Environmental Diminution Of Property Value And The Creative Plaintiff Valuation Expert

When a homeowner brings a multi-count toxic tort case alleging that a corporate defendant’s discharge of toxic substances from its facility contaminated his property, the diminution of property value claim is often the only element of damages subject to objective determination. Or is it? 

In case after case, the testimony of plaintiff property valuation experts is being rejected for failing to comply with Federal Rule of Evidence 702.  There is often little or no dispute that homeowners living adjacent to an area involved in ongoing remediation may have difficulty selling their homes at full market value. And yet, despite the apparent stigma, plaintiff experts in these matters often stumble on their way to the courthouse.  

One recent such case is Michael Leese, et al. v. Lockheed Martin Corp., Civ. No. 11-5091, decided by the Hon. Jerome B. Simandle, Chief U.S. District Judge for the federal district court in New Jersey on March 18, 2014. In that case, Judge Simandle granted summary judgment to Lockheed Martin after concluding that the expert report and deposition  testimony of plaintiffs’ valuation expert, Jerome McHale, should be excluded as unreliable. 

The property valuation reports at issue concerned the Leese property at 5 Victoria Court and the Linkler property at 7 Victoria Court, in Moorestown, New Jersey. Both properties sit across the street from a Lockheed Martin’s research, development and manufacturing facility. When plaintiffs purchased their respective properties, they admittedly were aware that groundwater underneath their properties was contaminated with TCE, a volatile organic compound. 

After several years, plaintiffs brought suit against Lockheed Martin alleging personal injury on behalf of the Leese children and diminution of property value. In late 2013, the court dismissed the personal injury claims due to lack of proof of causation, but permitted plaintiffs to furnish a new expert valuation report. 

McHale’s valuation report concluded that each property was worth $295,000 “as is” and $600,000, “if clean.” Therefore, he calculated the loss of value for each property as $305,000. Yet, when Judge Simandle began to dig into McHale’s methodology and rationale, he discovered a jumble of unexplained arithmetic, unreliable methodology, and internal inconsistencies. 

As is often the case, a valuation expert does not have difficulty establishing the “if clean” valuation. In this case, McHale used a “sales comparison” approach by averaging the sale prices of four comparable properties in the plaintiffs’ residential development to obtain the “if clean” valuation. It was when McHale attempted to analyze the “as is” value of the properties that he ran into serious difficulty. 

McHale used three different techniques to estimate the “as is” value and took the averages of the three valuations to arrive at a final “as is” figure. The court evaluated each of these three techniques in turn. 

 The first technique, called “cost to cure,” subtracted from the “if clean” valuation the cost of environmental remediation. McHale obtained an estimate of remediation costs from a non-testifying expert. The problem was that NJDEP did not require or recommend that any of this non-testifying expert’s proposed remedial measures be implemented on plaintiffs’ properties. 

The court analyzed the “cost to cure” approach this way: 

“The most significant problem with McHale’s cost-to-cure analysis is that he may not reasonably rely on Rogers’ unsupported, subjective analysis of what remedial measures are “required” on the property. Rogers himself states that his estimate describes “measures [that] are prophylactic as opposed to curative in nature.” …In other words, Rogers, by his admission, does not intend his letter to address the costs to cure for a contamination on plaintiff’s property. Rather, Rogers expressed his opinions about what prophylactic measures are required without explaining the basis for such an opinion.”

Judge Simandle found that the “cost to cure” technique suffered from a Daubert “fitness” problem as well. Because plaintiffs admitted that they knew the groundwater under their properties was contaminated with TCE when they bought their homes, remediating the property to “if clean” levels would improve the property beyond what plaintiffs purchased and give them a windfall. According to the court, the proper valuation analysis should take into account what plaintiffs knew of the condition of the property at the time of purchase. 

The second technique applied a “paired sales” analysis. A “paired sales” analysis looks to sales of other stigmatized properties, estimates “if clean” valuations for those properties, and calculates a “percentage discount” for the environmental stigma for each property. The average percentage discount is then applied to the “if clean” valuations of plaintiffs’ properties. 

Two of the four comparative properties used by McHale were inappropriate because NJDEP required remediation on them, by contrast, but did not require remediation on plaintiffs’ properties. Moreover, the cost of remediation on those properties was modest as compared to the hundreds of thousands of dollars proposed for plaintiffs’ properties. 

In evaluating the “paired sales” technique, the court found that McHale’s report had irreparable flaws. First, McHale could not articulate a reliable basis for weighting the comparator percentages, and he did not consult any authority to arrive at his average. More significantly, the court found that McHale had no reliable basis for adding 10% to the weighted average discount. In his deposition, when pressed, McHale admitted that he came up with an extra 10% derived from a “market based opinion from me” after gathering opinions from unspecified “other people in the market.”

The third technique employed by plaintiffs’ expert was “realtor and broker surveys.” McHale surveyed eleven area realtors to come up with an appropriate discount for residential property faced with a stigma. Although the plaintiffs’ homes did not have any operational remediation system on their premises, McHale asked the realtors to assume that the homes had a subsurface depressurized remediation system in the basement. 

Based upon the realtors’ survey, he concluded that 20% would be an appropriate discount off the listing price. He then added another 5% because properties without stigma had sold for below 5% market over the past two years due to poor real estate conditions.  He then added another 15% because of additional marketing time and effort, and the difficulty of a buyer finding financing. All of these calculations resulted in the final discount of 40%.

In examining the “interviews/surveys” approach, the court questioned why McHale doubled the discount from 20% to 40% without explaining why the realtors would not have taken into consideration the other factors McHale discussed when giving their responses. Presumably, the discounted selling price already took into consideration any difficulty in obtaining financing and any increased marketing costs. Therefore, these considerations should not be counted twice in coming up with a discount. 

In addition, it made no sense why the realtors were asked to assume that they should expect to sell a house with a subsurface remediation system when the plaintiffs’ own homes did not have such a system. In summary, the court concluded:

“Although some methodological flaws go to weight, here the methodology is unreliable at each step: fact gathering, percentage averaging, percentage doubling. The entire formulation of the survey seems to invite unreliability…”

Leese is instructive for the toxic tort defense practitioner because it provides a primer on how to pick apart the opinions of a plaintiff property valuation expert in deposition and, later, in a Daubert motion.  Opinions that at first glance might seem reasonable at first glance fail to hold up and careful analysis.  In Leese, the plaintiff valuation expert utilized three separate techniques for determining plaintiffs' "as is" value and failed to pass Daubert scrutiny in every instance.

The New York City Asbestos Litigation Just Became More Complicated

Pursuant to the Decision and Order of the Hon. Sherry Klein Heitler, dated April 8, 2014, asbestos plaintiffs for the first time since 1996 may seek permission from the New York City trial judges to charge the jury on the issue of punitive damages. Until Judge Heitler’s ruling, the New York City Asbestos Litigation (“NYCAL”) Case Management Order, as amended May 26, 2011 (“CMO”), provided that counts for punitive damages were to be “deferred” until such time as the Court deemed otherwise, upon notice and hearing. Therefore, punitive damages still could be sought, but only after a hearing to determine if it was appropriate to award them.

The importance of Justice Heitler’s ruling cannot be understated. As she notes, “tens of thousands of complex, time-consuming asbestos personal injury actions have been filed in New York County Supreme Court alone.” Her ruling is likely to have an impact on the thousands of future or presently pending cases.

Justice Helen E. Freedman, who oversaw the creation of the CMO in 1988, which governs all NYCAL cases, explained in a well-reasoned Southwestern Law Review article published in 2012, why she added the provision in 1996 that punitive damages claims should be deferred. According to Justice Freedman:

1. Punitive damages have little or no place in asbestos litigation. To charge companies with punitive damages for wrongs committed twenty or thirty or more years before, serves no correct purpose. In many cases, the wrong was committed by a predecessor company, not even the company now charged, and the responsible individuals are long gone;

2. Punitive damages only deplete financial resources that are better used to compensate injured parties;

3. Since some states do not permit punitive damages, and the federal MDL, precludes them, disparate treatment among plaintiffs would result if permitted in New York City; and

4. No company should be punished repeatedly for the same wrong.

Justice Freedman’s rationale is as valid today as it was in 1996. The only thing that has changed is that multiple bankruptcies, oftentimes involving companies whose only wrongdoing was to acquire the stock of another entity with some asbestos involvement, continue to corrode the fiber of American industry and plaintiffs have look farther and farther afield to find “fresh” defendants, many of whom have only de minimis relationship to asbestos.

Although Justice Heitler contends that the defendants, in opposing the motion, failed to provide empirical proof that punitive damages awards have contributed to bankruptcies, she overlooks the reality that defendants make oversized settlements based upon their potential exposure and that the threat of punitive damages increases that exposure calculus exponentially. One only need read the Garlock decision written by the Hon. George R. Hodges, United States Bankruptcy Judge for the Western District of North Carolina, to appreciate how settlement negotiation leverage in asbestos litigation can contribute to corporate insolvency.

Justice Heitler bases her ruling on constitutional equal protection grounds. And yet, paradoxically, she seeks to minimize the potential repercussions of her ruling (and reassure defendants) by demonstrating how other New York asbestos courts have been restrained in awarding punitive damages due to both New York’s “heavy burden” for seeking punitives and federal due process standards. If the award of punitives in New York courts outside NYCAL’s jurisdiction is so difficult to obtain, where is the loss of equal protection by requiring the filing of a notice and conducting a hearing in NYCAL?

Justice Heitler was reassured by the plaintiff asbestos lawyers that, if punitives were to be permitted, they would not abuse this long sought after opportunity and only seek punitives in the most egregious cases. However, after giving the foxes the keys to the hen house, what leverage did she retain to ensure restraint? The Decision and Order seems to suggest that these particular foxes would be content to take one plump hen and be content. She writes:

“While Plaintiffs have evinced their intention not to abuse this opportunity, it is appropriate for the court to caution the plaintiffs’ bar not to overstep this permission by attempting to seek punitive damages indiscriminately. Punitive damages should only be sought in the most serious cases to correct for the most egregious conduct, and must present a valid reference to corrective action.”

Every plaintiff lawyer has a duty to maximize his client’s recovery in a personal injury action, particularly when the client is suffering from a horrific illness like mesothelioma. If the lawyer believes he can elicit a more attractive offer from a defendant by threatening to seek punitive damages, how could he not do so within the bounds of ethical conduct? Justice Heitler notes that the use of asbestos peaked in the 1960’s and 1970’s when asbestos was used in the more than 3,000 industrial applications. Today, there are probably none. If that is the case, how can a plaintiff make a “valid reference to corrective action” in any demand for punitive damages?
 

Comcast Corp. v. Behrend's Impact In Toxic Tort Litigation

I have written about how the U.S. Supreme Court's decision in Comcast v. Behrend has had the practical result of raising the bar for class certification and leveling the playing field for corporate defendants. Until recently, however, it was unclear what impact this anti-trust decision would have on toxic tort litigation. 

On January 17, 2014, the Seventh Circuit issued a groundbreaking decision in Parko v. Shell Oil Company, which was an appeal from the Illinois district court's certification of a class of property owners in Roxana, Illinois, who had filed suit against Shell Oil Company which (together with various subsidiaries) had owned and operated an oil refinery from 1918 to 2000 adjacent to the village where the 150 class members reside. Although multiple claims were alleged, Parko was  largely a diminution of property value case.

 In Parko, the class action plaintiffs were successful in obtaining class certification in the district court without having to provide evidence. Typically, plaintiffs seek to reserve any discussion of the merits of their claims until after class certification.  Plaintiffs are well aware that the certification of a class creates enormous pressure on defendants to settle regardless of the merits of the case.

The plaintiffs alleged that the refinery had leaked benzene and other contaminants into the groundwater under the class members' homes.  The Seventh Circuit found it particularly significant that the groundwater was not being used as a drinking water supply.  As such, it was unclear whether the contamination had caused any diminution of property value at all.

In addition, the Seventh Circuit noted defendants' contention that the contamination alleged by plaintiffs occurred over a 90-year period and involved acts and omissions charged against the six defendants, and maybe other polluters as well.  The defendants had identified sources of pollution in the area that were attributable to the operations of non-parties.  As a consequence,  class members could have experienced different levels of contamination from multiple sources over many years. 

Relying on the language in Comcast Corp. v. Behrend, the Court reversed the district court, holding that a trial judge may not "refuse to entertain arguments against respondents' damages model that bore on the propriety of class certification, simply because those arguments would also be pertinent to the merits determination."  

The Court held that "mere assertion by class counsel that common issues predominate is not enough. That would be too facile. Certification would be virtually automatic. And so Rule 23 does not set forth a mere pleading standard....Rather, when factual disputes bear on issues vital to certification (that is, to whether the suit should be allowed to be litigated as a class action), such as predominance, the court must receive evidence . . . and resolve the disputes before deciding whether to certify the case."  (emphasis added)  In reviewing the record below, the court stated that it was not even clear that plaintiffs "have identified a common issue."

The Parko decision is short and pithy, and contains a trove of valuable nuggets of good language for the class action  toxic tort defense practitioner. 

On proof of diminution of property value:   

Real estate values have taken a drubbing in recent years, with the collapse of the housing bubble and the ensuing financial crisis. It can't be assumed that a decline in the value of residential property in Roxana (if in fact there's been a decline) is the result of proximity to a refinery that for all one knows has been leaking contaminants for the last 95 years without causing detectable harm. There are many things commonly found in soil beneath rural or suburban houses that homeowners would very much like not to enter their home (such as earthworms, fungi, ants, beetles, slugs, radon, chemical residues, thousands of different types of microbe— and groundwater), but as long as there is no danger of such unwanted visitors their underground presence should not affect property values. Benzene in the water supply is one thing; benzene in groundwater that does not feed into the water supply is quite another. (emphasis added)

On Rule 23's predominance requirement post-Comcast:  

The district judge did not explore any of these issues. He treated predominance as a pleading requirement. He thought it enough at this stage that the plaintiffs intend to rely on common evidence and a single methodology to prove both injury and damages, and that whether the evidence and the methodology are sound and convincing is a question going to the strength of the plaintiffs' case and should be postponed to summary judgment proceedings or trial. But if intentions (hopes, in other words) were enough, predominance, as a check on casting lawsuits in the class action mold, would be out the window. Nothing is simpler than to make an unsubstantiated allegation. A district judge may not "refus[e] to entertain arguments against respondents' damages model that bore on the propriety of class certification, simply because those arguments would also be pertinent to the merits determination."

 On the appropriate level of judicial inquiry pre-certification:

The judge should have investigated the realism of the plaintiffs' injury and damage model in light of the defendants' counterarguments, and to that end should have taken evidence. For if the defendants are right, there is no common issue, only individual issues that will vary from homeowner to homeowner: is there benzene in the groundwater beneath his home at a level of concentration that if the groundwater were drunk would endanger health (and is there any possibility it would enter the water supply); what is the source of the benzene in the groundwater beneath a given home (that is, who is the polluter who caused the groundwater to become polluted); could the presence of the benzene in that concentration cause any other form of harm; has the presence of the benzene reduced the value of his property; if so, how great has the reduction been. It is difficult to see how these issues can be managed in the class action format. But in any event they must be engaged by the district judge before he can make a responsible determination of whether to certify a class.

Benzene in the water supply is one thing; benzene in groundwater that does not feed into the water supply is quite another."  Amen!

 

 

New Draft FDA Guidance On Off-label Uses Raises Concerns

On March 3, 2014, FDA made available for comment a revised draft of its "Guidance for Industry: Distributing Scientific and Medical Publications on Unapproved New Uses--Recommended Practices".  The revised guidance seeks to clarify and expand upon FDA's 2009 draft guidance that generated significant controversy. Although the recently released draft guidance addresses some industry concerns, does it address the concerns of those who believed the earlier guidance took a position at variance with the First Amendment?    

An excellent discussion of the revised draft guidance is provided in the Client Alert recently issued by Epstein Becker Green attorneys Amy K. Dow, Ryan R. Benz and Daniel G. Gottlieb.  In summary, the draft guidance expands upon the types of materials that may be distributed (subject to FDA's enforcement discretion) and, for the first time, includes clinical practice guidelines.  In particular, industry had been pushing for more clarity from FDA on this issue. The draft guidance requires that a manufacturer, before disseminating a clinical practice guideline, establish that the clinical practice guideline is "trustworthy" and, as detailed in the Client Alert, meets six tests based on standards developed by the Institute of Medicine.   

Of particular interest, however, is the extent to which FDA may be modifying its position on restrictions on truthful, non-misleading, off-label speech in light of the Second Circuit's important  2012 decision in U.S. v. Caronia.

FDA  has long held the position that, although off-label promotion by pharmaceutical manufacturers and/or their agents is not expressly prohibited by the FDCA or its attendant regulations, such commercial activities are impliedly prohibited as "misbranding."   Thus, when a drug is placed in interstate commerce without adequate directions for use and adequate warnings It is the FDA's view that, by definition, a drug fails to bear adequate directions for an off-label use. Therefore, promotion beyond the scope of the product label may be construed as "misbranding" in violation of the FDCA.

In Caronia, the Second Circuit vacated the conviction of Alfred Caronia, a former pharmaceutical sales representative for Jazz Pharmaceuticals whom a federal district court jury found guilty of conspiring to introduce a "misbranded" drug into interstate commerce in violation of the FDCA.  

The majority held that the FDCA's misbranding provisions cannot be interpreted as a blanket ban on off-label promotion by pharmaceutical manufacturers. However, the court was clear that its holding did not prevent the FDA from regulating the marketing or promotion of prescription drugs and limited its decision to the truthful off-label promotion of prescription drugs for which an off-label use is not prohibited.  The court also stated that more narrowly tailored regulation of speech by the FDA as it concerns off-label use might survive judicial scrutiny.

In analyzing Caronia, it is important to keep in mind that courts, in general, are hesitant to criminalize speech without an articulable public good (such as harm or safety) to be gained from doing so. That is, a desire merely to stop speech is not a sufficient interest (without another countervailing public need) in order to permit the government to regulate or prohibit speech.

In earlier cases, the Supreme Court has disfavored categorical bans on truthful, non-misleading speech because it arises from the "paternalistic assumption" that the public will use truthful, non-misleading commercial information unwisely,  Such paternalism is all the more misguided when the speech is being directed to the medical community over whom  FDA can assert no regulatory authority.  A medical clinician, who has presumably more knowledge than FDA staffers about the diseases and conditions she treats, should not be unnecessarily hamstrung in seeking to become more knowledgeable about a particular drug.

Although Caronia represented a setback for the Agency, it is inaccurate to conclude from this decision that FDA does not retain broad regulatory authority  to regulate promotional speech. The likely battleground in the future will be when the First Amendment is raised as a defense to civil fraud cases, particularly qui tam actions, brought under the federal civil False Claims Act.

The revised draft guidance does not include the same blanket prohibitions included in the earlier pre-Caronia guidance. Under the revised draft guidance, some highlighting and summarizing is permitted as long as it does not promote an off-label use or is misleading. Although FDA clearly still believes that it can regulate non-misleading speech, it has backed off somewhat (perhaps in light of Caronia), and sought to bolster its position by adhering closely to the statutory prohibitions in the FDCA.

A thorough discussion of Caronia and its possible ramifications was the subject of a Client Alert authored by Epstein Becker Green's Stuart M. Gerson, Wendy C. Goldstein, Benjamin S. Martin, Daniel G. Gottlieb, David C. Gibbons, and Natasha F. Thoren issued on the heels of the Second Circuit's publication of its decision.

In the absence of further modification of the draft guidance, to what extent will the risk of noncompliance outweigh the benefit to industry of being able to distribute scientific or medical publications on unapproved new uses?  How will the new guidance affect, if at all, the ability of the medical community to obtain reliable information on off-label uses from drug manufacturers?  It will be interesting to see how the various stakeholders' positions evolve during discussions over the coming months.

Pharmaceutical Failure to Warn.... On Facebook?

The Facebook page of Switzerland-based drug maker, IBSA Institut Biochimique S.A. (“IBSA”), appeared innocent enough: 

If you have just been diagnosed with hypothyroidism or are having difficulty controlling your levothyroxine blood levels, talk to your doctor about prescription Tirosint, a unique liquid gel cap form of levothyroxine.

In an untitled letter to the drug maker on February 28, 2014, FDA advised IBSA that its Facebook webpage was false or misleading because it made representations about the efficacy of Tirosint, but failed to communicate any risk information associated with its use and omitted material facts regarding Tirosint's FDA-approved indications. 

FDA advised IBSA that the webpage misbranded Tirosint within the meaning of the Federal Food, Drug and Cosmetic Act (“FDCA”) and made its distribution violative of federal regulation. Specifically, FDA referenced 21 U.S.C. 352(a), (n); 321(n); 331(a); and 21 CFR 202.1(e)(5). Further, FDA reminded the company that Tirosint is associated with a number of serious risks and includes a Boxed Warning indicating that Tirosint should not be used for the treatment of obesity or for weight loss, among other potential risks associated with the use of this medication.  FDA also alleged that IBSA had failed to disclose important limitations on the approved indications of the product, increasing the risk that the product would be used in patients with conditions that were expressly excluded from the approved indications for use.

FDA and the regulated community has been grappling for some time over what might constitute the improvident use of social media. Unquestionably, a pharmaceutical company will run afoul of FDA if product risks are not disclosed. In this instance, FDA noted that IBSA had failed to disclose any (emphasis FDA’s) of the risks associated with the product’s use. 

FDA directed IBSA to immediately cease activity violative of the Act and to submit a plan for discontinuing the use of all non-compliant promotional materials.

Despite the public attention given to IBSA’s ill-advised social media posting, the pharmaceutical industry and the medical community have made significant strides in recent years to ensure that physicians are receiving full and complete information concerning the medications they are prescribing for their patients. 

One enormous step in the right direction is Sermo, an online community for physicians founded in 2006. Sermo was originally founded by doctors, for doctors. Originally imagined as an adverse effect reporting system without industry influence, Sermo is now a vibrant place where physicians can post observations and questions about clinical issues and hear other doctors’ opinions. 

In just a few short years, Sermo has grown to include 200,000 licensed physicians. Some of the heaviest users of Sermo are older physicians, which is somewhat surprising in that the youngest members of a professional group typically adopt technologies first. 

Increasingly, the major pharmaceutical companies take the view that social media and other on-line resources can provide an important tool in ensuring that its products are used safely, effectively and appropriately. 

At a public hearing conducted by FDA in 2009, Dr. Freda Lewis-Hall, the Chief Medical Officer for Pfizer, reported that the average physician spends about eight hours a week using the internet for professional purposes; that 87% of physicians are interacting with drug and device companies online; and that 60% of physicians are interested in participating in online communities. She opined that the majority of physicians want to engage with health care companies in the social media space to obtain drug information.  These physician participation statistics are probably even more striking today.

Pfizer and other companies now communicate with physicians through social media, particularly through collaboration with Sermo. Dr. Lewis-Hall describes Sermo as the online physician’s lounge where informal but highly valuable consults take place.

On January 13, 2014, FDA issued a portion of its long-awaited social media guidance titled "Fulfilling Regulatory Requirements for Postmarketing Submissions of Interactive Promotional Media for Prescription Human and Animal Drugs and Biologics".  Although industry is likely to seek clarification and revision on certain of the rules-of-the-road discussed in the draft, some of the basic concepts expressed are:

1. a company will not be deemed responsible for visitor posts on company-run social media (blogs, chat rooms, message boards, etc) so long as the visitor has no affiliation with the company and the company has no influence over the user-generated content;

2. a company is responsible for content generated by an agent or employee.

3. every advertisement on social media must contain a "fair balance" of the risks and benefits of a drug product and complete disclosure of the product's approved indications for use.  Query. Could a Twitter entry with its 140-character limit ever meet this standard?  FDA is supposed to provide further guidance on this concern down the line.

4. marketing material postmarketing submission requirements must be complied with for any site where the company "exerts influence.......even if the influence is limited in scope. For example, if the firm collaborates on or has editorial, preview, or review privilege over the content provided, then it is responsible for that content."  However, if the company only provides financial support to the site, and its influence is otherwise limited, there is not a reporting requirement. 

The issue of "exerting influence" is problematic and, despite some helpful hypotheticals in the guidance, ambiguous.  Big Pharma has an interest, perhaps even a responsibility, to be involved in e-media forums where the scientific and medical community is seeking interactive information on pharmaceutical products.  However, the draft guidance arguably produces a push-pull reaction.  Do we engage or, by engaging, do we run the risk of having an added regulatory burden by having to file FDA reports concerning participation on the site?  Some clarity for the industry is warranted to avoid over and under-reporting.  

As reflected in this discussion, as all of us – consumers and companies – continue to move forward in a world increasingly dominated by social media, challenges and opportunities abound. On the one hand, there are the missteps, as we see in the case of IBSA. On the other hand, the pharmaceutical industry is moving ahead of the curve to use social media to ensure that its prescribing physicians are well-educated and their patients provided the best possible care. We hope that the final social media guidance facilitates, rather than impedes, this process.

The author acknowledges the important contributions made to this article by Amy K. Dow, a partner at Epstein Becker Green, and Natasha F. Thoren, an associate

Best Practices For Avoiding Data Breach Liability

Articles concerning cyber-security and data breach typically fall into two general categories: those discussing how to prevent a data breach from occurring and those discussing how to respond when one occurs. As I discussed in my earlier blog post, smart players in the healthcare industry are proactive in seeking to prevent data breaches from occurring before hackers strike.

In an excellent article titled, “Best Practices for Avoiding Data Breach Liability,” which was published in New England In-House, Patrick J. O’Toole, Jr. and Corey M. Dennis discuss best practices for both breach prevention and breach response. O’Toole is a partner at the Weil, Gotshal & Manges. Dennis is the U.S. Privacy Officer and in-house counsel at Pharmaceutical Product Development, LLC (PPD). (The article was later re-published in The Daily Record and Minnesota Lawyer.)

Although the technical aspects of cyber-security are complex and daunting to the layperson, O’Toole and Dennis offer common sense advice to minimize the likelihood of a data breach. Their suggestions include:

• Conducting an inventory of the company’s sensitive data and identifying all custodians and data storage locations. Simply knowing who has access to the data and where it is located is an important first step.

• Making sure that the company is aware of all state and federal data security and breach notification laws that apply to its business operations.

• Regularly reviewing and updating corporate information security policies.

• Implementing security measures with regard to computer systems (e.g., passwords, encryption, firewalls, anti-virus software). However, physical security measures (e.g., locked cabinets, shredders) can be just as important to safeguarding sensitive data and personal information.

• Implementing best practices and training employees. O’Toole and Dennis point out that data breaches may result from basic employee negligence, such as leaving a briefcase containing sensitive information in a public area.

• Ensuring compliance of vendors with whom sensitive information is shared. Some state and federal laws require companies to ensure that their vendors maintain certain data security measures.

• Conducting periodic attorney-directed data security assessments. In conducting these assessments, O’Toole and Dennis suggest that efforts be made to preserve the attorney-client privilege applicable to any assessment-related reports.

• Considering cyber liability insurance. Most cyber insurance policies today cover the costs of forensic investigations, notification of and credit monitoring for affected individuals, regulatory compliance, and lawsuit defense and indemnification.

Corey Dennis, the co-author of this article, recently spoke on healthcare breach response and preparation on a panel at the International Association of Privacy Professionals (IAPP) Global Summit 2014. During this session, entitled “Preventing and Responding to Data Breaches after the Omnibus Rule,” he discussed several points, including the steps necessary to avoid breaches and the legal analysis to conduct when determining whether a breach must be reported under HIPAA.

The costs associated with data breaches—including financial costs, legal liability, and reputational loss—have become increasingly apparent. The TJX Companies breach in 2007 resulted in 94 million customer accounts being compromised and a multi-billion dollar loss to the company, including fines, legal fees, notification expenses, and brand impairment.

The recent Target breach, which affected 110 million customers, could have similar repercussions, and has already lead to dozens of class action lawsuits, along with scrutiny from both Congress and regulators. In an age where nearly every major organization faces data security incidents, and large-scale breaches regularly make headlines, implementing the best practices above is essential for all companies.

 

U.S. Bankruptcy Court Exposes Plaintiff Scheme To Suppress Asbestos Exposure Evidence

On January 10, 2014, the Hon. George R. Hodges, United States Bankruptcy Court for the Western District of North Carolina, handed down a decision that promises to be a “game changer” for asbestos manufacturers facing potentially crushing mesothelioma death claims. Top Bloomberg BNA Toxics Law reporter, Perry Cooper, discussed the decision and its potential ramifications in her recent article titled, “Sides Fiercely Divided Over Impact of Garlock Asbestos Bankruptcy Court Order” (2/26/14).

The issue before the Bankruptcy Court was how to determine a reasonable and reliable estimate of Garlock Sealing Technologies, LLC’s (“Garlock”) liability for present and future mesothelioma claims. The court rejected the asbestos claimants’ $1.3 billion liability estimate in favor of Garlock’s $125 million estimate, an order of magnitude less.  Why did it do so?

The court initially determined that Garlock’s products resulted in a relatively low exposure to asbestos to only a limited population and that its legal responsibility for causing mesothelioma was relatively de minimis. During the early phase of the asbestos litigation in the 1980’s – when Garlock was generally named in complaints naming 20-50 more defendants – Garlock was very successful in settling its cases.


However, things changed for the worse by the early 2000’s, by which time large thermal insulation defendants had filed for bankruptcy and were no longer participants in the tort system. As the focus of plaintiffs’ attention turned to Garlock, as one of the remaining solvent defendants, evidence of plaintiffs’ exposure to other asbestos products often disappeared. As a result, plaintiffs’ law firms used their control over the evidence to drive up the settlements demanded of Garlock.

The crux of the court’s determination was that plaintiffs routinely denied exposure to other [bankrupt] companies’ asbestos products in pre-trial discovery and at trial, while often shortly thereafter filing multiple claims under oath with asbestos bankruptcy trusts. The “double-dipping” described by Judge Hodges where, for example, a plaintiff denies any exposure to insulation products, but after the case is settled, files 23 Trust claims, appears to be a widespread practice.

This conduct violates court rules and should be severely sanctioned if and when it comes to light. This decision shines a bright light on unethical practices in the plaintiff asbestos bar that may be a game changer particularly for manufacturers whose legal responsibility for causing mesothelioma, like Garlock, is relatively de minimis. It is the small players who are being pummeled by the lack of disclosure provided in these cases who should be seeking relief.

Garlock was able to demonstrate that in cases where it was able to obtain evidence of filed Trust claims and use them at trial, it generally had a successful trial result. In contrast, the thermal insulation defendants’ exodus from the tort system and the subsequent “disappearance” of evidence of exposure to their products, necessitated a sea change in Garlock’s negotiating and trial strategy.

Garlock demonstrated that the availability of comprehensive asbestos exposure information was often the difference between winning and losing at trial. If plaintiffs’ suppression of exposure evidence occurred in litigation against other defendants besides Garlock, it has likely resulted in higher asbestos settlements and judgments by as much as several hundred millions of dollars. At the same time, the contingency fees harvested by plaintiff lawyers in the asbestos litigation are staggering. But we should not assume that every plaintiff law firm improperly withholds exposure evidence. Cases should be examined on a case-by-case basis.

However, asbestos manufacturers are likely to bring increasing pressure on asbestos courts to compel plaintiffs to produce comprehensive evidence of asbestos exposure. The cookie-cutter management of large asbestos dockets often sweeps the legitimate concerns of asbestos defendants, particularly the smaller players, under the rug.

Trial courts should be encouraged to come up with creative means of ensuring judicial fairness. Depending upon the jurisdiction, this may involve having the trial court retain jurisdiction to reduce a verdict or settlement to account for post-verdict claims brought against other entities, who were not identified in the trial court. Alternatively, plaintiffs should be required to file Trust claims forms before trial or be judicially estopped from doing so after settlement.

RICO claims have been successfully brought against plaintiff law firms for fraud in the past. Judge Hodges’ decision, and the underlying evidence upon which it is based, provides Garlock with strong ammunition to pursue RICO claims. Additionally, the law firms identified by Judge Hodges may be subject to increasing scrutiny by the asbestos courts in the jurisdictions where they practice. Like the asbestos defendants of yesteryear, these well-heeled plaintiff law firms make for deep-pocketed defendants.
 

Effective Use Of Rhetorical Questions In Jury Summation

The art of persuasion comes in many forms. Recently, we wrote an article about the plaintiff bar’s embrace of Reptile theory. The Reptile theory asserts that you can prevail at trial by speaking to, and scaring, the primitive part of jurors’ brains. However, good trial counsel can effectively utilize more traditional forms of persuasion in their summations. Trial counsel do not need to bring reptilian logic into the courtroom when they can rely on oratorical techniques that have effectively swayed audiences for centuries. Just consider Shakespeare's use of rhetorical questions in Marc Anthony's funeral oration in Julius Caesar, which turned mourners into an angry mob.

In an excellent article titled, “Case for the Rhetorical Question as a Summation Technique,” which appeared in the New York Law Journal on February 26, 2014, plaintiff lawyers Ben Rubinowitz and Evan Torgan demonstrate how the use of rhetorical questions can be effectively used during jury summation to reiterate and reinforce important parts of the plaintiff’s case. As the authors discuss, the use of rhetorical questions can be used with equal effectiveness by the defense, which of course is the raison d’être of this blog.

Rubinowitz and Torgan emphasize that trial counsel should always consider the language in the New York Pattern Jury Instructions before devising a rhetorical line of questions for use in summation. These instructions not only serve as a guide for the jury, but allows trial attorneys to create powerful arguments that fit neatly into those instructions.

In their article, the authors demonstrate the use of rhetorical questions: (1) when the defendant fails to call its expert examining physician to the witness stand; (2) when a party fails to call an important witness; or (3) in the case of spoliation of evidence.

For example,  following is an illustation of their use of rhetorical questions during summation where key evidence has been lost or destroyed:

Ladies and gentlemen, there is one piece of evidence that is more important than any other piece of evidence in this case. You heard about that piece of evidence from the beginning of this case – from the opening statements forward. And you now know how important that piece of evidence is. You know that it would answer the most important question in this case.  So ask yourselves, why wasn't it produced? Why haven't you been allowed to see that [piece of evidence]?  Where is it? And why has it been kept from you? The answer is clear. It wasn't produced for one reason and only one reason. If it was produced it would have made plaintiff’s claims meaningless. If it was produced it would have destroyed plaintiff’s arguments. And if it was produced it would have destroyed his case!

The hallmark of Rubinowitz/Torgan articles on trial practice is their effectiveness in providing the “buildup” or “setup” that practitioners can use in various phases of trial practice. Rubinowitz and Torgan teach us that it is not only springing the trap that matters, but the patient preparation that makes springing the trap all the more delicious!  Shakespeare would be proud.

Preserving The Attorney-Client Privilege For In-House Counsel

Courts impose on corporate entities the burden of demonstrating that communications and documents shared with in-house counsel are protected by the attorney-client privilege. When companies cannot satisfy this burden, courts have ordered production of emails involving legal counsel, compliance logs and internal audits. As a result of these court orders, companies have been forced to produce, often to their detriment in litigation, confidential attorney-client communications.

Courts examine evidence submitted in support of a privilege assertion rigorously. If there is any indication that an overly broad privilege is being asserted or that there is some perceived abuse of the privilege to protect “business” documents, disclosure will likely be required. As will be discussed, Merck was required to go to extraordinary lengths to protect the privilege some years ago in the Vioxx MDL.

In an article titled, “Preserving the Attorney-Client Privilege for In-House Counsel,” published in AHLA Connections (December 2013), Thomas E. Zeno and Emily E. Root of Squire Sanders, provide practical advice for in-house counsel and their clients to increase the likelihood of preserving the privilege.

The authors’ tips may be summarized as follows:

1. Clients should make a clear request for legal advice. Although an email that begins, “Joe, I’d like your legal advice on the following situation…” may sound stilted or overly formal, this communication signals to a reviewing court that the client is requesting legal advice.
In-house counsel should provide a clear link between their legal advice and its legal justification.

For example, if it is the company’s argument that the primary purpose of a communication was to obtain legal advice, the assertion of the privilege will be strengthened if the in-house lawyer’s revision to draft advertising is accompanied by a statement such as “To comply with FDA rules…”.

2. Avoid sending mixed purpose emails. If in-house counsel is providing both non-privileged business advice on a particular transaction and legal advice, the two should be kept separate. Some courts have taken the position that corporations that choose to communicate with legal and non-legal staff simultaneously should recognize that the privilege may not attach to such mixed purpose communications.

3. The company should give consideration to email formatting. If an employee sending an email to in-house counsel is seeking legal advice, it is not helpful if multiple non-lawyer recipients are listed in the “To” field. If non-lawyers are receiving a copy of a request for legal advice so that they know that the request was made, only the lawyers should be listed in the “To” field. Although this may seem like a minor point, these issues can take on a life of their own during heated motion practice before a federal magistrate judge.

4. Courts reviewing privilege claims often review the job descriptions for the staffers involved. For non-legal employees, it may be helpful to provide a discussion in the job description about what kind of legal information or advice they may have to be kept apprised of to avoid the claim that the non-legal employee’s receipt of legal advice was not necessary. In the case of counsel, the job description should clearly define the attorney’s business-related functions.

5. In-house counsel’s advice should not be broadly disseminated. Management should provide a separate communication to company employees to put into effect the operational changes recommended by counsel rather than circulate the lawyer’s work product.

The most important observation made by Zeno and Root is that courts’ different treatment of in-house counsel stems largely from their multiple roles within their organizations, not all of which involve the rendering of legal advice.

They write, in pertinent part:

Across the health care industry, health systems, physician groups, and pharmaceutical, medical device, and life sciences companies are adopting new approaches to risk management. In response to pressures like self-disclosure obligations and the specter of False Claims Act investigations, legal personnel are becoming more integrated into these organizations. Increasingly, lawyers are involved in and advising on day-to-day operations much more than five or ten years ago.

Health care organizations also are facing tightening budgets, and many are trying to control costs by having in-house counsel handle matters that previously would have been referred to outside counsel. These multiple roles exact a cost on the privilege. When organizations assert the attorney-client privilege over communications with lawyers acting in these expanded roles, they seek to shield documents and communications that generally have been available to the government through subpoena or to civil litigants through discovery.

Issues of privilege were the subject of prolonged and heated discovery proceedings in In re Vioxx Prod. Liability Litig., MDL No. 1657, which was litigated in the United States District Court for the Eastern District of Louisiana during the mid-2000's. 

In that matter, the court expressed the concern that businesses would seek to immunize internal communications from discovery by placing legal counsel in strategic corporate positions and funneling documents through counsel and thereby defeating plaintiffs’ legitimate discovery needs. In the Vioxx MDL, Judge Fallon bemoaned that “this discovery dispute has dragged on for over a year and, at times, has seemed hopelessly endless. Although Merck has produced over two million documents in this MDL, the company has also asserted attorney-client privilege as to approximately 30,000 documents which it contends need not be produced.”

Merck argued that because the drug industry is so extensively regulated by the FDA, virtually everything a member of the industry does carries potential legal ramifications vis-à-vis government regulators. The MDL court appreciated how certain functions performed by counsel, such as commenting upon editing television ads and other promotional materials could, in fact, be legal advice within the context of the drug industry. Despite this understanding, the MDL court was not willing to concede that all of the documents Merck had labeled privileged should be afforded protection.

As reflected in the court’s ruling, some of Merck’s privilege assertions met with more success than others. For example, under its “pervasive regulation” theory, Merck convincingly argued that the breadth and scope of FDA regulation made broad legal involvement in business operations a necessity.

However, Merck met with less success in making its “collaborative effort” theory.  In arguing  “collaborative effort”, Merck contended that emails addressed to multiple legal and non-legal people within the company were attorney-client protected despite a distribution pattern that indicated that these communications serve both legal and non-legal purposes.

The “collaborative effort” argument did not succeed because the court recognized that in every company all corporate departments are part of a “collaborative effort.” According to the court,

“To say that wide dissemination to non-lawyers within a company for their technical input is primarily legal makes no more sense than saying that communicating with in-house counsel is primarily scientific because scientific validity is at the heart of FDA regulations and, as a consequence, of what lawyers must be concerned about in public statements, advertisements and labels.”

More broadly, if the courts were to accept the “collaborative effort” argument, the MDL court believed that it would effectively immunize from discovery all such internal communications within the drug industry and preclude plaintiffs from discovering communications potentially vital to their claims of knowledge, failure to warn and intentional misrepresentation.

In-house lawyers are likely to become increasingly entwined within the fabric of their clients' business. At the same time, it is clear that the in-house attorney-client privilege is under attack.   Although there is no fool-proof method of protecting the privilege, Zeno and Root’s article offers valuable guidance if a contested privilege issue is submitted to the court for resolution. 


 

Governor Cuomo's Plan For Disaster Preparedness

At an NYLCVEF Eco-Partners Breakfast conducted at the offices of the Durst Organization on January 28, 2014, Jamie Rubin, the Director of the Governor Cuomo's Office of Storm Recovery New York Rising Community Reconstruction Program, outlined the State's plans for protecting critical systems and infrastructure.  Ably assisting Rubin at the presentation was New York Rising Policy Director, Kate Dineen.

A key challenge for New York is that much of the ciritical infrastructure--mass transit and electric systems in particular--is located underground where it is vulnerable to seawater.  In Upstate and on Long Island, communities and infrastructure are built along coastline or  adjacent to waterways, making these these communities vulnerable as well.  According to Rubin, the State has committed $17 billion dollars toward the protection of New York by making critical changes to infrastructure, transportation networks, energy supply, coastal protection, weather warning systems and emergency management.  Rubin described the Governor's  resiliency strategy as holistic.  A detailed description of the State's strategy can be found on the Office of Storm Recovery website.

 Some of the hallmarks of the program are:

  1. building an advanced meso-net weather detection system that will have 125 interconnected weather stations to provide real-time warnings of local extreme weather and flood conditions;
  2. building new natural infrastructure to protect coastline and provide advanced flood control for inland waterways. An important component of this project will be Spring Creek, an inlet of Jamaica Bay in Queens, where the State plans to build a self-sustaining system of natural barriers to will protect local homeowners and mitigate storm damage;
  3. replacing and repairing 104 older bridges at risk for future flooding;
  4. creating "microgrids" (independent community-based electric distribution systems) throughout the State; and
  5. creating a Strategic Fuel Reserve and gas station back-up power on critical routes within NY.

One environmental challenge that remains unfunded is stormwater reduction.  In the aftermath of Hurricane Sandy, uptate communities suffered massive stormwater damage.  Rubin estimated that tens of billions of dollars, not available now, would be required to address stormwater reduction.

One component of the Governor's response to Hurricane Sandy was the Recreate New York Smart Home Buyout Program which, according to news reports, enjoyed a 99% participation rate in storm-shattered Oakwood Beach in Staten Island, involving some 418 parcels.The homes in Oakwood Beach will be demolished and "returned to Mother Nature", according to Barbara Brancaccio, a State spokesperson.   

Rubin did not believe that the State's home buy-out program in locales like Oakwood Beach would create a "moral hazard".  First, he explained that only primary homes, not vacation homes, would be covered by the program.  Second, the buy-out contained a $750,000 cap based upon pre-storm valuations.  Finally, program recipients would have sustained substantial property damage.  All of these factors mitigated against the likelihood of anyone obtaining a windfall through participation in  the program.  Photographs depicting the horrific storm damage suffered in parts of Staten Island demonstrate the justification for buy-out relief, which is a tool designed both to assist homeowners and  prevent post-storm rebuilding in flood prone areas.. 

Stopping Health Care Hackers Before They Strike

The smart players in the health care industry are being pro-active in seeking to prevent data breaches from occurring before hackers strike. Once a security breach has occurred, even the best litigation team cannot put the genie back into the bottle.

In the world of health care, data is going digital, devices are going mobile and technology is revolutionizing how health care is delivered. As health care organizations continue to digitalize their operations, they know to guard against typical risks such as lost laptops and thumbdrives. However, possibly unbeknownst to them, hackers may be looking for ways to infiltrate their networks to surreptitiously peruse confidential financial records and sensitive patient information.

Cybersecurity breach may be the new toxic tort because a single breach can potentially affect the lives of thousands of people. Experts estimate that when electronic protected health information (“e-PHI”) is compromised in a cybersecurity breach, it can cost an average of $233 per patient record to clean up the problem.

There is a thicket of state and federal statutes that regulate the protection of e-PHI. Both the Health Insurance Portability and Accountability Act (“HIPAA”) and the Health Information Technology for Economic and Health Act (“HITECH”) impose obligations on health care entities in the cyber security arena.

Significantly, there has been increased scrutiny of data breaches by the Office of Civil Rights (“OCR”) at the Department of Health and Human Services, which generally responds to data breaches by aggressive HIPAA enforcement. Recent amendments to the HIPAA breach notification rules require the health care industry to increase breach reporting, which will likely result in increased enforcement for non-compliance.

In a recent article in Law360 titled, “A Framework for Beating Health Care Hackers,” my colleague Alaap Shah observed that cyber risk analysis is key in preventing emerging cyber threats. “Hackers benefit when their activity goes undetected. Auditing helps to identify and assess system vulnerabilities. Using audit logs and tracking capabilities effectively can help organizations safeguard their systems from intrusion by hackers.”

Shah notes that an audit control framework exists under the HIPAA rules, which “require entities to implement hardware, software, and/or procedural mechanisms that record and examine activity in information systems that contain or use e-PHI.” Standards developed by the National Institute of Standards and Technology (“NIST”) can help organizations detect unauthorized activity within systems. Gaining this insight is necessary in identifying effective risk management solutions and strategies.

As health companies continue to avail themselves of 21st century digital technologies, security has naturally become a growth area within these organizations' operations and corporate executives are becoming increasingly involved in the management of privacy concerns.  As such, the responsibility for protection against hacking has stretched beyond its traditional purview within the IT department and into the highest levels of the executive suite.

To avoid the cost of data breach recovery with all of the attendant adverse publicity and possible regulatory sanctions, health care companies are utilizing HIPAA risk analyses and the NIST cyber security framework to implement effective controls to identify and monitor e-PHI risk.
 

Environmentalists Support Fracking But With Important Reservations

It is necessary that natural gas be substituted for coal and oil as an energy source if the world is to have any chance of avoiding runaway greenhouse gas (“GHG”) emissions, particularly from the developing world.

At present, it is unrealistic to expect renewable energy sources (solar, wind and geothermal) to serve as a foundation for national energy policy. In the United States, even with the best use of conservation, energy efficiency and renewables, the combination of these various “alternatives” will not become a substitute for fossil fuels for a very long time.

In a thoughtful article in the New York Law Journal on January 2, 2014, titled  “Countries Approach Fracking With Interest and Caution,” Stephen L. Kass, makes the case that natural gas from hydraulic fracturing should be an important component of a comprehensive energy strategy, both in the United States and abroad.  According to Kass, fracking is attractive to: (1) economists seeking to stimulate development; (2) national security officials seeking independence from unreliable oil suppliers; and (3) environmentalists who seek to avoid runaway GHG emissions, particularly from developing countries.

In the United States, fracking now accounts for a staggering 25% of domestic natural gas (a figure expected to rise to 50% by 2035). In addition to lowering energy costs, according to Kass, fracking is widely credited with reducing U.S. “carbon intensity” and GHG emissions.

Fracking places the environmental community between the proverbial rock and a hard place. On the one hand, environmentalists recognize that fracking offers enormous environmental benefits in terms of reduced GHGs. On the other hand, environmentalists continue to be concerned that fracking fluids may contaminate precious water sheds.

Therefore, it is the goal of the environmental community that the amount of water used in fracking be minimized through recycling, that double-walled drill shafts and other controls be effectively utilized to minimize fugitive methane releases, and that waste fluids be adequately treated on-site before being recycled, discharged to water treatment plants or re-injected. The oil and gas industry’s refusal to disclose the composition of its fracking fluids has become an unnecessary distraction from these key environmental concerns.

In the long run, environmental concerns are likely to be largely addressed by increased and more effective regulation and by self-policing by industry. From the standpoint of providing an inexpensive fuel to tens of millions of American homeowners, the stakes are simply too high for environmentalists, who support fracking with these reservations, to concede defeat. As industry continues to demonstrate that fracking can be performed in a safe and environmentally sound manner, opposition to the practice will most likely diminish.
 

NY High Court Opts Not To Expand Liability For Health Data Confidentiality Breach

The New York Court of Appeals ruling that came down last week in Doe v. Guthrie Clinic , 2014 NY Slip Op 00138 (Court of Appeals 1/9/14), should prove helpful in evaluating the liability of medical corporations in cases involving the disclosure of confidential patient information where the breach of confidentiality is unrelated to the patient's treatment. In Guthrie Clinic, a nurse at the clinic treating the plaintiff for sexually transmitted disease recognized the plaintiff as the boyfriend of her sister-in-law, prompting the nurse to send her sister-in-law a series of text messages concerning the boyfriend's medical condition (i.e. his STD).  The ruling came in response to the certification of a question to the New York Court of Appeals from the Second Circuit, which had earlier disposed of other of plaintiff's claims. 

The key holding in the Court of Appeals decision is that liability did not extend to the medical corporation because its "duty of safekeeping a patient's confidential medical information is limited to those risks that are reasonably foreseeable and to actions within the scope of employment".  The Court analogized the facts here to those in N.X. v. Cabrini Med. Ctr, 739 N.Y.S.2d 348, a 2002 case where the defendant hospital was not found strictly liable for a surgical resident's sexual assault on a sedated patient. 

The Court reaffirmed the rule that "under the doctrine of respondeat superior, an employer may be vicariously liable for the tortious acts of its employees only if those acts were committed in the furtherance of the employer's business and within the scope of employment".  Under both the facts of Cabrini and Guthrie, the tortious actions of the employee were not reasonably foeseeable.

In a decision handed down on March 25, 2013, the Second Circuit dismissed that part of plaintiff's claim seeking to hold the medical corporation liable under a theory of respondeat superior. The Second Circuit determined that the nurse's motive in disclosing confidential patient information was entirely personal. The Court certified to the New York Court of Appeals the question whether NY recognized a common law right of action for breach of the fiduciary duty of confidentiality against medical corporations under the facts presented. 

The dissent to the majority opinion of the Court of Appeals argued that a patient's disclosure of confidential information is necessary for treatment and that the patient has no control over what happens to this information.  The dissent argued further that, just as in the Cabrini case scenario, involving a sedated patient laying helplessly in her hospital bed, a medical corporation should be held to an independent duty to prevent an employee from acting outside the scope of his employment and  harming the patient. 

In response to the dissent, the majority rejoined that if the dissent fouind the majoritiy holding too "narrow", the "dissent's reasoning is flawed for the opposite reason; it is too broad."  The Court was clearly unwilling to impose a strict liability standard for the release of confidential medical information.

The Court of Appeals decision is well-reasoned and correct, but issues over alleged breach of patient confidentiality are sure to be raised again.  As the dissent noted, "technological advances have made it possible to collect and house patient data in ways accessible to a patient's doctor and other health care provider staff.  Computers and cellular devices have transformed medical record keeping and health care service provision, making access to such data fast and easy."  Confidential patient information is increasingly being transmitted via web and mobile devices--tablets and smartphones.  

Issues concerning what measures are reasonably required to keep these networks secure will no doubt be raised in the future.  

 

The Success Of The SDNY Mediation Program

The Mediation Program of the SDNY provides litigants in commercial litigation with an opportunity, generally early in their litigation, to resolve their disputes without going through the expense of full-blown discovery and the uncertainty of trial. 

As reflected in the Mediation Program's recently released Annual Report , individual judges referred 113 cases in general civil litigation (which does not include employment and civil rights claims).  Of that number, a successful resolution in mediation came about in 60% of the cases referred, an increase from 53% in 2012.  Considering the determination with which business disputes are litigated, a 60% successful rate is a remarkable achievement. 

Local Civil Rule 83.9, effective January 1, 2014, and other actions taken by the Court, have resulted in a more flexible, streamlined operation.  For example, in 2013, mediations could be conducted in the mediator's law office for the first time. In certain circumstances, conducting the mediation in an office, rather than at the courthouse, may result in greater convenience to the parties and their clients. It certainly makes the mediator's job easier. 

Rebecca Price, the Mediation Supervisor, has shared with the 396 pro bono mediators in the program some of the favorable feedback she has received from program participants.  Some comments from lawyers include the following:

“I think the mediator did a great job helping me where he presented me with
alternative strategies in going back with counter offers, and why they
should be higher rather than lower. Most of the numbers I presented were
fair, but the case had some problems and though I think my client should
have been offered more money - the final number was fair, and the employer
threw in a positive recommendation, something I'd never seen before. All in
all I felt it was a fair settlement and I learned from the mediator.”

“Given that opposing side had not responded to any attempts at negotiation
over several months, this was necessary and we accomplished in 3 hours what
we could not in several months.”

“The mediator and the Mediation Program were instrumental in settling the
case, which occurred the day after the second mediation session.”

“The mediator was very gracious with her time, and patient with the
parties. She was very helpful and her efforts are appreciated.”
 

Mediation can be particularly effective in resolving business disputes because counsel can structure an agreement that contains important business terms that, if the case proceeded to trial, would not necessarily come to the court's or the jury's attention.  The resolution of a business dispute can involve crafting precise terms, particularly when the parties have had a course of dealing over a long period of time.  The very best outcome in the mediation of a commercial dispute is one that satisfactorily resolves the matter and permits the parties' business relationship to continue. 

A Deal Is A Deal: Ecogen Wind Prevails In Windfarming Dispute

The New York Law Journal reported on January 2, 2014 that the Town of Prattsburgh, which, during the relevant time, had virtually no laws, codes or requirements on the books governing the installation of wind turbine facilities, was not permitted by the court to retroactively preclude Ecogen Wind from building a wind farm in Steuben County, New York.

In a unanimous Memorandum and Order issued by the Appellate Division, Fourth Department on December 27, 2013, in Ecogen v. Town of PrattsburghCA 12-02307 (4th Dept. December 27, 2013) the court applied traditional contract jurisprudence to prevent the Town of Prattsburgh from voiding the terms of a settlement of prior litigation with Ecogen Wind that permitted the wind farm development to proceed.

The court held that the “parties were bound by the terms of the settlement and the court was bound to enforce it.” In March 2009, Ecogen Wind was advised in writing by the Code Enforcement Officer for the Town of Prattsburgh that there was no legal impediment to building wind turbines within the municipality and that no permits were needed.

According to the Ecogen website, the company:

..... proposes to construct 34 ± wind turbine units for the purpose of generating 79.5 megawatts, or less, of electricity in the Town of Prattsburgh, Steuben County and the Town of Italy, Yates County, New York. An overall study area of approximately 24,000 acres was identified within which the individual sites for the turbine units will be selected.

Early on, Ecogen submitted an application to the Steuben County Industrial Development Agency ("SCIDA") for financial assistance relative to the proposed project.

In its role as lead agency, SCIDA initiated the environmental review process pursuant to the State Environmental Quality Review Act (6 NYCRR Part 617) and performed a coordinated review with other involved or interested agencies.  SCIDA issued a Positive Declaration, requiring preparation of an Environmental Impact Statement In accordance with 6 NYCRR Part 617. A Generic Environmental Impact Statement was selected as an appropriate means to assess potential impacts for the project.

Despite there being no applicable zoning law or building code provision, Ecogen Wind still sought formal town approval in an effort to accommodate local concerns about the project.  But Ecogen, which had the necessary state permits to proceed, was unable to reach agreement with the town and commenced an Article 78 action. The parties settled the case in late 2009 acknowledging that “no rules, permits or other authorizations from the town are required… to develop, construct and operate the project.”

Shortly thereafter, a new town board came into office that was unhappy with the deal struck by its predecessors. The new board repudiated the agreement, rescinded the settlement and imposed a moratorium on windfarming. As reflected by the Appellate Division’s decision, a municipality cannot have second thoughts and renege on the agreement once a settlement is reached.

Although it is difficult to gauge the intensity of the debate over the project without living in upstate New York and participating first hand, it may be inferred from a review of the website of Advocates for Prattsburgh that tensions were high among townspeople when the new town board came into office and sought to rescind the deal.

In its Mission Statement, Advocates for Prattsburgh makes an impassioned plea to support the opposition effort:  

Located in northern Steuben County and nestled between Keuka and Canandaigua Lakes, Prattsburgh, NY is an idyllic township of hills, woods and farms. Advocates for Prattsburgh is a not-for-profit, volunteer organization run and financially supported by and offering a voice to resident and non-resident Prattsburgh landowners, as well as concerned citizens in the surrounding towns. Two wind farm companies – Ecogen and UPC – plan to construct nearly one hundred, 400' high wind turbines in Prattsburgh, interspersed between the homes and properties of non-participating landowners. The noise, negative health effects, ice throws and overwhelming visual dominance of these huge industrial machines pose a severe threat to our town, the value of our property, our personal safety, and our freedom to live our lives in peace and quiet. Recent action by the Prattsburgh Town Board to use eminent domain to condemn the land of property owners who refused to grant easements to UPC for the Windfarm Prattsburgh Project should be a wake-up call for what is planned for our future and our freedoms.

Our position is not against wind power, but against the inappropriate siting of these industrial wind turbines. These massive, 400' high factories should be placed in an industrial park, in which all the property within its boundaries is contiguous and is either owned by, leased to, or easements voluntarily granted to the wind power companies. The siting of these turbines within this industrial park should also be set back from the properties lines of non-participating landowners sufficient to protect the personal health and safety of property owners, the value of their homes, and their desire not to be dominated by noise-making adjacent factories as tall as the pyramids of Egypt.

Public concerns over these potential environmental impacts, both real and imagined, represent the biggest challenge the wind industry faces in siting these projects.  A map of the project (as depicted by the Advocates for Prattsburgh) is attached.