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Multi-Million Dollar California Verdict Affirmed Despite Questionable Causation

Posted on: March 6th, 2018

By: Theodore C. Peters

Image result for car accidentProof of causation is a frequently debated topic in tort cases where the battle between “possible” and “probable” is bitterly fought.  Tort victims are left empty-handed unless they can sufficiently demonstrate the causal connection between the defendant’s conduct and the harm that befell them.  Speculation or conjecture is insufficient; a plaintiff must prove more.  But how much more, and where is the line drawn when there is no direct evidence supporting a causal connection and where it is equally plausible that the defendant’s act or omission did not cause the harm in question?  The California court of appeal, In Dunlap v. Folsom Lake Ford, recently provided some guidance.

In Dunlap, the plaintiff suffered personal injuries while driving a truck that flipped after its steering allegedly locked up.  The defendant car dealership admitted that a previous owner complained of similar steering problems, and there was evidence that the dealership had diagnosed a problem with worn ball joints, but denied that this was  the cause of the accident.  Rather, the defendant asserted that the accident occurred after the truck and the van it was towing jackknifed when the van suffered a blow out.  Prior to the litigation, the insurers took action to destroy both the truck and the van for salvage, so the parties’ experts were unable to physically inspect the vehicles and instead were limited to photographs which were admitted into evidence.  The photographs were inconclusive and the parties’ experts thus offered competing opinions of their respective interpretation of this evidence.

The defense accident reconstruction expert opined that, as a consequence of the jackknifing vehicles the truck was forcefully pushed, resulting in the equivalent of a PIT (police-intervention technique) maneuver which pushed the truck into a counterclockwise spin causing the accident.  In contrast, the plaintiff’s expert testified that “it was ‘more likely true than not’ that the worn-out ball joints caused the accident, and it was ‘not at all’ a close call.  In his opinion, if the ball joints had been replaced, ‘we would not be here today.’”  The court also noted that “[t]here was evidence that a particular defect (worn ball joints) was present in the truck, and that [the dealer] was aware the ball joints could cause steering lock and needed to be replaced but failed to replace them or verbally advise the owner to do so.”

The jury found in favor of the plaintiff and awarded over $7.4M in damages.  On appeal, the dealership claimed that, because there was no physical evidence that could confirm plaintiff’s expert’s opinion, plaintiff’s evidence as to causation was speculative and plaintiff’s expert should not have been permitted to testify that the ball joints were worn sufficiently to prevent steering.  In finding that the record supported a finding of causation based on non-speculative evidence, the court stated: “Expert testimony on causation can enable a plaintiff’s case to go to the jury only if it establishes a reasonably probable causal connection between the act and the injury… A possible cause only becomes “probable” when, in the absence of other reasonable causal explanations, it becomes more likely than not that the injury was a result of its action.  This is the outer limit of inference upon which an issue may be submitted to the jury.”  The appellate court concluded that substantial evidence supported the jury’s finding of causation, and affirmed the judgment.

The Dunlap opinion is consistent with a growing body of case law that favors letting juries decide issues of questionable causation where the proof satisfies a “more likely than not” standard.  While mere speculation and conjecture are certainly not enough, circumstantial evidence and reasonable inferences that can be drawn from such evidence are sufficient proof of causation to support a jury verdict.

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

Continuing Fiduciary Relationship Does Not Always Toll the Statute of Limitations in California

Posted on: March 5th, 2018

By: Brett C. Safford

Image result for finance

In Choi v. Sagemark Consulting, 18 Cal. App. 5th 308 (2017) (“Choi”), plaintiffs, husband and wife, filed a lawsuit in November 2010 alleging that defendants, their former financial advisors, offered negligent and fraudulent financial planning advice with respect a complex investment program involving life insurance and annuities under former section 412(i) of the Internal Revenue Code (“IRC section 412(i) Plan”).  Audited by the IRS in 2006, Plaintiffs alleged that defendants misrepresented the IRC section 412(i) Plan’s promised benefits as well as its risk of adverse IRS action and tax consequences.  The audit concluded in 2009, and plaintiffs were subject to significant penalties and tax liabilities caused by the IRC section 412(i) Plan.

Defendants moved for summary judgment, arguing that plaintiffs’ causes of action were barred by the applicable statutes of limitation.  Defendants introduced two communications to show that plaintiffs were aware the IRS had identified defects in the IRC section 412(i) Plan as of November 2006, and IRS penalties and damages would be accruing as of September 2007. Trial court granted summary judgment, finding that plaintiffs were on notice of the IRS penalties as of September 2007, and therefore, the two-year and three-year statutes of limitations applicable to plaintiffs’ causes of action expired prior to filing of the complaint in November 2010.

The Court of Appeal affirmed, rejecting plaintiffs’ arguments that (1) the September 2007 e-mail only put plaintiffs on notice that damages might occur in the future, and (2) the fiduciary or confidential relationship between plaintiffs and defendants, as their financial advisors, tolled the statute of limitations.  Applying the general “discovery rule,” the court concluded that the plaintiffs discovered or should have discovered defendants’ negligent advice as of the September 2007 e-mail because that e-mail indicated “‘legally cognizable damage’ in the form of IRS penalties.” Choi, 18 Cal. App. 5th at 330.  Despite uncertainty as to the monetary amount of the penalties, “‘the existence of appreciable actual injury does not depend on the plaintiff’s ability to attribute a qualifiable sum of money to consequential damages.’” Id. at 331.  The court further held that tolling did not apply, even though the fiduciary relationship between plaintiffs and defendants continued while they collectively challenged the IRS assessment, because “[d]elayed accrual due to the fiduciary relationship does not extend beyond the bounds of the discovery rule.” Id. at 334.  Therefore, the court “decline[d] to apply the tolling principles to a scenario in which the defendants had disclosed the facts necessary to support’ the plaintiff’s cause of action.” Id.

The Court of Appeal’s analysis in Choi is significant in the professional liability context for two reasons.  First, the court reaffirmed that the general “discovery rule,” i.e., the statute of limitations period begins to run when a plaintiff discovers or should have discovered the cause of action, is the default rule for when causes of action accrue in professional liability cases.  The Court rejected plaintiffs’ attempt to apply a differing accrual rule applicable only to accounting malpractice actions arising from negligent preparation of tax returns.  The court explained, “It may be that actual injury results from an accountant’s allegedly negligent preparation of tax returns only as determined by an IRS audit, but the same cannot be said for more wide-ranging categories of negligent tax-related or investment advice.” Choi, 18 Cal. App. 5th at 328.

Second, and more importantly, the appellate court declined to toll the statute of limitations even though plaintiffs and defendants maintained a fiduciary relationship while challenging the audit.  California recognizes that certain cases involving a fiduciary obligation will toll the statute of limitations.  For example, the statute of limitations in a legal malpractice action is tolled while “[t]he attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred.” Cal. Civ. Proc. Code, § 340.6, subd. (a)(2).  However, in Choi, the court held that the discovery rule is not displaced by delayed accrual due to a fiduciary relationship—at least in the financial advisor-client context.  The court reasoned that Plaintiffs were on inquiry notice of the facts constituting their injury as of September 2007, and their continuing relationship with defendants “did not prevent or delay [them] from discovering the wrongdoing beyond September 2007.” Choi, 18 Cal. App. 5th at 335.

The Court of Appeal’s decision in Choi undermines the commonly asserted proposition that a continuing fiduciary relationship will toll the statute of limitations and reaffirms the importance of the “discovery rule.”  At least in professional liability cases involving financial advisors, plaintiffs cannot hide behind their fiduciary relationship with defendants to avoid a statute of limitations defense.  Rather, the central inquiry is when did plaintiffs discover their causes of action—regardless of whether the discovery occurred before or after the termination of the fiduciary relationship.  As such, the Choi decision provides valuable authority for professional liability defense attorneys, especially those representing financial advisors, in cases where the statute of limitations may offer a defense.

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

Non-Pennsylvanians Can Sue Pa. Businesses for Out of State Transactions Under the Pennsylvania Unfair Trade Practices Consumer Protection Law

Posted on: March 2nd, 2018

By: Erin E. Lamb

Related imageCitizens from outside Pennsylvania can now sue Pennsylvania businesses for transactions that occurred outside the commonwealth, under the Pennsylvania Unfair Trade Practices Consumer Protection Law (UTPCPL). The Pennsylvania Supreme Court, in a unanimous ruling, affirmed such to the U.S. Court of Appeals for the Third Circuit in the class action suit Danganan v. Guardian Protection Services. The Third Circuit had certified the question to the Supreme Court of Pennsylvania. Previously, the District Courts within the Third Circuit had held repeatedly that the UTPCPL only applied to Pennsylvania business regarding Pennsylvania transactions.

Plaintiff Jobe Danganan sued Pennsylvania-based UTPCPL under the UTPCPL after he continued to be billed for a home security system in a Washington, D.C., house aft he had moved and after he had cancelled the contract. The district court ruled against him and he appealed to the Third Circuit.

Danganan argued that the language of the UTPCPL, specifically the terms “person,” “trade” and “commerce,” did not denote a specific geographic requirement, according to the Supreme Court’s opinion written by Chief Justice Thomas G. Saylor. The Court agreed. “Respecting the specific terms employed by the UTPCPL, we agree with appellant’s observation that the plain language definitions of ‘person’ and ‘trade’ and ‘commerce’ evidence no geographic limitation or residency requirement relative to the law’s application,” Saylor said. However, the law does state that it applies to conduct that “directly or indirectly affect[s] the people of this commonwealth.” Saylor, writing for the Court, did away with that clause by stating “that phrase does not modify or qualify the preceding terms. Instead, it is appended to the end of the definition and prefaced by ‘and includes,’ thus indicating an inclusive and broader view of trade and commerce than expressed by the antecedent language.”

Saylor also said the statute is meant to be construed liberally as it covers an expansive breadth of conduct. “In this respect, we recognize, as we previously have, the wide range of conduct the law was designed to address, including equalizing the bargaining power of the seller and consumer, ensuring the fairness of market transactions, and preventing deception and exploitation, all of which harmonize with the statute’s broad underlying foundation of fraud prevention,” Saylor said.

This has far-reaching implications for Pennsylvania’s businesses, particularly in the context of class actions like the one at issue in this case. (Its application to a certain global telecommunications conglomerate that is the largest broadcasting and cable television company in the world by revenue certainly springs to mind.)

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

Second Circuit Joins Seventh Circuit In Holding That Title VII Prohibits Discrimination On Basis Of Sexual Orientation

Posted on: March 1st, 2018

By: Bill Buechner

The Second Circuit which covers New York, Connecticut and Vermont, has issued an en banc decision holding that Title VII prohibits discrimination on the basis of sexual orientation. Zarda v. Altitude Express, 2018 U.S. U.S. App. LEXIS 4608 (2d Cir. Feb. 26, 2018). The Seventh Circuit issued an en banc decision almost a year ago reaching the same conclusion.

The 10-3 decision is very lengthy and includes various concurring and dissenting opinions. The Second Circuit cited four primary grounds for its holding. First, the Court concluded that sexual orientation discrimination is merely a subset of sex discrimination, and that an employer cannot discriminate against an employee based on sexual orientation without reference to the employee’s sex. Second, the Court concluded that “but for” the employee’s sex, the employee would not have been terminated. In other words, the male employee was terminated because he is attracted to men, whereas a female employee who is attracted to men would not have been terminated. Third, the Court concluded that sexual orientation discrimination constitutes gender stereotyping that is unlawful under Price Waterhouse.  Finally, the Court concluded that sexual orientation discrimination constitutes association discrimination that is already prohibited by Title VII.

As previously discussed here, in Evans v. Georgia Regional Hospital, 850. F3d 1248 (11th Cir. 2017), the Eleventh Circuit re-affirmed prior circuit precedent and held that Title VII does not prohibit discrimination on the basis of sexual orientation.  The Eleventh Circuit subsequently declined to hear the case en banc, and the Supreme Court denied the plaintiff’s petition for certiorari in that case.

The Zarda decision increases the likelihood that other circuits (perhaps including the Eleventh Circuit) will revisit whether Title VII prohibits sexual orientation discrimination, and also increases the possibility that the Supreme Court may eventually decide to resolve this issue.  In the meantime, employers should monitor federal case law developments in their jurisdiction and keep in mind that the EEOC has taken the position that Title VII prohibits discrimination on the basis of sexual orientation.

If you have any questions or would like additional information, you may contact Bill Buechner at [email protected].

Supreme Court Declines to Hear Data Breach Standing Case

Posted on: February 23rd, 2018

By: Amy C. Bender

The ongoing issue of when a plaintiff has grounds (“standing”) in data breach cases saw another development this week when the U.S. Supreme Court declined to weigh in on the debate.

CareFirst, a BlueCross BlueShield health insurer, suffered a cyberattack in 2014 that was estimated to have exposed data of 1.1 million customers. Affected customers filed a federal class action lawsuit in the District of Columbia claiming CareFirst failed to adequately safeguard their personal information. CareFirst asked the court to dismiss the case, arguing that, since the customers had not alleged their stolen personal data had actually been misused or explained how it could be used to commit identity theft, the customers had not suffered an injury sufficient to give them standing to sue and the court therefore lacked jurisdiction to hear the case. The court agreed with CareFirst and dismissed the case. Notably, in this particular breach, CareFirst maintained the hackers had not accessed more sensitive information such as the customers’ Social Security or credit card numbers, and the court found the customers had not alleged or shown how the hackers could steal the customers’ identities without that information. In other words, the mere risk to the customers of future harm in the form of increased risk of identity theft was too speculative.

The customers appealed this decision, and the appellate court reversed, finding the district court had read the customers’ complaint too narrowly. The appellate court reasoned that the customers actually had asserted their Social Security and credit card numbers were included in the compromised data and that they had sufficiently alleged a substantial risk of future injury.

In response, CareFirst filed a petition with the Supreme Court asking it to review the appellate decision. This would have been the first pronouncement on this issue from the high court in a data breach class action lawsuit, a move long-awaited by lower courts, lawyers, and their clients in order to gain more clarity on the application of prior decisions like Spokeo in the specific context of data breach litigation. However, the Supreme Court denied the request (without explanation, as is typical).

As we have reported here and here, courts continue to grapple with the contours of standing in data breach cases. We will continue to monitor and report on developments in this still-evolving area of the law.

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