cars and the chlorine
leaks, vaporizing instantaneously
as it escapes.4 It drifts with the
wind, forming a yellow-green
haze that hugs the ground and
lingers in low-lying areas.5
Chicago Train Derailment, N.Y.
TIMES, Sept. 19, 2005, at A16
[hereinafter Chicago Derailment].
4
See 73 Fed. Reg. 17827 (noting
chlorine’s rapid vaporization rate
after rail car punctures).
5
See LUDWIG F. HABER, THE
POISONOUS CLOUD:
CHEMICAL
WARFARE IN THE FIRST WORLD WAR
Railroad Tort Liability
Chlorine is a “toxic inhalation
hazard” (“TIH”), lethal after a
30 minute exposure at relatively
low concentrations of 400 ppm,
or within moments at 1000
ppm.6 When inhaled, chlorine
reacts with moisture in the lungs
to form hydrochloric acid that
leads to pulmonary edema.7 The
resulting fluid build-up in the
lungs can quickly lead to death
by asphyxiation.8
In a worst-case scenario, the
poisonous cloud spreads over a
14.8 square mile area.9 The
34 (1986) (describing the first
German chlorine gas attack at Ypres
in 1915).
6
Nat’l Library. of Med., Hazardous
Substance Databank, http://toxnet.
nlm.nih.gov [hereinafter HSDB]
(last visited Nov. 20, 2009). By
comparison, momentary exposure to
cyanide, once used as the lethal
ingredient in the gas chamber, is
lethal at 300 ppm. See MEDICAL
TOXICOLOGY 1158 (Richard Dart et
al. eds., 3d ed. 2004).
7
See HSDB, supra note 6; KIM
COLEMAN, A HISTORY OF CHEMICAL
WARFARE 17-18 (Palgrave, 2005).
8
COLEMAN, supra note 7, at 17-18;
HABER, supra note 5, at 80 (noting
that the first 24 hours after being
gassed were determinative for the
survival of soldiers in World War I).
9
See PAUL ORUM, CTR. FOR AM.
PROGRESS, TOXIC TRAINS AND THE
TERRORIST THREAT: HOW WATER
UTILITIES CAN GET CHLORINE GAS
OFF THE RAILS AND OUT OF
AMERICAN COMMUNITIES 5 (2007),
available
at
http://www.americanprogress.org/iss
Page 93
ground-level area within one
half mile of the wreck is
transformed into dead-zone. The
gas cloud within that area is
lethal within minutes, and those
within in an area with
concentrations above 400 ppm.
have less than half an hour to
evacuate the area.10 The attack
could result in as many 17,000
fatalities, depending on the
weather conditions and volume
of
chlorine
discharged.11
Economic damages could be
This
similarly catastrophic.12
scenario,
though
dire
in
consequence, would not require
any
particularly
advanced
technology — just a bit of
planning, logistical preparation,
and a small amount of
ues/2007/04/chemical_security_repo
rt.html.
10
See CATASTROPHE STUDY, supra
note 1, at 58-59; HSDB, supra note
6; see also COLEMAN, supra note 7,
at 17-18 (noting the concentration
that the German used against the
Allies at Ypres was near 1000
ppm.).
11
Compare CATASTROPHE STUDY,
supra note 1, at 58-59 (predicting
10,000 fatalities), with DAVID HOWE,
HOMELAND SECURITY COUNCIL,
PLANNING SCENARIOS: EXECUTIVE
SUMMARIES 8-2 (2004), available at
http://www.scd.state.hi.us/grant_doc
s/National_Planning_Scenarios_Exe
cSummaries_ver2.pdf
(predicting
17,500 deaths in a densely populated
area of 700,000 inhabitants) (last
visited November 20, 2009).
12
See CATASTROPHE STUDY, supra
note 1, at 58-59.
Page 94
DEFENSE COUNSEL JOURNAL–January 2010
explosives.13 Yet because of the
nation’s dependence on TIH
materials,
chlorine
in
particular,14 such a nightmare
remains an all-too-possible
reality.
As America becomes more
aware of its vulnerability to
terrorism or other disasters,
industries involved in the
manufacture, transportation, and
consumption
of
hazardous
materials are becoming more
concerned about their potential
liability should TIH materials in
their possession be unleashed on
the general population.15 While
many industries are unsettled by
the prospect of “ruinous
liability,”
railroads
view
13
Cf. Ross Paolino, Comment, All
Aboard! Making the Case for a
Comprehensive Rerouting Policy to
Reduce
the
Vulnerability
of
Hazardous
Rail
Cargoes
to
Terrorist Attack, 193 MIL. L. REV.
144, 152 (2007) (noting the ease
with which, for example, graffiti
artists are able to obtain access to
rail yards).
14
See generally Robert Ahlert and
Francis Brown, Chlorine and
Chlorine Chemistry, 17 ENVTL
PROGRESS 161 (1998) (discussing
chorine’s
importance
to
the
industrial economy).
15
See, e.g., John D. Boyd, Who
Hauls the Risk, PACIFIC SHIPPER,
August 25, 2008, available at
http://www.pacificshipper.com/news
/article.asp?sid=32673&from=searc
h (discussing the Association of
American
Railroad’s
(“AAR”)
requests that congress place a
liability cap on damages).
themselves
as
particularly
vulnerable because their status
as common carriers forces
carriage of all hazardous
materials, regardless of potential
exposure to tort liability.16
Two
relatively
recent
developments have raised the
possibility of enhanced liability
to common carriers. First, the
addition
of
a
so-called
“Clarifying Amendment” to the
Implementing Recommendations
of the 9/11 Commission Act of
2007 curtailed the long-standing
federal preemption doctrine for
railroads.17 Second, case law
spawned by the 1993 World
Trade Center bombings18 and the
9/1119 attacks suggests that
terrorist attacks may not
constitute intervening causes
16
See generally Common Carrier
Obligation
of
Railroads—
Transportation
of
Hazardous
Materials: Hearing Before the
Surface Transp. Board, STB Ex
parte No. 677, 110th Cong. 10, 14
(July 22, 2008) (written statement of
the AAR) [hereinafter Hearing],
available at http://www.stb.dot.gov/.
The AAR’s written statement is
available at http://www.aar.org/
InCongress/Testimony.aspx
[hereinafter Written Statement].
17
Pub. L. No. 110-53, 121 Stat. 266
(2007) (codified at 49 U.S.C. §
20106).
18
Nash v. Port Authority of New
York and New Jersey, 856 N.Y.S.2d
583 (N.Y. App. Div. 2008).
19
In re September 11 Litigation,
280 F.Supp.2d 279 (S.D.N.Y. 2003).
Railroad Tort Liability
absolving20 a railroad of tort
liability to individuals harmed as
the result of a terrorist attack or
related event.21 Railroads see
20
Though beyond the scope of this
article, this position is flawed
because both cases involved
defendants
who
were
likely
negligent. In Nash, the defendant
World Trade Center operator
commissioned
and
repeatedly
ignored reports detailing the exact
method of the terrorist attack such
that the court stated: “It is . . .
possible that terrorists will employ
means
that
not
even
the
conscientious performance of duty
would deter and, where that is
established, the absence of a causal
nexus between the harm and any
default by a defendant in the
performance of its duty will
preclude the imposition of civil
liability. But . . . this was not such a
case.” 856 N.Y.S.2d at 598. In
September 11 Litigation, the court
allowed the plaintiffs to proceed on
the basis, inter alia, that the airlines
ignored prior terrorist highjackings
by declining to make a stronger
cockpit door, and that operators of
the towers faultily manufactured the
emergency escape stairwells. 280 F.
Supp.2d at 291.
21
Cf. In re September 11 Litigation,
280 F. Supp.2d at 302 (denying the
World Trade Center property
owners and operators’ motion to
dismiss based on the argument
terrorist attacks were intervening
causes); Nash, 856 N.Y.S.2d at 594,
599 (affirming a jury verdict
apportioning 68% fault against the
World Trade center owners over the
defendant’s contention that the
terrorist attacks were an intervening
Page 95
this situation as “untenable”
because they must shoulder
virtually the entire liability of
transporting TIH chemicals that
they do not want to transport in
the first place.22
This situation created a
heavyweight showdown between
the railroads and shippers before
the Surface Transport Board
(“STB”).23 The railroads asked
STB and Congress to allow them
to contract for indemnity sharing
provisions with shippers; create
liability
caps;
and/or
alternatively, a Price Anderson
Act24 system of indemnification
cause). The general rule is, of
course,
that “an
intervening
intentional or criminal act severs the
liability of the original tort-feasor.”
E.g., In Re September 11 Litigation,
280 F. Supp.2d at 302.
22
See Written Statement, supra note
16, at 14 (“Railroads face these huge
risks for a tiny fraction of their
business. Shipments of TIH
constitute only about 0.3 percent of
all rail carloads.”).
23
See Boyd, supra note 15, at 62-63.
The STB has some authority as to
the extent to which railroads must
satisfy their common carrier
obligation which, according to the
railroads, includes modifying the
obligation to allow railroads to enter
otherwise
voidable
indemnity
agreements with shippers.
24
Price Anderson Act of 1957, Ch.
724, 71 Stat. 576 (codified at 42
U.S.C. § 2210). The Act creates
omnibus insurance coverage for all
nuclear plants by providing two
layers of insurance coverage. See
AMER. NUCLEAR SOC’Y, THE PRICE
Page 96
DEFENSE COUNSEL JOURNAL–January 2010
pooling and liability caps like
that used in the nuclear
industry.25 For their part,
shippers, led by chemical
manufacturers, argued that the
railroads are exploiting the
current political climate to
insulate
themselves
from
liability for their own negligence
in the wake of recent TIH
accidents,
even
though
underlying
market
and
operational conditions have not
significantly changed. Shippers
have vowed to contest any
attempts to impose traditional
carrier liability on them.26
ANDERSON ACT, BACKGROUND
INFORMATION 2-3 (2005), http://
www.ans.org/pi/ps/docs/ps54-bi.pdf.
Each nuclear site first must purchase
$300 million dollars in coverage
individually. Id. Each nuclear
reactor also contributes $15 million
annually to a joint pool, which
collectively adds up to a $10 billion
policy (and cap) that could be
applied to any single nuclear
catastrophe. Id.
25
See Boyd, supra note 15, at 63;
Hearing, (oral testimony of Eric
Stohmeyer, CMJ Rail Corp.), supra
note 16, at 502-505.
26
See Boyd, supra note 15, at 63.
See Hearing, (oral testimony of
Sharon Piciacchio, PPG Industries),
supra note 16, at 325:16-326:6.
There have been three TIH incidents
since 2002. 1) The derailment and
breach of an anhydrous ammonia
tanker in Minot, North Dakota
which killed one and injured 333 in
2002; 2) a collision that derailed a
chlorine tanker in Macdona, Texas
that killed three and injured 33 in
This
article
evaluates
regulations promulgated by the
Transportation
Security
Administration Agency (“TSA”)
and the Pipeline Hazardous
Materials Safety Administration
(“PHMSA”) that build on and
expand
existing
Federal
preemption
doctrine,
and
concludes that these regulations
provide railroads with continued
preemptive protection from state
tort law causes of action—
provided that railroads diligently
comply
with
the
new
regulations. Part I provides an
overview of the railroad industry
and
the
common
carrier
obligation. Part II examines the
development and current status
of the Federal preemption
doctrine in the railroad industry
in light of recent Congressional
enactments. Part III details the
extensive new TSA and PHMSA
regulations
governing
the
transport and routing of TIH
materials.
2004; and 3) and another collision in
Graniteville, South Carolina that
killed 9 and injured 554 others in
2005. Hearing, (written statement
of the AAR), supra note 16, at 16.
The last incident reportedly cost the
railroad $500 million to settle. Id.
The railroads were negligent in all
three accidents.
Railroad Tort Liability
I.
The
Railroad
Transportation Industry and the
Common
Carrier
Obligation
The
common
carrier
obligation arises from an ancient
common law doctrine that was
enforced by the courts until
Congress promulgated the Act to
Regulate Commerce (the “Act”)
in 1887.27 First codified in the
Hepburn Act of 1906 as: “the
duty of every carrier subject to
the provisions of this Act to
provide and furnish such
transportation, upon reasonable
request, . . . ,”28 the common
carrier
obligation
retains
substantially the same language
today: “A rail carrier providing
transportation or service subject
to the jurisdiction of the [STB]
under this part shall provide the
transportation or service on
The
reasonable request.”29
27
Interstate Commerce Act, ch. 104,
24 Stat. 370 (1887) (codified in
scattered sections of 49 U.S.C.); see
generally, Paul S. Dempsey,
Transportation: A Legal History, 30
TRANSP. L. J. 235, 241-42, 265
(2003) (discussing the creation and
evolution of the common carrier
obligation beginning with the
Roman Empire’s regulation of
commerce over its road system).
The ICC was replaced by the STB
in 1995, though their functions are
the same.
28
59th Cong. Ch. 3591, 34 Stat.
584, § 1 (June 29, 1906).
29
49 U.S.C. § 11101(a) (1995). The
modifier “adequate” has been
Page 97
obligation is premised on the
public need to transport certain
materials,
even
though
considered
dangerous
or
otherwise more trouble than
worthwhile for the carrier.30
“[A]t common law, railroad
companies, whose property and
facilities are affected with a
public interest, (were) ordinarily
held to be common carriers of
goods delivered to them for
transportation . . . .”31
The Act also established the
Interstate
Commerce
Commission (the “ICC”)32 in
response to systemic and gross
abuses of power by the railroads
— whose rise to supremacy had
been funded largely by the
federal government’s westward
judicially inserted before “service”
as part of the general definition of
common carrier obligation. See
Granite State Concrete Co., Inc. v.
STB, 417 F.3d 85, 92 n.10 (1st Cir.
2005). The ICC was replaced by the
Surface
Transportation
Board
(“STB”) in 1996 pursuant to the
Interstate Commerce Commission
Termination Act of 1995. Pub. L.
No. 104-88, 109 Stat. 803 (codified
in scattered sections in 49 U.S.C.);
Douglas Graves, Have Truck, Will
Drive: The Trucking Industry and
the Use of Independent OwnerOperators Over Time, 35 TRANS.
L.J. 115, 132 (2008).
30
See Akron, Canton, &
Youngstown R.R. v. ICC, 611 F.2d
1162, 1166 (6th Cir. 1979).
31
Id. at 1166.
32
See ICC Termination Act of 1995,
Pub. L. No. 104-88, § 201, 109 Stat.
803, 932.
Page 98
DEFENSE COUNSEL JOURNAL–January 2010
expan-sion programs.33 The ICC
initially regulated only tariffs,
but
its
jurisdiction
was
subsequently expanded. This
expansion led to regulations on
the railroads’ ability to, for
example, enter private contracts
with shippers and choose
methods of routing were
imposed.34
By the mid-1970s, overregulation was seen as crippling
the railroad industry.
In
response, Congress passed three
deregulation acts within the span
of seven years, most notably the
Staggers Rail Act of 1980.35 The
33
See Dempsey, supra note 27, at
248, 251, 264. Some studies
estimate that the government paid
some 3/5 of the total cost of railroad
expansion. Id. at 251 (citing
MATTHEW JOSEPHSON, THE ROBBER
BARONS: THE GREAT AMERICAN
CAPITALISTS 77 n.2 (Harcourt
1962)). Examples of abuses were
providing
preferred
rates
to
particular shippers (freezing out
those who did not give kick backs to
the railroads), id. at 254-55, and the
bribery of judges and political
officials. Id. at 255-56.
34
See generally, Dempsey, supra
note 27, at 260-73; AAR, THE
IMPACT OF THE STAGGERS ACT OF
1980 1-2 (2005), available at
http://www.aar.org/InCongress/~/me
dia/AAR/BackgroundPapers/Impact
_of_the_Staggers_Act_Sept2009.as
hx [hereinafter STAGGERS ACT] (last
visited Nov. 28, 2008).
35
Pub. L. No. 96-448, 94 Stat. 1895
(Oct. 14, 1980) (codified in
scattered sections of 49 U.S.C.); see
G. & T. Terminal Packaging Co.,
Staggers Act allowed railroads
to set many of their own freight
rates and enter into private
contracts with shippers that,
according to the American
Association of Railroads (the
“AAR”), saved the railroad
industry.36
The Staggers Act created an
interplay between the traditional
common carrier obligation and
the free market ability to
contract. Instead of abrogating
the common carrier obligation, it
allowed railroads to enter into
contracts (which are not subject
to STB oversight) with shippers
unless the carrier is in a position
of “market dominance” over the
shipper.37 Market dominance is
defined as “an absence of
effective competition from other
rail carriers or modes of
Inc. v. Consolidated Rail Corp., 830
F.2d 1230, 1236-1237 (3rd Cir.
1987) (“Congress enacted the
Staggers Act . . . to dismantle the
regulatory scheme established by the
Interstate Commerce Act of 1887.”).
40
STAGGERS ACT, supra note 34, at
2 (“The Staggers Act eliminated
many of the most damaging
regulations that hindered efficient
[freight service]. . . .”). Railroads
were not, however, able to set their
own rates free from regulation if
they were in a position of “market
dominance”. Dempsey, supra note
27, at 326. However, the ICC
“defined ‘market dominance’ in
such a way as it was rarely deemed
to exist,” thus giving railroads free
reign to charge their rates. Id.
37
See 49 U.S.C. § 10707 (1982);
Railroad Tort Liability
transportation
for
the
transportation to which a rate
applies.”38 If a shipper falls into
this category, it is considered
“captive,” and the railroads may
only enter into contracts with
them
subject
to
a
“reasonableness” review by the
STB.39 Two thirds of chemical
shippers
are
considered
captive,40 and STB has held any
indemnity or liability restricting
provisions incorporated into a
contract with a captive shipper
unenforceable because of the
lack of bargaining power.41
Railroads also may not pass
38
Major Issues in Rail Rate Cases,
STB Ex Parte No. 657 (Sub-No.1),
2006 WL 3087168, at *4 (STB Oct.
30, 2006); see generally Beau B.
Bump, Comment, Held Captive:
How Increased Regulation Arrests
Railroads’ Ability to Serve the
Nation 5 DEPAUL BUS. & COM. L.J.
731, 742-43 (2007) (reviewing the
current STB tariff setting process).
39
See Major Issues in Rate Cases,
2006 WL 3087168, at *5-6.
40
Ivan Lerner, NACD President
Warns of Further Regulations, ICIS
CHEMICAL BUSINESS, Nov. 20, 2008,
http://www.icis.com/Articles/2008/1
2/01/9173378/nacd-president-warnsof-further-regulations.html.
41
Hearing, (oral testimony of Paul
Donovan, Chlorine Inst.), supra note
16, at 116; cf. id. (“Since any such
shipper would have essentially no
real bargaining power to resist such
an exculpatory clause either in tariff
or in contract, the courts would void
the provision. That is why the
railroads simply haven't demanded
those clauses up until now.”).
Page 99
costs (such as higher insurance
premiums) directly through to
shippers.42
The
common
carrier
obligation remains the source of
continued tension between the
railroads
and
shippers.43
Railroads feel that hazardous
materials, in particular TIHs,
pose “unique and significantly
greater risks . . . than other
commodities [which require] . . .
extraordinary measures” of
protection
such
that
the
economic benefit of transporting
such materials is far outweighed
by the potential for liability.44
The chemical manufacturers
disagree and argue the railroads’
industry attempt to cast aside
their
common
carrier
responsibility to transport is little
more than a veiled attempt to
exploit “market dominance” to
42
See Simplified Standards for Rail
Rate Cases, STB Ex Parte No. 646
(Sub. No.1) (August 14, 2009).
43
See, e.g., Actiesselskabet Ingrid v.
Central R. Co., 216 F. 72 (2d Cir.
1914) (dismissing a ship-owner’s
strict liability suit against a railroad
when dynamite on the defendant’s
train inexplicably exploded, sinking
plaintiff’s nearby vessel); Hearing
(written statement of the AAR),
supra note 16 at 20 (“The AAR
believes it is not a ‘reasonable’
request for a shipper to ask the
railroads to transport TIH materials .
. . without agreeing . . . to share . . .
the significant exposure resulting
from such transport.”).
44
See Hearing, (Written statement
of the AAR), supra note 16, at 6-7.
Page 100
DEFENSE COUNSEL JOURNAL–January 2010
charge “exorbitant rail rates.”45
Courts have sided with the
shippers on this issue. In Akron,
Canton, & Youngstown R.R. v.
ICC, the railroad petitioners
challenged the ICC’s authority
to require carriage of spent
nuclear fuel at set rates.46 The
railroads claimed, inter alia, that
the inherent dangerousness of
the materials justified an
exemption from the common
carrier requirement to transport
nuclear waste under ICCapproved rates.47 The court
disagreed, holding:
[A] carrier may not ask the
Commission
to
take
cognizance of a claim that a
commodity is absolutely too
dangerous to transport, if
there are DOT and NRC
regulations governing such
transport,
and
these
regulations have been met.48
The railroads’ common
carrier obligation mandates
transportation of hazardous
nuclear materials and the same
logic extends to TIH and other
non-nuclear hazardous materials
— provided a similar regulatory
45
See Hearing, (oral testimony of
Robin Burns, V.P., Occidental
Chemical Corp.), supra note 16, at
333-335.
46
611 F.2d at 1163, 1166.
47
Id. at 1166, 1169.
48
Id. at 1169, accord Consolidated
Rail Corp. v. ICC, 646 F.2d 642,
650 (D.C. Cir. 1981).
framework is in place.49
Transportation of TIH materials
is regulated by agencies
operating under two bodies of
law: The Hazardous Materials
Safety Act of 197550 (“HMSA”)
and the Federal Railroad Safety
Act of 1970 (“FRSA”).51 These
regulatory schemes provide
comprehensive
regulations
governing the transport of
hazardous materials, subjecting
railroads to a common carrier
obligation to ship TIH and other
hazardous materials.52
II. Railroad Liability for
TIH/Hazardous Material
Transport
A. Common Carrier
Liability at Common
law
Common carriers have
always been concerned about
their liability for shipping
inherently dangerous materials
and have sought (generally
unsuccessfully) to limit such
49
Id.
Pub. L. 93-633, 88 Stat. 2156
(Jan. 3, 1975) (codified as amended
at 49 U.S.C. §§5101-28).
51
Pub. L. 91-458, 84 Stat. 971 (Oct.
16, 1970) (codified as amended at
49 U.S.C. §§ 20101-21311).
52
See, e.g., Mayor & City of
Baltimore v. CSX Transp., Inc., 404
F. Supp.2d 869, 878 (D. Md. 2001)
(holding Baltimore’s tort action
preempted because of federal
regulation under FRSA and HMSA).
50
Railroad Tort Liability
liability through contractual
indemnification
provisions.53
But as dangerous new methods
of manufacture and development
were explored, the strict liability
doctrine created an inevitable
dilemma for rail carriers.54 Their
common
carrier
obligation
required them to transport
hazardous goods necessary for
the public good, yet they lived
under the shadow of strict
liability in the event such
hazardous materials caused
damage to life and property.55
In Actiesselskabet Ingrid v.
Central R.R. Co., the Second
Circuit examined the interplay
between the common carrier and
strict liability doctrines.56 A
53
See, e.g., A. Brousseau & Co. v.
Ship Hudson, 11 La. Ann. 427 (La.
1856) (holding a common carrier
liable for the damages to plaintiff’s
carpeting when four casks of
chloride burst in the ship’s hold);
JOHN LAWSON, A TREATISE ON THE
CONTRACTS OF COMMON CARRIERS
25 (1880) (noting the ancient custom
that: “If he [the carrier] refuse to
carry it unless promise were made
unto him that he shall not be
charged for no misdemeanor that
should be in him, the promise were
void; for it were against reason and
good manners . . . .”).
54
See Rylands v. Fletcher, L.R. 3
H.L. 330 (1868).
55
See Actiesselskabet Ingrid v.
Central R.R. Co., 216 F. 72, 79 (2d
Cir. 1914) (addressing the tension
between the common carrier
obligation and strict liability
doctrines).
56
See id. at 77-79.
Page 101
ship-owner sued the Central
Railroad Company for damages
to his vessel when explosives
being unloaded from Central’s
nearby cars detonated and
destroyed the ship.57 The
plaintiff sued Central, the
shipper, and the subcontractor
hired to unload Central’s railcar
on a theory of strict liability
introduced in Rylands v.
Fletcher.58 There was no
evidence of negligence on the
part of any of the defendants.59
The court addressed Rylands, but
found the strict liability doctrine
inapplicable under the facts at
hand:
It certainly would be an
extraordinary doctrine for
courts
of
justice
to
promulgate to say that a
common carrier is under
legal obligation to transport
dynamite and is an insurer
against any damage which
may result in the course of
transportation, even though
it has been guilty of no
negligence
which
occasioned the explosion
which caused the injury. It is
impossible to find any
adequate reason for such a
principle.60
57
Id. at 74-75.
Id. at 74; see PROSSER AND
KEETON ON TORTS 551 (1984)
59
Actiesselskabet Ingrid, 216 F. at
75.
60
Id.
58
Page 102
DEFENSE COUNSEL JOURNAL–January 2010
Thus the Actiesselskabet
Ingrid court fashioned a public
policy exception to strict liability
for common carriers where their
obligations forced carriage of
hazardous
materials.
The
Restatements of Torts later
adopted this view,61 and though
dominant throughout most of the
United States, all jurisdictions
have not adopted it, creating a
patchwork of strict liability
states in which the railroads
This
incomplete
operate.62
protection
caused
railroads
tremendous concern,63 leading
ultimately to the adoption of the
FRSA and HSMA.
61
Chemical Corp., 199 A.2d 707
(Conn. Super. Ct. 1964) (holding
that a carrier was not an insurer so
as to render it absolutely liable for
the explosion of chemicals that it
was transporting), and Pecan
Shoppe of Springfield, Inc. v TriState Motor Transit Co., 573 S.W2d
431 (Mo. App. 1978) (holding that
strict liability did not apply to a
common
carrier
engaged
in
transporting explosives in view of §
521).
63
Written Statement, supra note 16,
at 12 (“[There is no] clear legal
shield for the railroads from
potentially enormous exposure
should there occur a catastrophic
incident . . . .”).
64
49 U.S.C.A § 20106(a) (2007); 49
U.S.C.A. § 5125 (2007). The full
text of § 20106(a) provides:
See RESTATEMENT (SECOND) OF
TORTS § 521(“The rules as to strict
liability for abnormally dangerous
activities do not apply if the activity
is carried on in pursuance of a
public duty imposed upon the actor
as a public officer or employee or as
a common carrier.”).
62
See Indiana Harbor Belt R. Co. v.
American Cyanide Co., 916 F.2d
1174, 1180 (7th Cir. 1990) (noting
that two courts have explicitly
rejected the common carrier
exception); compare, e.g., Chavez v
Southern Pacific Transp. Co., 413 F.
Supp. 1203 (E.D. Cal. 1976)
(declining to extend § 521 immunity
to a railroad carrying government
munitions that exploded in transit);
National Steel Service Center, Inc. v
Gibbons 319 N.W2d 269 (Iowa
1982) (declining to accept the public
policy duty exception of § 521 in
holding a railroad carrier of propane
tanks strictly liable for damages to
warehouse);
and
Siegler
v.
Kuhlman, 81 Wash.2d 448, 502
P.2d 1181 (Wash. 1972) (finding no
common carrier exemption for
hauling gasoline upon the highway);
with Christ Church Parish v Cadet
B. FRSA and HMSA
Preemption
Both FRSA and HMSA
contain express preemption
provisions intended to make rail
laws “nationally uniform to the
extent practicable.”64 Federal
(a) National uniformity of
regulation.--(1)
Laws,
regulations, and orders related
to railroad safety and laws,
regulations, and orders related
to railroad security shall be
nationally uniform to the extent
practicable.
Railroad Tort Liability
preemption of railroad liability
has two practical effects for the
railroad industry. It prevents
states from enacting regulations
inconsistent with Federal law
and saves railroads from
navigating a tort-minefield of
varying standards of care. State
law tort actions are also
preempted by the regulatory
(2) A State may adopt or
continue in force a law,
regulation, or order related to
railroad safety or security until
the Secretary of Transportation
(with respect to railroad safety
matters), or the Secretary of
Homeland
Security
(with
respect to railroad security
matters), prescribes a regulation
or issues an order covering the
subject matter of the State
requirement. A State may adopt
or continue in force an
additional or more stringent
law, regulation, or order related
to railroad safety or security
when the law, regulation, or
order--(A) is necessary to
eliminate
or
reduce
an
essentially local safety or
security hazard; (B) is not
incompatible with a law,
regulation, or order of the
United States Government; and
(C) does not unreasonably
burden interstate commerce.
The HMSA preemption clause, §
5125, may also serve as a
preemption basis for TIH materials,
however this article addresses only §
20106 because it applies to both
regulations issued by the Secretary
of Transportation and the Secretary
of Homeland Security.
Page 103
structure and fine schedule of the
Federal Rail Administration.65
Although
the
railroad
industry
supported
the
deregulation trend of the 1970s
and 1980s,66 they continued to
embrace legislation, such as
FRSA and HMSA, that insulated
them from state tort liability.
The two Acts create a very
detailed system of safety
regulations, which federal courts
following CSX Transp., Inc. v.
Easterwood67 have held to
preempt virtually all state law
causes
of
action
against
railroads.68 In Easterwood, the
Supreme Court justified its
holding
on
the
express
preemption clause in the FRSA,
which then provided:
The Congress declares that .
. . regulations . . . and
standards relating to railroad
safety shall be nationally
uniform to the extent
practicable. A State may
adopt or continue in force
any law, rule, regulation,
65
See Robert MacFarland, The
Preemption of Tort and Other
Common Law Causes of Action
against Air, Motor, and Rail
Carriers, 24 TRANSP. L. J. 155, 185186 (1997).
66
See supra Part I.
67
See, e.g., CSX Transportation v.
Easterwood, 507 U.S. 658, 676
(1993).
68
See Sharon L. Van Dyck, A Clear
Path for Railroad Negligence Cases,
44 TRIAL 50, 50-51 (February 2008).
Page 104
DEFENSE COUNSEL JOURNAL–January 2010
order, or standard relating to
railroad safety until such
time as the Secretary has
adopted a rule, regulation,
order, or standard covering
the subject matter of such
State requirement. A State
may adopt or continue in
force an additional or more
stringent . . . regulation . . .
or standard relating to
railroad
safety
when
necessary to eliminate or
reduce an essentially local
safety hazard, and when not
incompatible
with
any
Federal law, rule, regulation,
order, or standard, and when
not creating an undue burden
on interstate commerce.”69
The Supreme Court set a
high standard for preemption
under FRSA by interpreting §
434’s “covering the subject
matter” language to require
“more than that [the law in
question] ‘touch upon’ or ‘relate
to’ that subject matter . . .
preemption will lie only if the
federal regulations substantially
subsume the subject matter of
the relevant state law.”70
Considering
whether
CSX
properly maintained crossing
signals, the Supreme Court
found no preemption because the
federal regulation was merely
“an effort to encourage the
States to rationalize their
decision-making [which said]
little . . . about . . . negligence
law.”71 However, the court did
find
that
federal
speed
regulations preempted state law
because FRSA “set maximum
allowable operating speeds . . .
for each class of track” to which
the train had adhered. Therefore
“the speed limits were to be read
as not only establishing a
ceiling, but also precluding
additional state regulation” that
would conflict with FRSA’s
determinations as to permissible
speeds.72
While Easterwood’s logic in
promoting uniformity among the
states is consistent with FRSA’s
ongoing goal of promoting
“safety in all areas of railroad
many
operations,”73
commentators have questioned
subsequent
holdings
that
expanded preemption beyond
Congressional intent by creating
a presumption of preemption in
lieu
of
the
traditional
presumption
against
preemption.74
71
Id. at 667.
Id. at 673-674.
73
Id. at 661 (quoting 45 U.S.C. §
421) (1970), amended by 49 U.S.C.
§ 20101 (1995)).
74
Compare id. at 664 (“[Courts]
interpreting a federal statute . . . will
be reluctant to find pre-emption.
Thus, pre-emption will not lie unless
72
69
45 U.S.C. § 434 (1970), amended
by 49 U.S.C.A § 20106(a) (2007)
(emphasis added). The current
version of the statute is provided,
supra note 64.
70
Id. at 664 (citations omitted)
(emphasis added).
Railroad Tort Liability
This paradigm shift appears
most starkly in the North Dakota
District
Court’s
Mehl
v.
Canadian Pacific Railway.75 On
January 18, 2002, a Canadian
Pacific Railway train carrying
the TIH anhydrous ammonia
derailed near Minot, North
Dakota causing the immediate
release of 146,000 gallons that
formed a toxic cloud, killing one
person and injuring over 300.76
An NTSB investigation found
that:
“Canadian
Pacific
Railway's ineffective inspection
and
maintenance
program
caused the . . . derailment . . . .”77
Victims filed suit in North
Dakota (Mehl) and Minnesota
it is ‘the clear and manifest purpose
of congress.”), with Lundeen v.
Canadian Pacific R.R. Co., 447 F.3d
606, 614 (8th Cir. 2006) overruled
by statute 49 U.S.C.A § 20106
(2007) (“[T]here is no indication the
FRA meant to leave open a state tort
cause of action”); see also Norfolk
Southern Ry. Co. v. Shanklin, 529
U.S. 344, 361 (2000) (Ginsburg, J.
dissenting) (“[Easterwood] does not
necessitate the ouster of state law
the Court now commands.”); Van
Dyck, supra note 67, at 50-51
(“Beginning with [Easterwood] . . .
preemption
was
expanded
exponentially.”).
75
417 F. Supp.2d 1104 (N.D. 2006).
76
Press Release, NTSB News,
NTBS Cites Ineffective Inspection
and Maintenance Program as Cause
of Minot Train Derailment (March
9,
2004),
available
at
http://www.ntsb.gov/pressrel/2004/0
40309.htm.
77
Id.
Page 105
(Lundeen v. Canadian Pacific
R.R. Co.) (“Lundeen I”).78 In
dismissing
the
Mehls’
negligence
claims
against
Canadian Pacific, the court
stated: “[I]t is clear that neither
the United States Supreme Court
nor the Eighth Circuit require
railroads to prove compliance
with federal regulations before
allowing preemption of state law
Mehl’s
rationale
claims.”79
would provide blanket protection
for a railroad’s negligence if the
subject of the state tort law claim
addressed even tangentially an
item governed by federal
regulations, and if followed to its
logical conclusion would exempt
railroads from essentially all tort
liability for any negligence.80
The Mehl decision was itself
an outgrowth of Norfolk
Southern R.R. Co. v. Shanklin,81
in which the plaintiff sued
Norfolk Southern for negligence,
alleging the railroad failed to
install
appropriate
safety
warning
devices
at
the
intersection where her husband
78
Mehl, 417 F. Supp.2d 1104;
Lundeen I, 447 F.3d 606 (8th Cir.
2006), rev’d 532 F.3d 682 (8th Cir.
2008) was originally filed in
Minnesota state court, then removed
to the federal courts on the
preemption grounds. Id. at 611, 61415.
79
Mehl, 417 F. Supp.2d at 1116.
80
See Van Dyck, supra note 68, at
51.
81
Norfolk Southern R.R. Co. v.
Shanklin, 529 U.S. 344 (2000).
Page 106
DEFENSE COUNSEL JOURNAL–January 2010
was struck and killed by the
railroad’s locomotive.82 The
warning devices were installed
pursuant to a Federal Highway
Administration
(“FHWA”)
program that required railroads
to comply with certain minimum
requirements for the devices
(e.g. flashing lights were
required at busier intersections,
only warning signs at quieter
intersections, like the one where
the decedent was struck) in
exchange for federal funding.83
Norfolk Southern asserted
that the federal government’s
funding of the FHWA program
served to preempt Shanklin’s
state law tort claim under
Easterwood.84 The Supreme
Court agreed, holding that
“[o]nce . . . the signs were
installed using federal funds . . .
respondent's
claim”
was
preempted, and that failure to
comply with a federal standard
of care could not provide the
basis for state tort liability under
a negligence theory.85
82
Id. at 350.
Id. at 348-50.
84
Id. at 350-51.
85
Id. at 354, 355; accord Fifth Third
Bank ex rel. Trust Officer v. CSX
Corp., 415 F.3d 741, 746 (7th Cir.
2005) (“The Shanklin court made
clear that whether the devices
installed under a federally funded
crossing
improvement
project
actually meet the standards [of
governing
regulations]
is
immaterial to the preemption
analysis: It is . . . not the State's or
the FHWA's adherence to the
83
Shanklin and its progeny,
including Mehl and Lundeen,
barred injured parties from
asserting tort claims on the basis
that a railroad had failed to
comply
with
the
federal
regulations. In an area of law so
pervasively regulated by the
federal government, Shanklin
heavily circumscribed an injured
party’s ability to obtain relief.86
C. The Clarifying
Amendment
Congress responded to the
dismissal of Mehl and Lundeen I
by enacting a “clarifying”
amendment (the “Clarifying
Amendment”), which set limits
on
federal
preemption
retroactive to the date of the
Minot derailment (January 18,
2002).87 It provides in relevant
standard set out in [the regulations]
or to the requirements of the
MUTCD, that pre-empts state tort
actions.”
(emphasis
added));
Henning v. Union Pacific R. Co.,
530 F.3d 1206, 1213 (10th Cir.
2008) (“Shanklin . . . explained even
where the crossing [does not comply
with regulations], preemption will
still lie.”).
86
See Van Dyck, supra note 68, at
50-51.
87
49 U.S.C.A § 20106(b) (2007);
see Lundeen v. Canadian Pac. R.
Co., 532 F.3d 682, 688 (8th Cir.
2008) [hereinafter Lundeen II]
(“This
‘clarifying’
amendment
reflected Congress's disagreement
with the manner in which the courts,
including our own in Lundeen I, had
Railroad Tort Liability
part:
1) Nothing in this section
shall be construed to
preempt an action under
State law seeking damages
for personal injury, death, or
property damage alleging
that a party(A) has failed to comply
with the Federal standard of
care established by a
regulation or order issued by
the
Secretary
of
Transportation (with respect
to railroad safety matters), or
the Secretary of Homeland
Security (with respect to
railroad security matters),
covering the subject matter
as provided in subsection (a)
of this section;
(B) has failed to comply
with its own plan, rule, or
standard that it created
pursuant to a regulation or
order issued by either of the
Secretaries; or
(C) has failed to comply
with a State law, regulation,
or order that is not
incompatible
with
sub
section (a)(2).88
interpreted § 20106 to preempt state
law causes of action whenever a
federal regulation covered the same
subject matter as the allegations of
negligence in a state court
lawsuit.”).
88
§ 20106(b). The clarifying
amendment also curtailed the ability
of railroad defendant’s to invoke
Page 107
Following the enactment of
the Clarifying Amendment, the
Eighth Circuit reversed its prior
holding in Lundeen I, remanding
the cases to state court in light of
the new statute.89 This reversal
demonstrates the Clarifying
Amendment’s
tremendous
impact on a railroad’s potential
liability in negligence actions.
Before enactment, “regulations
in a given area of railroad safety
preempted all civil causes of
action, regardless of whether
minimum safety standards were
met.”90 Now, a railroad may be
liable if it fails to satisfy a
standard of care placed on it by
federal regulations.91
D. Federal Preemption
Following the
Clarifying
Amendment
Subsequent examination of
the Clarifying Amendment has
validated this view. In Henning
v. Union Pacific R. Co., the
federal question jurisdiction based
on
preemption
(thereby
complicating removal to federal
courts). Lundeen II, 532 F.3d at 687.
The amendment provides: “Nothing
in this section creates a Federal
cause of action on behalf of an
injured party or confers Federal
question jurisdiction for such State
law causes of action.” § 20106(c).
89
See Lundeen II, 532 F.3d at 686.
90
Van Dyck, supra note 68, at 51.
91
See Henning v. Union Pacific R.
Co., 530 F.3d 1206, 1215 (10th Cir.
2008).
Page 108
DEFENSE COUNSEL JOURNAL–January 2010
Tenth Circuit considered the
effect
of
the
Clarifying
Amendment in circumstances
similar to those in Shanklin.92
Fifteen-year-old Derek Shockey
was killed after colliding with a
train at small-town crossing on
Oct. 27, 2002 (within the
Clarifying
Amendment’s
The
retroactive
scope).93
intersection was equipped only
with a passive warning device,
which the city had sought to
upgrade in 1999, and completed
just one month after the
Shockey’s
accident.94
representative filed a suit against
Union Pacific for inadequate
warning
signals
at
the
intersection.95 The trial court
dismissed, holding that the
plaintiff’s
claims
remained
preempted
under
Shanklin
because the federal regulations
governing crossings did:
not establish a federal
standard of care under
which a railroad must act
when the regulation is
compared to the regulations
at issue in the Minot
derailing cases. . . . [The
regulations governing the
railroad in Mehl] place
affirmative, ongoing duties
on railroad operators to
follow the federal safety
standards of care. . . .
92
Id.
Id. at 1211.
94
Id.
95
Id. at 1210.
93
Congress did not overrule
Shanklin,
but
instead
provided clarification for
courts interpreting Shanklin,
establishing FRSA preemption does not apply when
a railroad violates a federal
safety standard of care.”96
Thus, in Henning, the
Clarifying Amendment did not
apply because the regulations
governing intersections failed to
place a “standard of care” on
railroads; therefore the action
remained
preempted
under
Shanklin.97 The corollary to this
holding is that where a federal
regulation establishes a duty of
care, railroads may be sued if
they fail to comply with such
regulation.98
96
Id. at 1215-16 (emphasis added)
(citations omitted).
97
Henning, 530 F.3d at 1216.
Compare 49 C.F.R. § 213.7
(regulating track inspections) (“Each
track owner to which this part
applies shall designate qualified
persons to supervise restorations and
renewals of track under traffic
conditions.”), with 23 C.F.R. §
646.214(b)(2) (governing crossings)
(not clearly setting a standard of
care for railroads by stating only that
crossings “shall not be opened for
unrestricted use by traffic or the
project accepted by FHWA until
adequate warning devices for the
crossing
are
installed
and
functioning properly” and to make
the determinations required by §
215.9 of this part).
98
49 U.S.C.A. § 20106(b) (2007).
Railroad Tort Liability
The remainder of the
preemption doctrine, which
provides that state law is
preempted where the subject
matter of the relevant state law is
“substantially subsumed”99 by
Federal regulation, remains
unchanged.100 As the Henning
court explained, the Clarifying
Amendment was not intended to
make any “substantive” changes
to the preexisting statute, rather
it “merely rectified the [Mehl
and Lundeen I] court's erroneous
application of Shanklin and
Easterwood
to
federal
regulations establishing a federal
standard of care.”101 Preemption
still applies where federal
regulations
“substantially
subsume” a particular subject
matter; but where regulations
place a particular standard of
care on a railroad, failure to
comply with such standard of
care may form the basis of statelaw tort action.102
Preemption curtails states’
ability to enact legislation in
conflict with Federal regulations
governing TIH transport such
that they may enact laws that
conflict with Federal regulations
only in limited circumstances.
FRSA Section 20106 grants
Page 109
states
authority
to
enact
legislation only where it: 1) is
necessary to eliminate or reduce
an essentially local safety or
security hazard; 2) is not
incompatible with a law,
regulation, or order of the United
States Government; and 3) does
not
unreasonably
burden
interstate commerce.
Surprisingly few cases flesh
out
what
constitutes
an
“essentially local” safety hazard.
In CSX Transportation, Inc. v.
Williams, CSX sought to enjoin
the District of Columbia from
enforcing a law banning TIH
shipments with 2.2 miles of the
Capitol Building.103 In granting
CSX’s relief, the court stated
that a hazard is essentially local
only when it is “not capable of
being adequately encompassed
within
uniform
national
standards.”104 The Eight Circuit
recently addressed the issue in
more depth in Duluth Winnipeg
& Pacific Railway Co. v. City of
Orr when considering the
potential preemption of a law
that forbade rail cars “to be
operated at a speed in excess of
30[mph] while any portion of the
engine or train is within the
99
See Easterwood, 507 U.S. at 664.
See 49 C.F.R. § 217.2 (2008)
(“Under 49 U.S.C. 20106 . . .
issuance of the regulations in this
part preempts any State law . . . .”).
101
Henning, 530 F.3d at 1216.
102
Cf. 49 C.F.R. § 217.2.
100
103
CSX Transp., Inc. v. Williams,
406 F.3d 667, 669 (D.C. Cir. 2005).
104
Id. at 672 (citing Norfolk &
Western Ry. Co. v. Pub. Utils.
Comm’n of Ohio, 926 F.2d 567, 571
(6th Cir. 1991)).
Page 110
DEFENSE COUNSEL JOURNAL–January 2010
limits of the City of Orr.”105 The
City argued that unique terrain
characteristics created a local
hazard.106 In dismissing the
claim, the court adopted the test
employed by several other
circuits, including the D.C.
Circuit: “If the local situation is
actually statewide in character or
capable of being adequately
encompassed within national
uniform standards, it will not be
considered an essentially local
safety hazard.”107 Applying the
test, the court found against the
City, stating that “each of the
conditions cited by the district
105
See Duluth Winnipeg & Pac. Ry.
Co. v. City of Orr, 529 F.3d 794,
796 (8th Cir. 2008).
106
Id. at 798. “These factors were 1)
the track's proximity to a lake could
cause contamination from spillage in
case of a derailment; 2) swampy soil
upon which the track is built could
cause a “continuing problem” for
restructuring and rebuilding track in
the future; 3) the location of propane
tanks close to the tracks created a
risk of explosion; 4) churches and
businesses were dangerously located
between 67 and 278 feet from
tracks; and 5) extreme seasonal
temperature changes in northern
Minnesota
limited
possible
alternatives to speed regulation such
as relocation of tracks.” Id. at 79798.
107
Id; see also Williams, 406 F.3d
at 672; Nat'l Ass'n of Regulatory
Util. Comm'rs v. Coleman, 542 F.2d
11, 14-15 (3d Cir.1976); and Union
Pac. R.R. Co. v. Ca. Pub. Utils.
Comm'n, 346 F.3d 851, 860 (9th
Cir.2003)).
court is by itself statewide in
character.”108 In light of
Williams, an “essentially local
hazard” is a standard which may
not in practice be reachable.
In Williams, the D.C.
Circuit also evaluated the
reasonableness of the burden
imposed on interstate commerce.
The court’s analysis considered
“the practical and cumulative
impact were other states to enact
legislation similar to” the
rerouting law, and determined
that such a practice would
“wreak havoc with the national
system of hazardous materials
shipment.”109 TSA has also
stated that “it believes that
subjecting carriers to additional
State regulations in this area
would
likely
place
an
unreasonable
burden
on
interstate commerce” because of
the multitude of jurisdictions
carriers must travel through.110
According to the TSA’s position,
any additional state law relating
to hazardous substance transport
would seem to unreasonably
burden commerce.
108
City of Orr, 529 F.3d at 799.
See Williams, 406 F.3d at 673.
110
73 Fed. Reg. 72157 (Nov. 26,
2008).
109
Railroad Tort Liability
III. The Impact of Federal
Rulemaking Following the
Clarifying Amendment
A. Agency Rulemaking
Potential plaintiffs have
focused on the Clarifying
Amendment as a chink in the
railroads’ armor of limited
liability.111 At the same time, the
Clarifying Amendment sets clear
guidelines for railroads to follow
to minimize their tort liability in
the event of a hazardous
materials
leak.
Following
Henning, where federal rail
safety regulations govern a given
subject matter, state tort claims
remain preempted if railroads
comply with such regulations.112
The issue shifts to whether
federal regulations address and
create regulations concerning an
area that “substantially subsume
the subject matter of the relevant
state law.”113 If regulations do
so, then Eastwood, Shanklin, and
Henning still shield railroads
from liability—provided the
railroads satisfy the duties
imposed on them by the relevant
regulation.
Recent rulemakings provide
a
federal
comprehensive
regulatory scheme for the
111
See Van Dyck, supra note 68, at
52 (noting that the path is now open
for plaintiffs suits).
112
See Henning, 530 F.3d at 121516.
113
See Easterwood, 507 U.S. at 664
(noting the preemption standard).
Page 111
transportation of hazardous
materials. TSA, a subdivision of
the Department of Homeland
Security (“DHS”) and PHMSA,
a
subdivision
of
DOT,
promulgated final and interim
rules on November 26, 2008
which create and/or modify
regulations
governing
rail
facility
security,
tanker
construction, and TIH routing.
These regulations expressly aim
to preempt state law tort actions
against TIH carriers.114
There are limited means by
which a TIH rail car may
experience a leak or explosion:
the tanker itself can be targeted
by terrorists or may be defective;
or the infrastructure around it
114
TSA Rail Transport Security
Final Rule, 73 Fed. Reg. 72129,
72172 (Nov. 26, 2008) (codified at
49 C.F.R. § 1580) (effective Dec.
26, 2008) [Hereinafter TSA Rule]
(covering, inter alia, security
requirements in “High Threat Urban
Environments”);
Pipeline
and
Hazardous Materials Safety Admin.
(“PHMSA”) Final Rule Enhancing
Rail Transportation Security and
Security for Hazardous Materials
Shipments, 73 Fed. Reg. 72182.
(Nov. 26, 2008) (codified at 49
C.F.R. § 174) (effective Dec. 26,
2008) (covering Hazardous Material
Routing);
see
also
PHMSA
Hazardous Materials: Improving the
Safety of Railroad Tank Car
Transportation
of
Hazardous
Materials, 73 Fed. Reg. 57005
(proposed Oct. 1, 2008) (codified at
49 C.F.R. §§ 173, 179) (setting forth
proposed rules for improving the
design structure of TIH tankers).
Page 112
DEFENSE COUNSEL JOURNAL–January 2010
can be targeted or may be
unsafe.115 The new and proposed
rules address all aspects of such
circumstances. Specifics of the
rules are addressed below
independently, but the rules were
issued simultaneously in an
attempt to complement one
another.
Viewed
comprehensively,
these
regulations are designed to keep
rail cars containing TIH
materials moving (so as to make
tampering with them difficult),
and where they must stop for
loading or transferring of
custody, to make sure that they
rest in “rail secure areas.”116
115
See TSA Rule, 73 Fed. Reg. at
72132 (discussing the openness and
vulnerability of rail infrastructure
and potential terrorists attacks on
TIH tankers).
116
A rail secure area is defined as
“secure location(s) identified by a
rail . . . shipper or rail . . . receiver
where security-related . . .
transportation
functions
are
performed or [where TIH materials]
are prepared, loaded, stored, and/or
unloaded.” Id. at 72174 (codified at
49 C.F.R. § 1580.3). The TSA Rule
applies principally to shippers and
receivers, while the new PHMSA
rule and Final PHMSA Rule apply
prior hazardous material regulation,
e.g., 49 C.F.R. § 174.14 (“A carrier
must forward each shipment of
hazardous materials promptly and
within 48 hours (Saturdays,
Sundays, and holidays excluded),
after acceptance . . . .”) and are
directed at carriers.
1. “High Threat Urban
Areas”
The greatest danger for a
TIH event is in a densely
populated area.117 For example,
terrorists may detonate an
improvised explosive device
(“IED”) near (or on) a TIH
tanker in a switching yard, either
while the tanker was stationary
or moving so as to cause a
derailment.
The TSA Final Rule
enhances
rail
security
nationwide—particularly
in
High Threat Urban Areas
(“HTUA”)—by adopting a riskbased approach “focusing on
shipments of certain hazardous
materials and establishing chain
of custody control procedures
and other measures for rail cars
that pose the greatest security
vulnerabilities.”118 The Rule
117
See 73 Fed. Reg. at 72174 (“The
release of [TIH] materials in a
densely populated area would have
catastrophic consequences.”).
118
49 C.F.R. § 1580.107. The TSA
Rule also implements other security
measures: designation of a single
“rail security coordinator” who
serves as “the primary contact for
intelligence
information
and
security-related activities . . . with
TSA,” 49 C.F.R. § 1580.101;
warrantless inspection authority for
TSA and other authorized DHS
officials for all rail facilities within
an HTUA, see 49 C.F.R. § 1580.5;
“reporting
significant
security
concerns” to DHS in a HTUA, see
49 C.F.R. § 1580.105; and various
Railroad Tort Liability
focuses principally on the duties
of shippers and receivers of TIH
materials.
HTUA are any of the
specifically
enumerated
45
metropolitan areas in the Rule.119
Each HTUA creates a ten-mile
buffer zone extending from the
outer boundary of the zone to
which the Rule applies.120 49
C.F.R. § 1580.107 requires, inter
alia, the following:
Within HTUA:
• Carriers
transferring
TIH rail cars to each
other have a duty to
ensure that the car is
not left unattended at
any time;121 and
•
Page 113
it is secure
unloaded.122
Within or Outside HTUA:
• Shippers
transferring
custody of TIH rail cars
have
a
duty
to
physically inspect the
rail cars before loading
for signs of tampering
or other indications that
the security of the car
has been compromised
and keep the rail car in
a secure area until the
carrier takes physical
custody of the rail
car;123
Carriers delivering TIH
materials have a duty to
attend the tanker until
the receiver accepts
custody of the car, and
receivers
of
such
materials must maintain
positive control over
the rail car during the
transfer and ensure that
other rail passenger safety items. See
generally 49 C.F.R. § 1580.111.
119
TSA Rule, Appendix A to 49
C.F.R. § 1580 (emphasis added).
The metropolitan areas include,
obviously, most large American
cities with significant railroad
presence.
120
Id.
121
49 C.F.R. § 1580.107(c). These
procedures are in addition to those
required by 49 C.F.R. § 174.9.
until
122
•
Whenever a carrier
transfers TIH rail cars
that “may subsequently
enter an HTUA” to
another carrier; each
carrier has a duty to
ensure that the car is
not left unattended at
any point in time during
the transfer;124 and
•
At all rail secure areas,
TIH material shippers
and receivers have a
duty to use physical
security measures to
ensure
that
no
unauthorized persons
gain access to the
49 C.F.R. § 1580.107(e)-(f).
49 C.F.R. § 1580.107(a).
124
49 C.F.R. § 1580.107(d).
123
Page 114
DEFENSE COUNSEL JOURNAL–January 2010
area.125 Such measures
are to be made in
accordance with a plan
that is to be approved
by TSA and may
include but is not
limited to, e.g., fencing
and/or other passive
security.126
TSA’s commentary to the
rule clarifies that the elements of
§ 1580.109 should be interpreted
provided
conjunctively,128
specific examples of the types of
state laws the TSA Rule would
preempt, and made clear that §
1580.107 would have expansive
preemptive effect:
These
representative
requirements demonstrate the
detail and breadth of scope that
the regulations address.
In
addition, the TSA Rule contains
an express preemption provision:
For example, TSA’s rule
would preempt any State law
. . . theory of liability that
would require a freight
railroad carrier to hire armed
guards during the physical
transfer of custody; a rail
hazardous materials shipper
or
receiver
to
use
specifically
designated
physical security to ensure
that no unauthorized person
gains access to the rail
secure area; or the additional
physical inspections of the
rail car by the carrier or
facility other than that
specified in § 1580.107. . . .
TSA believes that subjecting
carriers to additional State
regulations in this area
would likely place an
unreasonable burden on
interstate commerce.129
Under 49 U.S.C. 20106,
issuance of the regulations in
this part preempts any State
law . . . covering the same
subject matter, except an
additional or more stringent
law, regulation, or order that
is necessary to eliminate or
reduce an essentially local
security hazard; that is not
incompatible with a law,
regulation, or order of the
United States Government;
and
that
does
not
unreasonably
burden
interstate commerce.127
125
49 C.F.R. § 1580.107(i).
See id.; 49 C.F.R. § 1580.5(b)(5)(6) (granting DHS officials authority
to “[o]versee the implementation . . .
of security measures at [TIH
material shipping and receiving
locations]” and to “[r]eview security
plans” regarding secure facilities).
127
49 C.F.R. § 1580.109 (emphasis
added).
126
128
129
73 Fed. Reg. at 72157.
Id.
Railroad Tort Liability
2. TIH Materials Routing130
The Implementing and
Recommendations Act of 2007
vested PHMSA with authority to
require railroad carriers to
“select the safest and most
secure route to be used in
transporting’’ TIH materials
based on the carrier’s analysis of
safety and security risks.131
While the TSA Rule focuses on
hazardous materials security
within urban areas, the PHMSA
Rule focuses principally on TIH
carrier routing.132
The PHMSA Rule places
three
significant
new
requirements on carriers of TIH
materials. Carriers must compile
TIH
commodity
shipping
information; analyze the safety
and security risks in their
transport pre-existing routes;
130
PHMSA Rule Enhancing Rail
Transp. Security for Hazardous
Materials Shipments, 73 Fed. Reg.
72181 (Nov. 26, 2008) (codified at
49 C.F.R. §§. 172, 174, 209)
[hereinafter
PHMSA
Rule];
PHMSA Interim and Proposed Rule
Enhancing Rail Transp. Security for
Hazardous Materials Shipments, 73
Fed. Reg. 20751 (Apr. 16, 2008)
[hereinafter PHMSA Interim Rule].
The PHMSA Rule adopted almost in
full the PHMSA Interim Rule
(which was effective June 1, 2008).
131
Pub. L. 110–53 § 1551(e) 121
Stat. 469 (2007); see also PHMSA
Rule, 73 Fed. Reg. at 20755.
132
See PHMSA Interim Rule, 73
Fed. Reg. 20756 (summarizing the
rule’s scope and effects).
Page 115
evaluate new primary and
alternative routes to find the
“safest
and
most
secure
practicable route for the
hazardous
materials;”
and
submit the proposed routes to
DOT for approval.133 Carriers
must also individually inspect all
rail cars laden with TIH
materials, at ground level, for
signs of tampering and other
safety defects (seals, etc.).134
Last, carriers must ensure that
their route transportation plan
described above takes measures
to “prevent unauthorized access
to the materials during storage or
delays in transit,” and to
“mitigate risk to population
centers associated with in-transit
storage.”135
The PHMSA Rule also
contains an express preemption
clause: “A law, order, or other
directive of a state . . . that
designates, limits, or prohibits
the use of a rail line . . . for the
transportation of hazardous
materials . . . is preempted.”136
The basis for preemption is that
“routing restrictions . . . enacted
by states or local governments
transfer safety and security risks
to other areas but do little to
achieve enhanced safety and
security
for
the
rail
133
49 C.F.R. § 172.820(j); see
generally 73 Fed. Reg. at 20756.
134
49 C.F.R. § 174.9.
135
49. C.F.R. § 172.820(h)(2)-(3).
136
49 C.F.R. § 172.822. The
regulation derives its authority from
49 U.S.C. § 5125 (2007).
Page 116
DEFENSE COUNSEL JOURNAL–January 2010
transportation system.”137
The contentious issue of
hazardous materials routing has
already spawned at least one
major suit.138 In Williams, the
court relied on 49 C.F.R. §
172.800, (the predecessor to the
PHMSA Rule) in preempting the
District of Columbia’s law.139 In
contrast to the extensive
regulation provided by the
PHMSA Rule, Section 172.800
stated only: “[E]ach person who
offers for transportation in
commerce or transports in
commerce one or more [TIH]
materials must develop and
adhere to a security plan for
hazardous
materials
that
conforms to the requirements of
this subpart.”140
The Williams court also
relied on the fact that the
Department of Transportation
had already considered and
rejected mandatory routing
requirements of the type the
District sought to impose.141
PHMSA
again
considered
similar
requirements
when
drafting the PHMSA Rule, but
expressly
decided
against
inclusion because the routing
served only to displace risk.142
137
PHMSA Interim Rule, 73 Fed.
Reg. at 20767-20768.
138
Williams, 406 F.3d at 670.
139
See id.
140
Compare 49 C.F.R. § 172.800,
with 49 C.F.R. § 172.822.
141
Williams, 406 F.3d at 671-72.
142
See PHMSA Interim Rule, 73
Fed. Reg. at 20768.
The PHMSA’s Rule also intends
that “the risk of releases of
hazardous materials is reduced
by minimizing the time such
shipments
spend
in
transportation.”143
3. Current and Proposed
Rail Car Rules
In
addition
to
the
regulations requiring carriers and
shippers to inspect rail tank cars,
PHMSA and DOT have
implemented a detailed regime
of regulations covering the
construction of TIH rail cars.144
Rail cars are designed to
transport specific types of TIH
materials and must conform to,
for example, minimum “head”
thicknesses (shielding at the
front and rear of the rail car) and
143
Fed. R.R. Admin.Track Safety
Standards, 63 Fed. Reg. 33992,
33999 (June 22, 1998); see PHMSA
Rule, 73 Fed. Reg. at 20764
(discussing the need to expedite
arrival of TIH materials at their
destinations). See also Indiana
Harbor Belt R. Co. v. American
Cyanide Co., 916 F.2d 1174, 1180
(7th Cir. 1990) (“Anyway, rerouting
is no panacea. Often it will increase
the length of the journey, or compel
the use of poorer track, or both.
When this happens, the probability
of an accident is increased, even if
the consequences of an accident if
one occurs are reduced . . . .”).
144
See generally 49 C.F.R. pts. 17180.
Railroad Tort Liability
welding requirements.145 Like
the other final rules, these
regulations
also
expressly
anticipate preemption of state
laws
governing
rail
car
construction. 146
The PHMSA proposed rule
enhances many of these existing
design
protections
and
implements new speed limits
and testing procedures for TIH
rail cars.147 For example, the
new rule would implement a 50
mph. speed limit on trains
carrying TIH rail cars, which
combined
with
new
specifications requiring tankers
to withstand 25 mph collisions,
would effectively prevent leaks
caused by derailments and
provide heightened protection
against explosive devices.148
145
See generally 49 C.F.R. §§
179.100-179.103.
146
See 49 C.F.R. § 179.8.
147
PHMSA Proposed Rule for
Improving the Safety of Railroad
Tank
Car
Transportation
of
Hazardous Materials, 73 Fed. Reg.
17818, 17821 (Apr. 1, 2008)
(codified at 49 C.F.R. pts. 171, 173,
174, 179) [hereinafter PHMSA
Proposed Rule].
148
See id. The tankers are to be
designed to withstand 25 mph
impacts (as opposed to 50 mph
impacts) because the “secondary
car-to-car impact speed in a
derailment or collision scenario is
approximately one-half of the initial
train speed.” Id.
Page 117
B. Federal Preemption of
TIH Transportation
As demonstrated above,
every avenue of a potential TIH
rail tanker leak within an urban
area is subsumed by extensive
federal
regulations.
Accordingly, state law tort
actions will be displaced to the
extent that railroads comply with
these new procedures.
The TSA Rule addresses
state
attempts
to
enact
regulations
heightening
a
railroad’s burden of securing rail
facilities within HTUAs (and a
ten mile extension thereof).149
TSA also expressly considered
commentary from municipalities
and states during the rule making
process proposing a direct
“‘conflict’ preemption standard
in lieu of [TSA’s] proposed
‘field’ or ‘subject matter’
standard;” and “recognizing the
right of a political subdivision to
enact more stringent law.”150 Not
only did TSA decline to
incorporate such restrictive
language into the rule, but it
instead added an express
preemption clause to clarify the
TSA Rule’s broad scope.151
149
73 Fed. Reg. at 72157.
Id. at 72156-57.
151
See id. at 72157 (“In the past
TSA’s regulations have not included
regulatory text about preemptive
effect . . . . TSA has included a
provision here to make clear its
finding about [this] aspect of this
rulemaking.”).
150
Page 118
DEFENSE COUNSEL JOURNAL–January 2010
The PHMSA Rule also
provides
a
similarly
comprehensive check on states’
ability to enact legislation in the
area
or
railroad
routing,
affording rail carriers broad
preemptive protection in this
sensitive area. In order for a
state law to fulfill the Williams
safe harbor requirement, it must
also not 1) unreasonably burden
interstate commerce and 2) be
incompatible with a Federal
law.152 Because State regulations
barring TIH material shipments
through their city would present
substantial
burdens
to
commerce, such laws are likely
to fail to attain the safe harbor
standard of the PHMSA Rule.153
Rail cars themselves are
equally
subject
to
comprehensive regulation setting
the standards for rail car design.
These design specifications,
especially
the
proposed
regulations promulgated by
PHMSA, were designed with
terrorist attacks on the tanker
superstructure in mind, and the
resulting product is/will most
certainly preempt state law tort
actions on the basis that the rail
cars were negligently designed.
IV.
The prize of preemption
forces railroads to walk a fine
line. On the one hand,
substantial federal regulation
over a state law subject matter
provides an enticing blanket
protection from state tort
liability. On the other hand, the
Clarifying Amendment enables
plaintiffs to use deviations from
federal standards of care as the
basis for state tort claims.
Railroads continue to seek the
perfect
level
of
federal
regulation:
enough
to
“substantially
subsume”
a
subject area, but not so much
that the regulation creates a
minefield of duties waiting to be
The
currently
broken.154
promulgated regulations address
this delicate balancing act, but
the difficulties are not such that
railroads
cannot
achieve
regulatory compliance, and in so
doing shield themselves from
tort liability in the event of a
terrorist attack or similar event.
Railroads will no longer be
insulated from all future
negligence liability. This blanket
insulation is their most pressing
concern and the true impetus for
154
152
See 49 U.S.C. § 20106(a);
Williams, 406 F.3d at 671-73.
153
See Williams, 406 F.3d at 673
(“[I]t would not take many similar
bans to wreak havoc with . . .
hazardous materials shipment.”).
Conclusion
Indeed, the TSA Rule is arguably
a windfall to railroads. It subsumes
most TIH material transportation
regulation within HTUA and
requires shippers and receivers to
bear most of the regulatory burden,
while at the same time shielding
railroad carriers.
Railroad Tort Liability
Page 119
calls to create an indemnification
system.155 Recent rail accidents
which suggest the need for
omnibus insurance were all
caused by significant negligence
on the part of the carriers—not,
as
the
AAR
intimates,
“automobiles running into sides
of
moving
trains.”156
Indemnifying carriers against
similar future negligence would
likely fail to properly incent
railroad carrier safety.
This position does not
suggest that the present situation
is “fair” for railroads, or that it is
otherwise prudent to remain
dependent on TIH materials for
industrial purposes. Although
the new regulations discussed
herein burden shippers and
receivers—those producing and
consuming
chemicals—more
than
carriers,
reducing
dependence on TIH chemicals
remains the only sure way to
reduce potential leaks by
reducing
the
number
of
Although
shipments.157
commentators
continue
to
advocate legislation requiring
chemical manufactures and their
customers
to
evaluate
alternatives to TIH usage for
an
industrial
purposes,158
alternative suggestion would
allow railroads to pass through
certain costs associated with TIH
shipments that they are currently
prevented from transferring.159 If
all parties incur the cost and risk
of such shipments, industry will
be
incented
to
develop
alternatives to TIH materials, or
at least find ways to minimize
their usage of such materials.160
155
157
See Orum, supra note 9, at 1-2
(arguing that one way to deal with
the TIH transportation problem is
for water treatment plants to switch
to
alternative
methods
of
purification, and that the per
consumer price of such options
would be $1.50).
158
See id. at 14.
159
See Written Statement, supra
note 16, at 23, 28.
160
Cf. id. at 23 (“[T]he current
system will continue to encourage
[TIH usage] by insulating TIH
materials producers and receivers
from the risks of their commercial
decisions . . . .”).
See Written Statement, supra
note 16, at 15 (“[R]ailroads could be
subjected to multi-billion dollar
claims, even for accidents where the
railroads to nothing wrong . . . .”).
156
See id. Two of the wrecks
involved trains colliding with each
other on sidings, see 73 Fed. Reg.
17826-87, and the third resulted
from the railroad’s inadequate rail
inspection procedures required by
FRSA. See Press Release, NTSB,
NTSB Cites Ineffective Inspection
and Maintenance Program as Cause
of Minot Train Derailment (Mar. 9,
2004), available at http://www.
ntsb.gov/pressrel/2004/040309.htm.
CONNING
Conning the
IADC Newsletters
International Association of Defense
Counsel Committee members prepare
newsletters on a monthly basis that
contain a wide range of practical and
helpful material. This section of the
Defense Counsel Journal is dedicated
to highlighting interesting topics
covered in recent newsletters so that
other readers can benefit from
committee specific articles.
STANDARD OF REVIEW
AND DISCOVERY AFTER
GLENN: THE EFFECT OF
THE GLENN STANDARD OF
REVIEW ON THE ROLE OF
DISCOVERY IN CASES
INVOLVING
CONFLICTS
OF INTEREST
By: Elizabeth J. Bondurant
This article originally appeared
in the October 2009 Business
Litigation Committee Newsletter.
After the Supreme Court’s
decision in Firestone Tire &
Rubber Co. v. Bruch,1 lower
courts sometimes struggled to
Elizabeth J.
Bondurant is
a
partner
with Smith, t
Moore,
t
Leatherwood, LLP
in Atlanta, Georgia, where she
specializes in the representation
of financial services companies
in litigation and ERISA matters.
apply the appropriate standard of
review to ERISA benefit
determinations. The results were
not uniform, particularly when a
plan administrator operated
under a conflict of interest. In
Metropolitan Life Insurance
the
Company
v.
Glenn,2
Supreme Court narrowed at least
some of the divergence among
the Courts of Appeal by
establishing a uniform standard
of review to be applied when a
plan administrator operates
under a conflict of interest.
While most Circuits have
2
1
489 U.S. 101 (1989).
___ U.S. ___, 128 S. Ct. 2343
(2008).
Newsletters
embraced the standard set by
Glenn, a new conflict has
developed among the Circuits
regarding the appropriate scope
of discovery.
The new standard set by
Glenn, requiring courts to weigh
“as a factor” an insurer’s
conflicting duties of both
evaluating and paying claims,
has left courts questioning how
to fully evaluate that conflict.
Since Glenn, beneficiaries have
sought discovery regarding
internal
procedures
and
guidelines, arguing that a court
cannot evaluate a conflict of
interest without at least some
discovery outside of the scope of
the administrative record. The
resolutions to this discovery
question have not been uniform:
some courts allow grants of
discovery when a structural
conflict exists; others impose a
strict denial of discovery as
inconsistent with the level of
deference courts generally grant
administrators.
This article discusses both
the
standards
of
review
embraced by the individual
circuits since Glenn and the
recent trends regarding the issue
of discovery in cases involving
an administrator’s conflict of
interest.
Page 121
I.
Metropolitan Life
Insurance Company v.
Glenn3
A. Case Discussion
In
Metropolitan
Life
Insurance Company v. Glenn,
the Supreme Court resolved two
issues related to the appropriate
standard of review for benefit
determination cases where a plan
administrator operates under a
“conflict of interest.” First, the
Court held that a plan
administrator who both evaluates
and pays claims operates under a
conflict of interest in making
benefit decisions. Second, the
Court held that the existence of
this conflict of interest does not
change the standard of review or
shift the burden of proof to be
applied by a reviewing court.
Rather, this conflict of interest
should be considered as but one
of several factors in evaluating a
benefits decision.
In Glenn, MetLife operated
as both administrator and insurer
of Sears, Roebuck & Company’s
long-term disability plan, which
was governed by ERISA. The
plan
simultaneously
gave
MetLife
(as
administrator)
discretion to decide employee
benefits claims and provided that
MetLife (as insurer) would pay
these claims.
Ms.
Glenn,
a
Sears
employee, sought long-term
3
Id.
Page 122
DEFENSE COUNSEL JOURNAL–January 2010
disability benefits for a heart
disorder. MetLife decided that
Ms. Glenn was capable of doing
sedentary work, and it denied
her
claim
for
long-term
disability benefits.
Ms. Glenn filed suit seeking
review of MetLife’s decision as
permitted by ERISA.
The
district court denied her claim,
and the Sixth Circuit reversed,
holding that MetLife’s conflict
of interest as both decider and
payer of Ms. Glenn’s claim was
one of several factors that it
considered in finding that
MetLife’s claim decision was
arbitrary and capricious. The
Supreme Court affirmed both the
result and the analysis of the
Sixth Circuit.
First, the Supreme Court
confirmed that a conflict of
interest
exists
when
an
administrator acts as both claim
decider and claim payer. That
is,
the
Supreme
Court
recognized that there is a conflict
between the fiduciary interest in
granting a borderline claim and
the financial interest in denying
it.
Therefore, the Court
determined,
judges
must
consider this type of conflict of
interest when reviewing the
discretionary acts of plan
administrators in ERISA benefits
cases.
Second, turning to the
question of “how” a court should
take this type of conflict of
interest into account, the
Supreme Court reaffirmed the
standard
of
review
first
announced in Firestone Tire &
Rubber Co. v. Bruch4, that the
conflict should be “weighed as a
factor” in determining whether
an administrator abused its
discretion in denying benefits.
Significantly, the Supreme Court
rejected the idea that a reviewing
court should apply a different
standard of review or shift the
burden of proof when a conflict
of interest is involved. Rather,
the Supreme Court held that
when a plan administrator both
decides whether to give benefits
and pays those benefits, a
reviewing court should consider
this inherent conflict of interest
as a factor, as part of a
deferential
review,
when
determining whether the denial
was appropriate.
B. The impact of Glenn
on the standards of
review applied in the
Circuits
In Glenn, the Supreme
Court sought to establish
uniformity among the Circuits
regarding
the
appropriate
standard of review to apply in
conflict of interest cases. Since
Glenn, some Circuits affirmed
the standard in place in its
jurisdiction. Specifically, in the
Sixth, Seventh and Ninth
Circuits, the Courts of Appeals
determined that the standards
4
489 U.S. 101 (1989).
Newsletters
applied prior to Glenn were
consistent with the Supreme
Court’s holding.5 Additionally,
the First Circuit determined that
its standard of review was
largely harmonious with Glenn,
though not entirely.6 Prior to
Glenn, the First Circuit generally
did not give much weight to
structural conflicts in deciding
whether
an
administrator’s
decision was arbitrary and
capricious, reasoning that market
forces would inhibit any
pernicious effect such a conflict
may have on an administrator’s
decision. However, the First
Circuit stated that, after Glenn,
courts are “duty bound” to look
into what steps a plan
administrator takes to insulate
the decision-making process
from the potentially harmful
effects of a structural conflict.7
The majority of Circuits
found they needed to modify,
and in some cases completely
abandon, the Circuit’s standard
5
See Delisle v. Sun Life Assurance
Co. of Canada, 558 F.3d 440 (6th
Cir. 2009); Gutta v. Standard Select
Trust Ins. Plans, 285 Fed. App. 302
(7th Cir. 2008); Jenkins v. Price
Waterhouse Long Term Disability
Plan, 564 F.3d 856 (7th Cir. 2009);
Nolan v. Heald College, 551 F.3d
1148 (9th Cir. 2009); Burke v.
Pitney Bowes Inc. Long-Term
Disability Plan, 544 F.3d 1016 (9th
Cir. 2008).
6
Denmark v. Liberty Life
Assurance Co. of Boston, 566 F.3d
1, 9 (1st Cir. 2009).
7
Id.
Page 123
of review. Prior to Glenn, the
Second Circuit applied a shifting
standard of review, under which
it applied an abuse of discretion
standard to structural conflicts
and a de novo standard to actual
conflicts.8 The Third, Fifth, and
Tenth Circuits used a “sliding
scale” approach that afforded a
conflicted
administrator’s
decision less deference as the
severity of the conflict rose.9
Similarly, the Fourth Circuit
used a “modified abuse of
discretion” standard that reduced
deference
to
a
plan
administrator’s benefit decisions
to a degree that neutralized any
influence resulting from the
conflict of interest.10 The Fourth
Circuit also abandoned its preGlenn approach of always
8
McCauley v. First Unum Life Ins.
Co., 551 F.3d 126 (2d. Cir. 2008).
9
Estate of Schwing v. The Lilly
Health Plan, 562 F.3d 522, 525 (3d
Cir. 2009) (citing Pinto v. Reliance
Standard Life Ins. Co., 214 F.3d
377, 392 (3d Cir. 2000)); Crowell v.
Shell Oil Co., 541 F.3d 295 n. 66
(5th Cir. 2008) (citing MacLachlan
v. Exxon Mobil Corp., 350 F.3d
472, 478-79 (5th Cir. 2003)); Weber
v. GE Group Life Assurance Co.,
541 F.3d 1002 (10th Cir. 2008)
(citing Flinders v. Workforce
Stabilization Plan of Phillips
Petroleum Co., 491 F.3d 1180, 1190
(10th Cir. 2007)).
10
Champion v. Black & Decker
(U.S.) Inc., 550 F.3d 353 (4th Cir.
2008) (citing Stanford v. Cont’l Cas.
Co., 514 F.3d 354, 357 (4th Cir.
2008)).
Page 124
DEFENSE COUNSEL JOURNAL–January 2010
construing plan language against
the insurer in conflict of interest
cases, because this conflicted
with Glenn’s disapproval of
special procedural rules.
Prior to Glenn, the Eighth
Circuit did not automatically
establish that a conflict of
interest exists when the entity
that administers the plan both
determines whether an employee
is eligible for benefits and pays
benefits out of its own pocket.11
The Eleventh Circuit had
previously applied a burdenshifting, “heightened” arbitrary
and capricious standard of
review when a conflict of
interest was present. Under this
standard, the burden would shift
to the fiduciary to prove that its
interpretation of plan provisions
committed to its discretion was
not tainted by self-interest.12
Since the Supreme Court’s
decision, these Circuits have
adopted standards of review that
are consistent with Glenn.13
11
Chronister v. Unum Life Ins. Co.,
563 F.3d 773 (8th Cir. 2009)
(Chronister II) (citing Chronister v.
Baptist Health, 442 F.3d 648, 655
(8th Cir.2006) (Chronister I)).
12
Doyle v. Liberty Life Assurance
Co. of Boston, 511 F.3d 1336, 1340
(11th Cir. 2008) (Doyle I).
13
See Estate of Schwing 562 F.3d
522; Crowell v. Shell Oil Co., 541
F.3d 295 (5th Cir. 2008); Weber,
541 F.3d at 1002; Champion., 550
F.3d at 353; Chronister I, 563 F.3d
at 773; Doyle v. Liberty Life
Assurance Co. of Boston, 542 F.3d
1352 (11th Cir. 2008).
Though the Circuits are now
more uniform in their treatment
of an administrator’s conflict of
interest, the Fifth and Tenth
Circuits have incorporated their
previous
“sliding
scale”
approach into the Glenn factorapproach for a conflict of
interest.14 That is, in these two
circuits, when there is evidence
of a conflict of interest, the
courts apply the sliding scale to
measure and evaluate the
conflict of interest as a factor.
C. Discovery after Glenn
Though Glenn unified the
Circuits regarding the standard
of review to apply to an
administrator’s
conflict
of
interest, Glenn has fueled
disputes regarding whether
courts should allow discovery in
light of an administrator’s
conflict of interest. Prior to
Glenn, courts reviewing an
administrator’s denial of benefits
generally restricted themselves
to a review of the administrative
record, except in limited
circumstances.
Since Glenn,
14
See Crowell, 541 F.3d at 311, n.
66 (citing with approval the preGlenn MacLachlan case, discussing
how a “sliding scale” is used to
evaluate a particular conflict of
interest to determine how much
deference to afford a particular
claim decision under the abuse of
discretion standard); Weber v. GE
Group Life Assurance Co., 541 F.3d
at 1010-1111.
Newsletters
plaintiffs have argued, with
varying degrees of success, that
the standard set forth in Glenn
requires discovery by the
beneficiary to determine whether
and to what extent an
administrator’s
conflict
of
interest played a part in a denial
of benefits. Insurers, on the
other hand, generally assert that
Glenn does not mandate
discovery
when
the
administrator operates under a
conflict of interest. Rather, they
suggest, a court’s review of an
administrator’s benefits decision
should still be limited to the
administrative record.
The
following are illustrative cases
from both the Courts of Appeals
and District Courts on the issue
of discovery after Glenn.
1.
First Circuit
In Denmark v. Liberty Life
Assurance Company of Boston,15
the First Circuit permitted
discovery that was narrowly
tailored to matters relating to the
procedures by which the
administrator ameliorated the
conflict of interest. Prior to
Glenn, the First Circuit held that
“some very good reason is
needed to overcome the strong
presumption that the record on
review is limited to the record
before the administrator.”16 The
15
566 F.3d 1 (1st Cir. 2009).
Liston v. Unum Corp. Officer
Severance Plan, 330 F.3d 19, 23 (1st
Cir. 2003); see McGahey v. Harvard
16
Page 125
First Circuit concluded that its
previous case law was consistent
with Glenn.17 Thus, parties
might, in certain circumstances,
obtain limited discovery relating
to whether a structural conflict
morphed into an actual conflict.
However, as was the case prior
to Glenn, discovery must only be
allowed sparingly and must be
narrowly tailored.18 The First
Circuit made clear that if plan
administrators
include
information in the record
regarding the precautions used to
mitigate the effect of structural
conflicts, discovery will be
needed only if the plan
administrator failed to detail
these precautions.19
2.
Second Circuit
District Courts in the
Second Circuit have allowed
discovery in conflict-of-interests
cases, though they limit the
University Flexible Benefits Plan,
2009 WL 799464 (D.Mass. March
25, 2009) (denying discovery when
plaintiff’s complaint alleged no
specific facts to suggest that a
conflict of interest influenced the
administrator’s denial).
17
Id. at 10.
18
Id.
19
Id. (See also Slusarski v. Life Ins.
Co. of North America, 2009 WL
1990178 (D.R.I. July 9, 2009)
(allowing discovery because the
administrative record did not include
any evidence with respect to [the
insurer’s]
conflict-ameliorating
procedures).
Page 126
DEFENSE COUNSEL JOURNAL–January 2010
scope of that discovery to
information
pertaining
to
conflicts of interest. One court
reasoned that even if a conflict
of interest does not change the
deferential standard of review,
“it does not follow that all
evidence
outside
the
administrative
record
is
necessarily not discoverable.”20
The court stated that if the
plaintiff’s requests are “properly
included within the scope of this
Court’s review for abuse of
discretion…then they are also
properly within the scope of
discovery.”21 Thus, the Second
Circuit seems to have lifted the
almost categorical ban on
discovery in cases reviewing an
administrator’s
denial
of
District Courts,
benefits.22
20
Kruck v. Metropolitan Life Ins.
Co., Inc., 2009 WL 1481543, at *2
(D.Conn. May 26, 2009).
21
Id. at *5.
22
See Hogan-Cross v. Metro. Life
Ins. Co., 568 F. Supp.2d 410, 41416 (S.D.N.Y. 2008) (holding that
Glenn requires abrogation on near
categorical prohibition on discovery
in ERISA cases involving conflicts
of interest, and plaintiffs should be
permitted to discover the existence,
nature, extent and effect of any
conflict of interest); Strope v. Unum
Provident Corp., No. 06-CV-628C,
2009 U.S. Dist. LEXIS 19383, at
*4-6 (W.D.N.Y. Mar. 11, 2009)
(holding that Glenn does not justify
“automatic” discovery, but that
limited discovery was justified in
this case to determine whether
structural conflict was an actual
instead, allow limited discovery
that would assist a court in
determining whether a conflict
of interest played a role in the
administrator’s
denial
of
benefits.
3.
Third Circuit
The Third Circuit has been
less liberal in allowing discovery
in response to Glenn. The
District Court in Bauer v.
Reliance Standard Life. Ins.
Co.23 stated that the decision to
allow
discovery
regarding
conflicts of interest is casesensitive and “tied to the
question of whether the conflict
bears on the abuse of discretion
In Bauer, the
analysis.”24
District Court denied discovery
beyond
the
administrative
record, based partly on the fact
that the plaintiff failed to allege
any specific facts suggesting that
a conflict may have influenced
the administrator’s decision.25
Playing a part in the court’s
decision is the fact that a conflict
of interest is still only one factor
that the court must consider. On
the other hand, the District Court
in Kalp v. Life Ins. Co. of North
Am. did allow limited discovery,
conflict, and the court was to decide
appropriate limits on discovery).
23
2009 WL 2487407 (E.D.Pa.
August 13, 2009).
24
Id. at *5.
25
Id. at *6.
Newsletters
based on the Circuit’s pre-Glenn
standard.26
4.
Fourth Circuit
Prior to Glenn, the Fourth
Circuit
allowed
discovery,
reasoning that because the
standard of review would shift
based on the extent of a conflict,
discovery
outside
the
administrative record would
sometimes be necessary in order
to ascertain the extent of the
However, since
conflict.27
Glenn, district courts have
denied discovery, based on the
new standard set forth in Glenn.
Specifically, the District Court in
Roberts v. Amer. Elec. Pwr.
Long-Term Disability Plan
stated, “Because the standard of
review is consistent whether or
not a conflict of interest exists,
there is no longer a need to
conduct discovery.”28
5.
Fifth Circuit
Both before and after Glenn,
the Fifth Circuit determined that
Page 127
discovery
outside
the
administrative
record
was
permissible to enable the
plaintiff to develop evidence
demonstrating the extent of an
administrator’s
conflict
of
interest.29 In Copus v. Life Ins.
Co. of N. Am., the District Court
permitted limited discovery on
matters
relating
to
the
administrator’s
conflict
of
interest and whether the
administrator complied with the
terms of the plan.30 However,
the court denied discovery
regarding
whether
the
administrator complied with
regulations promulgated under
ERISA.31
6.
Sixth Circuit
In Johnson v. Connecticut
General Life Ins. Co., the Sixth
Circuit Court of Appeals held
that discovery in ERISA benefit
denial cases was essentially
unchanged by Glenn.32 That is,
review of the merits of a
decision
denying
ERISA
benefits is limited to the
administrative record; therefore,
discovery on matters outside the
26
No. 08-1005, 2009 U.S. Dist.
LEXIS 7957, at *16-19 (W.D.Pa.
Feb. 4, 2009) (citing Gritzer v. CBS,
Inc., 275 F.3d 291, 296 (3d Cir.
2002)).
27
Roberts v. Amer. Elec. Pwr.
Long-Term Disability Plan, 2009
WL 2421585 (S.D.W.Va. August 8,
2009) (citing Workman v. Aetna
Life Ins. Co., 2007 WL 951765
(S.D.W.Va. Mar. 29, 2007)).
28
Id. at *5.
29
Copus v. Life Ins. Co. of N. Am.,
No. 7:07-CV-113-R, 2008 U.S. Dist.
LEXIS 55099 (5th Cir. July 18,
2008) (citing Albert v. Life Ins. Co.
of North Am., 205 U.S. App. Lexis
26457 (5th Cir. 2005)).
30
Id. at *4.
31
Id.
32
No. 08-3347, 2009 U.S. App.
LEXIS 7398 (6th Cir. Apr. 7, 2009).
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DEFENSE COUNSEL JOURNAL–January 2010
record is rarely permitted, unless
there are “procedural challenges” to the
administrator’s decision, such as
where the plaintiff has alleged
that an administrator acted with
bias.
Despite the appellate
court’s holding in Johnson, in
Geer v. Hartford Life and Acc.
Ins. Co., the District Court
acknowledged that “the role of
discovery in the process of
weighing a conflict remains
somewhat obscure.”33 In Geer,
the court rejected the view that a
conflict automatically entitles a
plaintiff to discovery.34 Instead,
the court determined that, when
a
plaintiff
has
provided
sufficient facts suggesting a
likelihood that evidence of bias
would be developed, the District
Court would permit discovery.35
The court did note the irony that
the claimant should have
evidence
of
bias
before
discovery would be permitted;
however, the court was satisfied
that this requirement would
strike a balance between
automatic
permission
and
automatic denial of discovery in
benefits-denial cases.36
33
2009 WL 1620402, *2 (E.D.Mich.
June 6, 2009).
34
Id. at *4. The court noted that an
automatic entitlement to discovery
would effectively eliminate the
general rule against discovery in
ERISA cases.
35
Id. at *5.
36
See also O'Bryan v. Consol
Energy, Inc., 2009 WL 383401, at
*2 (E.D.Ky. Feb. 11, 2009) (stating
7.
Seventh Circuit
District Courts in the
Seventh Circuit seem quite
liberal in allowing discovery
relating to cases involving
conflicts of interest. In Gessling
v. Group Long Term Disability
Plan
for
Employees
of
Sprint/United
Management
Company,37 the court allowed
discovery
of
employee
evaluations for a five-year
period for employees who
worked on the plaintiff’s case.
The court accepted the plaintiff’s
argument that he did not intend
to use this evidence to determine
“batting averages” of those who
reviewed his claim; rather, he
that it is logical to assume that the
Supreme Court meant for lower
courts to allow some discovery
beyond the administrative record
when an inherent conflict of interest
is present); McQueen v. Life Ins.
Co. of North America, 595 F.
Supp.2d 752, 755 (E.D.Ky. 2009)
(determining that without discovery,
plaintiffs would be severely
hindered in their ability to obtain
evidence to show the significance of
the conflict of interest); See
generally Cline v. Retirement Plan
for the Glass Rock Plant and
Millwood Plant of Oglebay Norton
Industrial Sands, Inc., 2008 WL
4449906 (S.D.Ohio Sept. 30, 2008)
(finding that Glenn “gives courts
broad latitude in evaluating the
weight of the effect of that conflict
of interest”).
37
2009 WL 2390355 (S.D.Ind.
August 3, 2009).
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successfully argued that he was
attempting
to
determine
“whether the employer rewarded
or punished reviewers based on
their
“batting
averages.”38
Likewise, the District Court in
Hughes v. CUNA Mut. Group
permitted discovery, stating that
litigants in other types of cases
do not have to make a “prima
facie showing” of “good cause”
to obtain discovery.39 The court
determined that as long as the
plaintiff could state a claim for
which relief could be granted,
the plaintiff should be entitled to
discovery of everything that is
relevant. The court went on to
state that, “Glenn makes it clear
that conflicts of interest are
relevant (even though the precise
weight may vary from case to
case).”40
8.
Eighth Circuit
District Courts in the Eighth
Circuit seem to allow discovery
when a beneficiary shows a
conflict of interest; however, that
discovery that must be tailored
to the factors set forth in Glenn.
In Sampson v. Prudential Ins.
Co. of America,41 the court
stated that, under Glenn, it was
required to “explore the nature
and extent of the purported
38
Id. at *1.
257 F.R.D. 176, 179 (S.D.Ind.
May 7, 2009).
40
Id.
41
2009 WL 882407 (E.D.Mo. Mar.
26, 2009).
39
Page 129
conflict of interest or irregularity
at issue.”42 Unlike in other
courts, though, this court
determined that the mere fact
that the insurer acted as both
administrator and payor was, in
and of itself, a conflict of interest
that permitted “some” discovery
by the plaintiff.43 Likewise, the
District Court in Meyer v.
Daimler Chrysler, Co. followed
Eight Circuit precedent to allow
discovery based solely on the
fact that the administrator
operated under a conflict of
interest.44
9.
Ninth Circuit
In the Ninth Circuit, District
Courts have been permissive in
granting discovery when it is
aimed at demonstrating a
conflict of interest. In Oldoerp
v. Wells Fargo and Co. Long
Term Disability Plan,45 the court
allowed discovery regarding the
nature, extent, and effect of the
conflict. Likewise, in Duran v.
42
Id. at *2.
Id.
44
2009 WL 702817 (E.D.Mo. Mar.
16, 2009). But see T.D.E. ex rel.
Elder v. Life Ins. Co. of North
America, 2009
WL
367701
(E.D.Mo. Feb. 11, 2009) (granting
discovery when plaintiffs pointed to
a number of procedural irregularities
in the administrator’s decision
process).
45
2009 WL 2058258 (N.D.Cal. July
15, 2009).
43
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DEFENSE COUNSEL JOURNAL–January 2010
Cisco Systems, Inc.46 and Fowler
v. Aetna Life Ins. Co.,47 the
District
Courts
permitted
relevant discovery to aid the
court in considering the weight
that a conflict of interest should
be accorded. In Duran, the court
stated that relevant discovery
could
include
questions
regarding
whether
an
administrator had a history of
biased claims or if the
administrator had taken steps to
reduce the effect of inherent
conflicts.48
10. Tenth Circuit
The Tenth Circuit has
followed the predominant trend
of permitting discovery for the
sole purpose of determining the
scope of a conflict of interest.49
The District Court in Hoyt v.
Prudential Ins. Co. of Am.,50
denied the appropriateness of a
blanket prohibition on discovery
in ERISA cases. While the court
did not allow discovery for the
46
2009 WL 2043516 (C.D. Cal. July
1, 2009).
47
615 F. Supp.2d 1130, 1135
(N.D.Cal. 2009).
48
Duran, 2009 WL 2043516, at *4.
49
See Kohut v. Hartford Life &
Accident Ins. Co., 2008 WL
5246163 (D. Colo. Dec. 16, 2008)
(overturning a decision to deny all
discovery beyond the scope of the
administrative record in ERISA
matters following the conflict of
interest analysis in Glenn).
50
2008 WL 686922 (D. Colo. Mar.
12, 2008).
beneficiary to evaluate the
factual merits of her claim, the
court did permit discovery
pertaining to alleged biases of
the administrator.51
11. Eleventh Circuit
One District Court in the
Eleventh Circuit sua sponte
indicated
that
expansive
discovery with respect to
discovery relating to a conflict of
interest would be allowed.52
Unusually, neither party had
filed a motion or raised the issue.
In an order dealing with a Rule
26f report, the court commented
that the beneficiary has the right
to conduct discovery into the
circumstances surrounding a
conflict
affecting
an
administrator’s
benefits
However, unlike
decision.53
other courts that have required
discovery to be narrowly tailored
toward the conflict issue, the
court in Adams stated, “[T]his
court does not attempt to
delineate the parameters of the
plaintiff's discovery. Instead, the
court concludes that the plaintiff
is entitled to pursue any
discovery that ‘is relevant in
itself
or
[that]
appears
reasonably calculated to lead to
51
Id. at *2.
Adams v. Hartford Life and
Accident Ins. Co., 589 F. Supp.2d
1366, 1368 (N.D.Ga. 2008).
53
Id. at 1367.
52
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the discovery of admissible
evidence.’”54
Despite this potentially
broad
statement
about
discovery, in Wells v. Unum Life
Ins. Co. of America, et al.,55 the
District Court denied the
plaintiff’s motion for an
extension of time to take
depositions, noting that the
applicable ERISA standard of
review, and not the “expansive
scope of discovery” allowed by
Rule 26(b) of the Federal Rules
of Civil Procedure would govern
the scope of discovery.56 The
court went on to state that
discovery
outside
the
administrative record ordinarily
is inappropriate when the abuse
of discretion standard of review
applies.57
Conclusion
The
Supreme
Court’s
decision in Glenn achieved the
objective in unifying the
standards that Circuits Courts
use
when
weighing
an
administrators conflict of interest
in ERISA benefits litigation.
However,
uncertainty
has
emerged since Glenn with
respect to discovery. Circuit
Courts
are
conflicted
in
54
Id. at 1368 (quoting Hogan-Cross
v. Metropolitan Life Ins. Co., 568 F.
Supp.2d 410, 414 (S.D.N.Y. 2008)).
55
No. 4:04 – CV – 0155 - HLM
(N.D.Ga. Nov. 17, 2008).
56
Id. at p. 2.
57
Id. at p. 6.
Page 131
determining whether and when
to allow discovery to aid in the
court’s consideration of a
conflict of interest as one factor.
Some district courts limit their
review to the administrative
record, denying discovery as
inconsistent with the general ban
on discovery in ERISA cases.
Other courts have permitted
discovery
whenever
an
allegation of a conflict of interest
occurs. Still others require a
threshold showing that a bias
affected an administrator’s claim
decision before the court will
permit discovery. Within these
different standards, some courts
have
allowed
expansive
discovery to all information that
would be “relevant” to a conflict
question, while others stipulate
that discovery must be narrowly
tailored.
Thus, despite the
harmony
Glenn
created
regarding the standard that
courts should apply to cases
involving a conflict of interest, it
has fostered uncertainty with
respect to the role of discovery
in conflict of interest.
***
Page 132
DEFENSE COUNSEL JOURNAL–January 2010
AVOIDING COLLATERAL
DAMAGE: VACATING A
JUDGMENT AS PART OF A
SETTLEMENT
By: John B. Drummy
This article originally appeared
in the December 2009 Appellate
Practice Committee Newsletter.
The
immediate
consequences of an adverse judgment
are apparent. An unsuccessful
litigant faces the costs of
complying with the remedy
imposed by the judgment,
whether an award of money
damages, the grant of an
injunction, and/or a declaration
of legal rights.
The losing party may also
face the prospect of collateral
damage
⎯
costs
or
consequences beyond those
directly associated with the
judgment. Such collateral costs
might include adverse publicity,
damage to the litigant’s personal
or business reputation, and the
precipitation of subsequent
lawsuits (including class actions)
in which the adverse party may
rely on modern doctrines of
claim or issue preclusion. In
some instances, the potential
collateral costs of an adverse
judgment might far exceed the
immediate costs of complying
with the judgment.
The primary route through
which a party may seek relief
from a judgment is by appeal as
John B. t
Drummy t
is a partner
in Kightlinger &
Gray, LLP
with
t
offices in
Indiana- t
polis, Evansville and New
Albany, Indiana. He maintains
an active trial and appellate
practice with a focus on
insurance coverage, bad faith
and professional liability.
of right and certiorari.1 An
appeal may result in a judgment
being vacated based upon the
merits or errors in the process or
procedure employed in reaching
the decision. While this route
offers the potential for avoiding
both the direct costs and the
collateral consequences of an
adverse judgment, an appeal is
statistically unlikely to result in a
reversal.
Under
certain
circumstances, however, a secondary
route offers the opportunity to
avoid at least the collateral
consequences of an adverse
1
Federal Rules of Appellate
Procedure 3 and 4; 42 U.S.C. §
1291; U.S.Sup.Ct.Rule 13; 28
U.S.C. § 1254. This article is
limited to a discussion of federal
procedural law. The procedural law
of the various states may well be
different. See, e.g., Panterra Corp.
v. American Dairy Queen, 908
S.W.2d 300 (Tex. App. 1995).
Newsletters
judgment. A judgment may be
vacated, in the absence of a
determination on the merits,
where a case becomes moot,
including mootness caused by a
settlement.
Although
the
limitation on judicial power
conferred by Article III of the
United
States
Constitution
prohibits a decision on the merits
when a case becomes moot, an
appellate court “may make such
disposition of the whole case as
justice may require,’” including
vacating the judgment entered
by the lower court.2 District
Courts also have authority to
vacate a judgment, but the
source of authority is separate
and independent from that
granted to appellate courts.
Authority of an Appellate
Court to Grant Vacatur
The power of an appellate
court to vacate a judgment
(vacatur) is supplied by 28
U.S.C. § 2106. That statute
reads:
The Supreme Court or any
other court of appellate
jurisdiction may affirm,
modify, vacate, set aside or
reverse
any
judgment,
2
U.S. Bancorp Mortgage Company
v. Bonner Mall Partnership, 513
U.S. 18, 21-22, 115 S.Ct. 386, 390,
130 L.Ed.2d 233 (1994), quoting
Walling v. James V. Reuter, Co.,
Inc., 321 U.S. 671, 677, 64 S.Ct.
826, 829, 88 L.Ed. 1001 (1944).
Page 133
decree, or order of a court
lawfully brought before it
for review, and may remand
the cause and direct the entry
of
such
appropriate
judgment, decree, or order,
or require such further
proceedings to be had as
may be just under the
circumstances.
In exercising this power, an
appellate court should be guided
by equitable principles. “The
principal condition to which
[courts] have looked is whether
the party seeking relief from the
judgment below caused the
mootness by voluntary action.”3
This is because “[a] party who
seeks review of the merits of an
adverse ruling, but is frustrated
by the vagaries of circumstance,
ought not in fairness be forced to
acquiesce in the judgment.”4
3
Bonner Mall, 513 U.S. at 25, 115
S.Ct. at 391. Vacatur is the general
rule where a judgment has “become
moot
due
to
circumstances
unattributable to any of the parties.”
Karcher v. May, 484 U.S. 72, 82-83,
108 S.Ct. 388, 391, 98 L.Ed.2d 327
(1987).
4
Bonner Mall, 513 U.S. at 25, 115
S.Ct. at 391, citing United States v.
Hamburg-Amerikanische
Packetfahrt-Actien Gesellschaft, 239
U.S. 466, 478, 36 S.Ct. 212, 217, 60
L.Ed. 387 (1916). See also United
States v. Munsingwear, Inc., 340
U.S. 36, 40, 71 S.Ct. 104, 107, 95
L.Ed. 36 (1950) (mootness by
“happenstance” provides sufficient
reason to vacate).
Page 134
DEFENSE COUNSEL JOURNAL–January 2010
The same is true where review is
prevented by, or mootness
results from, the unilateral action
of the party who prevailed in the
lower court,5 from legislative
action,6 or executive branch
action, at least where the sole
party seeking vacatur is not the
office or agency whose action
caused the matter to become
moot.7
Concepts of fairness do not
dictate the same result where
mootness
results
from
a
settlement. “Where mootness
results from settlement . . . the
losing party has voluntarily
forfeited his legal remedy by the
ordinary processes of appeal or
certiorari, thereby surrendering
his claim to the equitable remedy
of vacatur. The judgment is not
unreviewable,
but
simply
unreviewed by his own choice”
just as if the losing party failed
to initiate an appeal in the first
instance.8
There
are,
however,
circumstances where vacatur is
appropriate and available in
5
Bonner Mall, 513 U.S. at 23, 115
S.Ct. at 390, citing Heitmuller v.
Stokes, 256 U.S. 359, 362, 41 S.Ct.
522, 523-524 (1921).
6
American Library Association v.
Barr, 956 F.2d 1178 (D.C. Cir.
1992).
7
Humane Society of the United
States v. Kempthorne, 527 F.3d 181
(D.C. Cir. 2008).
8
Bonner Mall, 513 U.S. at 25, 115
S.Ct. at 392, citing Karcher, 484
U.S. at 83, 108 S.Ct. at 391.
cases that are settled after the
entry of judgment. An appellate
court “will vacate a judgment or
order mooted by settlement
where the relief is equitably
justified
by
exceptional
circumstances.”9 The mere fact
that a settlement agreement
provides for vacatur is not an
exceptional circumstance. As
the Supreme Court said in
Bonner Mall,
[T]he determination is an
equitable one, and exceptional
circumstances
may
conceivably counsel in favor
of such a course. It should be
clear from our discussion,
however,
that
those
exceptional circumstances do
not include the mere fact that
the
settlement
agreement
provides for vacatur-which
neither
diminishes
the
voluntariness
of
the
abandonment of review nor
alters any of the policy
considerations
we
have
discussed.10
Similarly, “making the
settlement contingent upon,
rather than in contemplation of,
vacatur” does not change the
analysis.11
9
Microsoft Corp. v. Bristol
Technology, Inc., 250 F.3d 152, 154
(2d Cir. 2001).
10
513 U.S. at 29, 115 S.Ct. at 393.
11
ATSI Communications , 547 F.3d
at 113.
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An
appellate
court’s
decision to grant vacatur of a
judgment must take into account
the interests of the public.
“’Judicial
precedents
are
presumptively
correct
and
valuable to the legal community
as a whole. They are not the
property of private litigants and
should stand unless a court
concludes that the public interest
would be served by vacatur.’”12
The rule of Bancorp applies to a
motion to vacate a district court
decision even though such
decisions are not precedential in
the
technical
sense.13
Nevertheless, it has been
observed that the public interest
in preserving orders and
judgments is “less compelling
when . . . the judgment to be
vacated is one of a federal
district court.”14
By nature, “exceptional
circumstances” elude limitation
or classification.15 Examples of
instances where “exceptional
circumstances” were found to
exist, however, shed some
Page 135
illumination on when vacatur
may be appropriate.
In Major League Baseball
Properties, Inc. v. Pacific
Trading Cards,16 the court
concluded that vacatur was
appropriate based on three
considerations.
First, the
appellant,
Major
League
Baseball Properties, Inc. (MLB),
did not by its own initiative
relinquish its right to vacatur
through an appeal. Second, the
appellee strongly desired a
settlement. Third, while the
appellant was agreeable to a
settlement, it needed the decision
of the district court to be vacated
because of concerns about the
effect of the decision in future
litigation. The court wrote:
The parties were thus locked in
a dispute that they could end
on a commercial basis
satisfactory to both. However,
a vacatur of the district’s
court’s order and opinion was
a necessary condition of the
settlement. Unlike, Bancorp,
therefore, the victor in the
district court wanted a
settlement as much as, or more
than, the loser did. MLB, by
law, had to continue to test the
merits of the district court’s
opinion or risk its marks if it
could not obtain a vacatur.
The only damage to the public
interest from such a vacatur
would be that the validity of
12
Bonner Mall, 513 U.S. at 26, 115
S.Ct. at 392, quoting Izumi Seimitsu
Kogyo Kabushiki Kaisha v. U.S.
Philips Corp., 510 U.S. 27, 40, 114
S.Ct. 425, 428, 126 L.Ed.2d 396
(1993) (Stevens, J., dissenting).
13
ATSI Communications, 547 F.3d
at 112-113.
14
Russman v. Bd. of Educ., 260
F.3d 114, 122 n.2 (2nd Cir. 2001).
15
Bristol Technology, Inc., 250 F.3d
at 155.
16
150 F.3d 149 (2d Cir. 1998).
Page 136
DEFENSE COUNSEL JOURNAL–January 2010
MLB’s marks would be left to
future litigation. In our view,
these
facts
met
the
“exceptional circumstances”
test of Bancorp.17
In Microsoft Corp. v. Bristol
Technology, Inc,18 the appellate
court vacated a district court
order that granted a post-trial
motion for an award of punitive
damages and granted in part a
motion for injunctive relief also
filed post-trial. In addressing
whether
exceptional
circumstances
existed
for
vacatur, the Second Circuit
noted that it was unclear whether
the district court had the power
to reach the issue of punitive
damages where the parties failed
to request a jury charge on that
The court also
issue.19
expressed concern whether the
district court’s factual findings
and award of punitive damages
were consistent with the Seventh
Amendment.20 With respect to
the public interest in judgments,
the court noted that “the chief
precedential value of the district
court opinion is its reading of [a
state statute] . . . and since one
can expect that its import will be
developed by . . . state courts, a
federal
court
interpretative
opinion
is
perhaps
the
dispensable.”21 Finally,
17
Id. at 152.
250 F.3d at 154.
19
Id. at 155.
20
Id.
21
Id.
Second Circuit noted that certain
individuals, some not named
parties, were the subject of
“moral appraisals integral to the
district court’s findings on
punitive damages,” and that
given the question as to the
district court’s power under the
rules to reach the issue of
punitive damages after a jury
trial and the concern regarding
the Seventh Amendment, it was
“equitable to vacate findings that
are no longer subject to appellate
review by reason of the
corporate defendant’s decision to
settle the litigation.”22
In Motta v. District Dir. of
INS,23 the court found that
exceptional
circumstances
existed to vacate the judgment of
the district court that stayed the
deportation of the appellee
pending a decision on his motion
before the Board of Immigration
Appeals to reopen deportation
proceedings. The court noted
that the INS at all times had
sought to pursue vacatur of the
district judgment through an
appeal and that it had agreed to
consider settlement only at the
suggestion of the court. As a
consequence, the court found
that “the same equitable calculus
underlying Bancorp is not
present” and the case did not
“implicate
the
concerns
expressed by the Bancorp Court
about giving parties undue
18
22
23
Id. at 156.
61 F.3d 117 (1st Cir. 1995).
Newsletters
control
over
judicial
precedents.”24 The court also
noted that the INS, as a “repeat
player” before the courts, was
primarily concerned with the
precedential effect of the district
court’s decision, and noted that
if that decision stood all
possibility of a settlement was
eliminated. With regard to the
interest
in
facilitating
settlements, the First Circuit
wrote:
It is true the Bancorp Court
discusses and rejects the
possible impact of its rule in
discouraging settlements. Id.
at [513 U.S. 27-28], 115 S.Ct.
at 393. But it does so in
aggregate, saying in the end
that “[w]e find it quite
impossible to assess the effect
of our holding, either way,
upon the frequency or systemic
value of settlement.” In this
case, by contrast, the negative
impact on settlement [if
vacatur is not allowed] is
absolutely clear.25
On the other hand, the
Second Circuit denied a request
Page 137
to vacate a district court order
sanctioning counsel, concluding
that the order was not
insignificant and the request for
vacatur was being made solely to
avoid public scrutiny.26
Authority of a District Court
to Grant Vacatur
The source of the authority
of district courts to vacate a
judgment is separate and
independent from that granted to
appellate courts.
As the
Supreme Court said in Bonner
Mall:
Of course, even in the absence
of, or before considering the
existence of, extraordinary
circumstances, a court of
appeals presented with a
request for vacatur of a district
court judgment may remand
the case with instructions that
the district court consider the
request, which it may do
pursuant to Federal Rule of
Civil Procedure 60(b).27
Federal Rule of Civil
Procedure 60(b) provides in part:
(b) Grounds for Relief from
a Final Judgment, Order, or
Proceeding. On motion and
just terms, the court may
relieve a party or its legal
24
Id. at 118.
61 F.3d at 118-119. See also
Wal-Mart Stores, Inc. v. Rodriguez,
322 F.3d 747 (1st Cir. 2003) (the
court noted that the party seeking
vacatur was a governmental agency,
a repeat player in the courts, and that
the government has an institutional
interest in vacating adverse rulings
of potentially precedential value).
25
26
See ATSI Communications, 547
F.3d at 114.
27
513 U.S. at 29, 115 S.Ct. at 393
(emphasis added).
Page 138
DEFENSE COUNSEL JOURNAL–January 2010
representative from a final
judgment, order, or proceeding
for the following reasons:
***
(5) the judgment has been
satisfied,
released
or
discharged; it is based on an
earlier judgment that has been
reversed or vacated; or
applying it prospectively is no
longer equitable; or
(6) any other reason
that justifies relief.
Federal Rule 60(b)(6), in
particular, “vests power in courts
adequate to enable them to
vacate judgments whenever such
action
is
appropriate
to
accomplish justice.”28 “[T]he
discretion to make ‘case-by28
Klapprott v. United States, 335
U.S. 601, 614-615, 69 S.Ct. 384, 93
L.Ed. 266 (1949).
See also
Gonzalez v. Crosby, 545 U.S. 524,
535, 125 S.Ct. 2641, 162 L.Ed.2d
480
(2005)
(“extraordinary
circumstances” are required to
justify reopening a final judgment
under Fed. R. Civ. P. 60(b)(6)).
Although Rule 60(b) does not by its
terms authorize vacatur, the
Supreme Court has held that the rule
“provides courts with authority
‘adequate to enable them to vacate
judgments whenever such action is
appropriate to accomplish justice.’”
Liljeberg v. Health Services
Acquisition Corp., 486 U.S. 847,
863-864, 108 S.Ct. 2194, 100
L.Ed.2d 855 (1988), quoting
Klapprott, 335 U.S. at 614-615.
case’ assessments concerning the
justice of granting a requested
vacatur is squarely committed to
the sound discretion of the
district court.”29
Bonner Mall indicates that
the “exceptional circumstances”
test does not bind district courts
considering Rule 60(b) requests
for vacatur of a judgment.30
“‘[T]he fact-intensive nature of
the
inquiry’
required
in
considering a request for Rule
60(b)
relief
renders
it
‘appropriate that a district court
should enjoy greater equitable
discretion when reviewing its
own judgments than do appellate
courts
operating
at
a
distance.’”31
29
Mayes v. City of Hammond, 631
F. Supp.2d 1082 (N.D.Ind. 2008),
citing Pioneer Inv. Serv. Co. v.
Brunswick Assocs., 507 U.S. 380,
393, 113 S.Ct. 1489, 123 L.Ed.2d 74
(1993), and McCormick v. City of
Chicago, 230 F.3d 319, 327 (7th Cir.
2000).
30
513 U.S. at 29, 115 S.Ct. at 393.
See also Marseilles Hydro Power
LLC v. Marseilles Land & Water
Co., 481 F.3d 1002, 1003-1004 (7th
Cir. 2007); American Games, Inc. v.
Trade Products, Inc., 142 F.3d 1164,
1168-1169 & n.1 (9th Cir. 1998).
But see Valero Terrestrial Corp. v.
Paige, 211 F.3d 112, 117-121 (4th
Cir. 2000) (“In the circumstances of
vacatur due to mootness . . . we are
satisfied that the standards under 28
U.S.C. § 2106 and Rule 60(b) are
essentially the same.”).
31
Mayes, 631 F. Supp.2d at 1088,
quoting American Games, 142 F.3d
at 1170.
Newsletters
In Welch v. UNUM Life Ins.
Co.,32 the district court vacated
its decision granting the
plaintiff’s motion for summary
judgment
based
on
the
possibility
the
decision
employed an incorrect standard
of review of UNUM’s decision
to discontinue the plaintiff’s
long-term disability benefits and
the additional delay in the
plaintiff’s receipt of benefits that
would result if the Tenth Circuit
remanded the case to the district
court with instructions to
reconsider the decision.
In Automobile Club of
Southern California v. Mellon
Bank,33 the court vacated its
judgment, noting that there was
little chance of subsequent
litigation between the parties,
“the effect of res judicata is of
secondary importance” because
the settlement was final, and
there was little precedential
value in the opinion at issue
because the “action involved a
fact-specific contract formed
under Delaware law.”34
In Medtronic Vascular, Inc.
v. Boston Scientific Corp.,35 the
court refused to vacate its prior
order finding two patents
unenforceable
based
on
inequitable conduct. The court
32
___ F.Supp.2d ___, 2009 WL
1111188, *6 (D. Kan. April 22,
2009).
33
224 F.R.D. 657 (C.D.Cal. 2004).
34
Id. at 659.
35
2009 WL 383237 (E.D.Tex. Feb.
11, 2009).
Page 139
noted that the only reason
presented in support of the
request for vacatur was that the
parties had entered into a
settlement, which is not a
sufficient
ground
under
Bancorp. The court stated that it
could not ignore the public
interest in the finding of
unenforceability of the two
patents and that it should
exercise its authority to grant
vacatur in a manner that would
discourage “rolling the dice,”
noting that the inequitable
conduct at issue in the case was
such that “parties would indeed
be willing to ‘roll the dice’ if the
result could easily be overcome
through
settlement
and
vacatur.”36
Similarly,
in
Vertex
Surgical, Inc. v. Paradigm
Biodevices, Inc.,37 the district
court, although noting that
decisions of district courts are
neither
authoritative
nor
precedential and are binding
only on the parties under
principals of res judicata,
refused to vacate the portion of
the court’s decision addressing a
claim under the Georgia
Wholesale Distribution Act,
noting that “[v]acating a portion
of that opinion deprives the
public of the full measure of a
reasoned public act.”
36
Id. at * 2.
___ F.Supp.2d ___, 2009 WL
2749668 (D. Mass. August 31,
2009).
37
Page 140
DEFENSE COUNSEL JOURNAL–January 2010
Scientia Potentia Est38
In
conclusion,
it
is
important to be aware of the
possibility of vacatur as a form
of relief from the collateral
consequences of an adverse
judgment, the standard to be
employed by the court from
whom relief will be sought and
the circumstances under which
vacatur as part of a settlement
has been found to be equitable,
and thus appropriate, in the past.
***
38
Latin maxim "For also knowledge
itself is power," stated originally by
Francis Bacon in MEDITATIONES
SACRAE (1597), which in modern
times is often paraphrased as
"knowledge is power." Wikipedia,
Scientia
potentia
est,
http://en.wikipedia.org/wiki/Scientia
_potentia est (as of Nov. 1, 2009,
11:50 A.M. EST).
Newsletters
THE APPLICABILITY OF
TWOMBLY AND IQBAL TO
PHARMACEUTICAL
PRODUCT
LIABILITY
LITIGATION
By: Archibald T. Reeves IV
This article originally appeared
in the November 2009 Drug,
Device
and
Biotechnology
Committee Newsletter.
Since the adoption of the
Federal
Rules
of
Civil
Procedure, and similar state
procedural rules, the threshold
that plaintiffs must meet to
survive a motion to dismiss for
failure to state a claim has been
very low. Two recent Supreme
Court decisions dramatically
change that requirement for
plaintiffs
and, while not
returning to the pre-rules
technical
and
formal
requirements, make clear that
mere conclusory allegations will
no longer satisfy plaintiff’s
burden in pleading a claim for
relief.
Bell Atlantic Corporation v.
involved
the
Twombly,1
sufficiency of a class action
complaint brought by the
plaintiffs against telephone
and/or high speed internet
services
providers
alleging
Sherman Act violations.
In
response to a motion challenging
the sufficiency of the complaint,
Page 141
Archie t
Reeves is
a partner
with t
McDowell
Knight t
Roedder &
Sledge in
Mobile, t
Alabama, t
where he represents drug and
device manufacturers throughout
Alabama and the region.
the plaintiffs cited Conley v.
Gibson,2 and argued that they
had satisfied the long established
standard that “a complaint
should not be dismissed for
failure to state the claim unless it
appears beyond doubt that the
plaintiff can prove no set of facts
in support of his claim which
would entitle him to relief….”3
The Supreme Court, however,
explained that while a complaint
need not contain detailed factual
allegations,
a
“plaintiff’s
obligation to provide the
‘grounds’ of his ‘entitlement to
relief’, requires more than labels
and conclusions, and a formulaic
recitation of the elements of
cause of action will not do.”4
The Court recognized that the
Conley standard would allow a
wholly conclusory statement of a
claim to survive a motion to
dismiss if there were some set of
2
355 U.S. 41 (1957).
Id. at 45-46.
4
Twombly, 550 U.S. at 555.
3
1
550 U.S. 544 (2007).
Page 142
DEFENSE COUNSEL JOURNAL–January 2010
facts
that
could
support
recovery. As such, the Court
concluded that the “no set of
facts” standard is “best forgotten
as an incomplete, negative gloss
on an accepted pleading
standard…”5
The Court then set forth the
following analysis to be used in
a Sherman Act case:
A complaint with enough
factual matter (taken as true)
to suggest that an agreement
was made.
Asking for
plausible grounds to infer an
agreement does not impose a
probability requirement at
the pleading stage; it simply
calls for enough facts to
raise
a
reasonable
expectation that discovery
will reveal evidence of
illegal agreement.
The need at the pleading
stage
for
allegations
plausibly suggesting (not
merely consistent with)
agreement
reflects
a
threshold requirement Rule
8(a)(2) that the “plain
statement” possesses enough
heft to sho[w] the pleader is
entitled to relief.6
Later, in 2009, in Ashcroft v.
Iqbal,7 the Supreme Court
5
Id. at 562-63.
Id. at 556-557.
7
129 S.Ct. 1937, ____ U.S. ____
(2009).
extended the reach of Twombly
to all civil actions and
proceedings in United States
District Court.
The Court
explained that the complaint
must assert “more than an
unadorned, the - defendant unlawfully - harmed - me
accusation,” and that “bare
assertions . . . amount[ing] to
nothing more than a formulistic
recitation of the elements of a
cause of action” are rejected as
“conclusory and not entitled to
be assumed to be true.”8
Following these two cases,
pharmaceutical defendants in
personal injury cases have
argued for dismissal on failure to
state a claim grounds, achieving
mixed results.
Whether the court grants or
denies a Twombly motion is
based
upon
the
factual
allegations contained in the
complaint at issue and it is,
therefore, decided on a case by
case basis and not subject to
generalizations.
However, as
discussed below, when such
motions are granted, courts
typically find the allegations too
conclusory. Likewise, a review
of the cases in which motions to
dismiss are denied reveals that
the court has concluded that the
complaint goes beyond mere
conclusory
allegations
and
specifically alleges facts, even if
only very few, to support the
causes of action at issue.
6
8
Id. at 1941.
Newsletters
Page 143
will not do.” Trombly . . .
Although the court must
accept a well-pleaded factual
allegation as to complaint as
true for purposes of a motion
to dismiss, the court is not
bound to accept as true a
legal conclusion couched as
a factual allegation.
CASES
GRANTING
MOTIONS TO DISMISS
A number of courts have
granted motions to dismiss
finding the complaint fails to
comply with Twombly. In Frey
v. Novartis Corporation,9 the
plaintiff brought claims against
Novartis
Pharmaceuticals
Corporation involving the drug
Trileptal. Plaintiffs’ complaint
contained strict liability claims
for manufacturing defect, design
and
formulation
defect,
inadequate
warning
or
instruction, and failure to
conform with representations
made concerning the product.
Novartis filed a Rule 12(b)(6)
motion to test the sufficiency of
the complaint.
The court
described the analysis as
follows:
The first step in testing the
sufficiency of a complaint is
to identify any conclusory
allegations.
Iqbal…
“Threadbare recitals of the
elements of a cause of
action, supported by mere
conclusory statements, do
not suffice.…[A] plaintiff’s
obligation to provide the
grounds of his entitlement to
relief requires more than
labels and conclusions, and a
formulated recitation of the
elements of cause of action
After assuming the veracity
of all well-pleaded factual
allegations, the second step
is for the court to determine
whether
the
complaint
pleads ‘a claim to relief that
is plausible on its face.’
Iqbal.…A claim is facially
plausible when the plaintiff
“pleads factual content that
allow the court to draw the
reasonable inferences that
the defendant is liable for the
misconduct
alleged.”
Iqbal….The standard for
plausibility is not akin to a
‘probability
requirement,’
but it requires “more than a
sheer
possibility
the
defendant
has
acted
unlawfully.” Id…10
In carrying out this analysis,
the court turned to the applicable
provisions of the Ohio Products
Liability Act, and concluded
that,
after
reviewing
the
language contained in the
various causes of action in the
complaint, some causes of action
were due to be dismissed
9
642 F. Supp.2d 787 (S.D.Ohio
2009).
10
Id. at 791 (citations omitted).
Page 144
DEFENSE COUNSEL JOURNAL–January 2010
because they did “nothing more
than provide a formulaic
recitation of the elements of a
claim under the statute. They
have failed to allege any facts
that would permit the court to
conclude that a manufacturing
defect occurred and that the
defect was the proximate cause
of Amanda Frey’s alleged
injuries. Plaintiffs’ allegations
in this regard falls short of the
sufficiency standard set forth in
Twombly.”11 Plaintiffs’ counter
argument was that they had
sufficiently pled the elements of
the causes of action and that they
could
not
allege
with
particularity
the
scientific
makeup of the drug as being
defective without conducting
As an
some discovery.12
alternative
to
dismissal,
plaintiffs moved to amend the
complaint to comply more fully
with the law, but the court stated
that such amendment would be
futile and did not allow it,
concluding that the plaintiffs had
not shown they would be able to
allege facts that would state
plausible claims for relief under
the causes of action as to which
dismissal were granted.
Another case involving a
detailed discussion that resulted
in a granting of a motion to
dismiss on the Twombly grounds
is
Lewis
v.
Abbott
11
12
Id at 795.
Id at 789.
Laboratories.13 In that case,
plaintiff asserted causes of
action under New York Product
Liability Law for negligence and
strict liability, alleging that the
product was defective on the
grounds of a design defect and
failure to warn. In analyzing the
legally required elements of
these causes of action and then
reviewing the allegations of the
complaint, the court concluded
that plaintiff’s allegations were
merely conclusory, and the
plaintiff did not allege a feasible
safer design. Other cases in
which courts have granted
motions to dismiss based on
Twombly
grounds
include
Sherman v. Stryker Corp.,14 and
Swicegood v. Pliva, Inc..15
CASES DENYING MOTION
TO DISMISS
As expected, there are a
number of cases in which courts
have denied such motions. The
court in Digitek Products
Liability Litigation,16 discusses
in detail the mandate in Twombly
with a spin towards finding
allegations sufficient to state a
claim. In ultimately ruling that
the complaint at issue was
13
2009 WL2231701 (S.D.N.Y. July
24, 2009).
14
2009 WL2241664 (C.D.Cal..
March 30, 2009).
15
543 Fed. Supp.2d 1351 (N.D.Ga.
2008).
16
2009 WL2433468 (S.D.W.Va.
Aug. 3, 2009).
Newsletters
sufficient to survive a motion to
dismiss, the court reviewed in
detail the allegations of the
complaint and compared them to
the
substantive
elements
required for relief. The same
holding was reached by the court
in William v. Pfizer,17 after it
engaged in a similar analysis and
concluded that although the
complaint “is by no means a
model of clarity or efficiency, …
it does contain the requisite
factual allegations to state a
claim under the Louisiana
Products Liability Act.”18 For
that reason, the court concluded
as follows:
Page 145
necessary
elements.”19
claims
Additionally, in King v.
Bayer Pharmaceuticals Corporation,20 the court denied the
motion
to
dismiss
after
discussing, in detail, the specific
allegations
in
plaintiff’s
complaint
concerning
the
defective design and warning
allegations.
***
The court recognizes that
plaintiff’s
petition
is
understandably lean on
specific factual allegations to
support all four of the
LPLA’s methods to establish
that
a
product
is
unreasonably
dangerous.
Nonetheless, plaintiff has
alleged
and
factually
supported a characteristic of
Chantix which may prove to
be unreasonably dangerous
under the Act. Plaintiff’s
products liability allegations
surpass mere speculation and
“raise
a
reasonable
expectation that discovery
will reveal evidence of the
17
2009 WL1362783 (W.D.La. May
14, 2009).
18
Id. at *4.
or
19
Id. at 4.
2009 WL2135233 (W.D. La.
2009).
20
REVIEWS
Reviewing the
Law Reviews
Compiled by Elizabeth M. Youngdale
Lecturer
University of
Texas School of Law
Law Review Highlights:
The tort of defamation is one
with a long tradition in common
law. That history itself has made
the cause of action one of the
most complicated torts. Concerns
about how the common law
requirements of the tort work in
conjunction with the First
Amendment have made the
elements difficult to understand
and their application equally
difficult to predict. The current
proliferation of Internet sites that
solicit comments and opinions on
every subject under the sun has
added to the complication, as
people feel free to post
potentially
defamatory
information anonymously. Two
articles look at defamation law
and its application in online and
other media settings.
One
addresses the tort in the context
of criticism of physicians on the
Internet. The other looks at the
classification—for
defamation
purposes—of high school athletes
who are moving into the high
profile realm of college sports.
Jeffrey Segal, Michael J.
Sacopulos, and Domingo J.
Rivera consider the problems of
defamation claims for physicians
and other health care providers
who are libeled online.1 Their
article looks first at the current
state
of
defamation
law,
exploring its deficiencies at
protecting physicians who are
unfairly criticized by patients
online. Defamation, which looks
at behavior after-the-fact, is a
difficult claim to sustain for
physicians because most of what
is posted online is opinion and
does not rise to the level
necessary to prove defamation in
spite of the damage such posts
often do to reputations.
To
protect physicians and others in
the health care profession, the
authors propose a contractual
relationship between doctors and
1
Jeffrey Segal et al., Legal Remedies
for Online Defamation of Physicians,
30 J. LEGAL MED. 349 (2009).
Reviewing the Law Reviews
patients that would regulate
patient comments online. They
believe this would serve as more
deterrence for online libel than
the current method of filing a
defamation suit.
In a student article, John G.
Long considers the impact the
Internet has had on bringing
previously little-known high
school athletes into the spotlight
as they make decisions about
their college careers.2 The article
looks in depth at the distinction
between public figures and
private figures in defamation law
before proposing that some elite
high school athletes may qualify
as “limited purpose” public
figures.
Because of their
increased access to— and use
of— the media due to intensified
interest in high school sports as
they relate to college teams, these
teenagers may be placing
themselves in positions that will
make defamation more difficult
to prove.
The following list is a selective
bibliography of current law
review literature thought to be of
interest to civil defense counsel.
Damages
Edward D. Cavanagh, Detrebling
Antitrust
Damages
in
Monopolization
Cases,
76
ANTITRUST L.J. 97 (2009).
2
John G. Long, High Standards for
High School Athletes: Defamation
Law and Tomorrow’s Stars, 16
SPORTS LAW. J. 255 (2009).
Page 147
<http://www.abanet.org/antitrust/
at-journal/index.html>
John
Y.
Gotanda,
The
Unpredictability
Paradox:
Punitive Damages and Interest in
International Arbitration, 10 J.
WORLD INVESTMENT & TRADE
553 (2009). <http://www.wemer
publ.com/frame_inves.htm>
Jindrich Kloub, White Paper on
Damage Actions for Breach of
the EC Antitrust Rules: Plea for a
More Holistic Approach to
Antitrust Enforcement, 5 EUR.
COMPETITION J. 515 (2009).
<http://www.hartjournals.co.uk/ecj/>
Shmuel Leshem and Geoffrey P.
Miller, All-or-Nothing Versus
Proportionate Damages, 38 J.
LEGAL STUD. 345 (2009).
<http://www.journals.uchicago.ed
u/JLS/home.html>
Matt Lynde et al., The Shifting
Sands of Price Erosion: Price
Erosion Damages Shift by Tens of
Millions of Dollars Depending
upon the Admissibility of PreNotice Eroded Prices, 25 SANTA
CLARA COMPUTER & HIGH TECH.
L.J. 723 (2009).
<http://www.chtlj.org/>
Steven
P.
Nonkes,
Note,
Reducing the Unfair Effects of
Nonmutual Issue Preclusion
Through Damages Limits, 94
CORNELL L. REV. 1459 (2009).
<http://organizations.lawschool.c
ornell.edu/clr/>
Page 148
DEFENSE COUNSEL JOURNAL–October 2009
Jason N.E. Varuhas, A TortBased Approach to Damages
Under the Human Rights Act
1998, 72 MOD. L. REV. 750
(2009).
<http://www.blackwell
publishing.com/journal.asp?ref=0
026-7961>
Evidence
Etan S. Chatlynne, Note, The
Burden of Establishing Patent
Invalidity:
Maintaining
a
Heightened Evidentiary Standard
Despite
Increasing
“Verbal
Variances,” 31 CARDOZO L. REV.
297 (2009). <http://www.cardo
zolawreview.com/>
Deborah R. Eltgroth, Note, Best
Evidence and the Wayback
Machine: Toward a Workable
Authentication Standard for
Archived Internet Evidence, 78
FORDHAM L. REV. 181 (2009).
<http://law.fordham.edu/lawrevie
w.htm>
Keith A. Gorgos, Comment, Lost
in Transcription: Why the Video
Record Is Actually Verbatim, 57
BUFF. L. REV. 1057 (2009).
<http://www.buffalolawreview.org/>
Melissa Hart and Paul M.
Secunda, A Matter of Context:
Social Framework Evidence in
Employment
Discrimination
Class Actions, 78 FORDHAM L.
REV. 37 (2009).
<http://law.fordham.edu/lawrevie
w.htm>
Davida H. Isaacs and Robert M.
Farley, Privilege-Wise and Patent
(and Trade Secret) Foolish? How
the Courts’ Misapplication of the
Military and State Secrets
Privilege
Violates
the
Constitution and Endangers
National Security, 24 BERKELEY
TECH. L.J. 785 (2009).
<http://www.btlj.boalt.org/>
Joni Larson, Tax Evidence III: A
Primer on the Federal Rules of
Evidence As Applied by the Tax
Court, 62 TAX LAW. 555 (2009).
<http://www.law.georgetown.edu
/journals/tax/>
Amy Price Sawyer, You Mean My
Doctor Is Not an Expert?: The
Admissibility of the Medical
Review Panel Opinion in
Summary Judgment, 36 S.U. L.
REV. 337 (2009). <http://www. su
lc.edu/sjournalLawReview.php>
Remme Verkerk, Comparative
Aspects of Expert Evidence in
Civil Litigation, 13 INT’L J.
EVIDENCE & PROOF 167 (2009).
<http://www.vathek.com/ijep/ho
me.php>
Reviewing the Law Reviews
Insurance
Hillel David and Gary Caplan,
Serial
and
Independent
Concurrent Causes in Insurance
Law, 36 ADVOC. Q. 57 (2009).
<http://www.canadalawbook.ca/c
atalogue.cfm?DSP=Detail&Produ
ctID=436>
Jay M. Feinman, The Insurance
Relationship
As
Relational
Contract and the “Fairly
Debatable” Rule for First-Party
Bad Faith, 46 SAN DIEGO L. REV.
553 (2009).
<http://www.san
diego.edu/law/news/blogs_public
ations/publications/journals/law_r
eview/>
Aparna Kirknel Majmudar, The
National
Flood
Insurance
Program: Maintaining Its Head
Above Water, 16 U. MIAMI INT’L
& COMP. L. REV. 183 (2009).
<http://www.law.miami.edu/stud
entorg/international_comparative
_law_review/index.php>
Thomas Plotkin and Tarae
Howell, “Fair Is Foul and Foul
Is Fair”: Have Insurers Loosened
the Chokepoint of Copyright and
Permitted Fair Use’s Breathing
Space in Documentary Films?, 15
CONN. INS. L.J. 407 (2009).
<http://www.insurancejournal.org
/frames.html>
Sara Rosenbaum, Insurance
Discrimination on the Basis of
Health Status: An Overview of
Discrimination
Practices,
Page 149
Federal Law, and Federal
Reform Options, 37 J.L. MED. &
ETHICS 103 (2009). <http://www.
aslme.org/pub_jlme/index.php>
Marcus Smith, The Effect of
Subsequent Increases of Risk on
Contracts of Insurance, 2009
LLOYD’S MAR. & COM. L.Q. 366
(2009).
<http://www.ilaw.com/ilaw/browse_journals.ht
m?name=Lloyd's Maritime and
Commercial Law Quarterly>
Lesley A. Walcott, Insurance
Law
Reform
in
the
Commonwealth Caribbean: In
the Interests of the Insured
Policyholder?, 38 COMMON L.
WORLD REV. 81 (2009).
<http://www.vathek.com/clwr/ho
me.php>
Procedure
Robert G. Bone, “To Encourage
Settlement”: Rule 68, Offers of
Judgment, and the History of the
Federal Rules of Civil Procedure,
58 DEF. L.J. 55 (2009). <http://
bookstore.lexis.com/bookstore/pr
oduct/41036.html>
Daniel B. Carrie and Yoav M.
Griver, Mobile Messaging and
Electronic Discovery, 8 LOY. L.
& TECH. ANN. 95 (2009).
<http://law.loyno.edu/loyola-lawand-technology-journal>
Aaron K. Brauer-Rieke, Note,
The FCC Tackles Net Neutrality:
Agency Jurisdiction and the
Page 150
DEFENSE COUNSEL JOURNAL–October 2009
Comcast Order, 24 BERKELEY
TECH. L.J. 593 (2009).
<http://www.btlj.boalt.org/>
John M. Facciola et al., Sanctions
in Electronic Discovery Cases:
Views from the Judges, 78
FORDHAM L. REV. 1 (2009).
<http://law.fordham.edu/lawrevie
w.htm>
Taryn M. Fry, Comment,
Injunction Junction, What’s Your
Function? Resolving the Split
over
Antisuit
Injunction
Deference
in
Favor
of
International Comity, 58 CATH.
U. L. REV. 1071 (2009).
<http://lawreview.law.edu/page.c
fm?id=1>
L.
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