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Archive for May, 2016

Change In 34-Hour Restart Rules Appears Likely

Posted on: May 24th, 2016

By:  Marc Bardack

Last week, the Senate passed a transportation funding bill providing for a change in hours of service rules for truck drivers.  The change proposed in the bill depends on the outcome of a currently pending safety fitness determination study being conducted by the Federal Motor Carrier Safety Administration.  In the Senate bill, there would either be a return to the now suspended 2013 34-hour restart rules or a return to the 2011 34-hour rules, but with a cap of 73 driving hours per 7 day period.

Meanwhile, in the House, the House Appropriations Committee has approved its 2017 Transportation, Housing and Urban Development funding bill (http://appropriations.house.gov/uploadedfiles/bills-114hr-sc-ap-fy2017-transhud-subcommitteedraft.pdf) which simply restores the 34-hour restart rules in effect on December 26, 2011.  The bill specifically does away with the requirement of two off-duty periods from 1:00 a.m. to 5:00 am and the prohibition on use of more than one restart during a consecutive 168-hour period – requirements from the 2013 rules which were subsequently suspended.

While much work and reconciling needs to be done before a bill can be sent to the President, it seems clear that changes and clarifications to the 34-hour restart rules are coming soon.  Carriers and their drivers should monitor this legislation to ensure timely compliance with federal regulations.

Sprouts Farmers Market Faces Class Action Lawsuit After Falling Prey to Phishing Scam

Posted on: May 24th, 2016

By:  Kacie Manisco

Sprouts Farmers Market, Inc. is one of the latest companies to fall prey to the recent series of phishing scams targeting employee W-2 data. As a result, the company has found itself defending against a class action lawsuit filed by employees and former employees whose personally identifiable information (“PII”) information was disclosed to the scammers, including Social Security numbers, full names, addresses and wage tax statements.

The common type of Internet scam involved in the Sprouts case is known as “phishing.”  This occurs when a hacker tries to trick a victim into divulging confidential information by masquerading as a trustworthy person making a legitimate request. Earlier this year, the IRS warned companies through a public advisory that there has been a 400% increase in phishing attacks reported so far.

According to the complaint against Sprouts that was filed on April 20, 2016 in the U.S. District Court for the Southern District of California, an email that was believed to be from a senior executive of the company allegedly asked a payroll employee for the 2015 W-2 statements from all Sprouts employees. The payroll employee believed the request was legitimate and complied by sending the requested information in response to the email before Sprouts realized that it was a phishing scam. Approximately 21,000 W-2s were disclosed, and the complaint alleges that the scammers have since used employees’ PII to fraudulently apply for tax refunds and open credit cards.

The complaint sets forth causes of action for negligence, violation of California Civil Code sections 1708.80 et seq. (including California’s data breach law), and unfair business practices in violation of California Business and Professions Code section 17200, alleging that Sprouts failed to properly safeguard information, and concealed that fact from its employees. The class members further allege that, while Sprouts offered 12 months of credit monitoring service, the service it chose does not protect against identity theft, and only notifies the consumer after identity theft or other fraudulent activity has occurred.

We will continue to monitor the case, so check back here for updates.  In the meantime, the Sprouts case highlights the danger of phishing scams and the extreme importance of educating your workforce about them.  Employees need to be informed about how to recognize phishing emails and told to not respond to them or click on any links or attachments they contain. In addition, it is a best practice for businesses to require verbal confirmation from the requesting person, either by telephone or in person, before any funds are transferred or confidential information is sent in response to an email request.

The Expanding Duty to Defend

Posted on: May 24th, 2016

By:  Phil Savrin

An insurance company’s duty to defend is broader than a duty to indemnify in at least three ways.  First, a duty to defend is often based on the allegations of facts, even if the allegations are groundless, whereas a duty to indemnify is determined by the facts as confirmed by the evidence.  Second, even if the facts are not in dispute, a duty to defend can exist if the claim is arguably covered by the terms of the policy, whereas the duty to indemnify may require legal construction of the policy’s provisions.  Lastly, an insurer’s duty to defend can extend to the entire lawsuit – including non-covered claim —  whereas the duty to indemnify would be limited to covered claims only.

Increasingly, courts sanction insurers for not defending claims against insureds, such as by allowing insureds to recover consequential damages beyond the costs of defense, and even finding waiver of coverage defenses for a wrongful refusal to defend.  Even if the insurer defends, coverage defenses can be lost if they are not timely included in a reservation of rights.  And in some locales, an insured can treat a reservation of rights as tantamount to a disclaimer of coverage, allowing it to settle claims on its own and pursue the insurer for reimbursement or even bad faith.

Given this landscape, insurers should carefully consider not only whether there is a duty to defend, but how far it extends, the terms under which a duty to defend should be provided, and in close cases the consequences of rejecting a tender of coverage by the insured.

SCOTUS Clarifies Standing Requirements in Long-Awaited Spokeo Opinion

Posted on: May 18th, 2016

By:  Matthew Foree

On Monday, the Supreme Court of the United States issued its anticipated opinion in the Spokeo, Inc. v. Robins case.  Robins alleged that Spokeo, which operates a “people search engine,” violated the Fair Credit Reporting Act by publishing incorrect information about him.  Among other things, Robins alleged that this publication affected his ability to obtain employment.  The Supreme Court addressed the issue of “[w]hether Congress may confer Article III standing upon a Plaintiff who suffered no concrete harm, and who therefore could not otherwise invoke the jurisdiction of a Federal Court, by authorizing a private right of action based on a bare violation of the Federal Statue.”  The Court vacated and remanded the case back to the Ninth Circuit, which had previously held that Robins sufficiently alleged standing.  Justice Alito delivered the Court’s Opinion and was joined by Chief Justice Roberts and Justices Kennedy, Thomas, Breyer and Kagan.  Justice Thomas filed a Concurring Opinion and Justices Ginsburg and Sotomayor filed a Dissenting Opinion.

The majority reviewed its Article III standing jurisprudence in making its decision.  It reiterated that the “irreducible constitutional minimum” of standing consists of three elements.  The plaintiff must have “(1) suffered an injury in fact (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.”   Additionally the court noted that the injury in fact element requires a plaintiff to show that he or she suffered “an invasion of a legally protected interest” that is both “concrete and particularized” and “actual or imminent, not conjectural or hypothetical.”

The majority determined that the Ninth Circuit’s injury in fact analysis did not consider the independent “concreteness” requirement, but that it only considered the “particularization” requirement that an injury “affect the plaintiff in a personal and individual way.”  The Court clarified that the injury in fact must be both concrete and particularized.  It noted that concreteness is different from particularization and requires an injury to “actually exist.”  The Court used the term “concrete” to mean “real” and not “abstract.”  The Court did recognize, however, that “concrete” is not necessarily synonymous with “tangible” such that intangible injuries can be concrete.  The Court tempered this statement by recognizing that this “does not mean that a Plaintiff automatically satisfies the injury in fact requirement whenever a statue grants a person a statutory right and purports to authorize that person to sue to vindicate that right.”  It clarified that Article III standing requires a concrete injury even in the context of a statutory violation.  For that reason, the Court held that Robins could not allege a bare procedural violation divorced from any concrete harm, and satisfy the injury in fact require of Article III.

The court distilled its analysis in the context of this case to two components:  “On the one hand, Congress plainly sought to curb the dissemination of false information by adopting procedures designed to decrease that risk.  On the other hand, Robins cannot satisfy the demands of Article III by alleging a bare procedural violation.”  The Court recognized that a violation of one of the FCRA’s procedural requirements could result in no harm.  It gave an example of a consumer reporter agency failing to provide the required notice to the user of the agencies consumer information when that information may be entirely accurate.  It also recognized that not all inaccuracies cause harm or present any material risk of harm, and gave an example of publishing an incorrect zip code.  It stated, “It is difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm.”

In sum, the Court found that the Ninth Circuit did not appreciate the distinction between concreteness and particularization, such that its standing analysis was incomplete.  Therefore, the Court vacated the judgement below and remanded the case for proceedings consistent with its opinion.

Finally, the Court stated that it took no position as to whether the Ninth Circuit’s ultimate conclusion that Robins adequately alleged an injury in fact was correct.  Accordingly, the Court passed on the ultimate issue for another day such that the decision is much narrower and provides less guidance than anticipated.  It remains unclear how the Ninth Circuit will handle Mr. Robins’s case on remand with the Court’s clarification, but it is possible that even that decision will find its way back to the Supreme Court.  Although the Court’s opinion includes certain language that may be helpful for defendants, the specific line-drawing as to what a plaintiff must allege to establish standing ultimately will be determined by the lower courts.  In the near term, the Court’s opinion will likely result in plaintiffs using inventive pleading to allege sufficient injury for statutory violations in an attempt to avoid dismissal for lack of standing.  This could create interesting issues in cases based on statutory violations for which it is difficult to allege concrete injury, such as Telephone Consumer Protection Act class actions, particularly in the context of cellular telephone calls made to wrong numbers.  In the meantime, we will continue to monitor any developments in this area.

Use of Adopted State-Wide Codes may Provide a NEW HOPE for Plaintiffs in Piercing State Law Official Immunity Protections

Posted on: May 13th, 2016

By: Charles Reed, Jr.

Grand Moff Tarkin: I think it is time we demonstrated the full power of this station[1].

The doctrine of official immunity, codified in the Georgia Constitution, bars state law claims against a public employee in his or her individual capacity. This constitutional bar provides tremendous power to eliminate lawsuits brought by persons against public employees. Defense counsel representing government entities and public employees have long used with success the twin ion cannons of motions to dismiss and motions for summary judgment to obliterate lawsuits filed by plaintiffs on immunity grounds without ever reaching a jury.

General Dodonna: The approach will not be easy. You are required to maneuver straight down this trench and skim the surface to this point. The target area is only two meters wide. It’s a small thermal exhaust port, right below the main port. The shaft leads directly to the reactor system. A precise hit will start a chain reaction which should destroy the station… Only a precise hit will set up a chain reaction

A public employee that negligently performs a ministerial duty or performs a discretionary act with actual malice is not shielded by official immunity. Over the past few years, Georgia appellate courts have denied dispositive motions if there were allegations that could establish a ministerial duty on the public employee’s part. These ministerial duties could arise from a written or unwritten policy, a supervisor’s specific directive, a statute or a county ordinance governing the conduct at issue. Plaintiffs have, with varying success, attempted to navigate the narrow chasm of immunity by alleging specific policies or state statutes purporting to establish a ministerial duty.

Commander #1: We’ve analyzed their attack, sir, and there is a danger. Should I have your ship standing by?  Grand Moff Tarkin: Evacuate? In our moment of triumph? I think you overestimate their chances.

Recently, a plaintiff’s attorney exposed another potential vulnerability that, in the hands of a skillful pilot, could lead to further erosion of the effectiveness of official immunity arguments at the motion stage. In October 2013, a high school student was severely burned during the course of a school science experiment and incurred more than $230,000 in medical costs. In her lawsuit, she cited several international fire codes, laws and regulations that had been incorporated into the State of Georgia’s fire safety code and adopted by county ordinance relating to the storage, handling and use of certain chemicals used during the science experiment. The suit alleged that these fire codes were mandatory and non-discretionary duties and the teacher, principal and school system’s failure to abide by these mandatory provisions amounted to violations of ministerial duties. Based in part on these allegations and the severity of the student’s injuries, the parties mediated the case and reached a settlement of $1.5 million.

Han Solo: Great shot kid, that was one in [$1.5] million!

Given the breadth and specificity of international building and other codes, defense counsel should not be overconfident and dismiss out-of-hand the potential impact that state codes could pose in widening the avenues in which official immunity may be attacked. Building codes, fire codes and other international standards have been incorporated by the State of Georgia and many counties and municipalities have, in turn, adopted these standards into their ordinances. While there is no definite appellate ruling yet, this case has at least exposed a danger that building codes and other codes could be used as yet another avenue in attempting to pierce the protection that official immunity provides to public employees.

[1] All quotes are from Star Wars: A New Hope. Lucas, G., Kurtz, G., Ford, H., Fisher, C., Hamill, M., Jones, J. E., Guinness, A., … Twentieth Century Fox Home Entertainment, Inc. (2004). Star wars: Episode IV. Beverly Hills, Calif: 20th Century Fox Entertainment.