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Archive for the ‘Commercial Liability’ Category

Will the Las Vegas Tragedy Change the Hospitality Industry?

Posted on: December 8th, 2017

By: America Vidana

Hundreds of victims of the 10/1/2017 mass shooting in Las Vegas have filed several suits in both, California and Nevada courts against Mandalay Bay, MGM Resorts and LiveNation. The victims accused the hotel operator MGM Resorts International and its subsidiary Mandalay Corp, which owns the hotel, of failing to properly monitor the shooter’s activities, train staff members and employ adequate security measures.

Additionally, the lawsuits accused the concert promoter, LiveNation, and the concert venue owner, also MGM, of failing to design, build or mark adequate emergency exits and to properly train and supervise employees in an appropriate plan of action in case of an emergency.

In order to prevail in such cases, a plaintiff must prove that the premises operators were negligent and the incident was reasonably foreseeable. Given the instant facts and the history of lawsuits following mass shootings, this will be an uphill battle for the victims unless they can show Mandalay Bay, MGM Resorts and LiveNation were careless and could have done more to prevent the shooting.

The shooter, 64 year-old Stephen Paddock, was a retired multi-millionaire, who invested in real estate, gambled for fun and had no criminal antecedents. He reportedly was a “high-roller,” who was well-known in the gambling world and frequented casinos such as Mandalay Bay, for weeks at a time. By all means, the shooter did not display any unusual or suspicious behavior that may have alerted Mandalay Bay security of a potential threat to safety.

Arguments have been made that Mandalay Bay security should have been more vigilant of the 23 legally-purchased guns, including high-caliber assault weapons, the shooter took to his room over the course of three days, or alternatively, that some inspection procedure, whether metal detectors or bag checks, should have been in place to detect such weapons. While Mandalay Bay in addition to every major Las Vegas casino spends hundreds of thousands of dollars yearly to catch illegal gamblers, it somehow failed to detect the plethora of artillery being transported through its casino floor. The shooter reportedly also installed cameras in the hallways, and declined room service for several days—bringing into question Mandalay Bay’s policies regarding room service and duration between checking a guest’s room.

Even more damaging to Mandalay Bay, a security guard was allegedly shot several minutes before the mass shooting ensued. Strangely, there was a six-minute lapse in Mandalay Bar’s response time from the initial shooting of the guard to the actual mass shooting. This will likely be one of the bigger issues MGM will face, as this arguably should have provided notice of the danger, and plausibly provided a reasonable opportunity to minimize, if not prevent the casualties.

However, the litigation trail following mass shootings have largely favored the establishment. Notably, in a similar suit arising out of the Aurora, Colorado theater mass shooting at a showing of The Dark Knight Returns, the court dismissed claims of those injured against the theater because the crime was not foreseeable at the time and because the crime was an intervening and superseding cause of the harm. While not directly applicable in the 9th Circuit, the court’s rationale and legal principles will surely be persuasive. But being the first such presentation of a case against the hospitality juggernaut, the court’s decision could set new precedent on industry standards for safety and emergency response.

For further information or for further inquiries involving hospitality law, you may contact America Vidana of Freeman Mathis & Gary, LLP, at [email protected].

Flip It and Reverse It: The Outside Reverse Veil Piercing Theory Gains Ground in California

Posted on: November 28th, 2017

By: Kristin A. Ingulsrud

California’s Fourth Appellate District has determined that “outside reverse veil piercing” may be a means of reaching a Limited Liability Company’s assets. In Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214, the court held that a Delaware LLC could be liable for a judgment against the 99% owner of the LLC.

A corporation or LLC is considered a separate legal entity, distinct from its officers, directors, stockholders, or members. A fundamental benefit to forming a corporation or LLC is shielding the personal assets of the individuals from liability for the debts or actions of the company.  However, where the corporate form is misused, a court may “pierce the corporate veil” and hold the individual liable for the actions of the company.

Conversely, reverse veil piercing occurs when a business entity is held liable for the debt of an individual. Outside reverse veil piercing refers to a request from an outside third party to satisfy the debt of an individual through the assets of a business entity of which the individual is an insider.

California courts apply two general requirements when deciding whether to disregard a corporate entity: “(1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow.” Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300.

Up until now, California courts have not been receptive to outside reverse veil piercing. In Postal Instant Press, Inc. v. Kaswa Corp. (2008) 162 Cal.App.4th 1510, the court held that a third party creditor may not pierce the corporate veil to reach corporate assets to satisfy a shareholder’s personal liability.

Postal Instant Press remained the reigning authority on outside reverse veil piercing in California until the issue was revisited in Curci Investments, LLC v. Baldwin.  Curci obtained a $7.2 million judgment against Baldwin personally.  Curci motioned the court to add one of Baldwin’s investment LLCs, “JPBI”, as a judgment debtor, as he had been unsuccessful in collecting on the judgment against Baldwin.  Curci argued that Baldwin held virtually all the interest in JPBI, controlled all of its actions, and used it as a personal bank account.  The Fourth District Court of Appeal concluded that reverse veil piercing may be available under these circumstances and remanded the matter for the trial court to engage in the required factual analysis.

Curci is groundbreaking because it limits Postal Instant Press’s holding to corporations and opens the door for application of outside reverse veil piercing to LLCs.  The Curci court held that the same factors used in evaluating traditional veil piercing cases should be applied to reverse veil piercing and concluded that “the key is whether the ends of justice require disregarding the separate nature of JPBI under the circumstances.”  In so holding, Curci opens the door to further expansion of reverse corporate veil piercing in California.

A properly-formed and maintained business entity can prevent veil piercing.

If you have any questions or would like more information, please contact Kristin Ingulsrud at [email protected].

11th Circuit Does Not Mesh Around and Upholds $27M Judgment

Posted on: November 13th, 2017

By Samantha Skolnick

In a recent decision by the U.S. Court of Appeals for the Eleventh Circuit, the Court upheld almost $27 million in judgments against Boston Scientific Corporation (BSC). The consolidated cases stemmed from women who claimed to have had complications from their surgeries using BSC’s Pinnacle Pelvic Floor Repair Kit to correct pelvic organ prolapse. The complications included exposure of pieces of mesh requiring further surgical procedures, loss of vaginal sensitivity, pelvic pain and pressure, incontinence and painful intercourse.

After a jury trial in 2014, each woman was awarded more than $6 million dollars. On appeal, the Eleventh Circuit held that the district court exercised the appropriate amount of discretion when it consolidated the actions and when it disallowed certain FDA evidence. The FDA evidence was related to the regulatory scheme and clearance of the Pinnacle for sale pursuant to the 510 (k) “substantial equivalence” process. The Court excluded this evidence under Fed. R. Evid. 402 and 403 on the basis that it was irrelevant and prejudicial. In so doing, the Court found that positive completion of the Section 510(k) process was immaterial to the product’s safety. The Court cited to the district court’s explanation that “[i]f 510(k) does not go to a product’s safety and efficacy — the very subjects of the plaintiffs’ products liability claims — then evidence of BSC’s with 510(k) has no relevance to the state law claims in this case.” The Court found that the concern with prejudice and confusion substantially outweighed the probative value of the evidence, which separated from any clear showing of safety review for the device or a device of a similar nature was minimal. The evidence had diminished probative value because 510(k) “operate[s] to exempt devices from rigorous safety review procedures.”

The key take away: the Federal Rules of Evidence and the ever-present 403 balancing test must always be in the back of your mind, especially in products liability cases.  An entire case can fall apart at the stitches (or sutures) when evidence is deemed inadmissible when the probative value does not outweigh the prejudice.

If you have any questions or would like more information, please contact Samantha Skolnick at [email protected]

What Do You Call Your Chicken?

Posted on: November 9th, 2017

By: Jason C. Dineros

McDonald’s, the world’s second largest fast food chain (behind Subway, for those wondering), is facing a potential class action for advertising its food items containing chicken breast as being comprised of “100%” breast meat. Primarily targeting the Golden Arches’ advertising of its premium-priced, no-longer-a-cheap-date artisan chicken sandwiches, the proposed New York class action alleges these items also contain rib meat.

With the Food and Drug Administration’s implementation of mandatory food nutrition disclosures for all restaurants with at least 20 locations, and the paleo diet attracting nearly as many bandwagoners as the Los Angeles Dodgers, the trend of fast food dining for the last several years has been healthy and nutritious. Naturally—no pun intended—sourcing organic, farm-to-table, less-processed foods comes with it higher food costs.  But surprisingly, diners have been willing to fork over the premium.

While salads remain “puzzles” in fast food menu classifications (since at the end of the day, everyone has been guilty of intending to order “healthy”—only to somehow word-vomit, “I’ll get a #1 with a Coke,” like the first time they told their childhood crush they liked them), there has been a steady increase in premium-ingredient sandwiches, and with it, the increased challenge of controlling food costs. But the even greater challenge then comes of not only controlling the bottom line, but also maintaining brand integrity and avoiding false advertising lawsuits.

For further information or for further inquiries involving hospitality law, you may contact Jason C. Dineros, the Chair of the Hospitality Law Practice Team of Freeman Mathis & Gary, LLP, at [email protected].

Ongoing … Ongoing … Gone! — California Finds Ambiguity in Additional Insured Endorsements Addressing Ongoing Operations

Posted on: October 30th, 2017

By: Zach Moura

In two recent published decisions, the California Court of Appeal held that additional insured endorsements (“AIE”) intended to limit coverage to damages sustained while the insured is performing ongoing operations were ambiguous.

In Pulte Home Corporation v. American Safety Indemnity Company, an appeal from a coverage action related to two underlying construction defect lawsuits, the Court of Appeal concluded the AIE did not expressly exclude the policies’ completed operations coverage. Pulte Home Corporation v. American Safety Indemnity Company (2017) 14 Cal.App.5th 1086.

In the underlying action, homeowners sued the general contractor and developer, Pulte Home Corporation, for alleged foundation, electrical, and waterproofing defects.

Several of Pulte’s subcontractors purchased CGL policies with American Safety Indemnity Company, including completed operations coverage. The AIE named Pulte as an additional insured “but only with respect to liability arising out of ‘your work’ … only as respects ongoing operations [or alternatively work ‘which is ongoing’] performed by the Named Insured for the Additional Insured on or after” the AIE’s effective date.

American Safety denied Pulte a defense to the lawsuits, arguing in the coverage action the AIE properly removed completed operations coverage for additional insureds. The trial court disagreed, ruling American Safety owed Pulte a duty to defend because the AIE’s reference to “ongoing operations” was ambiguous and failed to expressly exclude completed operations coverage.

The Pulte court affirmed the judgment, rejecting American Safety’s argument that the “ongoing operations” language constituted “a limiting term excluding completed-operations coverage”. The court’s final word on the issue can be read as an instruction to subcontractors and their insurers: “If the ‘ongoing operations’ language was meant by American Safety to preclude coverage for completed operations losses, it had to expressly state ‘that coverage was limited to claims arising from work performed during the policy period.’”  Id. at 1116.

In the other recent case construing ongoing operations language in an exclusion, Global Modular, Inc. v. Kadena Pacific, Inc., the Court of Appeal narrowly interpreted exclusions j(5) and j(6) of a standard ISO CGL, affirming a ruling finding of coverage for the additional insured. Global Modular, Inc. v. Kadena Pacific, Inc. (Sept. 8, 2017) 15 Cal.App.5th 127, 137.

In Global Modular, a general contractor (Kadena) hired to build a rehabilitation center subcontracted the tasks of building, delivering, and installing the modular units that comprised the rehabilitation center to Global Modular, Inc. Global delivered the units covered only by a ¾” sheet of plywood, as agreed (the roofing was to be completed by a different subcontractor). The units were delivered in October and November – not an ideal time to leave rooms exposed to the elements with only plywood for protection. (Global covered the units with tarps, which unsurprisingly did not save the units from interior water damage when the rain came).

In finding coverage, the Global Modular court held “the active, present tense construction” of the phrase “are performing operations” in exclusion j(5) of the ISO CGL only excludes damage caused during physical construction activities, as opposed to damage to any of an insured’s uncompleted work in progress. Id. at 139. The court also held the language “particular part” of exclusion j(6) refers to components of a structure, not the structure as a whole. The court noted that while the only arguably defective “parts” of Global’s work were the plastic tarps that failed to keep water out, it was not an undisputed fact the tarps were faulty or Global’s placement of them incorrect, and there was no allegation the items for which Kadena sought repair and replacement costs were themselves defective. Id. at 141.

The Global Modular court’s narrow construction of the AIE meant that exclusions j(5) and j(6) did not exclude coverage for water damage to the modular units’ interiors. And because Kadena incurred delay damages while it repaired property damage to which the CGL applied, the delay damages were covered under the policy’s insuring clause.

Conclusion

Pulte and Global Modular make clear that insurers in California intending to cover only ongoing operations must be aware that such limitations are out of favor, and if they intend to exclude completed operations must include language that clearly and expressly does so. Further, because the Pulte court relied in part on the developer/GC’s reasonable expectation of coverage from the AIE, a subcontractor’s insurer will need to take that into consideration when considering the wording of any exclusion it intends to rely on.

If you have any questions or would like more information, please contact Zach Moura at [email protected].