The Ninth Circuit recently published an opinion in consolidated antitrust class actions regarding DVD rentals and sales.  In re Online DVD-Rental Antitrust Litig., No. 11-18034 (9th Cir. Feb. 27, 2015).  The first half of the opinion affirms summary judgment for the defendants, finding that the plaintiffs did not raise triable issues of fact as to whether they suffered antitrust injuries.  It is a well-reasoned opinion applying principles of antitrust injury in a straightforward manner.  This article, however, focuses on the second half of the opinion, which addresses taxable costs in federal court.  In that second part of the opinion, the Ninth Circuit spent approximately 20 pages addressing taxable costs, primarily in the context of e-discovery.  While the topic may seem mundane at first glance, the opinion provides very useful information to practitioners who want to seek certain e-discovery expenses as taxable costs in litigation.

Defense counsel and their clients don’t often have a way to recover substantial litigation expenses, particularly in class actions.  Plaintiffs often use e-discovery as leverage in large cases, knowing the expenses are substantial but that individual named class representatives don’t face a similar cost.  Thus, e-discovery often is a ratchet that only increases costs in one direction.  In DVD-Rental, Netflix sought and originally obtained an award of more than $700,000 in taxable costs.  While the Ninth Circuit reduced that total award and remanded for additional evaluation by the district court, it confirmed that successful defendants may recover certain e-discovery costs.     

Back To Basics: 28 U.S.C. § 1920 And Recovering Costs For Copies Necessarily Obtained For Use In A Case.           

Before diving too deeply into the opinion, I want to review taxable costs under federal law.  Those are creatures of statute, and the statute is fairly restrictive.  As e-discovery has become more prevalent and expensive, however, parties have looked to recover some of the expenses of e-discovery by relying on this category of allowable costs: “Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in a case.”  28 U.S.C. § 1920(4) (emphasis added).  That provision originally encompassed photocopies, so courts often consider whether e-discovery activities are analogous to photocopying hardcopy materials when evaluating fee requests.  And DVD-Rental showed the Ninth Circuit’s focus on the highlighted clause in the statute.     

DVD-Rental emphasizes many times that parties seeking e-discovery expenses as costs must provide specific information about the services the e-discovery vendor provided to establish those services fit within the statute.  The descriptions of tasks and services must have “sufficient specificity, particularity, and clarity” to establish that data collected or processed were “necessarily obtained for use in the case.”  [Slip Op. at 27]  In broad strokes, this means that invoices or declarations from an e-discovery vendor with generic descriptions like “data collection,” “data processing,” or “electronic discovery services” will not suffice.  Just as lawyers decades ago had to abandon invoices with generic statements such as “legal services rendered” and a dollar total, e-discovery vendors will need to provide sufficient detail if parties want to recover those expenses as taxable costs. 

Certain Costs Associated Exclusively With Modern Discovery—Like Optical Character Recognition—May Be Recoverable.             

The court’s first tip of the hat to modern discovery’s complexities is acknowledging that “copying” data isn’t the same as photocopying paper.  Current practice may involve optical character recognition (“OCR”) (making material text-searchable), providing metadata, and converting materials to non-editable formats (so a reviewer can’t alter a produced email, for example).  The parties may agree to such production, a trial court may order it, or one party may demand it.  “When copies are made in a fashion necessary to comply with obligations such as these, costs are taxable so long as the copies are also ‘necessarily obtained for use in the case.’”  [Slip Op. at 27]  While it is encouraging to see the court recognize that OCR, sequentially numbering data, or providing metadata are recoverable costs in the modern era, don’t leave it to chance.  Memorialize an agreement with your opponent about producing data in such formats to enhance your ability to recover the costs.   

Specific Expenses The Court Addressed. 

            The Vendor’s Expertise Typically is not Recoverable.

Often, an e-discovery vendor does much more than mechanically gather and process data.  The vendor may provide guidance and expertise about the best ways to harvest data, de-duplicate data, recreate archived data, etc.  A party won’t be able to recover that type of “intellectual effort involved in [data] production” under § 1920(4), though.  [See Slip Op. at 36 (quotations omitted)]  Work with your vendor to ensure that its invoices segregate this type of intellectual effort from the more mechanical (and recoverable) aspects of data production.  Absent that type of specificity, the court likely will deny the request.     

Creating a Database to Review Data may not be Recoverable.

Netflix and its vendor indicated that uploading documents was necessary to create a new database so Netflix’s counsel could select documents for production.  That included reviewing for privilege.  The Ninth Circuit believes that reflected the process that Netflix and its vendor wanted to use; it did not indicate that reviewing an uploaded copy in a new database was necessary for use in the case.

Admittedly, this seems like a very narrow view.  Even in the days of hardcopy-only review, no one would want the legal team handling the original documents—the risk of tearing pages, spilling coffee, or misplacing papers was too great.  You made a Bates-numbered set for the team to work with.  Nonetheless, uploading data for review likely isn’t recoverable in the Ninth Circuit.   

            Filtering or “Keywording” may not be Recoverable.

The next challenged expense related to “keywording” activities.  That is the process of filtering data (e.g., emails, Word documents) to identify those containing key words; those without the key words typically are deemed non-responsive.  The court concluded that was akin to a lawyer reviewing documents to identify which were responsive to discovery requests.  Accordingly, using automated software filtering processes to identify the documents to produce was not a taxable cost. 

            Enhanced Processing for Production Sets is Recoverable.         

The next cost was a flat $10,000 charge for copying nearly 80 gigabytes of data—the equivalent of tens of millions of pages of documents—for production (not merely review).  Some of those tasks would be recoverable, such as OCR, conversion to TIFF, and other activities essential to making copies that were necessary to the case.  Anything beyond those activities in the $10,000 charge, however, could not be recovered.

The Key Takeaways For Practitioners.       

The Ninth Circuit gave clear guidance that costs attributable to OCR, converting documents to TIFF, and “endorsing” activities—all of which the plaintiffs had requested—were recoverable.  “Endorsing” activities include tasks such as sequentially numbering every image produced (also known as “Bates numbering”).  This especially is the case when the parties agree to such production formats, the trial court orders them, or a party’s requests for production demand it.  Other points include:

Your vendor must provide specific task descriptions on its invoices.  What exactly did the vendor do and how do we know that expense related to copies “necessarily obtained for use in the case”?  Task-based work descriptions may be necessary. 

Your vendor should track what proportion of data collected you actually produced.  For example, if you produced 27 gigabytes of 100 gigabytes collected, you have a stronger case for recovering 27% of bulk costs.  You should still be able to recover all of your OCR, etc., costs associated with the 27 gigabytes you produced in all events.      


James Smith is a partner in the Phoenix office of Bryan Cave LLP.  He is a member of the Class & Derivative Actions Client Service Group.

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The Sharon Academy v. Massachusetts Bay Insurance Company, et al., Vermont Superior Court, Docket No. 442-7-13 Wncv (Feb. 25, 2015).

Relevant Facts:

Student goes on a study-abroad program in India (“Program”) sponsored by a Vermont school (“School”). The program is run and managed by a coordinator (“Coordinator”), and has both U.S.-based and Indian national employees in India.  Shortly after arriving, the student claimed that she was sexually assaulted by one of the Indian national employees of the program. Eventually the student files a lawsuit against the school and the coordinator in Vermont (“Underlying lawsuit”).  The underlying lawsuit alleges that the school and the coordinator were negligent in hiring and supervising the Indian national who (allegedly) assaulted the student. The school refers the claim to its insurer (“Insurer”). The insurer denies coverage under both a primary CGL policy and an umbrella policy. The insurer contends that the alleged assault occurred in India, which is not within the “coverage territory” of the CGL policy. Therefore, there is no coverage under that policy or under the umbrella. The school then sues the insurer for breach of contract and bad faith and, in the alternative, sues its insurance broker for failing to procure coverage. The school moves for summary judgment against the insurer, requesting a determination that the underlying lawsuit is covered. The insurer cross-moves for:  1) a determination of no-coverage, 2) to strike the school’s bad faith claim, and 3) for a determination that if it is required to cover the underlying lawsuit, it can choose defense counsel, rather than having to retain defense counsel of the school’s choosing.  The court granted the school’s motion, finding that the underlying lawsuit is covered under both the CGL and umbrella policies; that the insurer breached the policy by refusing to defend; and that the insurer must reimburse the school for reasonable defense costs incurred to date. However, the court rules that the insurer can retain defense counsel of its own choosing.

Here is a brief review of the court’s decision:

The primary CGL policy:

The court begins by citing and quoting cases that stand for the long-standing principles that if the claims in the underlying suit might be covered by the policy, the insurer must provide a defense, and that any ambiguities in the policy will be construed in favor of coverage.

The court notes that the policy includes a sexual molestation endorsement that includes the disputed “coverage territory” language. The sexual assault alleged in the underlying lawsuit describes injury that comes within the endorsement. The issue is whether the assault occurred within the “coverage territory.”  “Coverage Territory” in the endorsement is the United States, but also “all other parts of the world if the injury or damage arises out of the activities of a person whose home is in the U.S. but who is away for a short time on the insured’s business.” Thus, more specifically, the issue is whether the alleged assault arose out of the activities of a person whose home is in the U.S. but who was in India on the school’s business.  

Acknowledging that the “coverage territory” term of the policy has apparently not been litigated in Vermont and has been little-litigated elsewhere, the court concludes that there is coverage because the alleged sexual assault arose out of the student’s activities, and she lives in the U.S. but was in India for a short time on the school’s business.  

The court then rejects the insurer’s argument that the “coverage territory” definition above refers only to the alleged assaulter, i.e., the Indian national employee of the program.  The insurer argues that it was the assaulter’s, and only the assaulter’s, activities that specifically “caused” the alleged harm to the student, and that he, as an Indian national, is not within the coverage territory.  The insurer argues that, notwithstanding the allegations in the underlying lawsuit, the program's U.S.-based employees did not cause the student's harm.  The insurer argues that the phrase “arises out of” must be narrowly construed to mean “causation,” and that the assaulter – not the school, nor the program or its U.S.-based employees, nor the coordinator – is the only person who actually “caused” the student’s harm.  The court disagrees. It finds that the phrase “arises out of” is a broad term that includes much more than “causation.” The policy could have used the term “causation” instead of “arising out of,” but didn’t. The policy could have defined “arising out of,” but didn’t.

Because the court concludes that the student is a covered person, it does not address the school’s argument that its teachers/employees – who are alleged in the underlying lawsuit to have been negligent – are covered persons.

The umbrella policy:

The court notes that the umbrella policy contains two separate endorsements that exclude coverage for sexual molestation. But one of the endorsements (the 12/05 endorsement) contains an exception, which exception provides that the exclusion does not apply if there is coverage for sexual molestation in the underlying insurance (which, as explained above, the court found there was). The court rejects the insurer’s argument that only the endorsement without the exception (the 01/07 endorsement) should apply because that endorsement has a later date on it. The court finds that the two competing endorsements in the umbrella policy create an ambiguity that is to be construed against the insurer. The court rejects as unreasonable the insurer’s argument that the long string of numbers on the bottom of each page of the policy, including the two exclusionary endorsements, would inform the policyholder (the school) that the endorsement with the exception is overruled by the one without the exception because the latter one was added into the policy later. The court finds that the typical policyholder would not understand that an endorsement containing a string of numbers ending in “07” means that the endorsement is added later – and therefore invalidates – an endorsement containing a string of numbers ending in “05.”

Thus, the insurer must provide coverage for the school, and is in breach of the policy.

Defendant Coordinator:

The court agrees with the insurer that there is a fact dispute over whether the coordinator was an employee of the school, and therefore covered, versus whether she was an independent contractor. Therefore, the court denies summary judgment to the school on this issue.

The School’s Bad Faith Claim:

The court denies the insurer’s request that the school’s bad faith claim be stricken.  The court finds that the insurer’s behavior in this case could amount to bad faith. The court will allow the school to have discovery on this issue.

The School’s Defense Costs To Date:

The court agrees that, because the school was entitled to coverage all along, the insurer is liable to the school (but not to the coordinator – at least yet) for reasonable defense costs incurred to date.

Choice of Defense Counsel:

The court finds that although the insurer must provide a defense, it can do so with independent counsel of its own choosing, not the school’s existing, or preferred, defense counsel.  It relies on a 2011 Vermont superior court decision, Northern Ins. Co. v. Pratt, from another judge (now a Vermont federal judge) for this decision.  The Vermont Supreme Court has not yet addressed the issue of whether an insured can choose its own defense counsel, at the insurer’s expense, where there is a coverage conflict between the insured and the insurer.

Note that the court’s analysis under the CGL policy is different from the main argument that the school made. The school pointed out that the underlying complaint alleges that the school’s teachers/employees were negligent in hiring and supervising the Indian national who allegedly assaulted the student. The school argued that these persons were covered under the “coverage territory” definition in the policy because they were based in the U.S. Instead, the court found coverage based on the activities of the (allegedly assaulted) student in India. The school did cite to the court one case (Spears v. Nationwide) that construed this same “coverage territory” language in a situation where the insured’s employee was in the Ukraine and was the victim of an automobile accident there. In that case, the court found that the employee – the accident victim herself – was covered because the accident arose out of her activities. In this case the court did not cite Spears as support for its conclusion.  

Disclosure: the author of this article represents the insurance broker in this case.


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A recently-filed case in a California federal court has Jay-Z and his promoters at Live Nation wondering whether they’ll continue to reap the benefits of the 1999 hit single Big Pimpin’ or whether they’ll be “spending G’s” to clean up a potential infringement posed by a sample looped throughout one of S. Carter’s most famous tracks. Last week, an Egyptian plaintiff named Osama Ahmed Fahmy sued Live Nation Entertainment, Inc., seeking unspecified actual damages and costs, alleging Live Nation’s continued “use” of Big Pimpin’ in the promotion of Jay-Z concerts all over the world constitutes infringement (direct, contributory and vicarious) of plaintiff’s copyright in the original musical composition of the Egyptian song Khosara Khosara.  We’ll get to more about the case in a moment.  First, though, a “life and times” of the allegedly-infringed work is in order.

According to the complaint, Khosara Khosara, a recognizable piece to even the most untrained ear, was composed in 1957 by an influential Egyptian composer, Baligh Hamdy, for use in the Egyptian film Fatha Ahlami.  It was legally and properly registered under Egyptian copyright law in 1960.  The composition was apparently recorded by the vocalist Abdel Halim Hafez for the movie (with conducting and arrangement by Hamdy), and Hamdy apparently retained full copyright ownership over the musical composition (and the Hafez sound recording, as well) until his death in 1993.  At that point, under Egyptian copyright law, the legal rights in the copyrights then passed to his children.  According to Fahmy (who, while not one of Hamdy’s children, has owned the copyright jointly with Hamdy’s surviving children since 2002), in or about 1995, the owners of the copyrights licensed the right to “mechanically reproduce” the Hamdy version of Khosara Khosara (via the Hafez sound recording), without changes or alterations, on to records and cassettes.  Shortly thereafter, in 1997, the Hafez sound recording of Hamdy’s Khosara Khosara appeared in the United States on an album titled “The Movie Collection,” which contained original movie soundtracks sung by Hafez.  Still with me?

Then, sometime in 1999, a producer by the name of Timothy Mosely, who Insider readers may also know as Timbaland, allegedly “came into possession of a recording of Khosara Khosara” (presumably the Hafez sound recording), which he allegedly played for Sean Carter.  Insider readers will note that Mr. Carter is better known to the world as the great Jay-Z.  The rest, as they say, is history.  Jay-Z recorded and released Big Pimpin’, which Fahmy alleges “consists of (a) a significant portion of the Khosara Khosara composition, (b) electronic beats, and (c) Mr. Carter’s rap”, on his album Volume III: Life and Times of S. Carter, and it became one of Jay’s biggest and most recognizable hits.  Fahmy alleges this is due, in no small part, to the fact that Khosara Khosara “is looped throughout…[and] gives Big Pimpin’ its unique identity.”

So, it’s no wonder that Fahmy is suing Jay-Z for infringement here.  Wait, what’s that?  Oh.  Fahmy is NOT suing Jay-Z for infringement here — not this time, at least.  Indeed, Fahmy appears to be taking a novel approach in attempting to vindicate his IP rights by suing Live Nation which is, of course, perhaps the single largest promoter and organizer of concerts and tours for recording artists in the world.  At first glance, it doesn’t necessarily make sense how Live Nation would have any sort of liability for the infringement of the Khosara Khosara composition (or recording) in question.  However, Fahmy alleges that, since 2008, when Live Nation allegedly entered into an agreement with Jay-Z to “sponsor, promote, and/or facilitate” his concerts and tours, Jay-Z has performed Big Pimpin’ at every single one of his concerts, in one form or another.  He alleges that Live Nation owned or had exclusive booking rights to the venues where Jay publicly performed Big Pimpin’ and that the track has been used in concert reviews and previews as one of the songs Jay would be performing or had performed.  As a result of the “infringement” in Jay Z’s public performances of Fahmy’s copyrighted work, he says that Live Nation has infringed the work and “profited substantially” therefrom, in both ticket sales and merchandising at the events, and among many “other revenue streams,” as well.  As a result, Fahmy is seeking unspecified damages for copyright infringement, both direct and indirect, from Live Nation.

The Insider should note that it certainly seems like plaintiff may have 99 Problems proving his case against Live Nation.  Putting aside the fact that it appears from the complaint that he may not necessarily be the rightful owner of the Hafez sound recording that was sampled (and his vague pleading on the subject is evidence of same), Fahmy has sat on this particular alleged litigation with Live Nation, knowing Jay-Z was performing his song night after night, for at least seven years without filing suit.  This, alone, may constitute a waiver or constructive waiver of his rights with respect to the alleged “infringement.” Further, it’s also pretty clear that Live Nation wasn’t the direct infringer here.  While Live Nation put on the concerts, it was Jay-Z, likely an independent contractor, who publicly performed the infringing work time and again, and so it was he, and not Live Nation, who would have violated the exclusive public performance right in the work (which, while not registered in the United States, allegedly is entitled to protection under our Copyright Act via the Berne Convention and other treaties).  And, because Jay-Z is almost certainly an independent contractor, and not a Live Nation employee, there could be no respondeat superior argument for direct infringement here, either.  Lastly, while it’s entirely possible that Live Nation could be an indirect infringer, a defendant infringes contributorily by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it.  There’s no allegation and/or evidence of Live Nation’s “intent” to induce the infringement of Khosara Khosara, nor is there an allegation of how they “declined” to stop the alleged infringement during Jay-Z concerts after being alerted of same — this of course assumes, arguendo, that Live Nation had ever been alerted of the alleged infringement in the first place, an allegation that exists nowhere in the Complaint.  Fahmy has his work cut out for himself.

Yet, the question remains: why wouldn’t he simply sue the actual performer, Jay-Z, for infringement?  Well, as the Hollywood Reporter notes, this isn’t Fahmy’s first foray into claiming infringement of “his” work: “Few legal disputes in the entertainment industry are older than Osama Ahmed Fahmy’s war over ‘Big Pimpin’.'  Jay-Z himself as well as MTV, Paramount Pictures, Warner Music and others are still involved in an 8-year-old case examining allegations that the song’s unmistakably catchy hook illicitly derives from Khosara, Khosara…”  So, while still embroiled in that litigation which has, to date, proven to be unsuccessful, it appears that he’s attempting to fight the same suit on yet another front.  Or, as Jay-Z might say, Fahmy is On to the Next One.  And while you certainly Can’t Knock the Hustle of Fahmy continuing to litigate cases based on Khosara Khosara’s copyright, in the end, the Insider believes that this will likely just result in a dismissal and end up making Fahmy, the purported owner of the Song[,] Cry.

This blog was originally published on 2/27 at

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The Boomer Tsunami and Law Firms

Posted on March 3, 2015 05:06 by Steve Crislip

Many, many United States males were engaged in World War II.  About nine months after the war ended, more babies were born in 1946 than ever before, some 20 percent more than in 1945.  This baby growth continued each year until it finally tapered off around 1964.  By then this group of 76.4 million births was referred to as the baby boomers, the largest generation of Americans born in U.S. history.

My home state, which has a lot of public employees, has realized they need to immediately attract some younger workers.  Currently 42 percent of all state employees are baby boomers.  Only 17 percent were born between 1981-2000 (so-called millennials).  The rate of retirements in state government has increased 50 percent over the last ten years. So the state is suddenly trying to change its approach when it realized the effect of the baby boomer employees’ ages.

So, time marches on and this huge span of people has cycled through the normal progression of school, marriage, jobs, children and now retirement. Lawyers, being an independent lot, do not necessarily follow the traditional idea of retirement.  In fact, many never plan to retire and some say “You cannot make me.” Therein lies an issue for all law offices to consider and to plan ahead.

Perhaps lawyers employed in government or business enterprises might fit more into the traditional retirement view.  However, I see the lawyers in independent practices less likely to be willing to hang it up.  But, like Kenny Rogers sings:  “You have to know when to hold them and know when to fold them.”  An emeritus law professor friend of mine says the key thing is to know when it is time for you to retire from the practice of law.  I have noted in other articles aging issues as new risks for law firms (September 2, 2014) and alternative work arrangements being readily available (August 2, 2013). When I started in the practice, lawyers did not have pension plans and, most often, worked until they keeled over.  By the 1974 enactment of the Employee Retirement Income Security Act (ERISA), lawyers started paying into plans and can now, and do, retire.

In recent years there has been litigation by large firm lawyers as to whether they were true partners or not and whether the mandatory retirement ages in firms were valid. Some argued age discrimination in the process based upon their facts unique to their status whether they were owners or just employees.

The well-known law firm advisors of Altman Weil, Inc. recently wrote in a copyright 2015 article that firms needed to do more succession and transition planning for this aging lawyer group.  My law firm had consulted with them even back to the days when Mary Ann Altman was an original principal.  I refer you to the Altman Weil, Inc. author Alan R. Olson for more on their views.  (Transition Assets: A Foundation for Succession Planning and Lawyer Development).

The fact remains that many firms, both large and small, have their head in the sand on this subject.  You see smaller firms with people who built the practice and view it still as their firm, despite other owners they have made over time.  In larger firms, the “boomers” are often now the rainmakers, practice leaders, or managers and younger members sometimes grumble, but may be afraid to force the issue.  Some lawyers were just such poor managers of their money they say they cannot retire.  Others feel vibrant and want to continue their practice as long as possible.  Many are very valuable assets to the firms and need to be used and encouraged to continue in some way. Again, determining that way needs to be discussed.

All well and good, but for the good of a firm, there needs to be a fair plan.  You may have to crack a few eggs to get scrambled eggs and toast out of the process. Reasonable arrangements can be made for those who want to practice on. There can be fair compensation in that arrangement, but not necessarily ownership after a certain point, again for the good of the firm.  Sunset dates on management service or as practice group leaders may be needed in order to train up and bring on the next generation of successful firm lawyers.  For those who do want to hang it up, it should be a very positive experience which allows them to stay as close to the firm as they might wish, as opposed to the litigation mentioned above.

The point here is that you cannot put this off and avoid the subject. Statistically a very big group of lawyers is now hitting the general age of retirement and you need to openly discuss how they (the boomers) and you (the younger lawyers) will effectively deal with the subject. It just has to be done and should not be an unpleasant topic if done openly and fairly.  This generational change is going to happen.  Firms need to quit ignoring it.

This blog was originally posted on Lawyering for Law Firms Blog on March 3. Click here to read the original post. 

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Last week, the Division One of the Arizona Court of Appeals issued an opinion that removes two major barriers to lawsuits against pharmaceutical manufacturers: it recognized that state consumer fraud statutes can be applied against these defendants; and, under the Uniform Contribution Among Tortfeasors Act, abolished the learned intermediary doctrine. This opinion has the potential to radically alter pharmaceutical and medical device litigation in Arizona.

In Watts, the plaintiff, Amanda Watts, sued Medicis, a pharmaceutical manufacturer, claiming that Solodyn, a prescription acne medication, caused her lupus.  She alleged strict liability based on a failure to warn and also raised a claim under Arizona’s Consumer Fraud Act (CFA), contending that Medicis knowingly provided false and misleading warning information. Medicis moved to dismiss the claim, arguing that the Consumer Fraud Act does not apply to pharmaceuticals and also that the learned intermediary doctrine barred her product liability claim. The trial court granted the motion.

The court of appeals reversed. After resolving jurisdictional issues in Watts’s favor, the court turned first to the CFA Rejecting Medicis’s claim that pharmaceuticals are not “merchandise,” and therefore, fall outside the scope of the CFS, the court noted that prescription drugs are “often advertised and sold to consumers in a manner similar to other consumer goods, implicating the need for the protection of the CFA.”  Because Watts had alleged that the Solodyn’s labeling and promotional materials had “affirmatively and falsely” misrepresented the drug’s safety and that she relied on those statements, the court found that she had stated a claim.

Perhaps the larger sea change came with the court’s rejection of the learned intermediary doctrine, which shields a manufacturer from liability for failure to warn when it provides a proper warning to the specialized class of people who are authorized to sell, install, or provide the product. Noting that the Arizona Supreme Court has never formally adopted, the court analyzed it in the context of the Uniform Contribution Among Tortfeasors Act (UCATA). It concluded that UCATA, which abolishes joint and several liability is inconsistent with the learned intermediary doctrine. Looking to the Arizona Supreme Court’s State Farm Ins. Co. v. Premier Manufactured Systems, 217 Ariz. 222, 172 P.3d 410 (2007), which reiterated that Arizona law prevents “a partially responsible defendant from being held liable for the damages by his co-defendant,” the court rejected the learned intermediary doctrine. It concluded “that protecting a prescription drug manufacturer from possible liability for its own actions in distributing a product, simply because another participant in the chain of distribution is also expected to act, is inconsistent with UCATA.”

Importantly, the learned intermediary doctrine is abolished in total, not just with respect to pharmaceuticals. The practical consequences of the Watts decision are still unknown. Juries may well re-affirm what the learned intermediary doctrine always assumed—that doctors and other learned intermediaries alone must be responsible for failing to communicate the warnings that they receive—or they could open a new avenue of liability for manufacturers who can no longer rely on doctors’ and other intermediaries’ duties to warn consumers.  

William F. Auther is the managing partner of the Phoenix, Arizona office of Bowman and Brooke, LLP, where he has an active trial practice in product liability and business litigation.  Amanda Heitz is an associate at Bowman and Brooke.

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As a precondition to participating in the Arizona Health Care Cost Containment System (AHCCCS), Arizona’s Medicaid program, health care providers execute an agreement that they will comply with federal law. Federal law provides that Medicaid providers must accept the Medicaid payment as payment in full for all services rendered. Nevertheless Arizona statutes entitle AHCCCS providers to liens and the ability to collect from third-parties for customary charges for services. In the case of patients whose injuries resulted from a tort, Arizona statutes permitted AHCCCS providers to make up any difference between the Medicaid paid amount and their “customary charges” by a lien against the patient’s tort recovery. 

AHCCCS patients challenged the legality of this system in a class action lawsuit. The patients, some of whom had executed accord and satisfaction agreements to release the AHCCCS liens for a reduced amount, sought declaratory relief that the liens were invalid and unenforceable and an order requiring the hospitals to return any funds paid to release the liens. The superior court granted the hospital’s motion to dismiss the claim.

A unanimous panel of the Arizona Court of Appeals, in Abbott v. Banner, reversed on federal preemption grounds. Recognizing that federal courts “have uniformly interpreted [] federal statute and regulation as precluding a provider from balance-billing a patient for the difference between what the provider normally charges for services and what the provider is paid through Medicaid,” the Court held that this prohibition applies equally to liens on settlement funds from a personal injury lawsuit. ¶ 13. Accordingly, it concluded that the Arizona statutes providing such liens in favor of AHCCCS providers are preempted.

In addition to its obvious implications for tort plaintiffs whose medical care was covered under AHCCCS, this decision is also likely to have a significant impact in settlement negotiations. At least in the case of AHCCCS plaintiffs, the parties will have the ability to discuss hard medical damages as a sum certain rather than a variable amount. As a practical matter, both plaintiffs and defendants understand that medical liens can be settled for less than face value and take this into account as they negotiate (indeed, many plaintiffs in Abbott did negotiate their liens). But the existence of a medical lien introduces uncertainty. When the parties are not sure whether a $1,000,000 lien can be settled for 10 cents on the dollar or 75 cents on the dollar, they may miss a realistic opportunity for settlement for fear of paying too much or not receiving enough. Likewise, eliminating liens removes the possibility of gamesmanship where one party knows the amount necessary to settle the lien, but tries to persuade the other party that the amount is higher or lower as a bargaining tactic to secure a higher or lower settlement amount. 

William F. Auther is the managing partner of the Phoenix, Arizona office of Bowman and Brooke, LLP, where he has an active trial practice in product liability and business litigation.  Amanda Heitz is an associate at Bowman and Brooke.  

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Diversity (or the lack thereof) in ADR

Posted on February 24, 2015 06:08 by Anandhi S. Rajan

I recently read an excellent article called “Why Bringing Diversity to ADR is a Necessity” by David H. Burt and Laura A. Kaster, which appeared in the October 2013 issue of the Association of Corporate Counsel’s publication, ACC Docket.  This article was of particular interest to me since I have been a mediator with BAY Mediation in Atlanta, GA since September 2013 and I am a woman of color.  It has not been lost on me that in my practice locality mediators who are diverse are few and far between and most cases are still mediated by the “tried and true” bunch of mediators at the few mediation outfits in town. 

This article drives home the point that just as corporate retention of outside counsel has required a deliberate and conscious push by corporations to ensure outside counsel reflect the diverse customer base of many corporations in this country, neutrals who are selected to mediate such disputes should likewise be reflective of the diverse population of this country.  The article discusses some ways in which this inequity can be addressed.  Traditionally, the way in which mediators/arbitrators have been selected has been left up to the outside counsel handling the litigation file, which may be responsible for perpetuating homogeneity in the selection process.  The article tackles three ways in which this may be addressed.  First, ADR providers should increase their neutral panels by recruiting more qualified women, racial minorities, and other diverse neutrals to serve on their panels.  Second, neutrals should be identified based upon the diversity characteristics they can bring to the table.  Third, private law firms should enhance the value associated with their partners and associates serving as neutrals/arbitrators so that more private practitioners embrace ADR as a possible career avenue.

In the context of employment cases, the value of diversity in the neutral/arbitrator cannot be overstated since often the thrust of the employee’s claim is centered on claims of unfair treatment based on their protected status.  So, a neutral who may share that same protected status with the claimant/litigant may serve to advance the prospect of resolution.  While there is no one solution which will fit all to address this issue, outside counsel can make a conscious effort and commitment to seek out and utilize diverse neutrals/arbitrators to resolve their matters, as appropriate, all the while meeting the diversity initiatives of the corporate interests they serve.

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Recent food labeling class actions suggest that plaintiffs’ counsel are broadening the scope of these types of claims.  Of course, we are familiar with the more typical food labeling class actions, such as those challenging “all natural” labels or disputing whether a food product complies with federal law when noting it has “no added sugar.” Those traditional claims focus on the ingredients.  The recent complaints mentioned in this article, however, suggest that class counsel may now focus on subjective statements regarding the processes used to make foods or beverages.

Social Responsibility Statements.

Jablonowski v. Chiquita Brands, Inc., No. 3:15-cv-00262 (S.D. Cal.), is a complaint filed by the well-known class action firm of Hagens Berman Sobol Shapiro LLP.  It alleges that Chiquita falsely advertises on its website that it requires ecologically friendly farming practices.  In “truth,” a Guatemalan company from which Chiquita buys hundreds of millions of pounds of bananas each year allegedly has horrible environmental practices.  That complaint largely relies on research by an environmental organization called Water & Sanitation Health Inc., which apparently traveled to Guatemala to observe and document practices there.  Notably, that complaint does not base its allegations on labeling statements actually found on the bananas.  Rather, it contends that the familiar Chiquita blue label indicates that the bananas meet Chiquita’s “strict standards,” which implicitly includes environmental responsibility.  According to the complaint, Chiquita knows that the Guatemalan company it buys bananas from does not adhere to sound environmental practices.  The complaint also points to statements on Chiquita’s website about environmental responsibility and contends that the named plaintiff relied on those statements.

Some observations come to mind after reviewing this complaint.  First, although Hagens Berman certainly is a legitimate player in the class action field, it must recognize this case has little chance of being certified as a class action.  The Chiquita blue label does not say anything about environmental practices.  Moreover, even the complaint admits that the named plaintiff had to visit Chiquita’s website to read about its environmental commitment.  Thus, it is impossible to suggest that every purchaser was exposed to the “misleading” statements merely by reviewing the product label.  Instead, it would require the added step—wholly removed from buying the product—of visiting the website and reading information about environmental commitment.  

Other difficulties should include the near impossibility of establishing injury/damages.  This plaintiff should have to prove that the Chiquita label misled a substantial percentage of consumers about environmental practices and that the misrepresentation somehow led to a price premium for Chiquita bananas.  This is in contrast to any price premium attributable to advertising or brand recognition. Last, the notion that the blue label signifies that the produce complies with Chiquita’s “strict standards” really amounts to little more than puffery, which typically is not actionable.

Having said this, clients should be aware that the plaintiffs’ class action bar is looking at these types of environmental responsibility or social responsibility statements as targets for consumer class actions.  While this particular suit seems more akin to a publicity stunt than litigation that plaintiffs’ counsel hopes will produce monetary returns, it almost invariably will not be the last claim based on social responsibility statements.  If your clients’ product labels contain such statements, you may want to examine the bases for those statements with your clients.  

Craftsmanship Statements.

Another recent development is litigation regarding the “handmade” nature of various spirits. The most recent case seems to be Welk v. Beam Suntory Import Co., No. 15-cv-0328 (S.D. Cal.).  That plaintiff filed his putative class action on February 17, but similar cases challenging the “handmade” nature of Maker’s Mark bourbon and Tito’s vodka emerged toward the end of 2014.  These lawsuits allege that the manufacturers deceived the public because their products are made using machines, as opposed to entirely by hand.  These claims are more traditional than the Chiquita banana lawsuit because they rely on statements on each label of the product. They also point to undefined phrases (e.g., “handmade” or “hand crafted”), just like the “all natural” litigation. Like the banana litigation, however, these liquor claims point to the process to make the product rather than the ingredients. In the Chiquita case, the issue was whether the process was environmentally friendly. Here, it is whether the process is “handmade.”    

As in more traditional food labeling class actions, these “handmade” plaintiffs should face some serious obstacles. First, establishing damages or any way to measure them seems quite difficult. They should need to establish that Jim Beam is a more expensive bourbon than a comparable brand because of the “handmade” statement. As anyone who has purchased liquor can attest, however, product pricing varies greatly based on advertising, ingredients, brand reputation, and a host of other factors.  It should be very difficult to identify a sound methodology to isolate any supposed price premium attributable to the “handmade” statement (which is not prominent on the label) from other factors. We have also seen the implicit ascertainability requirement play a more prominent role in food/beverage labeling class actions in California courts lately; it should likewise be a valid defense to these latest processing claims.    

A second difficulty is establishing that the “handmade” statement misleads a substantial portion of the consuming public. Even more so than with “all natural” label allegations, trying to establish that a named plaintiff’s understanding of “handmade” accurately represents the general public’s understanding seems nearly impossible. Do consumers purchasing a mass-market beverage truly believe that only human hands were involved in the process?  Facing these difficulties, I suspect these plaintiffs will try to settle early for nuisance values and, perhaps, labeling changes.  

Despite the difficulties that these latest claims face, they also provide a reason for clients and their counsel to reexamine labels for statements regarding the processes used in making products. While many of the defenses in more traditional food labeling class actions will apply to these latest claims, the defendants should have more arrows in their quivers to attack these allegations.

James Smith is a partner in the Phoenix office of Bryan Cave LLP.  He is a member of the firm’s Class & Derivative Actions Client Service Group and the Food and Beverage Team.  

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Nursing Home Staff Falsification of Records

Posted on February 18, 2015 03:32 by Alan R. Jampol

A frequent legal issue faced by nursing facilities is whether it had sufficient staff on hand to care for patients, and whether staff provided care as required by law. As a result, careful record keeping of patient care is necessary, and required, to ensure not only that care given is recorded, but to protect the facility from claims of negligence. Most nursing facilities require staff to not only take careful notes as treatment occurs, but to create weekly summaries of patients’ conditions and events. However, a problem arises when nursing staff are too busy to comply with this requirement. At times, the charting fails to occur at all, or worse, nursing staff create false records.

Often times the duty of creating a weekly summary is assigned to the night shift nurses. Unfortunately, sometimes staff is too busy with patient care to complete their paperwork, which may result in a failure to draft a weekly summary. This results in a patient’s chart containing only entries for care, rather than a summary of the week’s events. The significance of this failure is that it evidences the nurse’s failure to meaningfully review and summarize the patient’s chart. Such a weekly review requires the nurse to take note of the overall care plan of a patient, and any issues or signs that might point to a need to amend the patient’s care plan.

Worse still is the case where a reviewing nurse fails to review and create a weekly summary, and creates a false summary without a legitimate review of the chart. This can result in improper treatment of a patient, as well as a failure in staff to recognize significant issues or stay abreast of recent changes. The weekly summary is an important tool to care givers, and in fact, those providing care of aware of its importance and necessity to providing appropriate care. And such, a failure to maintain a weekly summary or falsification of the summary can evidence of conscious disregard of patient’s needs and of the facility’s duties.

A larger problem occurs when nursing staff not only fail to maintain the weekly summary, but fail to make any treatment notes as required each time a patient is checked on and/or treated. Falsification in this regard can easily be proven, where nursing staff recorded as having provided treatment can be demonstrated through time cards to not have been on duty. Falsification can occur by staff, realizing their failures, and attempting to cover up for themselves. However, more and more frequently such falsification is being committed by administrators who fear costly lawsuits.

While California has a zero-tolerance stance on falsification of records, and such falsification of a medical record is a misdemeanor in California, staff is rarely charged because falsification can be difficult to prove and time consuming to identify. Nonetheless, nursing facilities need to take great care in ensuring its staff is properly maintaining patients’ records to protect against claims of negligence.

In taking a stance against falsification of records, facilities should be aware of the more frequent instances in which it occurs: 1) by overworked or short staffed employees lacking sufficient time to complete paperwork; and 2) to cover up bad outcomes and limit liability. The most important thing a nursing facility can do to help prevent these circumstances is ensure it has sufficient staff on hand to provide proper care to all its patients. Facilities should also hold training sessions to educate staff members regarding record keeping requirements and techniques, as well as falsification of records. Not only should staff be aware that falsification will not be tolerated and of its criminal consequences, but they should also be trained regarding how to recognize falsification by other staff members.

This blog was first posted on Jampol Zimet LLP Insurance Defense Blog. Click here to read the original entry. 

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Categories: Fraud | Insurance Law

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Leave it to a lawyer (President Bill Clinton) to explain that the answer to a potentially incriminating question “depends on what the meaning of the word ‘is’ is.”  And leave it to nine lawyers (the Justices of the U.S. Supreme Court) to explain that the outcomes of two recently decided  cases depend on  the  statutory meanings of  “decision” and “law”—two seemingly ordinary words that are etched into every lawyer’s vocabulary.

In T-Mobile South, LLC v . City of Roswell, Georgia, No. 13-975 (decided Jan. 14, 2015), the Supreme Court addressed the question of “whether, and in what form, localities must provide reasons when they deny telecommunication companies’ applications to construct cell phone towers.” Slip op. at 1.  The federal Telecommunications Act provides that “[a]ny decision by a State of local government or instrumentality thereof to deny a request to place, construct, or modify personal wireless service facilities shall be in writing and supported by substantial evidence contained in a written record.”  47 U.S.C. § 332(c)(7)(B)(iii) (emphasis added).  Following a public hearing, the Roswell City Council voted to deny T-Mobile South’s application to erect a 108-foot tall cell phone tower disguised as an artificial pine tree.  At the hearing, T-Mobile South testified in support of its application, but City Council members expressed their concerns about  locating the tower in a residential area. Two days later, the City’s Planning and Zoning Division sent a letter to T-Mobile South advising that the application had been denied, but providing no reasons for the denial. Instead, the  letter stated that minutes of the public hearing could be obtained from the City Clerk.  Those minutes were not available for another 26 days.  Slip op. at 2-4. 

T-Mobile South filed suit, alleging that the City had failed to comply with the requirements of § 332(c)(7)(B)(iii).  A federal district court granted summary judgment, holding that the City violated the Act by failing to provide a written decision that stated the reasons for the denial of the application. The Eleventh Circuit reversed, and the Supreme Court granted review.     

The Court held that the Telecommunications Act “requires localities to provide reasons when they deny applications to build cell phone towers,” id. at 6, but that nothing in the Act “imposes any requirement that the reasons be given in any particular form . . . so long as the locality’s reasons are stated clearly enough to enable judicial review.”  Id. at 9.  In particular, the Court rejected T-Mobile South’s argument “that the word ‘decision’ in the statute—the thing that must be ‘in writing’—connotes a written document that itself provides all the reasons for a given judgment.”  Id. at 12.  Instead the Court indicated that the detailed minutes of the City Council’s meeting provided a “written record” of the reasons for the denial, although not soon enough to satisfy the statute’s requirements.  Id. at 14. 

Interestingly, the Court suggested that the word “decision” is not a “term of art,” and for that reason, can have different meanings in different statutes.  See id.  at 12 n.5.  Indeed, one week after deciding T-Mobile, the Court indicated in Gelboim v. Bank of America Corp., No. 13-1174 (decided Jan. 21, 2015), that the phrase “final decision” in 28 U.S.C. § 1291 (vesting federal courts of appeals with jurisdiction over “all final decisions of the district courts”) should be accorded “a practical rather than a technical construction.”  Gelboim, slip op. at 2 (internal quotation marks omitted).

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In Department of Homeland Security v. MacLean, No. 13-894 (decided Jan. 21, 2015), the Supreme Court addressed the meaning of “law.”  A federal air marshal was fired on the ground that he had publicly disclosed “certain sensitive security information”—information about cancelled air marshal missions—in violation of Transportation Security Administration (TSA) regulations.  He filed suit seeking “whistleblower” protection under 5 U.S.C. § 2302(b)(8)(A), which protects “an employee who discloses information revealing ‘any violation of any law, rule, or regulation,’ or ‘a substantial and specific danger to public health or safety.’”  Slip op. at 1.   There is an exception in § 2302(b)(8)(A), however, “for disclosures that are ‘specifically prohibited by law.’”  Ibid. (emphasis added). 

The plaintiff air marshal did not dispute that his disclosure was prohibited by TSA regulations.  TSA argued that as a result, the statutory exception for disclosures “specifically prohibited by law” deprived the plaintiff of whistleblower protection.  But does “law” include regulations for purposes of the statutory exception?  The Supreme Court addressed the question of “whether a disclosure that is specifically prohibited by regulation is also ‘specifically prohibited by law under Section 2302(b)(8)(A).”  Id. at 6.  The Court held that “[t]he answer  is no” because “[t]hroughout Section 2302, Congress repeatedly used the phrase “law, rule, or regulation,” but did not do so in the statutory whistleblower-protection exception, where “it used the word ‘law’ standing alone.” Id. at 7.  The Court explained “[t]hat is significant because Congress generally acts intentionally when it uses particular language in one section of a statute but omits it in another,” especially when that  occurs “in close proximity” and/or one of the phrases or words is used repeatedly.  Ibid.  Thus, the Court held that “the TSA’s regulations do not qualify as ‘law’ for purposes of Section 2302(b)(8)(A).”  Id. at 11.

* * * * *

The overarching take-away message from these decisions is that meaning of seemingly ordinary words or commonplace legal terms may depend on their statutory context.   Lawyers who draft legislative language, as well as those of us who argue what legislative language means, should take heed.         

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