*The Massachusetts Court of Appeals has on June 17, 2015 ruled that the burden is on the insurer to prove the applicability of an exclusion. Because the facts alleged in the Complaint in the underlying action do not establish that the business pursuits exclusion in a homeowner’s policy applies to all potential liability as a matter of law, the insurer had a duty to defend.

The insured was licensed electrician. The Complaint alleged that the insured acted as a general contractor, contracted with others and oversaw the work of renovations to a house owned by his parents.  In the underlying action for personal injuries by the plumber suffered on the project, the plumber recovered a judgment t for $226,218.49.

Two Policies

There were two homeowners policies in force issued by two different insurers. Vermont Mutual assumed the defense of the parents but refused to defend their son, the electrician. Preferred Mutual defended the son but under a reservation of rights.

Preferred filed its separate declaratory relief action against Vermont and the insureds. It sought a judgment declaring that its policy did not provide coverage and that Vermont was obligated to defend and indemnify the son. Preferred also asserted a claim for half of Preferred’s defense costs incurred on behalf of the son.

Exclusion and Coverage

The Vermont policy excluded coverage for bodily injury “arising out of or in connection with a business engaged in by an insured.” The Vermont policy also provided that it was “excess over other valid and collectible insurance…”

The Preferred policy covered the son “only with respect to the conduct of a business of which you are the sole owner.”  The Preferred policy also provided that it is the primary policy and that the insurer’s share is “based on the ratio of its applicable limit of insurance to the total applicable limits of insurance of all insurers.”

Duty to Defend

The Court ruled that the duty to defend arises when the allegations in the Complaint in the underlying action are reasonably susceptible of an interpretation that states or roughly sketches a claim that would be covered by the policy terms. The duty to defend is based on the facts alleged in the complaint and on the facts known or readily knowable by the insurer that may aid in its interpretation of the allegations in the complaint. Billings v. Commerce Ins. Co., 458 Mass. 194, 200-201 (2010).

The Court rejected Vermont Mutual’s position that the above business pursuits exclusion applied arguing that the Complaint referred to the son’s occupation and his role in supervising the project. The Court rejected this position and found that the son’s parents owned the building and the project was the renovation of their “mutual home.”

Two Prong Test

The Court went on to rule that, while the Massachusetts Courts had not yet faced this issue, there was in most jurisdictions a two prong test for determining when the business exclusion applied, that is, when an activity arises out of or in connection with the insured’s business. Massachusetts adopted that test. Opinion, page 8. 

The first prong is “continuity”, the activity in question must be one in which “the insured regularly engages as a means of livelihood”. The second prong is the “profit motive”, the purpose of the activity must be “to obtain monetary gain.” Opinion, page 8. 5 New Appleman on Insurance Law Library Edition, Section 53.06[2] [d] [i] (2014); 9A Couch on Insurance Section 128.13 (3d ed. 2006); 3 Windt, Insurance Claims & Disputes, Section 11:15 (6th ed. 2013); Springer v.Erie Ins. Exchange, 439 Md. 142, 162 – 164 (2014).

The Court found that there was no indication in the Complaint that the son’s alleged supervisory or disposal activity on the project were ones “in which he regularly engaged in connection with his means of livelihood.” The Court further found that the Complaint did not indicate whether the son’s participation in the renovation project “was motivated by profit.” The Complaint left it entirely possible that the son contributed his labor out of a desire to help his parents and improve the residence in which they all lived. Opinion, page 9.

Burden on the Insurer

The Court ruled, “It is the insurer who bears the burden of proving the applicability of an exclusion.” In order for an exclusion to negate an insurer’s duty to defend ab initio, the facts alleged in the Complaint must establish that the exclusion applies to all potential liability as a matter of law. Opinion, Page 9. Because the facts alleged in the Complaint do not establish that the business pursuits exclusion applies to all potential liability as a matter of law, Vermont Mutual had a duty to defend and should not have disclaimed coverage outright. Opinion, page 10.

Preferred also had a duty to defend. The claims asserted in the Complaint are also potentially within the scope of Preferred’s  coverage.  The Complaint alleged that the son was an electrician who had been in charge of the renovations project. These allegations do not negate the possibility that he was engaged to work on the renovations as an electrician and that his supervisory activities and/or his removal and disposal work were ancillary to his electrical work and performed in the conduct of his business. Herbert A. Sullivan, Inc. v. Utica Mutual Ins. Co., 439 Mass. 387, 394-395 (2003).

But, the Court further ruled that Vermont could not demonstrate that the Preferred policy afforded coverage to the son. The Preferred policy covered the son only with respect to the “conduct of a business of which [he was] the sole owner.” Opinion, page 15. That business was identified as the son being an electrician. The record revealed no facts from which it might reasonably be inferred that the son was conducting his business as an electrician at any time relevant to the occurrence of the accident at issue. Opinion, page 16.

The Court concluded that both Vermont and Preferred had duties to defend the son. But, while Vermont had a duty to indemnify the son, Preferred did not. Furthermore, Preferred was entitled to equitable contribution and Vermont shall reimburse Preferred 50% of its costs in defending the son. Opinion, pages 16-17.

Preferred Mutual Insurance Company v. Vermont Mutual Insurance Company, ___N.E. 3d ____, 2014 WL 99009470 (MA Ct. App. June 17, 2015).

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In a negligent misrepresentation claim, the Vermont Supreme Court strictly construed plaintiffs’ need to prove direct reliance on the alleged misrepresentation. Lacking such proof, the claim failed. To assert a viable consumer protection claim, plaintiffs must prove not merely that defendant made a statement, but that defendant was directly involved in the transaction at issue.  Because it was not, the claim failed.

The case is Glassford v. Dufresne & Associates, P.C., 2015 VT 77 (June 12, 2015).  Plaintiffs-homeowners alleged negligent misrepresentation and violation of the Vermont Consumer Protection Act. Superior Judge Toor granted summary judgment for defendant, and the Vermont Supreme Court affirmed.  

The case involved defendant’s certification to the Agency of Natural Resources that the septic system in plaintiffs’ new home had been installed, and that it operated, as permitted.  Vermont law (10 V.S.A. § 1973) requires such a certification.  The builder of the home hired defendant to make the certification.  Defendant filed the certification with the Agency shortly before plaintiffs purchased the home from the builder.  Within a few weeks of their closing on the house, plaintiffs’ septic system failed.  Plaintiffs contended that the soil placed over the system was improperly graded.  Defendant contended that the house was too large; that plaintiffs operated a daycare center that added to the wastewater entering the system; and that plaintiffs’ horses were allowed to walk over the system.  Plaintiffs alleged that defendant:  1) failed to properly inspect the system, and 2) misrepresented the proper construction of the system in the certification to the Agency.

The superior court granted judgment for defendant on the negligent misrepresentation claim because plaintiffs never saw the certification until the lawsuit commenced, and so couldn’t have relied on it in making their decision to purchase the home.  The court granted judgment for defendant on the consumer protection claim because the parties did not contract with each other for a sale of goods or services.

On appeal, with respect to the negligent representation claim plaintiffs argued that they effectively relied on the certification because, even though they did not see it before they closed on the home, defendant had a “duty” to furnish it to them.  Furthermore, they argued, because their closing attorney received a copy of the certification just before the closing, they relied on it through their agent.

As had the superior court, the Vermont Supreme Court analyzed the negligent misrepresentation issue under the Restatement (Second) of Torts § 552.  The Court determined that plaintiffs – homebuyers purchasing a newly-constructed septic system – were among the class of people for whom the certification requirement in 10 V.S.A. § 1972 was intended.  Thus, defendants could be liable to plaintiffs.  However, plaintiffs’ claim failed because they demonstrated no direct reliance on the certification (i.e., the alleged misrepresentation), as § 552 requires.  The Court surveyed case law from around the country and determined that in negligent misrepresentation claims plaintiffs must demonstrate that they directly relied on the alleged misrepresentation.  Because plaintiffs here did not ever see the certification before they closed, they could not have relied, and did not rely, on what it said.  The fact that their closing attorney saw the certification did not satisfy their burden to show direct reliance on it. The attorney’s knowledge of the certification could not substitute for actual reliance by plaintiffs on its contents. Accordingly, the Court affirmed the superior court’s judgment for defendant on the negligent misrepresentation claim.

On the consumer protection claim, the superior court ruled for defendant because the parties were not in privity. On appeal, the Supreme Court held that privity is not required on a consumer protection claim, but that the defendant must still be directly involved in the transaction that gives rise to the alleged liability.  Here, defendant’s filing of the septic certification with the Agency was an act unrelated to the sale of the home to plaintiffs.  The filing was unrelated to the issue of who bought or owned the home.  There was no interaction between plaintiffs and defendant.  Accordingly, defendant could not be liable under the consumer protection act and the Court affirmed judgment for the defendant on this claim.

It should be noted that one justice vigorously dissented.  

A copy of the decision is attached hereto and is available at http://info.libraries.vermont.gov/supct/current/op2014-194.html

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DRI: It’s Personal!

Posted on June 12, 2015 02:45 by Tanya Lawson

I saw a post recently on the DRI Diversity blog that impacted me at my core.  It is the sort of post that some organizations would have shied away from because it raised serious issues on a diversity topic that is still very controversial for some.  Instead, in subsequent days I saw other posts from DRI members lauding the author of the article for his courage to raise these important issues.  This is one of the primary reasons that I gravitated toward and have been a longstanding member of DRI over any other legal organization.  DRI’s commitment to diversity is real!  DRI and its members have been at the forefront of these issues and I have found DRI to be an oasis in what can sometimes seem like a legal desert.

As an African American woman who has been practicing over 20 years, there are some circles in which I have not always felt welcome or appreciated.  I have had to work hard to try to fit in and get ahead in a profession that I love but which can sometimes be very challenging for African Americans, especially in a large firm environment.  I can remember it like it was yesterday -- the first time I attended a DRI Diversity for Success Conference in Chicago almost a decade ago.  It was at a reception which was filled with people of all ages and backgrounds but who all seemed to be excited about making diversity a priority for the organization.  People were warm and welcoming and I began an odyssey with DRI that would take me to the highest levels within the organization and ultimately the profession.

Ever since that first day, I looked forward to attending the Diversity for Success Conference each year.  I would re-connect and solidify relationships with old friends and would get the sustenance I needed to go back to Florida to continue my drive to achieve success in the profession.  Indeed, the diversity conferences became a fixture in our African American Forum budget at my prior firm and attorneys would vie for a spot on the team selected to attend.  Each time I have attended the conference since that first day, I have experienced an intense feeling of belonging and have felt revived and rejuvenated.  Not only have my experiences with DRI had a curative quality, I gained deep insights as well as good friendships as a result of my participation in DRI sponsored events.

I was for some time the only African American female partner in my former AmLaw 200 firm, and then later only 1 or 2 African American female partners.  DRI’s diversity committee offered sometimes the only opportunity I had to interact with and bounce ideas and experiences off a variety of other African American male and female partners in large law firms.  As co-chair of diversity at my prior firm, I also leaned heavily on DRI’s leadership for ideas to assist me to bring new insights to the diversity and inclusion dialog.  Douglas Burrell, DRI’s current Membership Chair, has been a source of constant encouragement and inspiration.  Pam Carter, who heads up the DRI’s Diversity Committee, was also a tremendously positive influence.

From my perspective, DRI should be a staple in any lawyer’s portfolio of membership organizations.  For me it has been intensely personal and I have thoroughly enjoyed my association with DRI!

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Categories: Diversity | DRI Brand

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Vermont was the first state in the country to sue an alleged “patent troll” for consumer protection violations.

Vermont’s case against MPHJ Technology Investments, LLC (MPHJ) is now over two years old and virtually nothing has been decided.  No discovery has been done; no documents have been produced; and no depositions have been taken.  But much time has been spent; much ink has been spilled; many, many briefs have been filed; and much money has been spent.  In the two years, only a jurisdictional battle has been fought:  whether the case involves MPHJ’s patent rights, and therefore is governed by federal law, and therefore belongs in federal court – as MPHJ contends.  Or – as the Attorney General contends – whether it is merely about state law, i.e., whether MPHJ’s sending of patent infringement “cease and desist”-type letters to many Vermont companies, which letters the Vermont Attorney General contends contained false statements, violates Vermont consumer protection law, regardless of whether MPHJ’s patents are valid and enforceable, such that the case belongs in state court.  This is stuff only a legal wonk could love.

While all this jurisdictional back-and-forth has played out over the last two years, involving two appeals to higher federal courts, MPHJ has recently “upped the ante,” so to speak, by filing a separate lawsuit against Attorney General Sorrell, claiming that Vermont’s efforts to stop or restrict MPHJ’s activities in Vermont infringe MPHJ’s federal civil rights.

Thus, there are now two legal cases involving the alleged "patent troll" MPHJ and the Vermont Attorney General pending in Vermont.  In the second case, federal Judge William Sessions just issued an important decision.

But before turning to that decision, some background.  In the original case, State of Vermont v. MPHJ, the Vermont Attorney General sued MPHJ in Vermont state court, claiming that MPHJ's activities in sending threatening "cease and desist"-type letters to Vermont companies violates Vermont's consumer protection law.  As noted above, all of the activity in that case so far has involved whether the case belongs in state or federal court.  MPHJ has twice tried to "remove" the case to federal court on the grounds that no matter how Attorney General Sorrell frames his Complaint, it is fundamentally about MPHJ’s federal patent rights.  Federal Judge Sessions has twice ruled against MPHJ and "remanded" the case back to state court, finding that the case is not about the validity of MPHJ’s patents per se, but only about its allegedly fraudulent activity in sending threatening letters to Vermont companies, which is a matter of state consumer protection law, not patent law, and, hence, there is no federal jurisdiction.  The first time Judge Sessions remanded the case, MPHJ appealed the remand order but it was affirmed by the federal appeals court, confirming that there was no issue of federal law and that the case belongs in state court where the Attorney General had filed it.  In its second attempt at removal, MPHJ argued that an amendment to the Attorney General’s Complaint invoked Vermont’s brand new anti-troll act, 9 V.S.A. § 4195 (effective July 1, 2013), which gave MPHJ a new basis for seeking federal jurisdiction.   The Attorney General responded that the Amended Complaint does not in fact invoke the anti-troll act and that the suit against MPHJ in no way relies on the anti-troll act but rather only upon pre-existing consumer protection law.  Judge Sessions agreed with the Attorney General, again sending the case back to state court.  MPHJ is now appealing that second remand order.

In the second case, MPHJ v. Sorrell, filed in federal court and also before Judge Sessions, MPHJ is the plaintiff.  MPHJ alleges that the State of Vermont is violating MPHJ’s federal civil rights by interfering (supposedly) with MPHJ’s rights to enforce its patents by sending its "cease and desist" letters into Vermont.  In the latest activity in that case, Judge Sessions has just thrown out most of the MPHJ’s Complaint.  See Opinion and Order dated June 3, 2015.  The only claim that Judge Sessions has allowed to proceed, for the time being at least, is MPHJ’s challenge to the constitutionality of the new anti-troll act.  Although MPHJ is not currently being sued under that act, Judge Sessions found that MPHJ’s fear of future prosecution under that act is justified because MPHJ: a) says that it does plan to continue its practice of sending “cease and desist” letters to suspected Vermont infringers, and b) can reasonably fear that that activity will be prosecuted under the anti-troll act.  Thus, MPHJ will be allowed to challenge the constitutionality of that act.

Thus, both of the Vermont lawsuits involving MPHJ and its alleged “patent trolling” activities will continue to grind away. 

There will surely be more to come.

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What follows is a blog post by me on June 25, 2009.  I can't resist reposting it because the 2015 Insurance Bad Faith and Extra-Contractual Liability Seminar is nine days away.  The Program Chair this year is the below-mentioned Chris Martin.  And the below-mentioned Bill Kobokovich will hold forth on "Handling Multi-Claimant and Multi-Insured Bad Faith Exposures."  (And, of course, Tony Zelle succeded me as Chair of the Insurance Law Committee.)  What is old is new again.  And I predict another synergistic and dynamic experience.  I'll see you there.  Meanwhile, here's that blog post, vintage 2009:   

"Were you at the bad faith seminar in Boston last week? Wasn’t it great? Historically, the Insurance Law Committee has done this program every other year. People who do bad faith litigation, or handle that kind of claim, really look forward to it. In my opinion, there was no disappointment this year. Congratulations to the program chair and vice chair, Tony Zelle and Bill Kobokovich.

There were many high points of the seminar. One of the best was a panel discussion on litigating “institutional bad faith.” The panel consisted of the aforementioned Bill Kobokovich (Travelers), Chris Martin (Martin Disiere, et al) and Richard Fabian (RiverStone). A lot of people told me how much they learned from the panel. The really cool part was that Chris had just gotten a defense verdict, in an institutional bad faith case against Bill’s company, the week before. And, get this; the senior partner of the plaintiff law firm that lost the case was in the audience there in Boston. I don’t believe he submitted any questions to the panel. : )

In any event, I felt the whole program had an outstanding “vibe.” The education, networking and collegiality were synergistic, creating a dynamic atmosphere. Did you feel the same way? To me, the atmosphere in a seminar can make all the difference in the world.

I don’t see how anyone who handles bad faith matters can miss the Insurance Law Committee’s semi-annual seminar." Click here to register for the DRI Insurance Bad Faith and Extra-Contractual Liability Seminar in Chicago, June 17–19. 


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Categories: Insurance Law | Seminar

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Insurance for Lawyers

Posted on June 2, 2015 03:57 by Steve Crislip

We advise, defend, and prosecute insurance-related claims regularly. Lawyers sometimes do not pay close enough attention to their own coverages, however.  You should have a basic system to review and check all your coverages on a regular basis.  We were trained as lawyers, not business owners.

Recently an Illinois Supreme Court case (Ill. State Bar Ass’n Mutual Ins. Co. v. Law Office of Tyzzolino & Terpinas, 2015 BL 44614, Ill. 117096, 2/20/15, released 3/31/15) invalidated the firm’s professional liability policy for all the lawyers when one of the lawyers falsely denied knowing of any circumstances that might led to a malpractice claim. The court took away the coverage of the other lawyers and denied them the “innocent insured” doctrine.  Frequently claims against a firm arise out of the acts of a “lone wolf” doing things unknown to the others.  Here, the application process was flawed by just one lawyer not being truthful.  I have often said in law practice, you really do become your brother’s and sister’s keeper.

To maintain a modern practice, you should protect yourself with coverage. Often without regard to facts or legal basis, claims get made.  Of course, mistakes often happen.  You do not want to risk your likelihood and your assets by not having adequate coverage, whether it is general liability, employment practices, errors and omissions, or cyber insurance.

With regard to the legal malpractice coverage part, speakers at the National Legal Malpractice Conference in Washington, D.C. recently emphasized that timing is everything.  With claims made and reported coverage, the covered act needs to have occurred during the policy period and the claim reported within the period.  So, you need to know if a “claim” has been made to one of your lawyers and need to know how and when to report it.  You need to see your policy and make sure you have timely reported, with the required specificity.  In my view, that requires some looking and asking in a firm and the establishment of a culture where concealment is not tolerated.

I can see staff, or your outside agents or brokers, handling some of your insurance requirements.  With the important professional liability coverage, I suggest you need knowledgeable lawyers and a required overview of the other lawyers.  I find lawyers to be an independent lot who often chaff at oversight of them.  The issues are too important to leave to a laissez faire approach. You really need a strong loss prevention culture in your firm, regardless of its size.  Part of that is the oversight on coverage and the individual accountability of reporting a claim to others in the firm.  The individual lawyers who gloss over a claim feeling there was no merit to it, or hope it will go away can bring down the house of others. As they said at the end of the annual conference, “Communicate with your carrier and report everything.”  Expensive coverage is better than no insurance.”

This blog was originally posted on Lawyering for Lawyers blog on June 1. Click here to read the original entry. 


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On Wednesday, the Seventh Circuit held that officers who detained a police sergeant without a warrant were entitled to qualified immunity. In Mucha v. Jackson, No. 14-3619, 2015 WL 3397026 (7th Cir. May 27, 2015), at the request of a public retirement system, a psychiatrist examined a police sergeant who had not reported to duty for seven months. In a report three weeks later, the psychiatrist stated that the sergeant was threatening to shoot police commanders and could not be sent back to work. The police department received the report a couple weeks after that. Two officers then went to the sergeant’s home, handcuffed him without an arrest warrant, drove him to a mental health facility, and signed an emergency detention form. The facility held the sergeant for three days. 

The sergeant sued, alleging in part that two officers who detained him did so without warrant or other justification in violation of the Fourth Amendment. The district court denied these officers’ motion for judgment on the pleadings with respect to their claim for qualified immunity but the Seventh Circuit reversed. It dismissed the two officers, finding they were not violating clearly established law. 

The Seventh Circuit held that a state law cannot preempt the Fourth Amendment, but it can establish a standard of conduct consistent with the amendment but particularized to a specific situation. The sergeant’s statements to the psychiatrist, the psychiatrist’s report, and the sergeant’s access to guns gave the arresting officers probable cause to believe he was mentally ill and posed a danger to himself and other officers, consistent with their state’s emergency detention statute. And though the sergeant had made these statements to the psychiatrist a month before the police acted, they were recent enough for the statute’s requirement of showing recent threats or attempts. The Seventh Circuit did not decide whether the police would have been deemed reasonable without the state detention statute, but, it wrote, “we imagine that they would have been.”

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Categories: Governmental Liability

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I recently read an announcement by a top U.S. law firm congratulating itself on its accomplishments based on a recent Law 360 survey regarding law firm diversity. The firm reported great pride in its placement, issued appropriate kudos and congratulated the firm’s ongoing commitment to supporting minorities in the firm. The problem, however, is that when you speak with African American attorneys who work at major law firms there is often a disconnect between what firms are reporting and what these attorneys are experiencing. 

Some surveys that look at the best firms for minorities in general may overlook important issues affecting African Americans specifically and, as a result, firms may be lulled into the complacent view that things are going well for all minorities when in fact the statistics may be skewed in favor of a particular group (or groups), especially in certain parts of the country where certain minority groups are more heavily represented. A recent article looking at African Americans in law firms reported that African Americans are among the most poorly represented minority groups consisting on average of 3.5 percent of non- partners and a mere 1.6 percent of partners.   

In addition, some of the numbers being reported simply do not convey the full experience of African Americans who are trying to make a long term go at “Big Firm." Over the years I have watched some of most pedigreed and qualified African American attorneys leave big firms. With the number of African Americans going to law school dwindling, this does not bode well for the future of African Americans at Big Firm.  This is an issue that is of some importance to African Americans today and it is one at which firms should take a closer look rather than touting positions on the latest diversity chart.  If the numbers and underlying experience at firms nationwide are issues, comparing one underperforming firm to its underperforming peers does little to move the ball forward.  Perhaps those doing the surveys of Big Firm should place greater emphasis on the overall experiences and longevity of attorneys within these firms.  This may help firms to understand what is needed to ensure the long term success of African Americans in the law firm environment. If not, African American lawyers will continue their exodus to more fertile and inclusive ground. 

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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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