Consumer Advocate Legal Update : Class Action Lawyers & Attorneys : Khorrami Pollard & Abir Law Firm : Mass Torts, Products Liability

The linchpin of a bad faith claim is that the denial of coverage was unreasonable.  Before an insurer can be found to have acted in bad faith for its delay or denial in the payment of policy benefits, it must be shown that the insurer acted unreasonably or without proper cause.  The courts created a defense for the insurance companies, the genuine-dispute doctrine, which allows the judge, not the jury, to decide whether an insurer was “reasonable” in denying a claim.  In other words, if an insurance company can show that a genuine dispute existed as to coverage, then it is entitled to summary adjudication of the bad-faith cause of action.  The jury never hears evidence of the insurer’s conduct in adjusting the claim. 

The genuine-issue defense has been firmly cemented in California after the decisions in Fraley v. Allstate Ins. Co. (2000) 81 Cal.App.4th 1282 [97 Cal.Rptr.2d 386], Guebara v. Allstate Ins. Co. (9th Cir. 2001) 237 F.3d 987, and Chateau Chamberay Homeowners Association v. Assoc. International Ins. Co (2001) 90 Cal.App.4th 335 [108 Cal.Rptr.2d 776]. Guebara was the first decision to take a hard look at the doctrine. There the Ninth Circuit held that the doctrine could be applied to both legal and factual disputes. Chateau Chamberay was the California appellate equivalent to Guebara, also found that the doctrine was applicable to both factual and legal disputes, and adopting the list of factors that would allow a court not to apply the doctrine in a particular case.  As defense attorneys salivated, the courts applied the doctrine with increased frequency and broad in scope. It seemed that no insurance bad faith case would survive.

Then came the trifecta of cases Wilson v. 21st Century Insurance Company (2007) 42 Cal. 4th 713, Brehm v. 21st Century Insurance Company (2008) 166 Cal. App. 4th 1225, and most recently McCoy v. Progressive West Insurance Co., 171 Cal. App. 4th 785, 793-794 (2009). Each case has slowly chipped away at the great insurance defense. Under Wilson and Brehm, an insurance company may not rely on the genuine-dispute doctrine if it failed to conduct a thorough investigation into an insured’s claim in a motion for summary adjudication or demurrer.   

McCoy was the final nail on the coffin.  The Court of Appeal found there was no authority for any instruction on the genuine-dispute doctrine  and upheld the trial court’s refusal to issue special jury instructions proposed by the insurance company because the genuine-dispute doctrine issues were subsumed by the reasonableness instructions, set forth in CACI 2331 and 2332, that were provided to the jury.  The Court further found that there was abundant evidence to support the jury’s finding of bad faith and the award of punitive damages. The Court of Appeal has sent the clear message that key issue in bad faith cases is whether insurance company’s actions were reasonable. 

This case has hopefully slam shut the door for the defense use of the genuine-dispute doctrine as a legal defense to bad faith claims. The message from the Court of Appeal is that absent undisputed evidence an insurer acted reasonably, a jury may act properly in finding to the contrary. 

It will be interesting to see how the big insurance defense firms will now devise creative ways to sneak the genuine-dispute doctrine back into their defense repertoire. Stay tuned.

The linchpin of a bad faith claim is that the denial of coverage was unreasonable. “Before an insurer can be found to have acted in bad faith for its delay or denial in the payment of policy benefits, it must be shown that the insurer acted unreasonably or without proper cause.” (Jordan v. Allstate Ins. Co. (2007)148 Cal.App.4th 1062, 1072

Wilson was an underinsured-motorist (UIM) bad-faith case. The claimant, Regan Wilson, was a 21-year old woman who suffered neck injuries in an auto accident when she was struck by a drunk driver. She demanded policy limits of $100,000 from her UIM carrier.The trial court granted summary judgment for the carrier, finding that there was a genuine dispute about the extent of her injuries. The Court of Appeal reversed in a published decision. The Supreme Court affirmed the Court of Appeal’s decision.

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In the world of wage and hour class action litigation, employers are increasingly seeking to use the “on-duty” meal break exemption as a waiver defense to the action. Yet, employers who seek to defend a meal break class action by such means not only ensure a basis for class-wide adjudication of meal period claims [See Bufil v. Dollar Financial Group, Inc., 162 Cal. App. 4th 1193 (2008)], they may be unwittingly setting up an argument for class adjudication of rest periods claims as well.

An on-duty meal break is a codified exception to the requirement that “off-duty” meal breaks be given, and may be utilized by the employer “onlywhen the nature of the work prevents an employee from being relieved of all duty ….” See e.g. 8 CCR 11040(11)(A). “The test of whether the nature of the work prevents an employee from being ‘relieved of all duty’ is an objective one” [DLSE Enforcement Manual, at § 45.2.3.1], and is focused on the employer’s business “overall.” See West v. Circle K Stores, Inc., 2006 U.S. Dist. LEXIS 42074, 14 (E.D. Cal., 2006). 

In light of the forgoing standards, an employer who advocates that it was entitled to invoke the on-duty meal break exemption based on the nature of its work by necessity must make an admission that common impediments existed that precluded free access to all breaks – including rest periods.  This admission is material – not only because the on-duty exemption applies only to meal periods, but also because the existence of a common barrier provides a basis for class adjudication of a rest period claim.

Thus, the astute class advocate should use the “on-duty” exemption to the employee’s advantage. An employer cannot have it both ways. An employer who claims the “nature of the work” precludes access to meal periods may not defeat class certification of rest period claims by arguing it is not an insurer of breaks. Under most circumstances, the employer’s effort to avail itself of the “on-duty” exemption all but ensures that rest break claims will be amenable to class adjudication as well.

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When Bank of America announced that it will no longer require customers to settle disputes with the company through arbitration, rather than being able to go to court, many saw it as a victory for consumers.  However, as David Lazarus reported in Sunday's edition of the LA Times, Bank of America's decision to drop the arbitration requirement does not mean that it is ending its prohibition on customers joining class action lawsuits.  Betty Riess, a Bank of America spokesperson, told Lazarus, "We aren't addressing the class-action waivers as part of [the decision regarding arbitration].  We will preserve the class-action waivers in our agreements."

Class action waivers prevent individuals from joining with other individuals with similar complaints to sue a company.  As Lazarus noted, class actions are arguably the best tool many consumers have to address problems involving relatively small amounts of money as, often, individual lawsuits can cost more to resolve than the amount under dispute, effectively precluding consumers from seeking redress.

In California, class action waivers in consumer contracts may be unenforceable, especially where they violate public policy (such as where the waiver is included in a contract's fine print).  See Discover Bank v. Superior Court (Boehr), 36 Cal.4th 148, 158-160 (2005).  However, many states permit class action waivers in consumer contracts.  Thus, Bank of America's decision is just the first step in protecting consumers' rights.

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The U.S. Supreme Court decisions in Ashcroft v. Iqbal and Bell Atlantic v. Twombly has made it much easier for Defendants to have Plaintiff’s cases dismissed before there is even an opportunity to begin discovery.   Both cases interpreted Rule 8 of the Federal Rules of Civil Procedure and together require that sufficient factual allegations are made in the complaint. So basically, Plaintiff attorneys need to do discovery in order to get the information need to prepare a complaint that will not be dismissed under Twombly and Iqbal in order to be able to be given the opportunity to then begin discovery. Sequentially, something is inherently wrong with what the Supreme Court is now requiring at the pleading stage.

Senator Arlen Spector has proposed legislation, known as the Notice Pleading Restoration Act of 2009, that will change this seemingly illogical decision…..or will it. The proposed Bill does not really provide a standard for dismissal of claims in federal court, but rather simply says that the standard used should be the one that the Supreme Court used in Conley v. Gibson.   This is problematic because unlike stating an explicit standard, reference merely to the standard in Conley  leaves open the possibility for different interpretations of what that standard exactly is.   I mean, Twombly and Iqbal could be considered explanations of what the standard is in Conley. It leaves the door open to further debate as to what the Bill really does and what the Conley standard really means. Although Spector’s intent may be to go back to more liberal pleading requirements, it’s the actual words in the Bill that that are going to be interpreted, and as it stands, those words alone to not make Spector’s intent definitively clear.   

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Shawn Khorrami, founding partner of Khorrami Pollard & Abir LLP (KPA), has been appointed to serve as an at-large member of the American Association for Justice’s (AAJ) Diversity Taskforce. The taskforce will be responsible for examining the full spectrum of diversity in the AAJ, with the objective of developing and implementing a Diversity Plan that addresses the needs and expectations of the full membership. Areas of focus will include membership recruitment and retention, organizational activities and leadership.

Chaired by incoming Parliamentarian Rhonda Hill Wilson, the Taskforce will include delegates from the AAJ’s Minority Caucus, Women’s Trial Lawyer Caucus and New Lawyers Division, as well as several at-large members. 

“It’s gratifying to be asked to serve on a Taskforce with such an important mission, and I look forward to working with such an accomplished group of colleagues,” said Khorrami. “Issues of diversity and inclusion are reshaping our society and the law, so it is essential for our profession to incorporate policies and practices that reflect these fundamental changes into our professional organizations and development programs.” 

KPA recently sponsored the Consumer Attorneys of California (CAOC) and the American Association for Justice (AAJ) Women’s Caucus Networking Reception, coinciding with the AAJ 2009 Annual Convention.  

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On August 13, 2009, Bank of America announced that it would be ending a requirement that consumer credit card disputes be settled through binding arbitration. This announcement followed the determination by two major arbitration forums, the American Arbitration Association and National Arbitration Forum that they would no longer accept consumer-debt-collection cases.  

Bank of America also announced that the change would cover auto, recreational vehicle and marine loans as well as the credit-card disputes. 

This decision is a major win for consumers. As detailed in my earlier post, arbitration is unfair to the consumers. Big companies prevail in a majority of arbitration cases, to the detriment of the consumer. Bank of America’s decision is a pivotal change in the way that consumer disputes are handled, and may greatly increase the consumer’s ability to challenge big business. 

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Check out today’s Law360 Health and Insurance sections and read KPA Attorney Lourdes DeArmas’ article “Post-Claim Underwriting: California’s Dirty Secret.”

If you are a health insurance policy holder, or you protect health insurance policy holders, this article contains timely information for you.  This article breaks down post-claim underwriting practices, its affects, and how to better protect yourself or your clients.

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In its recent opinion in the Tobacco II Cases, the California Supreme Court rejected extension of Proposition 64 standing requirements to putative class members on the grounds that doing so would invalidate the “patently less stringent” remedies afforded under Business & Professions Code Section 17203.  See In re Tobacco II Cases, 46 Cal. 4th 298, 320 (2009).  In practical terms, the Court’s decision requires only the named plaintiff in a UCL action to establish that he or she in fact “has lost money or property as a result of the unfair competition”, whereas putative class members would be entitled to restitution of money or property “which may have been acquired’ [] by means of the unfair practice.” See id. (italics in original). This distinction has been the subject of significant debate – leading some to reject a literal reading of the Court’s analysis based on the perception that it would improperly permit a certified UCL restitution class to include putative class members who may not have actually been injured. Such a criticism is unfounded, as it disregards fundamental tenants of the UCL reaffirmed in the Court’s opinion. 

Unlike other tort remedies, the UCL is intended to uproot burgeoning deceptive business practices before they have an opportunity to bloom. To achieve this objective, the UCL focuses solely on a defendant’s business conduct – imposing liability based on a liberal “likely to deceive” standard without any concern as to whether consumers were actually deceived or sustained an injury by relying on a deceptive practice. Yet, that a UCL class includes persons who did not act in reliance on the challenged practice does not mean that the class includes members who were not injured. Such a conclusion is flawed, as it disregards the fact that the overall impact of a deceptive business practice will generally be distributed evenly among the entire purchaser/client base. For example, even when only a handful of consumers purchase a product based on a deceptive advertising campaign, the cost of the deceptive advertising campaign itself is passed on to all purchasers as a component of the purchase price of that product. Similarly, where a business promotes a deceptive feature of a product to justify a purchase price that is above the price of the competing brand, all purchasers are damaged by having to pay the enhanced price whether they relied on the deceptive representation or not. Permitting restitution in such cases is consistent with the UCL’s objective that “wrongdoers not retain the benefits of their misconduct….” Id.

In short, Tobacco II does not create an issue as to whether a class action may be certified on behalf of a class encompassing persons who never relied on a deceptive business practice – that is the question the Court resolved. Efforts to reframe the issue by claiming the Court’s decision left unsolved the issue of whether a UCL class may include members that are uninjured conflates the clear distinction drawn by the Court between standing requirements imposed on the named plaintiff versus the broad relief afforded to member of the class.

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The Supreme Court’s decision in Wyeth v. Levine, 129 S. Ct. 1187 (U.S. 2009), represents a victory for consumer advocates and a change in tide within the preemption debate. On March 4, 2009, the Court found Wyeth, the pharmaceutical giant, liable for the adverse affects of one of its drugs. Phenergan, which is administered intravenously to treat migraine-induced nausea, caused plaintiff Levine to suffer the amputation of her arm after an “IV push” injection of the drug caused irreversible gangrene. Wyeth argued that the Food and Drug Administration’s (“FDA”) regulations preempted Levine’s lawsuit, but the Court disagreed. 

The Court expressly rejected Wyeth’s preemption argument for two reasons: (1) state law claims did not obstruct the FDA’s authority to regulate drug labeling; and (2) the evidence actually suggested that Wyeth had long ignored reports showing the dangers of injecting the drug using the IV push method. In fact, the Court observed that Wyeth could have “analyzed the accumulating data and added a stronger warning about IV push administration of the drug.” The Court also rejected Wyeth’s companion arguments, which spouted the impossibilities of complying with both state law and the FDA’s regulatory scheme and the danger of allowing a “lay jury’s decision about drug labeling” act as a substitute for the “expert judgment of the FDA.”

The Court’s decision was welcomed by consumer advocates who previously feared that pharmaceutical companies like Wyeth would be insulated from liability, especially given the Bush Administration’s expansive view of preemption. Following the Wyeth decision, President Obama made his narrowed view of preemption known when the White House released a memorandum on the subject. On May 20, 2009, President Obama asked heads of agencies and departments to reevaluate their preemption policies, advising them only to issue preemptive statements “if [they are] supported by sufficient legal principles.” President Obama’s memorandum symbolizes a return to traditional federalist ideals, emphasizing the importance of state laws and the ways in which they work in tandem with federal laws to create safeguards for the public. 

In the months following Wyeth, advocates on both sides of the preemption debate have spoken out. Those in favor of preemption call the Wyeth decision “catastrophic” for patients and doctors.   They foresee an insurmountable stall on new drugs entering the market; new drugs that could help combat serious illnesses like cancer and HIV/AIDS. Other analysts are shocked that this medical malpractice case reached the Supreme Court at all, let alone resulted in a lay jury determining the adequacy of a federal agency’s regulatory scheme. Consumer advocates, on the other hand, view the decision as a triumph for the little guy, meaning consumers like Levine. . However, both sides agree on one thing: consumers will test the durability of the Wyeth decision to see just how much liability pharmaceutical companies will bear in the future. 

In any case, Wyeth is not the last time we will see the preemption issue under scrutiny. But, for now, consumer advocates and victims of pharmaceutical drug companies can relish in this victory and rest assured that they have preserved their right to hold pharmaceutical companies accountable in court. 

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Almost every plaintiff attorney at some point has been approached by their client and asked if they will reduce their fee from the amount stated in the retainer. The reasons for such requests cover the entire spectrum.   Clients will complain that the case settled so quickly and therefore the large fee is not justified for so little work…….the expert fees and other costs incurred are unreasonable…….the liens were not properly negotiated…….the case dragged on for so long, the large fee is not justified for making the client wait so long for their recovery. Much of the impetus comes from the supporters of tort-reform who have never met a plaintiff’s lawyer they like. Despite the irrational logic behind agreeing to such a request, almost every plaintiff attorney has agreed at some time to reduce their fee. Should plaintiff attorneys continue to do so, or is this a bad precedent to set? That is a personal decision for each attorney when the situation arises. But one thing plaintiff attorneys will not do is to ask their clients to reimburse them for the costs incurred and some portion of the attorney’s time when a case is unsuccessful. That’s what separates plaintiff attorneys from defense attorneys. 

Take a look at the top 50 law firms in the United States and tell me which one of these will represent your uncle who was exposed to toxic fumes at his workplace, or your brother that had a heart attack and died from a pharmaceutical product? The answer is none will, because they are representing the defendants and being generously compensated for their time and efforts. Plaintiff attorneys represent people that cannot afford an attorney through contingency fee arrangements which are closely monitored by the state rules of professional responsibility. 

When clients complain and the tort-reform critics jump onboard, there is no consideration given to the inherent risk undertaken by the plaintiff attorney in this type of arrangement. If the plaintiff prevails the plaintiff attorney gets paid. But sometimes (unfortunately) the plaintiff loses and nobody gets paid. Well not exactly, because the defense attorneys always get paid, win or lose. Whether it was a toxic tort, pharmaceutical, rollover, or tobacco plaintiff verdict, the defense always got paid for losing! Yet, somehow plaintiff attorneys are expected to reduce their hard earned fees when they prevail. 

There are no plaintiff firms listed among the top earners in this country, but apparently the way to break into the top 50, (top 3 actually), is to find some gullible client that will pay you almost $19 million in six months, to lose.  

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In a recent case that affects every personal injury attorney, a California appellate court held that the defendant in a premises liability case should be allowed to put on evidence that the plaintiff’s injury was made worse by medical malpractice and that non-economic damages should be apportioned accordingly.

Henry v. Superior Court (2008) 160 Cal. App. 4^th 440, held that Civil Code section 1431.2 (Proposition 51) limits an original tortfeasor’s liability for non-economic damages to those directly attributable to his or her own fault. Where a plaintiff is further injured by medical negligence and where the damages can be divided by causation into distinct component parts, liability for each individual component part may be considered separately. 

In Henry, a swimming pool contractor suffered an injury to his shoulder when he fell at a homeowner’s property. The contractor sued the homeowner. At trial, the homeowner attempted to put on evidence that the contractor’s injury was aggravated by Kaiser’s medical malpractice. Kaiser was not a defendant. The court preclued the evidence o f Kaiser’s negligence and the defendant homeowner filed a writ of mandate. The court of appeal reversed holding that “the homeowners, if negligent, were solely responsible for the initial injury; liability for the indivisible enhanced or aggravated injury, however, was properly apportioned between them and the hospital’s physicians in accordance with the rules of comparative fault and Civil Code section 1431.2”.   

This ruling has implications for every aspect of personal injury practice including case selection, identification of defendants, discovery and trial presentation.

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In a creative attempt to avoid class action litigation, big companies have been including class action waivers in the arbitration clauses of their agreements. These companies include these class action waivers in the multitude of fine print that they send their clients (think of those long agreements you get every time you apply for a new service, loan, or account). 

For years, we have seen arbitration clauses in these contracts – requiring all disputes to be settled in arbitration and not before a court or a jury. Most recently, these contracts have included a “class action waiver” in the arbitration clause which state that consumers may only arbitrate claims individually, not in a representative capacity or on behalf of the general public. Basically, these companies are trying to avoid liability by requiring individual claims, claims that they know are often too small to justify individual arbitration (and the costs associated with it). 

California law states that class action waivers in consumer contracts may be unenforceable, especially where they violate public policy (such as including the waiver in that multitude of fine print). Discover Bank v. Superior Court (Boehr) 36 Cal.4th 148, 158-160 (2005). The Supreme Judicial Court of Massachusetts recently became another state to agree with California’s holding, and held that arbitration clauses precluding class action lawsuits were contrary to the fundamental public policy of Massachusetts favoring consumer class actions. Feeney v. Dell, Inc., 454 Mass. 192, 205 (Mass. 2009) (“Allowing companies that do business in Massachusetts, with its strong commitment to consumer protection legislation, to insulate themselves from small value consumer claims creates the potential for countless customers to be without an effective method to vindicate their statutory rights, a result clearly at odds with our public policy.”)

What does this mean for you? Most significantly, it means a growing number of states are seeing through big businesses’ attempts to escape liability for their wrongs. If these waivers were deemed acceptable, it would effectively get rid of the class action procedure. All companies would include these waivers in their contracts, and the class action mechanism may die out. 

While you may not think that class actions are that helpful, think again. For example, when a credit card company receives a customer’s payment on time, but still charges that customer a late payment penalty, it is unlikely that any one individual would file a lawsuit or an arbitration claim for a late payment penalty of under $50. It’s also unlikely that a company would stop charging their thousands or millions of other customers that fee if only a few individuals filed a claim. The class action mechanism, however, provides an avenue to allow customers to stop the company’s practice of fraudulently charging these fines - not only to themselves but to all of the company’s customers. It’s a matter of principle in many instances, and making sure that the company doesn’t get away with these fraudulent practices. As more states hold that class action waivers are unenforceable, consumers’ rights are protected. 

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After the Supreme Court’s decision in Riegel v. Medtronic, which, in a nutshell, took away a consumer’s right to sue a medical device manufacturer for injuries and/or death caused by their faulty devices if the device had received FDA approval, Congress introduced the Medical Device and Safety Act which will restore a consumer’s right to state tort remedies.    

Is there really a doubt that this needs to pass? For 30 years state law and FDA regulations worked together to ensure the safety of medical devices both pre and post approval and then with one flawed decision, injured consumers were stripped of their ability to hold medical devices liable. Now, so long as they receive FDA approval, they are immune. That’s an interesting concept, seeing that the manufactures are the ones that conduct their own studies, and then submit their findings to the FDA for approval. Basically, the manufacturers are the ones approving their own products and then they are in the clear.  There was already a concern about the “findings” from their studies that they used to get the approval but now there is the added concern that the medical device manufacturers have absolutely no incentive to conduct post-approval safety studies of their products? 

Currently, if a patient is implanted with a faulty medical device and endures injuries and hospitalizations, the medical bills are the responsibility of the patient and in some cases the taxpayers. So, in short, a medical device manufacturer can conduct its own studies, submits its results for FDA approval and then once approved sit back and let the profits come in while the general public is left footing the bill for any problems with their products.  

Any argument made against the passing of this bill does not compare to the necessity of this bill for public safety reasons.    Here is an idea for the manufacturers who are against the passage of this bill, conduct proper pre-market studies, warn about any safety problems learned of post –market and recall devices that have problems. It may be a stretch but I am confident that if those few simple steps are followed the manufacturers wouldn’t be affected by the passage of this bill.

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