Mediation Practice in the Southern District of New York

Over the past 25 years, the use of mediation by courts and litigants has mushroomed. One might well ask whether efforts at establishing mediation norms and standards have been able to keep up with this growth spurt in mediation’s broad acceptance and popularity. There are multiple forums for conducting ADR. Some “mediations” involve little more than counsel, either with or without their clients present, sitting down before an adjuster” in a no frills attempt to bridge the parties’“bid” and “ask”. Other mediators will talk to the parties, either together or separately, for a couple of hours and then, in the absence of a quick agreement, call it quits. Unless counsel is familiar with the practice of a particular mediator or mediation provider, it may be a challenge to correctly forecast for the client what will take place during the mediation session and what, if anything, may be demanded of them.

There are no widely accepted guidelines concerning the qualifications to be a mediator. A retired professional wrestling referee with no formal mediation training could probably hang out a “mediation” shingle at a store front. At least, in that instance, parties could be assured that this mediator would not tolerate hitting below the belt. Hopefully, counsel will have performed diligence concerning the background, qualifications and methodology of the mediator selected. This research should assist counsel in explaining to the client who the mediator is and what his or her qualifications are.

9-16Although some mediators have no doubt engaged in blatant conflict of interest, coercive behavior or outright fraud, these incidents are thankfully infrequent. In a mediation proceeding in which a client is represented by counsel, counsel can simply terminate an improper or abusive mediation by walking out with the client. However, this is probably not what the nervous client wants to hear from the lawyer before the mediation begins.

A Boston University Law Review article by Professor Michael Moffitt, titled “Suing Mediators” [Vol. 83:147, 154 (2003)] observes that “a clear standard of practice for mediators is difficult to identify. Mediation is a fragmented occupation, with practitioners varying to tremendous degree in their training and methodology. While some have argued that mediation should be treated as a profession, the lack of coherence in admission and practice standards makes the analogy imperfect at best. Instead, mediators operate under a patchwork of standards, promulgated by a range of practice associations, program administrators, and court systems.”

As more and more cases are referred to court-annexed mediation, courts have come to recognize their responsibility to ensure the quality of the mediation services provided. However, very few of the mediation programs that operate on the state or federal level have implemented any kind of systematic, performance-based competency assessment of their mediators. In the absence of competency assessment, court-annexed mediation programs have tended to rely on past training and experience, and participant feedback (when it is available), to determine whether the mediators on their rosters are doing a good job.

The ADR Program for the SDNY has taken steps to standardize mediation practice in its court-annexed mediation program. A joint pilot project was created by the New York City Bar Association Committee on Alternative Dispute Resolution and the ADR Program for the SDNY to create a mechanism for continued evaluation of mediators once they are added to the SDNY mediation roster. As a result of the project, a protocol was developed for ongoing evaluation of the SDNY’s panel mediators. In the past, mediators have been assigned by court staff on the basis of their having been previously approved by the court to perform court-annexed mediation. The evaluation protocol, which requires live observation and evaluation of the mediator during a mediation, went into effect in January 2016. Even mediators who have been conducting court-annexed mediations for many years will be subject to evaluation. The SDNY may be the only federal district court that presently conducts ongoing observation and evaluation of court-annexed mediators.

An intrinsic challenge to developing an evaluation protocol is determining what skillsets make for a good mediator in the first instance. For example, is there a place in the mediation room for the mediator to use pushing and prodding? Is there a point when pushing and prodding may be viewed by the participants (or by the evaluator) as coercion? As the planning for the SDNY protocol progressed, project participants identified different components of the mediation process to evaluate.

In identifying these components, however, the ADR Program for the SDNY was more or less communicating to its corps of 300 volunteer mediators that a certain mediation “process” was expected to be adhered to. For example, the components of the process that would be evaluated include: (1) the pre-mediation conference call with counsel; (2) the mediator’s opening statement; (3) the joint session and (4) exploring facts/interests and developing opinions.

The formalization of this checklist made several implicit assumptions about how a mediation should be conducted. First, that a pre-mediation conference call was a good idea and that it was helpful to discuss the mediator’s expectations during that call; second, that the mediator would give an opening statement at the mediation; and third, that the mediator would conduct a joint session with all participants present at the mediation rather than move directly into private caucuses.

Within the protocol’s rubric, there is certainly flexibility to permit the mediators to “do their own thing” at the mediation without the risk of receiving a failing grade from the mediator evaluator. For example, some mediators request that counsel for the parties each make an opening statement in the joint session before private caucuses take place. Some do not use this practice. Some mediators will caucus first with the plaintiff; others prefer to meet first with the defendant. But minor variations aside, a lawyer for a party required to attend a mediation in the SDNY should know what to expect. Far from the Boston University Law Review’s dour assessment of the state of the mediation art in 2003, considerable progress has been made in standardizing mediation practice. Lawyers who have been directed to mediation by the SDNY Mediation Office should be able to provide their clients a solid roadmap of they may expect during the mediation.

Second Circuit Snuffs Out Plaintiff Counsel Misconduct

On August 8, 2016, the Second Circuit issued its much awaited decision affirming the ruling of the Southern District of New York, which held that a $9.5 billion judgment obtained in Ecuador against Chevron Corporation by the indigenous Lago Agrio Plaintiffs in an environmental litigation could not be enforced. The Second Circuit’s 127-page decision represents a stunning rejection of virtually every legal argument advanced by Steven Donziger, who the district court found guilty of corrupt practices violative of the civil RICO statute.

8-22The Second Circuit’s decision will provide legal scholars much to discuss. After all, Donziger’s attorneys attacked the decision as unprecedented in that the trial court allowed Chevron, which had lost its case in Ecuador, to use a U.S. district court to attack the foreign damages award. However, at its roots, the Donziger RICO litigation was not really about issues such as jurisdiction or the enforceability of foreign judgments. Rather, it was about Donziger and his legal team’s brazen violations of ethics and norms when it prosecuted the Chevron case in Ecuador. The Second Circuit’s decision demonstrates that the court simply could not abide the evidence of legal misconduct. Specific instances of ethical misconduct by Donziger cited by the Second Circuit include the following examples:

  • Instructing his environmental consultant to estimate damages under the faulty assumption that Chevron’s predecessor entity, Texaco, was fully liable for all of the contamination, even after it had left the region. Donziger used what the consultant characterized as a “scientific wild ass guess” in the media to generate settlement leverage.
  • Directing Plaintiffs’ environmental consultants to use less probative tests after early environmental testing demonstrated that the pollution was likely not caused by Texaco.
  • Submitting to the court reports with falsified experts’ conclusions, including the charge that Texaco’s remediation was “inadequate or insufficient.”
  • Paying substantial fees to engineering experts to pose as “independent monitors” without disclosing to Chevron or the court that plaintiffs were paying them, which Donziger characterized in his notes as a “bargain with the devil.”
  • Coercing the presiding judge to cancel pollution site inspections due to concern that additional testing would produce pro-Chevron testing results. As coercion, Donziger used knowledge of an accusation that the judge had traded jobs for sex in his court.
  • Persuading the court to designate an independent court-appointed expert who would appear to be “independent”, despite being controlled by the Plaintiffs.
  • Directing plaintiffs’ environmental consultants to 1) perform the technical work supposedly performed by the court-appointed independent expert and 2) submit the report to the court under the independent expert’s name.

The fundamental weakness of Donziger’s appeal was his utter failure to attack any of the multiple factual bases for the trial court’s decision of nearly 500 pages. Some of the Second Circuit’s most important pronouncements are recitations of age-old legal precepts that are all too often ignored by our nation’s courts.

The appellants argued that any misdeeds by Donziger, however egregious they may have been, did not provide a basis for the district court to nullify their monetary award. They contended that they were unaware of any misconduct and “simply ‘unsophisticated client-principals following the lawyers’ lead’.” In rejecting this argument, the Second Circuit found that there was no basis for arguing that a party ignorant of the fraudulent actions of its lawyer may enforce a fraudulently procured judgment. To do otherwise, the Second Circuit held, would run afoul of the U.S. Supreme Court’s maxim that fraud “is a wrong against the institutions set up to protect and safeguard the public, institutions in which fraud cannot complacently be tolerated consistently with the good order of society.” Thus, the court noted, even innocent clients may not benefit from the fraud of their attorney.

The Hon. Amalya Kearse, writing for the Second Circuit, quoted the district court: “There is no ‘Robin Hood’ defense to illegal and wrongful conduct. And the defendants’ ‘this-is-the-way-it-is-done-in-Ecuador’ excuses–actually a remarkable insult to the people of Ecuador — do not help them. Evidence that Donziger had actively sought a prohibition in Ecuador of the disclosure ordered by the SDNY, the Second Circuit found, was evidence of bad faith and a justification for sanctions. On this basis, the court affirmed the Rule 37 sanctions granted Chevron by the district court. The district court had found the Donziger parties’ “obdurate and quite possibly contemptuous refusal to comply with their discovery obligation” warranted the striking of personal jurisdiction defenses.

A disturbing post-script to the Donziger saga is that, despite the evidence against his ethics, he retains “rock star” celebrity status in certain legal circles. Notably, after the issuance of Judge Lewis Kaplan’s trial court decision, Harvard Law School hosted Donziger at a panel discussion on Ecuadorian rainforest litigation. One may wonder why Donziger was considered a reputable source and deserving of an invitation. In fact, Paul Barrett in Bloomberg Businessweek (August 8, 2016) suggested that Donziger’s Harvard Law hosts ask him the following questions during his visit:

  • Why haven’t you rebutted or explained the evidence of fraud, bribery and collusion against you, under oath in a court of law?
  • If you did not commit fraud in this case, why did Julio Prieto, one of your Ecuadorian lawyers, email you with fears that if your activities were discovered “all of us, your lawyers, might go to jail”?
  • If you did not commit fraud in this case, how do you explain the bank records that show $1,000 was deposited in an Ecuadorian judge’s bank account on several occasions? Why were the deposit slips signed by a staff member of your organization?
  • If you did not ghostwrite the Ecuadorian judgment against Chevron, how do you explain that text from your internal work product was found word-for-word, typos and all, in the judgment?

Barrett suspects these questions were not addressed at the panel discussion in light of the tone of their event announcement material. Barrett concludes that “[w]hat we really need to find out is how much credibility should be assigned to the folks at Harvard, rather than Donziger himself, if they are willing to ignore the mountain of evidence against the racketeer and treat him as some sort of human rights crusader and victim of big business retaliation.” Harvard’s embrace of a disgraced lawyer, no matter how noble the underlying intention, raises an important question about the ends served by lending credibility to a non-credible individual.

All too often, in our nation’s mass tort litigation, such as in asbestos litigation, a clear judicial finding of fraud or misconduct does not result in the forfeiture of the party’s damages award. For example, despite clear evidence of plaintiff lawyers “gaming the system” in the Garlock bankruptcy case, many state court asbestos trial judges appear willing to take this misconduct in stride and to go about business as usual. There is little awareness in the defense bar of any judicial initiative to ensure that Garlock-like offenses are not proliferating in their courtrooms. A thorough house cleaning often does not take place in the judiciary until a journalist or an insightful jurist has brought unwelcome attention to the court.

New York Broadens Personal Injury Statute of Limitations for Waste Sites

On July 21, 2016, Governor Andrew Cuomo of New York signed legislation extending the statute of limitations in New York for personal injury claims related to pollution at superfund sites. The legislation was a response to the concerns of residents of Hoosick Falls, New York whose groundwater was contaminated with PFOA, a chemical compound previously used at manufacturing facilities in Hoosick Falls for several decades. Although the new legislation was specifically tailored to assist residents at Hoosick Falls in bringing PFOA-related personal injury cases, it is likely that the law will have an impact far beyond Hoosick Falls.

7-28The new law resurrects previously time-barred claims. Any time a site is designated a superfund site, potential plaintiffs will now have a new three-year window to bring a personal injury action related to the site. Corporate entities that have been identified as responsible parties at inactive hazardous waste disposal sites may find themselves at increased risk for alleged toxic exposures that may have occurred decades ago. The new law has the potential to generate an enormous windfall for the plaintiff bar.

Prior to the new enactment, New York already had an expansive statute of limitations for toxic tort claimants in latency cases. The period in such cases is computed from the “date of discovery of the injury by the plaintiff or from the date, when through the exercise of reasonable diligence, such injury should had been discovered, which ever is earlier.”

The new statute, codified as CPLR 214-f, supersedes this discovery trigger.

Action to recover damages for personal injury caused by contact with or exposure to any substance or combination of substances found within an area designated as a superfund site. Notwithstanding any provision of law to the contrary, an action to recover personal damages for injury caused by contact with or exposure to any substance or combination of substances contained within an area designated as a superfund site pursuant to either Chapter 103 of Section 42 of the United States Code and/or Section 27-1303 of the environmental conservation law, may be commenced by the plaintiff within the period allowed pursuant to section two hundred fourteen-c of this article or within three years of such designation of such an area as a superfund site, which ever is latest.

The plaintiff may have known about the contamination and alleged illness for years, but no matter. The statute begins anew once the designation takes place.

It is well known that a federal or state site may be designated as a superfund site decades after alleged contamination has taken place. CPLR 214-f may require corporate defendants identified as potentially responsible parties (PRPs), even if de minimis, at newly listed superfund sitesto defend personal injury cases alleging decades-old exposures. The Hoosick Falls litigation will likely target: (1) a single chemical compound, PFOA, (2) used by a small group of defendants, (3) identified in drinking water, and (4) specific diseases that the epidemiologic literature associates with PFOA exposure. As enacted, however, the law may encourage plaintiff lawyers to plead “chemical soup” mass tort toxic tort claims against multiple defendants involving multiple chemical substances and alleging that this “chemical soup” caused a broad range of diseases.

New York ECL 27-1303, which is specifically referenced in the new law, emphasizes the role of New York counties in identifying inactive hazardous waste disposal state sites within their boundaries and submitting annual reports to the NYDEC describing the location of each suspected site and the reasons for such suspicion. Unlike the designation of a superfund site at the federal level, the designation of a superfund site at the state level is a much more localized process that can be subject to political manipulation.

The sponsors of the legislation were clearly influenced, not only by the discovery of water contamination in Hoosick Falls, but the serious problems in Flint, Michigan as well.

The recent discovery of water contamination in Hoosick Falls, New York and Flint, Michigan has raised great alarm across our country and our state. These instances of contamination have been sited as a potential cause of many previously unexplained illnesses suffered by members of those communities. In many cases, the statute of limitations to bring a personal injury action has long since run before any contamination was every discovered. This bill seeks to address this in equity and give those who have been sickened legal recourse to be made whole.”

Although the sponsors claim that their bill would “create a narrowly tailored legal mechanism to address instances where extraordinary circumstances negatively impact public health,” this legislation is anything but narrow. The statute permits recovery “for injury caused by contact with or exposure to any substance or combination of substances.” Plaintiff may argue that the new law applies to any substance at any CERCLA site regardless of whether that substance is subject to regulation under the statute. For example, CERCLA specifically excludes petroleum contamination. Is a company that disposed of petroleum products at a waste site, which is not a proper substance for CERCLA regulation, a proper target of a personal injury action under CPLR 214-f?

New York High Court Rejects Plaintiff Bar Effort To Broaden Multinationals’ Product Liability

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In a ruling of major importance to the business community, the New York Court of Appeals issued its decision on May 3, 2016 in Finerty v. ABEX Corp.(Ford Motor Company) rejecting plaintiff’s argument that, even in the absence of any basis for corporate veil-piercing, a parent company can be held liable for torts committed by its foreign subsidiary on the theory that the parent is “in the best position to exert pressure to improved safety products.”  The court firmly rejected the notion that a U.S. parent is the global “guardian” of its brand and that the broad imposition of liability for products sold by its subsidiaries in foreign countries is therefore appropriate.  The decision goes a long way in reaffirming well-settled New York law on corporate separateness and basic principles of corporate law.

Plaintiff claims that he developed peritoneal mesothelioma as a result of exposure to asbestos during the 1970s and 1980s while replacing asbestos-containing brakes, clutches and engine parts on Ford tractors and passenger vehicles in Ireland.  The plaintiff later immigrated to New York.  It was not disputed that Ford USA’s wholly owned subsidiary, Ford UK, manufactured, produced, distributed and sold the parts in question.  Both the trial court and the Appellate Division, First Department, determined that, while there was no basis on which to pierce the corporate veil, the plaintiff had nonetheless produced sufficient evidence showing that Ford USA “exercised significate control over Ford UK and Ford Ireland and had a direct role in placing the asbestos-containing products to which plaintiff was exposed into the stream of commerce.”  Thus, both lower courts found that there was a question of fact concerning Ford USA’s “direct responsibility for plaintiff’s injuries…”

There was no factual question as to whether Ford USA was the manufacturer, retailer or distributor of the asbestos-containing parts.  That was not at issue.  Rather, the appellate division hinged Ford USA’s potential liability on the premise that there was evidence that Ford USA played a “substantial rule in the design, development and use of the auto parts distributed by Ford UK” such that Ford USA’s “role in facilitating the distribution of the asbestos-containing auto parties” could subject it to strict liability because it was in the best position to exert pressure on Ford UK into warn its users of the hazards presented by the auto parts.  (emphasis in original opinion).

The court determined that the lower appellate court had committed two significant errors in its ruling.  First, the court held that Ford USA, as the corporate parent of Ford UK, could not be held derivatively liable to plaintiff under the theory of strict products liability unless Ford USA disregarded the separate identity of Ford UK and involved itself directly in that entity’s affairs such that the corporate veil could be pierced.

Essentially, the court faulted the First Department for its seemingly basic misunderstanding of the role parents play with their subsidiaries across different markets throughout the world to ensure product standardization.  As the US Chamber of Commerce observed in its amicus curiae brief, successfully selling a product locally requires a balance between standardizing products across markets in various countries and adapting them to the differences among markets in those countries.  The US Chamber of Commerce cited a study of 128 products sold in foreign markets by 62 multinational corporations that showed that this balance was best achieved through direct contact between headquarters and subsidiary managers to positively influence product performance in international markets.  Parent-subsidiary corporation is a fact of life for multinational corporations and hardly controversial.  The Court of Appeals held:

“Moreover, absent any indication that Ford USA was in the distribution chain, it is of no moment that Ford USA exercised control over its trademark.  …In any event, the record indicate that Ford USA’s “world-wide” trademark program described how the trademark was to be used on packaging of Ford products, and did not contain directives as to what warnings, if any, were required to be placed on the packaging itself.”

The second significant error made by the First Department was its conclusion that Ford USA could be subject to strict liability because it was in the “best position” to “exert pressure” on Ford UK for improved product safety.  The court recognized that as Ford UK’s parent company, Ford USA could “exert pressure” on Ford UK, but clarified that:

“…we have never applied that concept to a parent company’s presumed authority over a wholly owned subsidiary.  We have, however, routinely applied that concept to sellers of a manufacturer’s product because it is the sellers who, through their ongoing relationship with the manufacturers and through contribution and indemnification in litigation, combined with their role in placing the product in the consumer’s hands, are in the best position to pressure the manufacturers to create safer products.”

Accordingly, because Ford USA was not in the distribution supply chain as a manufacturer, retailer or distributor, it was a mistake for the appellate division to seek to subject Ford USA to strict liability.

If it had been left unchallenged, the poorly reasoned decision of the First Department would have potentially opened the litigation floodgates in New York, not just for asbestos defendants, but to all American product manufacturers, and potentially create confusion concerning the proper role of multinational corporations in today’s world.  The Court of Appeals decision provides clear judicial guidance to New York trial courts concerning how they must address creative challenges to American corporate law principles in the future.

Half the States, Environmental and Industrial Groups Call US EPA “All Wet” Over New Rule Redefining US Jurisdictional Waters Under Clean Water Act

navagableOn May 27, 2015, the United States Environmental Protection Agency and the United States Army Corps of Engineers jointly announced a new final rule defining the scope of jurisdictional waters protected under the authority of the Clean Water Act (“Act”).  Immediately following the announcement of the new rule, various entities including industrial and agricultural groups, more than half the states, and numerous environmental groups filed legal challenges in multiple federal jurisdictions.  On October 9, 2015, in In re EPA and Dept. of Defense Final Rule, 803 F.3d 804 (6th Cir. 2015), the Sixth Circuit issued a nationwide stay on enforcement of the new rule pending further developments, including the Court’s own need to determine its jurisdictional authority to hear Plaintiffs’ legal challenges.  Most recently, on February 22, 2016, the Sixth Circuit held that it may exercise subject matter jurisdiction over legal challenges to the new rule.

The Rule

The EPA and the Army Corps assert that the new rule addresses a number of questions raised by decisions of the United States Supreme Court in U.S. v. Riverside Bayview Homes, Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers (“SWANNC”), and Rapanos v. United States (“Rapanos”).  Specifically, “[t]he [new] rule will ensure protection for the nation’s public health and aquatic resources, and increase [Clean Water Act] program predictability and consistency by clarifying the scope of the “waters of the United States” protected under the Act.”  According to the agencies, the new rule will also provide “greater clarity regarding which waters are subject to [Clean Water Act] jurisdiction, reducing the instances in which permitting authorities, including the state and tribes authorized with section 402 and 404 [Clean Water Act] permitting programs, would need to make jurisdictional determinations on a case-specific basis.”

In substance, the new rule divides water features into three general categories: those waters that are jurisdictional by rule in all cases; those waters that are subject to a case-specific jurisdictional analysis; and those waters that are excluded from jurisdiction by rule in all cases.

“Categorical” jurisdictional waters are jurisdictional by rule without the need for additional or case-specific analysis.  The categorical jurisdictional waters recognized by the new rule include: (1) traditional navigable waters which are subject to interstate commerce; (2) all interstate waters, including wetlands; and (3) the territorial seas.  Categorically jurisdictional waters under the new rule also include all tributaries, impoundments, and waters adjacent to the jurisdictional waters listed above.

Along with waters that are considered categorically jurisdictional, the new rule contemplates waters that are subject to a case-specific analysis.  In the new rule, the agencies have identified five specific types of waters located in specific regions which are subject to a case-specific analysis.  In addition, the new rule provides that waters located in whole or in part within the 100-year floodplain of traditional navigable water, interstate water, or the territorial seas, and those waters located within 4,000 feet of the high tide line or ordinary high water mark, are subject to case-specific jurisdictional analysis.  The new rule refers to the waters subject to case-specific analysis as “similarly situated.”

Finally, the new rule also excludes a variety of waters from the definition of “waters of the United States.”  While it retains all pre-existing exclusions from jurisdiction, the new rule provides for several new exclusions which reflect “longstanding agency practice.”  Under the new rule, waters excluded from the definition of “waters of the United States” include: (1) prior converted cropland; (2) waste treatment systems; (3) groundwater; (4) stormwater control features; (5) artificial retention and detention basins used for wastewater recycling, groundwater recharge basins, and percolation ponds; and (6) three types of ditches.  In addition, the new rule carves out exclusions from jurisdiction for a number of specific water features, including, but not limited to, artificial lakes or ponds, artificial reflecting pools or swimming pools, and erosional features, including gullies, rills, and other ephemeral features that are not tributary to other “waters of the United States.”

Implications of the New Rule

The nationwide stay issued by the Sixth Circuit currently precludes the enforcement of the new rule in any jurisdiction.  Accordingly, although its impact remains uncertain, it is anticipated that the new rule will affect a variety of regulated industries, entities, and individuals.  While the new rule may authorize the exercise of federal jurisdiction over previously unregulated waters, the addition of bright line exclusions may exempt some features that would have otherwise been deemed jurisdictional.  It therefore seems that despite the agencies’ efforts to provide certainty and clarity regarding the scope of Clean Water Act jurisdiction, the new rule may raise as many questions as it answers.

 

Don’t Be An Unhappy “CAMP”er: Ignoring Second Circuit Mediation May Result In Grievance Panel Referral

 Three people talking - 3d renderThe Second Circuit advises litigants on its website that its mediation and settlement program (known as “CAMP”) is a long-standing and integral part of the court’s appellate process.  The Second Circuit assigns “experienced and skilled circuit mediators” to work with counsel and their clients to resolve disputes on the court’s civil docket at no cost to the parties. Although the mediation process is considered “voluntary,” failing to appear at a CAMP may result in sanctions and, possibly, a referral to the Court’s Grievance Panel.

In late 2015, parties to a Second Circuit appeal were directed to appear at the offices of a prominent mid-town New York law firm for a CAMP mediation.  The mediator appointed by the Court was a well-regarded litigation partner at the law firm.  Appellant’s counsel failed to appear at the mediator’s office at the appointed time.  By order, dated January 26, 2016, Circuit Judge Danny Chin ordered the parties “to show cause why disciplinary or other corrective measures should not be imposed on them” for failing to appear for the mediation.

In response to Judge Chin’s order to show cause, counsel advised the Court that that the appellant had “replaced” him as counsel and revoked his authority to speak on appellant’s behalf.  Counsel anticipated that appellant’s new counsel would make a formal substitution of counsel, but apparently never did so.  Judge Chin observed in his Order, dated March 14, 2016, that a party’s decision to replace counsel did not relieve counsel of their obligation to comply with Court orders until such time as the Court granted counsel’s party to be relieved.  “As counsel of record, they were obligated to respond to the Court’s order that they appear at a mediation conference, at the very least to notify the appointed mediator that their representation was in question and to request an adjournment.” However, Judge Chin found it more troubling that appellant’s counsel viewed the court’s mediation program as optional. Judge Chin found it remarkable that counsel did not even show the court appointed mediator the professional courtesy of a telephone call to advise her that they were not intending to appear.

Judge Chin determined that he would not refer the matter to the Court’s Grievance Panel based upon his determination that: (1) counsel’s conduct was limited to one case and not likely to be repeated; (2) counsel accepted responsibility and conceded error; and (3) counsel did not act in bad faith.

Practice Tips 

First, merely because a client has relieved a lawyer as his counsel, in both the trial court and on appeal, counsel should not assume that his judicial obligations have ended.  Until such time as a motion for substitution of counsel is filed and granted by the court, counsel’s failure to respond to court orders may result in the imposition of sanctions.  At a minimum, counsel should alert the court (or, in this case, the court-appointed mediator) that a substitution of counsel is in the offing.  As a practical matter, this communication may provide the client additional time to effectuate a substitution of counsel.  It also apprises the court and the adversary that conducting a mediation before the change of counsel has been effectuated would not be efficacious in resolving the dispute.

Second, a party’s failure to appear at a court-directed “voluntary” mediation, during either a trial court or appellate proceeding, also may result in the imposition of sanctions.  In the SDNY, an increasing number of civil cases are being referred to mediation.  Although the mediation process is confidential and the parties’ stated positions during mediation are never disclosed to the judge or magistrate handling the matter, it may be brought to the court’s attention if a party fails to appear for the mediation or, in the judgment of the mediator, fails to participate in the mediation in good faith.  Although court-annexed mediation proceeds on a separate track from the court’s discovery scheduling order, the mediation program is an integral part of the judicial resolution process and must be treated as such by the litigants.

Evolving Rules on Discovery of Social Media in New York

Personal injury claimants routinely candidly discuss their personal injury travails and who might be responsible for those injuries on Facebook and other social media. They brazenly post photographs depicting exploits on jet skis, bicycles and other recreational equipment that serve to undermine their lawyer’s assertions of irreparable and disabling injury. How then can the defense obtain social media in discovery to defeat specious or exaggerated claims?

4-22The difficulty of obtaining private social media information under New York state practice discovery rules is illustrated by Forman v. Hankin, 134 A.D.3d 529 (1st Dep’t 2015). Plaintiff Kelly Forman alleged that she sustained a serious brain injury as a result of falling off a horse, which left her unable to reason, find words, write or communicate effectively. The trial court acknowledged that photographs of plaintiff engaging in various activities after her accident, particularly activities she claimed she was no longer is able to engage in due to her fall, were of enormous probative value. Therefore, the court ordered her to produce any post-accident photographs on Facebook that did not depict nude or romantic encounters. Because of the cognitive injuries alleged, the trial court ordered plaintiff to provide an authorization to permit defendant to obtain records from Facebook, including archived or deleted records, showing each time plaintiff posted a private message and the number of characters or words in the text of each private message. Defendant was not permitted to obtain the content of the post-accident messages, but only a number or words or characters in the messages. Considering the allegations of injury, just being able to prove that plaintiff was using social media as a form of self-expression would be an accomplishment for the defense.

On appeal, the First Department modified the trial court’s order by vacating that portion of the order directing plaintiff to produce Facebook photographs she did not intend to introduce at trial and the authorization for Facebook records. Sadly, this ruling is consistent with rulings by other appellate courts in New York that require a defendant to make a threshold showing before permitting disclosure of social media no matter how compelling the need.

What then is the most effective strategy for defense counsel in New York to employ to obtain this information in light of Forman? First, the defendant must establish a prima facie showing of relevancy. At a minimum, this can only be accomplished by crafting a narrowly tailored request for information, such as a request limited to social media conversations concerning the claimed injuries. Alternatively, New York courts permit disclosure if defendant can establish that certain social media information contradicts the plaintiff’s claims. In Forman, the First Department held that the mere fact that plaintiff had posted pictures or sent messages did not sustain this burden. Defendant’s argument that the information sought could be relevant to rebut plaintiff’s claimed injuries was dismissed as a “fishing expedition”.

Correctly so, the dissent in Forman lambasted the majority’s requirement that a defendant only be permitted to obtain disclosure “if, and only if, the defendant can first unearth some item from plaintiff’s publically available social media postings that tends to conflict with or contradict the plaintiff’s claims.” This requirement presents defense counsel with a dilemma. If a defendant must produce for the court publically available information to establish a factual predicate to obtain private social media messages, how does defendant obtain that information in the first instance? Arguably, once a defendant has obtained publically available information undermining plaintiff’s claim, private social media disclosure may become superfluous.

What then are strategies that defense counsel can utilize to maximize the likelihood of obtaining discovery of private social media? First, it is axiomatic that a defense lawyer should search plaintiff’s name in as many social media platforms as possible to discover publically available information. For example, there are online search tools available to search for an individual twitter user’s history of tweets. Using these websites, defense counsel can insert the name of the product, the manufacturer of the product, and/or the particular type of product at issue into the search field and locate tweets, if any, referencing those terms.

Does the plaintiff post on a personal blog or message board? Certain message boards may be dedicated to the type of issues or damages being litigated. There may be online sites offering specifics relating to the claimant’s purported personal injury at issue in the litigation. Once information on a personal blog or message board is obtained, it may facilitate the drafting of a demand or a motion to require production of the requested private social media disclosure. Although it may take a little more effort than grinding out a form demand, a specifically tailored discovery request may have a greater likelihood of being upheld.

Finally, it is essential that defense counsel send a preservation letter to plaintiff’s counsel to avoid any altering of the privacy settings of the claimant’s social media profiles or otherwise taking down previously posted information.

California Court Rewrites Opinion on Asbestos Bankruptcy Trust Payments

As a result of Gordon & Rees’ amicus efforts (through California defense counsel organizations), along with those of other amici, the Court of Appeal issued an order modifying its opinion in Hernandezcueva v. E.F. Brady Co., Inc. (B251933) to delete a holding that asbestos bankruptcy trusts were subject to the “collateral source rule.” This is an important win for asbestos defendants in California.

Johns-Manville_BuildingAs we recently reported, the original version of the opinion held that asbestos bankruptcy trusts were “collateral sources,” meaning that the often substantial recoveries plaintiffs obtain from such trusts could not offset judgments against defendants. The order modifying the opinion deletes the reference to the collateral source rule entirely. It also refers to asbestos bankruptcy trusts as “joint tortfeasors” for purposes of offsetting judgments, and cites several cases holding that recoveries from asbestos bankruptcy trusts are explicitly approved as offsetting a judgment. Equally importantly, the reference to the trusts as “joint tortfeasors” confirms and continues asbestos defendants’ ability to ask juries to assign shares of liability to bankrupt manufacturers.

The other problems we noted with the opinion remain, and California Supreme Court review is still possible.

California Decision Rejects Longstanding Contractor Immunity from Strict Liability, Calls Asbestos Bankruptcy Trusts “Collateral Sources”

A recent California decision has held for the first time that a contractor may be, in at least some circumstances, subject to strict liability for products used on the project. This ruling will likely expand the pool of defendants in future asbestos cases, and will apply outside the asbestos arena as well.

Traditionally, construction contractors who use or install a product are not subject to strict product liability if it turns out the product is defective. Contractors may be liable in negligence, but that is harder for plaintiffs to prove and subject to defenses unavailable in strict liability claims.

Hernandezcueva v. E.F. Brady Co. (B251933) reversed a nonsuit and held that E.F. Brady, a drywall and plastering contractor, could be subject to strict products liability despite its status as a contractor rather than a manufacturer or distributor of any product.

Home_Construction__Romolo_Tavani_-_Fotolia_largeDefendant E.F. Brady worked as the drywall subcontractor on a large construction project in the early 1970s. E.F. Brady’s bid for the contract included both labor and materials, and evidence was presented that E.F. Brady used asbestos-containing drywall joint compounds on the jobsite. The plaintiff testified that he cleaned up dusty drywall debris created by E.F. Brady employees. The trial court granted a nonsuit on the strict liability cause of action but allowed the negligence cause of action and request for punitive damages to go to the jury, which found for the defense.

The Court of Appeal reversed the nonsuit, holding that the jury should have been allowed to determine whether E.F. Brady’s supply of the allegedly defective asbestos-containing joint compound which the plaintiff encountered caused his injury. This is distinguished from whether E.F. Brady’s conduct as a contractor caused the plaintiff’s injury, which is normally how contractors are implicated in asbestos lawsuits—for example, by allegedly failing to take precautions to protect others from asbestos exposure. The court held that under the facts of the case, E.F. Brady was not “just a contractor.” Rather, E.F. Brady played a “significant” role in the stream of commerce of the asbestos-containing joint compound, because E.F. Brady:

  1. “Always” provided materials as part of its drywall contract;
  2. Structured its time-and-materials contract to recoup the costs of materials (even “without necessarily ensuring a profit regarding those costs,” in part because the costs were “substantial, as they ordinarily constituted 25 percent of the amount of a bid”);
  3. Had a relationship with manufacturers of asbestos-containing drywall products “sufficient to command the personal attention of [their] representatives to E.F. Brady’s concerns regarding the products” that placed it “‘in a position to exert pressure on the manufacturer’ to improve product safety;” and
  4. Was a large commercial operation and so was “capable of bearing the costs of compensating for injuries due to the products.”

Notably, the evidence for relationship with manufacturers was only that manufacturer reps came on site and advised as to the suitability of their products for the applications involved. There was no evidence related to conversations about changing any product formulation.

Contractors providing services have always been considered outside the stream of commerce of products supplied incidentally to services. The “primary objective or essence of the transaction” between a customer and a contractor is the provision of services, not obtaining a product, and California courts have long recognized that this fact places contractors outside the stream of commerce of products they provide under their contracts. (E.g., Monte Vista Development Corp. v. Superior Court (1991) 226 Cal.App.3d 1681 [tiling subcontractor not strictly liable for defective soap dish]; Pierson v. Sharp Memorial Hospital, Inc. (1989) 216 Cal.App.3d 340[hospital not strictly liable for defective carpet in patient room]; Silverhart v. Mount Zion Hospital (1971) 20 Cal.App.3d 1022 [hospital not strictly liable for defective surgical needle used during operation].) But under this decision, if the acquisition of a product was a “significant” aspect of the transaction, a contractor could fall into the realm of strict liability.

Take the hospital example. In Silverhart v. Mount Zion Hospital, the Court of Appeal held that a hospital was not strictly liable for an allegedly defective surgical needle used during the course of an operation performed on the plaintiff patient. In that case, the needle was “necessary” to the operation, but was still a “tool” rather than a “material.” But what if the patient wanted a pacemaker implanted? Under Hernandezcueva, perhaps the hospital could be strictly liable—a potential sea change in medical device liability law. A hospital probably “always” provides the pacemaker as part of the contract to install a pacemaker; it probably recoups the cost of the pacemaker in the contract to perform the surgery, but probably doesn’t try to make a profit; and the pacemaker manufacturer’s representatives probably visit the hospital all the time. All the requisite facts are there to impose strict liability on the hospital under Hernandezcueva—but it directly conflicts with Hector v. Cedars-Sinai Medical Center (1986) 180 Cal.App.3d 493, which held that a hospital could not be held strictly liable for defects in an implanted pacemaker.

Hernandezcueva brings within its reasoning virtually all businesses which provide products along with or “incidental to” the services they provide to customers. The court found that because E.F. Brady “derived a considerable benefit from supplying the products, as that was essential to obtaining its subcontracting work,” it was liable as a supplier of products. Every handyman who brings his own materials to a customer’s home is potentially a “seller” of those materials under this decision, as is the multinational general contractor who supplies any materials whatsoever for a subcontractor’s use, and everyone in between—as long as there is an allegation that it was “essential” to the business transaction that the materials in question be provided.

An additional possible effect of the Hernandezcueva decision is that contractors and other “non-traditional” defendants may now be considered part of the “chain of distribution” of the materials they provide incidental to their services. This means that the “single product rule” prevents these defendants from arguing that liability should be assigned elsewhere in the chain. A manufacturer, distributor, and retailer of a “single product” may not attempt to assign fault to one another under California law. If a contractor, and indeed any type of defendant who supplies an allegedly defective product along with a service, is now within the chain of distribution of those products, the several liability rule of California’s Proposition 51 will not apply and they will all be jointly and severally liable for damages stemming from the use of the product.

In a discussion of a tangential point, the Hernandezcueva court also held that payments to a plaintiff from asbestos bankruptcy trusts fall “under the collateral source rule, which bars a defendant from shielding itself from liability for injuries by identifying a source of compensation that is wholly independent of the defendant.” There are at least two potential negative effects of holding that asbestos bankruptcy trusts are “collateral sources,” like health or life insurance. One, that defendants are not entitled to offset any damages by showing payments to a plaintiff by an asbestos bankruptcy trust. Two, that bankrupt entities should no longer be placed on the verdict form for apportionment of responsibility. This is a potentially very negative ruling, because plaintiffs can often receive hundreds of thousands of dollars from bankruptcy trusts which offset eventual judgments against defendants, and defendants are presently able to shift responsibility to bankrupt entities in appropriate cases. The holding is not necessary to the decision, was on a point raised by none of the parties (but rather in response to a collateral argument made in an amicus brief), and is dicta, but it should concern all asbestos defendants nonetheless. Full disclosure: Gordon & Rees’s Don Willenburg co-authored an amicus letter brief asking the court to eliminate or modify this portion of the decision.

Because the Hernandezcueva decision appears to be in direct conflict with longstanding California law regarding both strict product liability of contractors and asbestos bankruptcy trust payments as collateral sources, depublication or California Supreme Court review are possible prospects. If the decision stands, it will significantly expand the universe of strict liability defendants, in both asbestos and non-asbestos cases, and could seriously damage asbestos defendants’ ability to reduce future judgments.

Some Pitfalls of the Newly Amended Federal Rules of Civil Procedure

The upcoming amendments to the Federal Rules of Civil Procedure contain a number of pitfalls for the unwary federal court practitioner. Just about the biggest mistake a practitioner could make in 2016 would be to use his or her tried and true discovery response template under the new regime.

For starters, it will now be a bad idea to respond to a Rule 34 document request by stating:

“Without waiver of or prejudice to these objections, Defendant produces the documents attached to this response.”

The recitation of this discovery mantra has maddened litigators and trial judges alike for years. The problem with this objection is that it does not communicate whether, having recited a litany of objections, the objector is producing all of its responsive documents or withholding documents pursuant to the objection. The amended rule seeks to address this uncertainty.

shutterstock_188181785Under the amended rule, the use of broad boilerplate objections that do not state whether responsive documents are being withheld subject to an objection is now prohibited. The amendment to Rule 34 now provides that objections have to be stated “with specificity.” Therefore, it is not enough to merely state that a request is overly broad or vague and ambiguous. It is now the obligation of the responding party to state, for example, that it will limit the search for documents or ESI within a given stated time period. Playing coy with the adversary by not communicating the scope of the production should no longer be acceptable.

Another new Rule 34 wrinkle is that a litigant may now serve a Rule 34 request in advance of the Rule 26(f) conference. Although the adversary’s time to respond to the Rule 34 request will not start to run until 30 days after the conference, the early service of a document requests provides the parties the opportunity to discuss document production issues prior to the Rule 26(f) conference, if possible, but certainly before the Rule 16 conference. Being able to discuss document production issues at an early stage in the litigation can avoid discovery disputes later on, particularly if the court weighs in on some of the issues under discussion at the Rule 16 hearing.

Litigation Tip. From a defense perspective, keep in mind that plaintiffs will be on the lookout for defendants’ responses that do not contain the requisite specificity. The flip side is that if defense counsel specifies the basis for an objection and makes a limited production, the plaintiff runs the risk of waiving his objection to the limited scope of the production if he fails to act with alacrity.

The 2015 amendments to the Federal Rules of Civil Procedure amend Rules 1, 4, 16, 30, 31, 33, 34, 37 and 55. Rather than tackle all of the amended rules in a single article, this will be a continuing series of articles about the new regime and how practitioners can avoid compliance pitfalls.