In 2010, the Supreme Court held that courts should employ a presumption against the extraterritorial application of federal statutes absent an “affirmative intention of the Congress clearly expressed” indicating otherwise.  Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 255 (2010) (quotations and citation omitted).  Post-Morrison, federal courts have summarily applied this presumption to cases alleging violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), but differed on how to limit its extraterritorial reach—typically limiting extraterritorial application to cases involving domestic conduct amounting to a pattern of racketeering or domestic enterprises.  See, e.g., United States v. Xu, 706 F.3d 965, 979 (9th Cir. 2013) (focus on the pattern of racketeering); Chevron Corp. v. Donziger, 817 F. Supp. 2d 229, 245 (S.D. N.Y. 2012) (same); United States v. Philip Morris USA, Inc., 783 F. Supp. 2d 23, 29 (D.D.C. 2011) (same); see also Cedeno v. Intech Grp., Inc., 733 F. Supp. 2d 471, 474 (S.D. N.Y. 2010) (focus on the enterprise); Sorota v. Sosa, 842 F. Supp. 2d 1345, 1350 (S.D. Fla. 2012) (same).  In 2014, the Second Circuit added yet another option: applying RICO extraterritorially when the predicate act statute expressly extends to foreign conduct.  Eur. Cmty. v. RJR Nabisco, Inc., 764 F.3d 129, 136 (2d Cir. 2014) [“RJR Nabisco II”].  And this past April, the Second Circuit denied RJR Nabisco’s request for rehearing en banc, thereby leaving RJR Nabisco II to serve as precedent.  Eur. Cmty. V. RJR Nabisco, Inc., No. 11-2475 (2d Cir. April 13, 2015) [“RJR Nabisco III”].  Perhaps more telling than the actual denial, five judges wrote separate opinions to accompany the disposition, illustrating the Second Circuit’s internal disagreement over RICO’s extraterritorial scope.

The RJR Nabisco II decision vacated the district court’s dismissal of plaintiffs’ RICO claims.  764 F.3d at 142-43, 149.  Initially, plaintiffs had filed suit in the Eastern District of New York alleging RICO violations arising from a money-laundering scheme orchestrated by RJR Nabisco, pervading the United States as well as countries in Europe, Central America, and South America.  Eur. Cmty. V. RJR Nabisco, Inc., No. 02-CV-5771, 2011 WL 843957 at 1-2 (E.D. N.Y. March 8, 2011).  The district court dismissed these claims, concluding that RICO’s extraterritorial application focused on the enterprise and plaintiffs had failed to allege RJR Nabisco controlled the money laundering scheme.  Id. at 7.  On appeal, the Second Circuit disagreed, holding that RICO applies to foreign conduct when the relevant predicate statute unambiguously applies extraterritorially and concluding plaintiffs sufficiently pleaded domestic conduct amounting to predicate acts, the statutes of which extended expressly to foreign conduct.  RJR Nabisco II, 764 F.3d at 139, 140-42.  

The dissonance in RJR Nabisco III rests on the apparent discord between RJR Nabisco II and the Second Circuit’s holding in Norex Petroleum Limited v. Access Industries, Inc..  631 F.3d 29 (2d Cir. 2010).  In Norex, the court held Morrison foreclosed any argument that (1) RICO’s general reference to “foreign commerce” demonstrates Congress’s intent to apply RICO extraterritorially; (2) because certain RICO predicate act statutes extend extraterritorially, RICO extends the same; and (3) vague allegations stating “defendants committed numerous acts in the United States” supports a claim for RICO to apply to these domestic acts.  Id. at 31, 33.  Like the divergent outcomes in Norex and RJR Nabisco II, the Second Circuit judges retain a similar division in their of analyses regarding whether these opinions can be read harmoniously or if they inevitably conflict.

While Judge Hall’s concurring opinion posits that RJR Nabisco II can be read in coherence with Morrison and Norex, the four dissents forecast confusion and inconsistency among courts moving forward.  Judge Hall, a member of the RJR Nabisco II panel, expands on the panel’s reasoning.  In addition to the extraterritorial application of the case’s relevant predicate acts, Judge Hall emphasizes that the post-9/11 addition of multiple predicate act statutes with similar scopes from the Patriot Act indicates Congress’s intent for RICO to span to international conduct when parties allege such predicate acts.  RJR Nabisco III, at 1-3 (Hall, J., concurring).  Moreover, he distinguishes Norex, noting that plaintiffs in that case had attempted to argue that RICO always applies to foreign conduct simply because some of the predicate act statutes apply to foreign conduct.  Id. at 5.  Unlike Norex, the RJR Nabisco II decision limits RICO’s extraterritorial application to instances in which the predicate racketeering acts expressly allow for it.  Id. at 5-6.

The subsequent dissents point to observed discrepancies between the two opinions and raise questions left open by allowing both decisions to remain as precedent.  Judge Jacobs’ dissent outlines these general concerns while Judge Cabranes also comments on the risk of inviting RICO claims derived from conduct occurring “anywhere in the world.”  Id. at 1-2 (Jacobs, J., dissenting); id. at 3 (Cabranes, J., dissenting).  The most divisive dissent, however, was Judge Raggi’s opinion, criticizing RJR Nabisco II for deviating from RICO precedent and stating that a rehearing should have been granted to consider whether and when RICO applies extraterritorially.  Id. at 3-4 (Raggi, J., dissenting).  She notes the contrast between other statutes’ language expressly providing for extraterritorial applications with the noticeable absence of any such provision in RICO.  Id. at 6, n. 4.  Moreover, her dissent points to the factual similarities between Norex and RJR Nabisco II despite their dissimilar results.  Id. at 12.  And like the other dissents, Judge Raggi voices concern over the panel’s choice to ground its analysis in RICO’s predicate acts rather than the enterprise or pattern of racketeering activity, opining that the panel failed to identify any “focus” as prescribed by Morrison.  Id. at 18-19, 22-23.  

To round out the dissenting opinions, Judge Lynch offers a new perspective by supporting the adoption of the panel’s reasoning.  Id. at 1 (Lynch, J., dissenting).  While Judge Lynch believes a rehearing en banc should have been granted to resolve tensions between Norex and RJR Nabisco II, he disagrees with the other dissents to the extent they suggest RICO can never apply to foreign enterprises or patterns or predicate crimes implicating statutes with extraterritorial reach.  Id. at 6. 

Ultimately, the Second Circuit’s disposition retains RJR Nabisco II as good law.  Yet these varying opinions expose the incongruity among the Circuit and reflect the broader division across jurisdictions concerning RICO’s extraterritorial application.  Thus, practitioners should be aware that the question regarding RICO’s focus for determining its extraterritorial reach remains unresolved among, and seemingly within, certain circuit courts.  


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As an Asian American lawyer, I have found that DRI provides the resources to aid diverse lawyers to become successful in their practice.  My DRI membership has been a source of personal satisfaction and continues to contribute toward my professional growth. And, as I look around, I find the same has happened to other Asian American lawyers who chose to make the most of their membership.  One such shining example is Melissa Lin who is a partner at Righi Fitch Law Group in Phoenix, Arizona. Her practice includes the representation of individuals, contractors, businesses, and municipalities in tort and contract litigation, primarily in the areas of general liability, construction defect litigation, complex litigation, personal injury, and product liability.  Melissa was honored as a 2012 through 2015 Southwest Super Lawyers Rising Star. She was named to Lawyers of Color’s 2013 Inaugural Hot List for the Western Region, and was also named as one of the top valley attorneys by North Valley magazine in 2013

Melissa has been a DRI member since 2007 and has been actively involved in various DRI committees, including Women in the Law, Diversity, and Construction Law. She currently serves as the Membership Chair of the DRI Construction Law Committee and the 2015 Diversity Seminar Vice-Chair and Expo Chair.  When I asked Melissa about her experience with DRI, she told me, “DRI is one of the most rewarding legal organizations to belong to and get involved with. In addition to providing writing, leadership, and speaking opportunities to a national audience, DRI provides diverse attorneys like me an opportunity to meet and interview with corporate counsel through the DRI Diversity Expo. I have also made great connections and friendships with other attorneys from around the country who I can call with questions at any time.” Examples of some of the great opportunities Melissa had through DRI include speaking engagements at the 2014 Construction Law Seminar and the 2013 and 2014 Diversity Seminars. In addition, she has published articles for the DRI - The Voice of the Defense Bar newsletter.  Melissa is definitely a rising star within DRI. Melissa has also served in leadership roles with the Construction Law Section of the Maricopa County Bar Association, the Arizona Asian American Bar Association, the Women’s Metropolitan Arts Council of the Phoenix Art Museum, and the Young Lawyers Division of the Arizona State Bar and Arizona Association of Defense Counsel. Melissa believes that DRI has been one of the most instrumental and helpful organizations to her career. 

Melissa is the daughter of Taiwanese immigrants. She grew up in Tucson, Arizona where her parents have owned and operated a small business for over thirty-six years. Although her father was initially opposed to the idea of law school for Melissa because they had no connections in the legal community and didn’t know any lawyers, Melissa followed her dream of becoming a lawyer.  Through her hard work, enthusiasm, and commitment to her clients, Melissa has shown that success can come to those who seize the opportunities presented to them.  It is my hope that other Asian American lawyers can draw inspiration from Melissa’s success story and leverage all that a DRI membership offers.


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In what can only be considered another positive step for the construction industry, according to the United States Labor Department, construction firms added 45,000 jobs in April eradicating a surprising loss for March. Construction jobs are now at a six year high according to the Labor Department.

With business trending upward in many geographical areas throughout the country, 2015 looks to be a promising year for the construction industry.

Unfortunately, because of the economic downturn over the last few years and with an aging demographic, finding experienced workers might prove to be difficult as construction firms ramp up.

Firms, technical schools and colleges will need to do a better job to recruit skilled labor into the job market as without skilled labor, projects could be delayed or worse yet, shuttered because there are not enough people to perform the work.

Hopefully that does not happen.


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We have all seen the statistics: only 17 percent of equity partners in the nation’s largest 200 firms are women, only 2 percent of equity partners in the largest 100 firms are female minorities, and women make up the largest percentage of staff attorneys.  These trends prevail even though women have continued to enter the practice of law for the past three decades at a rate of at least 40 percent of law school graduates every year. The recent “2015 Glass Ceiling Report” published by Law360 just last month acknowledged that “Women continue to be dramatically underrepresented at every attorney level in the U.S. legal industry, and firms made negligible progress toward gender equality in 2014.”  

Where does one begin to make a lasting, positive difference for women lawyers?  That is the question Beth Fitch and I answered when we co-founded the “Ladder Down” program in Arizona with the help of the Arizona Association of Defense Counsel. 

In January 2013, we launched a powerful year-long pilot program for women lawyers built on three pillars: leadership, business development, and mentoring. Beth and I wanted to give women practical, tangible tools for succeeding in the legal profession that they can begin implementing in their practice right away. We were driven to empower women through a new type of training that marries instruction with accountability.  After all, one cannot have sustained change unless the actions become a habit, and habits take time to develop. For more information about our program, check out our website at www.ladderdown.org. The program is now in its third year and has proven to be pivotal in changing the professional lives of its 80 participants for the better. The Ladder Down program has been so impactful that it is now being used as a model across the country, with similar programs underway in Seattle and New York. The reason for the interest in Ladder Down is simple: our structure works. The evidence of the empowerment is overwhelming. 

After completing the one-year course, our Ladder Down graduates report measurable improvements: promotions to partnership, new clients, expanded business networks, robust referrals, substantial raises, firm transitions, and a universal increase in community involvement. Participants negotiated their salaries (some for the first time), developed formal business plans, and gained speaking and publishing opportunities. They landed positions on boards, obtained origination credit, and learned to state their accomplishments. In addition to these “external” changes, they saw internal changes: increased confidence at networking events, a new ability to resolve conflict, a commitment to prioritizing business development, and a better understanding of their own strengths. Every one of them benefitted from taking risks they would not otherwise have taken. 

When Beth and I first launched Ladder Down we had several conversations about which organization would make the best partner. Beth had served as President of the Arizona Association of Defense Counsel several years earlier, as had my father Doug Christian, and I am still an active member of the AADC Board of Directors. We both had such wonderful experiences and built lasting relationships through the AADC that our natural inclination was to start there. I pitched the Ladder Down idea to the AADC Board during our 2012 fall retreat and was met with an incredibly warm reception. The Board was excited about this new endeavor, which was unlike anything that the AADC – or any other SLDO to our knowledge – had ever undertaken. 

As with any program, the first questions surrounded expenses. What would the pilot program cost and how did Beth and I intend to pay for it? We approached our faculty (by far our largest expense) and were able to negotiate “pilot program” rates for the inaugural 2013 Ladder Down program. Once we had their rates confirmed, we were able to set a target goal for fundraising. We explained to the AADC that our goal was to find law firms interested in sponsoring at the $1,000 level; in exchange for that $1,000 the firm would be guaranteed a space for a participant of its choice in the 2013 program. We asked the AADC to match our $1,000 sponsorships (up to a certain cap) until we reached our target amount. The AADC agreed with that strategy and we were approved to start fundraising in the fall of 2012. Several Board members even committed their firms to the $1,000 sponsorship right there on the spot. When I called Beth after that meeting, the first words out of my mouth were “It’s alive!” 

The relationship between Ladder Down and the AADC was mutually beneficial from the start. The AADC was instrumental in helping Beth and I spread the word about our new program. They helped advertise the launch to the AADC members, and the firms represented on the Board were eager to sponsor our pilot program and send their attorneys to Ladder Down. We also had a home for Ladder Down rooted in Arizona’s defense community and could run the financial component of the program without having to start our own 501(c)(6). Because participation in the first and second year classes was restricted to AADC members, AADC membership increased. In fact, each year we saw several women lawyers join the AADC specifically to participate in Ladder Down. And in 2013, during the pilot program’s first year, DRI recognized the AADC with the DRI Diversity Award. This award is given to the SLDO that demonstrates a commitment to diversity and it was an incredible honor for the AADC. It is not hard to see how this relationship between an SLDO and Ladder Down can be win-win!

Our mission going forward to is to bring Ladder Down to other SLDOs interested in making a positive difference for their women lawyers. The staggering statistics that we continue to see reported are not going to shift unless there is a more intentional effort to bring about change. The good news is that the leg work for “Ladder Down” has already been done. We have the structure and agenda for the year-long program in place; we have faculty with demonstrated results; we have brochures, applications, evaluations, and CLE certificates already created; and we have leaders from the Arizona program who are able to share their experiences. The next steps are to find champions in other cities who can partner with their SLDOs to launch this fantastic program. I encourage you to reach out to me about how you can start a Ladder Down program in your area.  


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Lawyers Need to Adapt Faster to Change

Posted on May 4, 2015 09:33 by Steve Crislip

As they say, the only constant is change.  We see it all around us and expect it as a matter of course.  Much we deem for the better, but some changes with technology or social conventions are unliked, but here. By way of example there were about 200 buildings on the 1,300-acre campus of Eastman Kodak’s business park in Rochester, but now 80 have been demolished and 59 sold off says the New York Times.  Changes in film use put them into bankruptcy in 2013.  Radio Shack, the go to electronics consumer place in the 1970-2000 era, filed for bankruptcy in February of 2015.  Our needs, and our ability to obtain a unique needed item, have just changed.  I can just order a needed item online and it often even comes with free shipping.

Both the Washington Post and the New York Times have written about the deaths of the indoor malls that exist in most all towns of any size.  Replacing them is a new style mall called an Outdoor Shopping District which is often like a small village or town with outdoor space and access.  Wait, that is just like the old downtowns destroyed by the then new concept of “The Mall.”

Lawyers, in a profession steeped in tradition and the idea of following old precedents, are in my opinion too slow to adapt to these changes happening in society that are being rapidly applied to the business of the practice of law. I suspect many of professional legal changes following the 2008-10 financial crises will continue, despite the improved economy.  I sense there is less litigation, with more disputes being resolved by the companies or their carriers outside the traditional legal system.  Use of outsourcing by businesses will likely continue to affect the legal profession.

So, we know change now comes fast to the legal profession and we need to expect it and embrace it.  Most firms are not big enough to have staff devoted to certain areas of developing change strategy, but everyone can do a division of labor and assign people to look after things like:

-Electronic discovery changes.

-Social media for the firm and resulting delivery methods.

-Use of technology to increase productivity.

-Meeting new client demands and expectations.

Deborah Epstein Henry in Law and Reorder: Legal Industry Solutions for Restructure, Retention, Promotion and Work/Life Balance, mentions law practice changes in the move away from the traditional billable hour, career and lifestyle changes, and new models for delivery of legal services.

I believe it fair to say the current change/shift has put the client, rather than the firms, in the center and also in the lead with regard to implementing or demanding change. Clients are expecting lawyers to do more, with less, and at a lower cost.  See generally Altman Weil, Law Firms in Transition Study 2014.

I would be foolhardy to predict the coming changes in the legal profession.  But, it is clear that the successful lawyers will be those who adapt now and begin to develop a change mentality.  I venture a guess that good, reliable and dependable service relations with the client will still deliver the work, but it has to be done in a more efficient and cost effective manner for the client.  That requires a change in thinking and practice sooner than later before your firm becomes a Radio Shack or a Kodak, or gets sidelined by an Uber-type technology servicing your good clients.  It happened rapidly for taxi companies, and who could say if a tech driven legal services Uber might radically alter the legal world.

This blog was originally posted in Lawyering for Lawyers blog on May 4. Click here to read the original entry. 


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Can a company introduce an improved product if it knows doing so will take sales from its competitors?   “Well, of course,” you say.  “Isn’t that called competition?”  In the near future, the Second Circuit will have to answer this question.  Hopefully it will agree. 

In People of the State of New York v. Actavis PLC, No. 14-4624, the New York Attorney General attacked a practice known as product reformulation, or more often by its unfortunate moniker, “product-hopping.”  This practice describes the roll-out by a branded pharmaceutical company of an improved version of a patent-protected drug combined with the discontinuance of the older drug at or near the time the patent will expire.  The effect of this action is to neutralize the impact of state substitution laws – which either demand or permit the substitution by pharmacists of a generic version of the branded product.  State substitution laws, combined with other pricing pressures from third-party payers (e.g., insurance companies), typically shift a monstrous share of the market for a pharmaceutical (80 percent or higher) from the innovator to the generics at the expiration of the patent.

The case currently is before the Second Circuit on an emergency motion due to the district court’s unprecedented decision to impose an injunction on the defendants, Actavis plc and Forest Laboratories (collectively referred to as “Forest Labs”) requiring that they continue to manufacture and market the older version of the drug until after the patent expires.  Oral arguments were heard by a three judge panel in mid-April.

The Second Circuit has the opportunity to address some interesting issues.  First and foremost, where does one draw the line between Trinko’s dictate that there is no duty under the antitrust laws to assist competitors, and Aspen Skiing’s holding that there could be in certain situations?  

Recall that in Trinko it was alleged that the defendant actually violated its regulatory obligations to aide its competitors.  Despite this fact, the Supreme Court found for the defendant telephone company.  Here, there is no allegation that Forest Labs violated any such regulation or law.  Perhaps this case ultimately will give the Supreme Court the opportunity to demonstrate just how much it regrets Aspen Skiing.

Almost as important, should courts subject companies to antitrust liability where there are no clear rules to guide conduct? The Supreme Court has made it quite clear in Trinko and again in linkLine that this is not a great idea.  The underlying rationale is obvious.  Unclear rules of engagement dilute companies’ competitive vigor, lest they inadvertently cross some inchoate line.         

Unlike some of the prior product-hopping cases where there were allegations of other predatory conduct – such as delisting or raising questionable safety concerns about the older product – the current case is relatively “clean.”  Forest Labs rolled out a new product with apparent benefits and sought to effectively discontinue its older product within months of the expiration of the patent.  It also appears from the district court opinion that Forest Labs made no bones about why it did this. It did it to neutralize the impact of the state substitution laws.  Other than the reformulation and withdrawal, there do not appear to be any other allegations of any real predatory conduct.

Just as Trinko has impacted conduct outside the telecommunications industry, the Second Circuit’s opinion likely will impact more than just pharmaceutical companies.  Putting aside my view as to the proper outcome, let us hope that – whatever the Second Circuit decides – it provides some clear guidance and avoids imposing subjective standards such as those advocated in a 2012 FTC amicus brief filed in Mylan v. Warner Chilicott.

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Federal Court Denies Vermont’s Motion to Dismiss Food Producers’ Lawsuit against Labeling Law, But Denies Food Producers’ Motion to Enjoin Enforcement of the Law Prior to Trial

A long-awaited court preliminary decision on Vermont’s first-in-the-nation GMO labeling law was issued Monday (April 27, 2015).

Vermont’s GMO labeling law, Act 120, was passed and signed in May, 2014 and is scheduled to take effect in 2016.  It requires certain foods sold in Vermont to be labeled as containing GE ingredients and bans such foods from being labeled or marketed as “natural.”  A food industry group, the Grocery Manufacturers Association (GMA), sued the State of Vermont over the law and sought an injunction.  Vermont countered by moving for the dismissal of the entire lawsuit.  The Vermont federal court addressed the competing motions by issuing a preliminary decision on the constitutionality of the law.  In its analysis, the court addressed the two key aspects of Act 120: 1) the requirement that food producers label their products as containing GE ingredients (the “affirmative labeling requirement”), and 2) the ban on the use of the term “natural.”

1. Discriminatory Effects Under The U.S. Commerce Clause: Court holds that Act 120’s ban on the use of the term “natural” violates the Commerce Clause, but its affirmative labeling requirement does not.

In the lawsuit, GMA claims that Act 120’s ban on the use of the term “natural” on signs and advertising violates the Commerce Clause of the U.S. Constitution. The court stated that although under the Constitution the states retain some regulatory power concerning matters of legitimate local concern, they cannot regulate commerce, such as advertising, that takes place in other states and between and among other states.  Therefore, the court denied Vermont’s motion to dismiss this claim. This is a win for the plaintiffs (GMA).

The GMA also claims that Act 120’s affirmative requirement that manufacturers label their products as “produced with genetic engineering” violates the Commerce Clause by “discriminating” against manufacturers who sell products nationally.  The court found this argument unpersuasive because, as difficult or as expensive as it might be for manufacturers to label products separately for the Vermont market, the labeling requirement only applies to products sold in Vermont, not elsewhere. Therefore, the affirmative labeling requirement does not violate the Commerce Clause and the court granted Vermont’s motion to dismiss on this claim.  A win for Defendants (Vermont).

2. Federal Preemption: Court holds that Act 120’s GE labeling requirement is partially pre-empted by federal law.

The GMA claims that Act 120’s affirmative labeling requirement is pre-empted by certain federal laws that mandate what must be stated on the labels of food products.  With respect to non-meat foods, the court found that none of the several federal laws that dictate what must be stated on a food label (ingredients, nutrition information, etc.) prevent a state from requiring that additional information also be on the label.  Therefore, the affirmative labeling requirement is not federally pre-empted as to non-meat foods and the court granted Vermont’s motion to dismiss on this claim.  Another win for Vermont.

On the other hand, the court found that federal statutes that regulate meat and foods that contain meat are strict as to what a label must say and cannot say.  Therefore, Act 120’s affirmative labeling requirement, as it pertains to any GMO foods that contain meat, is federally pre-empted and the court denied Vermont’s motion to dismiss this claim.  A win for the plaintiffs.

3. First Amendment: The court believes that Act 120’s affirmative labeling requirement is not barred by the food producers’ free speech rights under the First Amendment, but denied Vermont’s motion to dismiss the First Amendment challenge because the court recognizes that this is a serious question of law as to which courts might disagree; but the court finds that Act 120’s ban on the term “natural” does violate the First Amendment.

The GMA claims that the affirmative labeling requirement infringes its free speech rights under the First Amendment.  The court found that Act 120 regulates only “commercial” as opposed to “political” speech and that courts apply a very low level of constitutional scrutiny to laws that regulate purely commercial speech.  The court therefore found GMA’s First Amendment claims against the affirmative labeling requirement to be unpersuasive.  Nevertheless, given the seriousness of this issue, the court denied Vermont’s motion to dismiss GMA’s First Amendment challenge to the affirmative labeling requirement.  A tenuous win for plaintiffs.

The GMA also claims that the ban on the use of the term “natural” violates its First Amendment rights.  Here, the court agreed with GMA because Vermont does not define anywhere what “natural” supposedly means.  Therefore, its use by food producers is not inherently misleading.  Act 120’s ban on the use of this term as it applies to foods that contain or may contain GE ingredients violates the First Amendment and the court denied Vermont’s motion to dismiss GMA’s challenge to the ban on the use of the term “natural.”  A win for plaintiffs.

4. Preliminary Injunction: The court denied GMA’s request that enforcement of Act 120 be enjoined prior to the trial of this lawsuit.

Although the court found that GMA is likely to prevail on certain of its claims (as explained above), it did not find that GMA proved that it will suffer “irreparable harm” if the enforcement of Act 120 is not enjoined prior to the trial of this lawsuit.  

Thus, this decision is a mixed bag. It expressed skepticism towards many of GMA’s claims that Act 120 is unconstitutional, but denied Vermont’s preliminary motion to dismiss most of those claims.  At the same time, it found that, prior to a trial on the merits, GMA was not entitled to enjoin the enforcement of Act 120, which becomes effective in 2016.

Walter Judge is a commercial litigator at Downs Rachlin Martin, Vermont’s largest law firm. 

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UPDATE:  The Grocery Manufacturers Association (GMA) and the other plaintiffs have today (May 6, 2015) filed an appeal of the Vermont federal court's denial of their request for an injunction to block the law from taking effect. The appeal is to the United States Court of Appeals for the Second Circuit, in New York City, which is the federal appeals court that has jurisdiction over appeals from federal courts in Vermont, New York, and Connecticut.  In a statement, the GMA says, “The court’s opinion in denying our request to block the Vermont law opens the door to states creating mandatory labeling requirements based on pseudo-science and web-fed hysteria. If this law is allowed to go into effect, it will disrupt food supply chains, confuse consumers and lead to higher food costs.” 

Click here to read a copy of the Notice of Appeal.

 

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It seems inevitable that, at some point in our careers, we face the prospect of having to pursue, or respond to, a threat of Rule 11 sanctions.  The situation always raises questions about how to approach your opponent in an effective way so as to achieve an amicable resolution to what otherwise may be an ugly, vitriolic battle.  One strategy that seems universally accepted is the Rule 11 “warning letter,” wherein you politely advise opposing counsel that you believe her client’s claims are completely frivolous and request an immediate dismissal or face the prospect of Rule 11 sanctions.  While certainly an appropriate, professional approach, it is important to be mindful of the limited effectiveness of such a letter should the formal pursuit of sanctions become necessary.

Fed. R. Civ. P. 11(c)(2) is the “safe harbor” provision.  It requires a party to serve a Rule 11 motion on opposing counsel without filing it.  The party served then has 21 days to withdraw or correct the pleading to address the violation.  Only after a party fails to do so may the serving party seek sanctions. So, the question arises whether a Rule 11 warning letter satisfies the triggering of the safe harbor provision for purposes of pursuing sanctions.

The 6th Circuit recently answered this question in the negative in Penn, LLC v. Prosper Business Development Corp., 773 F. 3d 764 (6th Cir. 2014). The Court ruled that the safe harbor provision very clearly requires the service of a motion and a warning letter does not meet that definition.  In its ruling, the Court stressed that allowing more informal notices would improperly undermine the policy goals of Rule 11 to ensure appropriate due process, require a precise description of the allegedly improper conduct, and to stress the seriousness of such sanctions. The Court noted that all circuits except the 7th have adopted this approach.

So, it is sometimes difficult to balance the desire for professional courtesies with what may ultimately be required by the rules should the path of amicable resolution not bear fruit. Food for thought.


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The United States District Court for the Southern District of Florida in Humana Medical Plan, Inc. v. Western Heritage Insurance Company, No. 12-20123 (S.D., Florida, March 16, 2015) allowed Humana, a Medicare Advantage Organization (“MAO”), to pursue a private cause of action under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b) against Western Heritage, a primary payer.  In doing so, the court adopted the Third Circuit’s analysis in In re Avandia Mktg., 685 F.3d 353 (3d Cir. 2012) where the court held that MAOs have a private cause of action against a primary plan under the statutory text of the Act.  The court further determined that Humana was entitled to recover double damages pursuant to 42 U.S.C. § 1395y(b)(3)(A).

The factual background of the case is fairly straight forward.  Mary Reale was enrolled in a Humana Medicare Advantage Plan when she sustained injuries in a slip-and-fall accident at a condominium complex that was insured by Western Heritage.  Ms. Reale subsequently entered into a settlement agreement with Western Heritage and its insured.  In funding the settlement, Western Heritage attempted to include Humana as a payee on the settlement check.  However, Ms. Reale objected because the amount of Humana’s lien was disputed between the parties.  In response, the state court judge ordered the tender of the entire settlement amount to Ms. Real without including any lien holder on the settlement check.  After Humana and Mrs. Reale were unable to agree on the amount Humana was to be reimbursed, Humana sued Western Heritage seeking reimbursement for conditional payments it made on behalf of Ms. Reale, along with double damages under the MSP Act.

In reaching its decision, the court distinguished the Ninth Circuit’s holding in Parra v. Pacificare of Arizona, 715 F.3d 1146 (9th Cir. 2013).  There, the Ninth Circuit found that the MSP Act does not create a private right of action in favor of MAOs, but rather only allows MAOs the right to establish such rights within their contracts.  The court noted that the facts of Parra (in particular, the fact that the MAO’s claim was not against a primary payer) were distinguishable from the facts of the case, as well as from the facts of the Avandia case.

This decision follows a recent ruling by a Texas federal district court, Humana v. Farmers Texas County Mutual Insurance Company, et al, No. 13-CV-611-LY (W.D. Texas, September 24, 2014), where the court denied the defendants’ motion to dismiss and allowed Humana to pursue a private cause of action for double damages under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b).

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I have previously reported on the Vermont Supreme Court’s strict adherence to the Economic Loss Rule (ELR), and noted that some observers might find this surprising, since the  Vermont Supreme Court is generally regarded as “liberal” and sympathetic to claimants/victims/plaintiffs.  Yet the Court has repeatedly denied tort-based recovery to claimants, citing the ELR.  The Court’s adoption and adherence to the ELR goes back as far as 1998.  In Paquette v. Deere & Co., 168 Vt. 258, 719 A.2d 410 (1998), the Court rejected the negligence claim of owners of a defective motor home.  The plaintiffs there had not suffered any physical injury, but claimed that they had suffered economic damages – recoverable in tort, according to them – because of the defective and unsafe nature of their mobile home.  The Court held that allowing a negligence claim in such circumstances would vastly expand tort liability and completely subsume warranty law into tort law.  And that adherence continues unabated in a series of decisions up to 2012.  In Long Trail House Condominium Assoc. v. Engelberth Construction, Inc., 2012 VT 80 (Sept. 28, 2012) the Court affirmed the complete dismissal of a condominium owners association’s defective construction claims against the building contractor, because their only claim was a negligence claim, which the Court found to be barred by the rule. 

Now, in Walsh v. Cluba, the Court has arguably taken the ELR even further.  In Walsh, the Court applied the rule to bar the plaintiff’s negligence claim even though the claim involved  physical damage to real property.  Walsh was a commercial landlord.  Cluba was his tenant.  After signing the lease, Cluba formed the corporation Good Stuff, Inc., a retail company, and turned over possession of the leased premises to Good Stuff.  But Walsh never formalized the lease arrangement with Good Stuff – Cluba remained the tenant on the lease.  After Cluba and Good Stuff vacated the premises, Walsh sued Cluba under the lease (i.e., in contract) for unpaid rent, attorneys’ fees, and physical damage to the premises.  Walsh also sued Good Stuff in negligence (as noted, there was no lease/contract with Good Stuff) for the unpaid rent and for damaging the premises.  At the close of Walsh’s case at trial, the court granted Good Stuff’s motion for judgment as a matter of law, on the grounds that the Economic Loss Rule precluded Walsh’s tort claims against Good Stuff because the parties’ dispute was completely covered by Walsh’s and Cluba’s contractual relationship (i.e., the lease), which required Cluba to leave the premises in the same condition in which he took them.  Walsh argued that the ELR should not bar his negligence claims against Good Stuff because there was more than purely economic harm at issue – there was real physical damage to Walsh’s property.  The trial court was unpersuaded by this argument.  Walsh appealed. 

The Vermont Supreme Court was similarly unmoved by Walsh’s argument.  The Economic Loss Rule generally bars tort claims where the parties have a contractual relationship.  Even though Walsh had no lease (contract) with Good Stuff, the Vermont Supreme Court found that his claim for damages to the premises was governed exclusively by his lease with Cluba.  As he had below, Walsh argued that the ELR does not apply because there was physical damage.  The Vermont Supreme Court was unpersuaded and affirmed the trial court’s grant of judgment as a matter of law to Good Stuff.  The Court reasoned that the well-recognized “other property” exception to the ELR does not apply where there is a contract (i.e., the lease) that touches upon the “other property.”  In other words, the provision in the lease that required Cluba to return the premises to Walsh in the same condition as when they were leased, barred a separate negligence claim by Walsh for damage to his property.

A vigorous dissent argued that the existence of a lease (contract) between Walsh (the landlord) and Cluba (the tenant) should not preclude a tort claim by Walsh against a stranger to the contractual relationship (Good Stuff) where Good Stuff caused real physical damage to Walsh’s property.  Indeed, the dissent’s position seems to be that Walsh should have a tort claim not only against Good Stuff, but against Cluba, where Cluba and Good Stuff caused physical damage to Walsh’s property.

As the dissent argued, this decision by the Vermont Supreme Court is arguably much more than merely a reaffirmation of the Economic Loss Rule.  It is arguably a broad expansion of the rule; essentially a holding that the existence of a contract between A and B negates any independent tort duty by B not to damage A’s property. 

This is an interesting decision from the Vermont Supreme Court given that other state supreme courts have recently cut back on the application of the ELR. 

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