"[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." For nearly half a century, this phrase from Conley v. Gibson[1] represented the de facto pleading standard by which complaints were judged under Rules 8(a) and 12(b)(6) of the Federal Rules of Civil Procedure. It was memorized by first-year civil procedure students and regularly cited by lawyers and judges alike. Indeed, Conley's "no set of facts" language was so ubiquitous that it was cited in an average of 60 reported cases per month from January 1, 2000, until May 20, 2007. Then, on May 21, 2007, the U.S. Supreme Court announced, in Bell Atlantic Corp. v. Twombly,[2] that "this famous observation has earned its retirement."[3] The Court replaced the familiar maxim with the requirement that a complaint contain "enough facts to state a claim to relief that is plausible on its face."[4]

Two years later, the Court expounded on Twombly in Ashcroft v. Iqbal.[5] Reviewing a complaint brought against former U.S. Attorney General John Ashcroft by Javaid Iqbal, a Pakistani citizen arrested and charged with fraud and conspiracy in the months following the terrorist attacks of September 11, 2001, the Court explained two principles underlying its decision in Twombly. "First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."[6]"Second, only a complaint that states a plausible claim for relief survives a motion to dismiss."[7] Regarding the second principle, the Court noted:

"Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not shown—that the pleader is entitled to relief."[8]

Relying on these principles, the Court then announced a two-step analysis for lower courts to follow when reviewing a complaint which is the subject of a motion to dismiss for failure to state a claim. First, the court should identify and ignore conclusory allegations which are not entitled to a presumption of truth.[9] Second, the court should accord a presumption of truth to the remaining, well-pleaded factual allegations and determine whether those allegations state a claim which plausibly entitles the plaintiff to relief.[10] If they do, the complaint survives, but if they do not, the complaint—like the one at issue in Iqbal—must be dismissed.

Of course, Twombly and Iqbal have ramifications for just about every type of litigation, but they have particular application in the context of bad faith claims asserted against insurance companies. The principles announced in those cases provide the defense bar with a powerful mechanism for challenging the sufficiency of many such claims. This is because, in the author's experience, counsel for an insured disgruntled by an insurer's disclaimer of coverage will often tack a bad faith claim onto a declaratory judgment or breach of contract action without pleading any factual allegations—aside from the disclaimer itself—supporting the assertion that the insurer acted in bad faith. The following hypothetical cause of action is representative.


15. The allegations of the above paragraphs are realleged as if fully set forth herein verbatim.

16. The insurer's refusal to defend or indemnify its insured was unreasonable and in bad faith.

17. The Plaintiff is entitled to recover actual, consequential, and punitive damages from the insurer.

These allegations contain no factual matter but merely unsupported labels and conclusions. "Completely absent from the [allegations] are any facts that describe who, what, where, when, and how the alleged bad faith conduct occurred."[11] They state little more than that the insurer's coverage position amounts to bad faith. However, that is insufficient under Rule 8(a) as interpreted and applied by Twombly and Iqbal.

Numerous cases from around the country—including the PGT Trucking case quoted above—have applied Twombly and Iqbal in the context of insurance bad faith claims. In many (if not most) of those cases, the insured's bad faith cause of action has been found wanting. For example, in one of the earliest cases, Hibbets v. Lexington Insurance Co.,[12] the insurer disclaimed or allegedly misadjusted a number of claims for property damage sustained by its insureds when Hurricane Katrina struck Louisiana in 2005. 

Two of those insureds filed a putative class action against the insurer, alleging, among other things, that it had violated Louisiana's insurance bad faith statutes. They asserted that the insurer "breached and continued to breach its duties of good faith and fair dealing, as well as its duty to fairly adjust claims," "breached and continues to breach its duty to timely adjust claims upon satisfactory proof of loss," and "misrepresented pertinent policy provisions," and that the insurer's actions were "arbitrary, capricious, and unsupported by any evidence" and "constitute bad faith."[13]Relying on Twombly and Iqbal, the Fifth Circuit found that these allegations were "nothing more than labels and conclusions" and affirmed the district court's dismissal of the plaintiffs' bad faith cause of action because "[s]imply stating a conclusory allegation that [the insurer's] actions were arbitrary, or that [the insurer] breached a duty, without providing factual allegations in support is insufficient to state a claim."[14]

Similarly, in Atiyeh v. National Fire Insurance Co. of Hartford,[15] an insurer disclaimed coverage for water damages to an insured's building and personal property as the result of frozen pipes. Asserting that the insurer had handled his claim in bad faith pursuant to Pennsylvania law, the insured alleged the following:

"[T]hat [the insurer] (1) falsely and fraudulently represented that [the insured] had not performed routine maintenance on the premises; (2) unreasonably refused to indemnify [the insured] for his loss; and (2) breached its duty of good faith and fair dealing by: (a) failing to conduct a reasonable investigation, (b) denying benefits to [the insured] without a reasonable basis, (c) knowingly or recklessly disregarding the lack of a reasonable basis to deny [the insured’s] claim, or (d) asserting policy defenses without a reasonable basis."[16]

On the insurer's motion for judgment on the pleadings, the U.S. District Court for the Eastern District of Pennsylvania held these allegations were "merely conclusory legal statements and not factual averments" and that the plaintiff had provided "no factual support from which [the court could] conclude that [the insurer's] actions in investigating and evaluating plaintiff's claim were unreasonable."[17] Accordingly, the court granted the insurer's motion and awarded it judgment on the pleadings.[18]

More recently, in Felsenthal v. Travelers Prop. Cas. Ins. Co., the U.S District Court for the Northern District of Illinois relied on Twombly and Iqbal in dismissing an action brought under an Illinois statute authorizing the recovery of attorneys' fees and statutory damages against insurers which have engaged in "vexatious and unreasonable" conduct.[19] Borrowing terminology from Iqbal, the court held that the insured's "threadbare" recitation of the elements of the cause of action was insufficient because it provided "almost no factual support for its claim, and only conclusorily allege[d] that [the insurer's] denial of [the insured's] claim [was] unreasonable."[20] Likewise, in Vance v. Nationwide Ins. Co., the U.S. District Court for the Eastern District of Tennessee dismissed a statutory bad faith claim because all the insured offered in support of the claim were "statements that [the insurer] has refused to pay the claim under the policy and that [the insurer] acted in bad faith."[21] The court found that "[the insured's] statement that [the insurer] acted in bad faith is no more than a legal conclusion that is insufficient to state a claim for relief."[22]

Many other courts have reached conclusions similar to those in PGT Trucking, Hibbets, Atiyah, Felsenthal, and Vance. See, e.g., Martinez v. Nat'l Union Fire Ins. Co., 911 F. Supp. 2d 331, 337 (E.D.N.C. 2012) (holding that, after stripping away her conclusory allegations, the insured at most alleged an honest dispute with her insurer's interpretation of applicable law, an allegation which did not plausibly constitute bad faith); Palmisano v. State Farm Fire & Cas. Co., 2:12-cv-00886-NBF, 2012 WL 3595276 at *13 (W.D. Pa. Aug. 20, 2012) ("There is simply no factual support for Plaintiffs' conclusory allegations concerning [the insurer's] alleged bad faith conduct and their averments surely do not suffice to allege a plausible claim that could sustain their burden at trial."); Hudgens v. Allstate Texas Lloyd's, 4:11-cv-02716-MH, 2012 WL 2887219 at *7 (S.D. Tex. July 13, 2012) (noting that the insured failed to "provide any facts that show that [the insurer's] liability was reasonably clear, that her claims were covered under particular provisions of the policy, what [the insurer] knew at the time it denied her claims, any proposed settlement within the policy limits that [the insurer] failed to effectuate, why and how [the insurer's] payments were unreasonably delayed, or where its investigation was not reasonable"); Miracle Temple Christian Acad. v. Church Mut. Ins. Co., 2:12-cv-00995-RB, 2012 WL 1286751 at *3 (E.D. Pa. Apr. 16, 2012) ("[The insured] has provided no factual allegations indicating that [the insurer] lacked a reasonable basis for denying the policy benefits[.]"); Schlegel v. State Farm Mut. Auto. Ins. Co., 3:11-cv-02190-ARC, 2012 WL 441185 at *7 (M.D. Pa. Feb. 10, 2012) ("Plaintiffs' allegations are legal conclusions that [the insurer] has generally acted unreasonably and without good faith. Yet, there are no facts in the Complaint to indicate what [the insurer] specifically did to lead to those conclusions[.]"); Blasetti v. Allstate Ins. Co., 2:11-cv-06920-TNO, 2012 WL 177419 at *4 (E.D. Pa. Jan. 23, 2012) (dismissing the insureds' bad faith claim due to a lack of sufficient factual allegations and noting that the insureds "would have [the court] infer reckless indifference from the mere fact that [the insurer] denied their request for coverage"); Eley v. State Farm Ins. Co., 2:10-cv-05564-MMB, 2011 WL 294031 at *5 (E.D. Pa. Jan. 31, 2011) (dismissing the insureds' bad faith cause of action on the grounds they had alleged no facts from which the court could infer the insurer had "no reasonable basis" for denying coverage); Littlefield v. Concord Gen. Mut. Ins. Co., 2:10-cv-00007-WKS, 2010 WL 5300814 at *3 (D.Vt. Dec. 22, 2010) (holding that the insured's complaint contained "no facts, merely an absence of facts, to support the notion that [the insurer] lacked a reasonable basis to deny the claim" and that the insured had failed "to state a claim for insurance bad faith that is plausible on its face"); Johnson v. Liberty Mut. Ins. Co., 3:10-cv-00494-MLC-DEA, 2010 WL 2560489 at *2 (D.N.J. June 24, 2010) ("Lacking any factual support, the plaintiff's claim of bad faith stands alone as a bare averment that she wants relief and is entitled to it.").

Insurers and their insureds often disagree regarding the coverage provided by policies of insurance. Insureds are understandably displeased when claims are denied. However, despite negative depictions of insurance companies by politicians and in popular culture, it is the author's informed opinion that relatively few disclaimers are the result of bad faith. In those instances where an insurer's conduct rises to that level, the insured and her counsel should have little trouble pleading facts sufficient to state a plausible claim for relief. However, when insureds—as they often do—fail to specify how the insurer's actions were unreasonable, Twombly, Iqbal, and their progeny provide a powerful tool for stopping bad faith claims in their tracks.

This article originally appeared in the Spring 2014 issue of The DefenseLine, a publication of the South Carolina Defense Trial Attorneys Association.

[1] 355 U.S. 41 (1957).

[2] 550 U.S. 544 (2007).

[3] Id. at 563.

[4] Id. at 570.

[5] 556 U.S. 662 (2009).

[6] Id. at 678.

[7] Id. at 679 (citing Twombly, 550 U.S. at 556).

[8] Id. (citations omitted).

[9] See id.

[10] See id.

[11] Liberty Ins. Corp. v. PGT Trucking, Inc., 2:11-cv-151-TFM, 2011 WL 2552531 at *4 (W.D. Pa. Jun. 27, 2011).

[12] 377 F. Appx. 352 (5th Cir. 2010).

[13] Id. at 355-56.

[14] Id. at 356.

[15] 742 F. Supp. 2d 591 (E.D. Pa. 2010).

[16] Id. at 599.

[17] Id. at 599-600.

[18] Id. at 600.

[19] 1:12-cv-07402-AJS, 2013 WL 1707931 at *2 (N.D. Ill. Apr. 19, 2013).

[20] Id. at *4.

[21] 2:13-cv-00160-LJ, 2013 WL 4647154 at *2 (E.D. Tenn. Aug. 29, 2013).

[22] Id. at *3.


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To successfully assert a claim under New York General Business Law § 349 (h) or § 350, "a plaintiff must allege that a defendant has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice" 

A claim is brought under GBL § 349 to allege misleading and deceptive trade practices and under GBL § 350 to allege false advertising.  Typically, these two sections are pled in tandem, both in single plaintiff cases and in class action litigation seeking relief from consumer fraud. 

In their NYLJ article (12/28/12) looking back at the significant New York State class action decisions that were handed down during 2012, authors Thomas A. Dickerson, Jeffrey A. Cohen (both Second Department judges) and Kenneth A. Manning devote special attention to the Court of Appeals decision in Koch v. Acker, Merrall & Condit, in which the court clarified that justifiable reliance is not an element of a GBL § 350 claim. Prior decisions had already done away with any reliance requirement on a GBL § 349 claim

The element of reliance had always seeming been an important defense weapon in deceptive trade practice class action litigation. In Koch, plaintiff alleged that the auction house described its wines as "extraordinary, " "absolutely stunning," and among the "greatest wines...ever experienced"  when, in fact, these wines were undeniably nothing of the kind. But the First Department made short shrift of plaintiff's claims.  The court gave considerable deference to the disclaimer language in the auction house's brochure which provided an "as is" disclaimer.

In addition to the "as is" caveat, the "Conditions of Sale/Purchaser's Agreement" made "no express or implied representation, warranty, or guarantee regarding the origin, physical condition, quality, rarity, authenticity, value or estimated value" of the wine.  Should not a  reasonable consumer, the appellate court reasoned, been alerted by these disclaimers, would not have relied, and thus would not have been misled, by defendant's alleged misrepresentations concerning the vintage and provenance of the wine it sells?  In this instance, according to Decanter.com, the plaintiff was Florida billionaire, William "Bill" Koch, who apparently believed that the auction house had sold him the proverbial "bill of goods".  If anyone was to read and understand the "fine print" in the disclaimer, surely a sophisticated investor like Mr. Koch would.

In answer, the  Court of Appeals held that the "as is" provision does not bar the claim (at least at the pleading stage) and does not establish a defense as a matter of law. 

As Messrs. Dickerson and  Cohen explained in an earlier NYLJ article (4/19/12), the Koch ruling may be a "game changer" in deceptive and misleading business practices class action litigation.  They cite a long series of prior appellate cases, which had established reliance as a basis for obtaining a recovery under GBL § 350, which clearly is no longer good law. In the past, New York courts were reluctant to certify GBL § 350 claims because they found that reliance was not subject to class wide proof. 

When the Appellate Division issued its decision, wine industry attorney Brian Pedigo in Irvine California expressed concern to Decanter.com that it would set bad precedent if all prospective bidders had to satisfy themselves by inspection rather than to trust in the auction house's represenations.  In pertinent part, he commented, "A regular Joe consumer is not going to fly overseas [or across the country] to inspect wine. A reasonable consumer will rely on the representation of the seller, and will not read or understand the fine print disclaimers".  An adverse decision for the auction house, he believed, would be "horrible for consumer trust in the online auction environment; it could possibly destroy this niche market sector".  Would  internet commerce beadversely affected if the e-consumer was not able to trust the e-seller?

The Court of Appeals apparently agreed with Mr. Pedigo that the risk of authenticity should not entirely shift to the consumer, regardless of whether the consumer is Joe consumer or Bill Koch. 
The claim against Acker Merrall is not Mr. Koch's only wine-related lawsuit.  He previously brought a RICO claim against Christie's, another auction house, after purchasing four bottles of wine that he believed were connected to Thomas Jefferson, but turned out were not really that old.  That Koch wine auction case ended up in the Second Circuit; but that's a story for another time. 
At the end of the day, Koch serves to harmonize GBL § 349 and GBL § 350; there is no reliance pleading requirement under either statute. 

However, all is far from lost for the defendants in these cases.  As discussed at the outset of this article, plaintiffs must prove  (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice".  Accordingly, although reliance need not be shown, the plaintiff must still prove causation.  Proof of causation remains plaintiff's critical hurdle in succeeding in these claims.  

Republished with permission from  www.toxictortslitigationblog.com
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On Tuesday October 30th, the NCAA Board of Directors announced the adoption of a new enforcement structure that, among other things, creates additional levels of infractions, enhances accountability for head coaches, and seeks to punish violators with sanctions that more appropriately align with the actions that occurred.  The most striking of these new initiatives, to be implemented beginning in August of 2013, is the creation of the new four-tiered structure for violation classification.  

Under the current model, violations are classified as either major or secondary.  The new system sets forth violations as follows: Level I, Severe breach of conduct; Level II, Significant breach of conduct; Level III, Breach of conduct; and Level IV, Incidental issues.  A copy of the NCAA’s press release may be found here.  This new structure is the product of a year-long effort by the thirteen-member Board comprised of presidents, athletic directors, and conference commissioners.   President Mark Emmert described the changes as part of a devotion to “protecting the collegiate model,” in part by “remov[ing] the ‘risk-reward’ analysis that has tempted people.”   

These changes come on the heels of increasing external pressure for a more consistent and transparent process, with a number of major infractions cases serving as the backdrop for this magnified criticism.   Greater accountability and stricter sanctions is undoubtedly a step in the right direction when it comes to enforcement of what would be considered major infractions under the current framework.  The NCAA should be applauded for taking measures to ensure consequences for coaches who plead ignorance while violations blatantly occur on their watches.  But at the same time, the new violation structure is troublesome.   Despite admirable efforts to construct a better system, this new four-tiered structure for violation classification fails to ameliorate many of the common concerns expressed with respect to NCAA Bylaws and enforcement of the same.  Hopefully, this will be cleared-up with the upcoming changes to the substantive “rules” in the Bylaws.    

The NCAA Bylaws are often denounced as too lengthy and too complex, and deservedly so.  Moving from a two-tiered violation structure to a four-tiered system, if not matched-up with more common sense in rule substance, is an obvious step backward, and is counterintuitive if the desired outcome is a more workable framework.  Increased confusion is even more likely when one considers the near endless interpretations that could be attributed to the definitions describing each tier.  For example, consider the difference between a violation that “threatens the integrity of the NCAA,” versus a violation that merely “provides more than a minimal, but less than a substantial…advantage.”  One definition classifies a Level I violation, while the other corresponds with Level II, but is there really a difference?   The definitions may mean something different to a coach versus someone in compliance at a school or enforcement at the NCAA, so how then is the goal of deterrence met for the problem that President Emmert describes as a calculation of risk vs. reward made by coaches who currently do not have sufficient risk to their livelihoods or respective programs.

Under this system, inconsistencies may abound to an even greater degree than under the current model.  This is likely to complicate the NCAA’s investigative measures, which is problematic given the Association’s already limited resources; resources so limited that some have even suggested that the NCAA get out of the enforcement business altogether (for a more in depth discussion of this proposal, see this well-done piece by Attorney Stephen A. Miller, recently published in The Atlantic).  Finally, if the NCAA is really student-athlete first, then this measure does nothing to address the countless Bylaws that punish student-athletes for technical violations that provide no competitive advantage, and do little more than burden an already overwhelmed enforcement staff.  Again, it is worth pondering, is an “incidental issue” even worth sanctioning?  I hope that reforms not just in terms of a scholarship enhancement, but in terms of rules affecting student-athletes’ behavior on a day-to-day basis are addressed in the coming months.

Since the NCAA has chosen to divert its attention first to the method in which these intricate and often superfluous regulations are classified, my worry is that dealing with the substance later will lead to a continuance in seeing violations shoe-horned into a rigid framework that sometimes, but does not always fit.  For those that desire more consistency in results, do you want the NCAA to have something akin to Federal Sentencing Guidelines, or more common sense in results?  I am not yet convinced that the new enforcement structure will get us more common sense in results, which many (myself included) would like to see as opposed to more rigidity.

Over time, perhaps this will prove to be a positive step toward a streamlined, consistent, and fair process.  For now though, a more detailed systemization of the NCAA’s enforcement structure only seems to complicate matters further if there is not significant overhaul to the substance of the rules themselves.  While my experiences may leave me a bit biased, until we see a comprehensive reassessment of the actual Bylaw language (promised in the next few months), I foresee this self-proclaimed “overhaul” as little more than a re-branding exercise.

Originally published on Sportslawblog *Hat tip to Brian Konkel for his work on this piece.

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According to a group of women who filed a lawsuit last week, Maybelline should pay up for making false claims about its “Super Stay” lipstick products.  Filed in federal court in Manhattan, the complaint seeks declaratory relief and damages under several states’ consumer protection laws.  From the defense perspective, this is the latest attempt at a “no injury” class action where no actual injuries or damages exist. 

The Super Stay products at issue in the case include Super Stay 10HR Stain Gloss and Super Stay 14 HR Lipstick.  The Complaint alleges that Maybelline’s website and television commercials “boast that the Super Stay Gloss ‘stays vibrant and shiny, yet transparent, and won’t fade’ for a ten-hour period.”   Plaintiffs allege that to the contrary, “Super Stay Products do not remain on the wearer’s lips for the extended periods as advertised.”  Accordingly, “Maybelline overstates and misrepresents the staying power of its Super Stay Products as a means to induce consumers to purchase the product.”

Plaintiffs seek nationwide class certification status on behalf of those who purchased and paid for Maybelline’s Super Stay products.  The three named plaintiffs, who reside in Michigan, New York, and New Jersey, also seek certification of subclasses of purchasers under those three states’ consumer protection laws.  The state consumer protection act claims assert that Maybelline’s advertising of these products constituted unfair and deceptive practices and that plaintiffs should be awarded compensatory and treble damages.

Courts have recently recognized the abstract and speculative nature of “no injury” class actions and have dismissed them based on a lack of Article III standing.  Plaintiffs must offer proof of (a) injury-in-fact; (2) causal connection between the injury and conduct complained of; and (3) a likelihood that the injury will be redressed by a favorable decision. In the context of class actions, the class representative must establish an injury-in-fact, not simply that other putative class members suffered injuries. See e.g., Rivera v. Wyeth-Averst Laboratories, 283 F. 3d 315 (5th Cir. 2002).  In the lipstick case, the federal court will have to determine whether the group of women suffered an injury-in-fact by purchasing a product that did not live up to its promises.  

R. Scott Adams
Spilman, Thomas & Battle, PLLC
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Two undeniable and interconnected facts: the U.S. housing market remains virtually stagnant and the number of lawsuits against real estate professionals is on the rise.  Existing home sales have dropped steadily since 2005.  There is a glut of product on the market, yet relatively few ready, willing and able buyers.  During the same period, delinquency and foreclosure rates have grown at an alarming rate.  Real estate professionals have been under considerable pressure to adapt to the conditions of this weak and sputtering market.  Many have not fared so well, as there has been a noticeable increase in lawsuits filed against agents, brokers, inspectors and other real estate professionals.

A Deeply Troubled Housing Market

There is no concrete formula to calculate when the American housing “bubble” burst.   What we do know is that the market was thriving in or around 2004 – 2007 then began to fizzle in the following years.  New home inventory, whether completed or under construction, grew at a gradual rate between 1997 and 2003.  Then, in or around January 2003, new home development skyrocketed.  By 2005, Americans built more new homes than they had since the late ‘70’s.  By most indicators, American real estate was booming in the summer months of 2005 and 2006.

Based on the vast number of new homes built at the turn of the century, it would be fair to assume that this development was catered to a growing number of eager would-be homeowners on the market for a new home.  However, the supply far exceeded the demand.  Every year beginning in 2005 through 2008 resulted in a significant drop in existing home sales compared to the prior year.  In other words, Americans were not purchasing homes at the rate those homes were built.  By way of example, Americans purchased approximately 100,000 less homes in June 2007 than they had in June 2006.  During that same stretch, however, developers continued to build new homes at a staggering rate.  As a result, the market could not support itself and soon collapsed. 

Following the peak in 2007 – 2008, new home inventory dropped dramatically.  That drop continued until today when new home inventory nationwide is significantly lower than that recorded in decades.  As a result of that rapid decline, new homeowners found themselves living in property valued far less than the price they recently paid.  Houses were rapidly losing value nationwide.  By some accounts over 10 percent of mortgaged homes in 2008 – 2009 were “underwater”; or, the mortgaged amount exceeded the actual value of the property.  Some suggest that the number of underwater homes continues to climb.

Sub-prime lending, of course, also played a significant role in the rise, and fall in the real estate market.  Sub-prime financing, or high-interest loans, is catered toward high-risk borrowers.  As the market reached its peak, sub-prime lending also increased.  Only two percent of mortgages issued in 2000 were classified as sub-prime compared to nearly 30 percent in 2006.  When the market was healthy, lenders were willing to take on more risk and perhaps were more creative with their lending agreements.  Less documentation, reduced or zero down-payment, low initial interest rates that ballooned over time and other strategies were developed to get buyers in the door.  The problem: aggressive lending programs invited Americans to purchase homes that they literally could not afford.  What naturally followed was rampant delinquency and foreclosure.

During the good years, between 1995 and mid-2006, approximately 5 percent of all active loans were considered “delinquent” and about 1 percent was the subject of foreclosure proceedings. The delinquency started to slowly climb in ‘06 and ‘07 then took off in 2008 to a high of nearly 10 percent  of all active loans as of year-end 2009.  Foreclosures also increased to over 4 percent of all active loans.  In 2008 and particularly 2009 – 2010, a higher percentage of delinquent properties resulted in foreclosure proceedings which, in turn, resulted in more short sales and REO properties.  A disproportionate number of these foreclosures were the result of sub-prime financing.  Of course, real estate professionals suffered as a result.

Increased Claims Against Real Estate Professionals

No doubt due, at least in part, to the distressed real estate market, claims against real estate professionals have risen over the past several years.  Moreover, the types of claims against real estate professionals have changed due to the peculiarities of the recent rise and dramatic fall of the market.  Agency issues, mortgage rescue scams, breach of fiduciary duty, fraud, negligence, breach of contract, and false representation issues are among the classes of claims on the rise against real estate professionals.  Why the rise in claims?  Here are several plausible explanations: 

Dabbling: Due to the reduced work-load, the real estate professional may be more willing to take on work outside of his/her comfort zone in order to generate revenue, including property or construction management or providing credit counseling or quasi-legal advice as opposed to selling real estate.
Loan and Investment Fraud: Knowingly or unwittingly modifying transactional documents to mischaracterize the nature of a purchase to obtain more favorable loan terms.  For example, denoting the purchase of a Bed and Breakfast as a “residential” property rather than an “income producing” property to generate better financing terms and, hence, close a deal.
Lay Offs:  The termination of the most experienced (and most highly compensated) staff in order to reduce expenses while retaining a staff less able to meet the needs of their customers.
Misrepresentation:   Even good faith reliance on a desperate seller’s disclosures, which turn out to be false, may result in a fraudulent or negligent misrepresentation claim against a real estate agent for allegedly ignoring red flags.
Referrals: A real estate professional may be subject to “negligent referral” liability by suggesting that her client retain the services of a particular vendor of some kind (e.g. inspector or title agency) of there are flubs on the job.
Unauthorized practice of law:  A real estate professional walks a fine line between representation of her client, providing general advice and performing a legal function especially with respect to the financial end of a transaction.  Should an agent provide advice outside of her scope of expertise, she may be subject to a claim of negligence, misrepresentation as well as the unauthorized practice of law.
Short sales and foreclosures:  Perhaps more than any other cause, the most significant increase in real estate disputes of late is due to the foreclosure crisis.  Short sales lead to difficulties regarding property condition disclosures.  For example, since short sales can be a lengthy process, the condition of a property may change while the transaction is pending.  Often, lenders and sales agents insist on listing short sales “as is” which may result in unreliable or non-existent disclosures and surprises following settlement.  These surprises all too often lead to lawsuits. Moreover, these sales are overlayed with transactional complexity beyond the ken of less experienced real estate professionals, a hazard in and of itself.  By way of example, short sales and foreclosures may force a real estate professional to address priorities amongst multiple liens or lending and listing problems as a result of the fact that prior owners are typically not involved in these transactions.

What Lies Ahead?

Signals of a recovery remain distant and weak.  Fiscal policy at the macroeconomic level suggests continued pessimism and caution, as seen in sustained historic low borrowing rates, but these low rates continue to be foiled by far more rigorous underwriting standards.  What one hears is: there’s plenty of money to borrow for people who don’t need it.  So, those who earn a living off of the sale of real estate will find themselves under stress for the foreseeable future.
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The Topps Company (“Topps”) is suing fellow baseball trading card manufacturer Leaf Trading Cards (“Leaf”) for copyright and trademark infringement in a lawsuit recently filed in federal court (The Topps Company, Inc. v. Leaf Trading Cards, LLC, USDC SDNY, No. 11-civ-5585).  Topps claims that Leaf does not have the right to use pictures of old Topps cards featuring the company’s logos and players it has under exclusive contract.  The dispute arose over Leaf’s recent advertisement for its “2011 Leaf Best of Baseball” product.  The Best of Baseball pack, available to collectors, consists of one Leaf-created cut signature card and a PSA or BGS graded and authenticated card previous issued by various other manufacturers.  Some of the cards included in the packs are a 1952 Topps Mickey Mantle, a 1972 Carlton Fisk rookie, a 2001 Albert Pujols rookie, as well as cards autographed by teenage phenom Bryce Harper. One-pack boxes have been selling at retail for $235-275.

In addition to Topps’ claim that it owns the copyrights of the images on the cards and the logos, Topps further claims that it owns the rights to the player’s names and autographs.  In its complaint, Topps asserts that Leaf’s sell sheet is a “blatant attempt at capitalizing on Topps’ goodwill and intellectual property to advertise and promote Leaf’s product” (Complaint ¶48). On the packaging of its product Leaf included a disclaimer about the cards that are pictured at the bottom of the sell sheet.  Despite Leaf’s disclaimer, Topps asserts the use of its pictures will cause confusion in the marketplace stating: “[w]ithout exclusivity, the license’s value is highly diminished, both to Topps and the exclusive players.” 

In deciding this issue a judge must determine how far Topps’ rights extend with regard to products that were previously released and now are being repackaged for customers. 

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This post focuses on one of eight motions in limine ruled on in the April 14, 2011 Order in Altheim v. GEICO General Insurance Co., No. 8:10-cv-156-T-24 TBM, 2011 WL 1429735 (M.D. Fla. Apr. 14, 2011).

Specifically, this post focuses on Plaintiff's Motion in Limine Regarding Testimony From Defendant’s Expert Witness and Others, and the court’s disposition of that motion.  See id. at **2-3.

The Defendant’s expert witness is Kathy Maus, Esquire of Tallahassee, Florida.  Her expertise caused her to be retained by a Pensacola, Florida attorney to be an expert witness in an uninsured/underinsured motorist “bad faith lawsuit” pending in federal court in Tampa, Florida.  Id. at *1.  To quote from the federal court's Order, she is “an attorney who was hired as a defense expert regarding claims handling.”  Id. at *2.  She will testify to opinions in that lawsuit “based on her extensive experience in claims handling.”  Id.

Although not stated by the United States District Court in its opinion in this case, Ms. Maus’s law firm also enjoys a statewide reputation for its expertise.  (Many of its partners, including Ms. Maus, are also tireless volunteers in support of the activities of the Defense Research Institute.)

The Plaintiff's subject motion in limine was expressly addressed to three (3) matters as to which, the Plaintiff argued, Ms. Maus should not be permitted to testify at trial in this case.  First, the motion in limine requested that she not be allowed to offer any “medical opinions.”  The court granted this motion to the extent that Ms. Maus, an attorney (and one of the Plaintiff's own experts, also an attorney) was not a doctor and therefore could not testify to medical opinions.  Id.

However, as to this first issue, the federal court made an effort to be very clear in its ruling.  “However, [Ms. Maus] can interpret the medical records based on her expertise in claims handling practices and procedures.”  Id. (Emphasis added).

The Plaintiff also conjectured that Ms. Maus may testify concerning the Plaintiff's doctor’s “state of mind” and argued that Ms. Maus should not be allowed to do so.  The federal court did not accept this argument and denied the motion in this regard.  The court held that Attorney Maus could testify at trial in this regard to the extent that her trial testimony (1) describes her own past experiences with the Plaintiff's doctor and (2) identifies any similarity between that doctor’s medical reports on the Plaintiff, and that doctor’s medical reports on other people.  Id.

Finally, the Plaintiff argued that any defense witness who was “biased” against any “profession” should not be allowed to offer “biased” testimony, and in particular charged that Ms. Maus should not be allowed to testify to the following excerpt apparently taken from the transcript of her deposition (as quoted by the court in this opinion): “As we all know, chiropractors oftentimes will treat you until your insurance runs out.  They will say you need treatment until your insurance runs out.”  Id.  According to the federal court, “Defendant did not directly respond to this argument.”  Id.

Under the circumstances, the court granted this motion in limine in this regard, to the extent “that Maus cannot testify that ‘chiropractors oftentimes will treat you until your insurance runs out.  They will say you need treatment until your insurance runs out.’”  Id. at *10.

Over all, three interesting rulings on one uniquely presented motion in limine.

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Categories: Bad Faith

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In the case of Nationwide Insurance Co. of Florida v. Demmo, No. 2D10-4104, 2011 WL 1197538 (Fla. Dist. Ct. App. Apr. 1, 2011), a Florida state circuit judge ordered Nationwide to produce “Nationwide’s claims notes, activity logs, property loss notice information, and property loss notice forms in Demmo’s first-party breach of contract action against Nationwide.”  Id. at *1.  On certiorari review, the Florida appellate court quashed the trial court’s order.

The reason for reversal in this case was a simple one.  According to the appellate court, the trial court erred by focusing on the date that Nationwide denied coverage under the homeowner’s policy it issued to Ms. Demmo.  The trial court then ordered production of everything prepared before Nationwide denied coverage, on the ground that none of it could have been work product prepared in anticipation of litigation, in the eyes of the trial judge.

Instead, the appellate court concentrated on the nature of the action which Ms. Demmo filed against Nationwide.  “Rather, the issue turns on what type of action Demmo has brought.  Here she is not pursuing a bad faith claim, but rather seeks relief for breach of contract.”  Id.  In this particular case, the materials requested by Ms. Demmo were simply not discoverable where coverage was disputed and not yet resolved, and where, in addition, the homeowner’s insurance company faced prejudice if it were compelled to produce its claim file materials during the insurance coverage litigation.

In an appropriate case, the appellate court indicated that it might be inclined to hold that certain documents contained in a first-party claims file might be discoverable, see id. at *2 n.2, but in effect, the appellate court held that this was not an appropriate case.


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