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Third Circuit Rules Against the City of Williamsport in Lawsuit Filed Against Insurance Companies Based on Law Enforcement Policy Coverage

Posted on: June 14th, 2019

By: Michelle Yee

In 2015, there was major news coverage that a former Williamsport police officer pled guilty to involuntary manslaughter and several other charges. This case stems from a fatal automobile accident that occurred between James David Robinson and a Williamsport police officer. The officer was traveling at 101 mph with emergency lights and sirens activated on East Third Street, which has a 35-mph limit. The officer then passed three vehicles, including Robinson’s, and crashed into Robinson’s vehicle which burst into flames when it struck against a utility pole. Robinson’s mother sued the City and the police officer for the officer’s negligence and recklessness, which caused the fatal collision and death of Robinson. After the City unsuccessfully moved to dismiss the constitutional claims, this matter settled for $1,000,000.

The City filed a lawsuit against CNA Insurance and National Fire Insurance Company of Hartford, both of which has a $1 million limit, for refusing to provide more than $500,000 in total to cover for the settlement. This case, City of Williamsport v. CNA Insurance Companies and National Fire Insurance Company of Hartford, was recently heard before the United States District Court for the Middle District of Pennsylvania. The Defendants argued that their liability under the Automobile Policy is limited to $500,000 because the policy covers the “sums [the City] legally must pay as damages” and Pennsylvania law caps the state law tort liability against local agencies at $500,000. The Court rejected this argument and ruled that Defendants cannot dismiss this matter based on the City’s Automobile Policy because the state tort law does not place a liability cap for federal claims against the officer, which must be indemnified by the City. The court agreed with the City.

The City of Williamsport then argued that the Law Enforcement Policy’s coverage for civil rights violation should apply to this settlement. On the other hand, Defendants argued that the policy’s automobile exclusion precludes coverage. The Court held for the Defendants. It reasoned that the City sought to hold the office liable for his conduct while driving and the city is responsible for its supervision and training of its officers. Further, the court interpreted the language of the Law Enforcement Policy, as excluding coverage for damages arising out of the operation of any automobiles in the course of employment. Therefore, the Court dismissed the City’s claims to seek recovery under this policy because the damages were proximately caused by an automobile.

The Court finally dismissed the City’s insurance bad faith claim holding that the City did not allege that the Defendants “knew or recklessly disregarded the lack of reasonable basis when denying the City’s claims,” as required by law. However, the Court noted that this dismissal is without prejudice and the City may amend its Complaint to cure this deficiency.

For more information, please contact Michelle Yee at [email protected].

The State Bar of California Moves to Suspend Michael Avenatti’s Law License

Posted on: June 11th, 2019

By: Paige Pembrook

On June 3, the State Bar of California filed a petition to place attorney Michael Avenatti – infamous for his past representation of Stephanie Clifford (a.k.a. Stormy Daniels) and his own present legal woes – on involuntary inactive status, which is the first step toward disbarment. The State Bar action follows Avenatti’s indictment for his alleged embezzlement of millions of dollars from clients in California, conduct that the Bar says poses “a substantial threat of harm to clients or the public.”

The State Bar petition primarily focuses on the case of former Avenatti client Gregory Barela, who alleges that Avenatti illegally withheld settlement funds and then repeatedly lied about it. Barela alleges that Avenatti did not disclose receipt of Barela’s settlement funds despite Barela’s repeated inquiries over several months, that Avenatti refused to provide an accounting of the settlement funds as required by California law, and that Avenatti presented Barela with a falsified settlement agreement that misrepresented that dates that payment would be received.

The State Bar stated that Avenatti provided no defense or response to the State Bar investigators. Avenatti disagreed and stated that he “offered to cooperate with the Bar and instead they decided to issue a press release as a stunt.” Avenatti has until June 13 to file a formal response and request a hearing, or else he will waive his right to a hearing.

Although the allegations in the State Bar petition to suspend Avenatti’s license appear extreme, all attorneys should be wary of misappropriating client funds in violation of California Rules of Professional Conduct, Rule 1.15, and Business and Profession Code section 610. Under Rule 1.15, attorneys have a duty to properly hold, manage, and account for money held in trust on behalf of clients, and sometimes on behalf of others. An attorney violates Rule 1.15 when the attorney’s trust account balance falls below the amount required to be held on behalf of his or her clients, and it is due to a willful act of the attorney, regardless of the attorney’s explanation. If the Rule 1.15 violation occurs due to the attorney’s dishonesty, recklessness, or grossly negligent management of the client trust account, then the misappropriation of client funds also violates Business and Profession Code section 6106 and almost always results in severe discipline, including possible disbarment.

Whether or not they are in the public spotlight, all attorneys must attentively manage their client trust account to ensure that they always contain the amounts held on behalf of clients. Otherwise, those attorneys may be exposed to State Bar discipline, disbarment, and civil liability to their clients, just like Avenatti.

For more information, please contact Paige Pembrook at [email protected].

Dear California Legislature the Constitution Prohibits Ex Post Facto Laws

Posted on: June 10th, 2019

By: David Molinari

If you have practiced law in the State of California for an appreciable period of time you become numb to warnings from out-of-state clients and counsel bemoaning enactments by the state’s legislature that will doom business and cause exodus of industries from the state. We are a resilient people, capable of prospering despite the “well-intentioned” actions of the state’s governing bodies.  However, did the State Assembly really intend to draft a bill that violates California Constitution Article 1, Section 9 prohibiting ex post facto laws with California Assembly Bill 5, adding Labor Code 2750.3?

Assembly Bill 5 seeks to codify the recent California Supreme Court decision of Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal.5th 903 (2018.). In the Dynamex case, the State Supreme Court virtually eliminated the status of independent contractor. The California Supreme Court adopted an “ABC” test for determining whether workers are employees under California Wage Order laws. The test requires the hiring entity establish three elements to disprove employment status: (A) That the worker is free from control of the hiring entity in connection with work performance-both under the contract and in fact; (B) That the worker performs work outside the hiring entity’s usual business; and (C) That the worker is customarily engaged in an independent business of the same nature as the work performed.

Under Assembly Bill 5, the legislature seized on the ability to expand the categories of individuals eligible to receive benefits by creating a legislative instrument that would result in additional monies being deposited into the state via continuously appropriated funding from an expanded pool of employers. The Bill seeks to codify the Dynamex decision. But the legislature simply adopted the Supreme Court’s opinion which includes retroactive application. The legislative findings clearly show a financial purpose behind codifying Dynamex: The loss to the state of revenues from companies that use “misclassified” workers to avoid payment of payroll taxes, premiums for workers’ compensation, Social Security, unemployment and disability insurances. The Assembly clearly did not overlook or ignore retroactive application of Dynamex may subject this new pool of employers to criminal penalties they currently are not exposed to suffering. The Assembly in its findings concluded: Assembly Bill 5 “Would expand the definition of a crime.”

The Supreme Court held applying Dynamex retroactively was consistent with due process because the Court was “merely extending” principles previously stated in S.G. Borello & Sons, Inc v. Department of Industrial Relations, 48 Cal.3rd 341 (1989) and represented “no greater surprise than tort decisions that routinely apply retroactively.” The holding has been cited for authority for retroactive application by the 9th Circuit in Vasquez v. Jan-Pro Franchising as well as the State Courts of Appeal including the 4th District, Division 1 in Garcia v. Border Transportation Group, LLC, 28 Cal. App. 5th 558.

Codification of Dynamex threatens to create an ex post facto law that expands exposure to criminal penalties. Thus, it would seem to be in violation of California Constitution, Article 1, Section 9 that the legislature shall not pass ex post facto laws.  For example, the new pool of employers will be immediately subject to prosecution under California Labor Code Section 3700.5. Labor Code Section 3700.5 makes it a crime, punishable by imprisonment in the county jail for up to one year, or by a fine of not less than $10,000.00 or both, for any entity that fails to secure workers’ compensation insurance. A second or subsequent conviction is punishable by imprisonment for up to a year and a fine of not less than $50,000.00.

Article 1, Section 9 has been applied to past employment-related legislation; but only with respect to the Article’s prohibition against laws impairing the obligation of contract. The language of Article 1, Section 9 appears unambiguous and absolute. However, prior challenges have run into judicial interpretation that the Article may not be read literally and the prohibitions of Article 1, Section 9 may not be absolute; at least with respect to the impairment of contracts. The clause “is not to be read with literal exactness like a mathematical formula.” Torrance v. Workers’ Compensation Appeals Board, 32 Cal.3rd 371 (1982).

The guidelines for determining the constitutionality of a statute imposing an ex post facto criminal penalty applies a presumption against retrospective application unless the legislature expresses such specific intent. The legislature’s findings expressly stated Assembly Bill 5 “would expand the definition of a crime.” Is that enough of a legislative expression of intent even though the State Supreme Court only referenced civil “tort decisions” to justify retroactive application? Maybe we shouldn’t be numb to those warnings any longer.

For more information, please contact David Molinari at [email protected].

Protecting Seniors From Investment Exploitation – One Year Later

Posted on: June 3rd, 2019

By: Ryan Baggs

One year after the passage of the Senior Safe Act (the “Act”) the SEC, FINRA, and NASAA continue to emphasize the importance of “covered financial institutions” (“CFIs” or “CFI”) providing adequate training to all relevant employees for the protection of investors over the age of 65. If an employee undergoes proper training and reports a violation of the act in “good faith” and “with reasonable care” she/he will be immune from suit or issues related to the reporting. What’s even more of an incentive to CFIs, such as a large broker-dealer, is that if the broker-dealer properly trains and educates all of its representatives and a representative later reports a violation of the Act, the broker-dealer itself, not just the representative, will be immune from that suit. Each organization involved, as can be seen by the numerous articles and reminders regarding the Act’s one year anniversary, is eagerly dedicated to encouraging training and education related to the immunity benefits behind the Act.  As noted by FINRA President and CEO Robert Cook: “The Senior Safe Act seeks to empower financial professionals to detect and report cases of suspected abuse of senior investors and we believe it is important to broaden awareness and understanding of the Act throughout the securities industry.” (finra.org May 23, 2019 news release).

The goals of the SEC, FINRA, and NASAA are extremely important and beneficial to the industry in general; however, with all well-meaning intentions, there always exists the possibility of abuse. What is uncertain because of the brief history of the Act is exactly what “good faith” and “with reasonable care” mean or will mean in the future. Are there ways a CFI or representative will be able to manipulate the Act to avoid liability or litigation? Almost undoubtedly, but how is remained to be seen. But overall, despite the possibility of some abuse at some point, the purpose of the Act and dedication to protecting seniors from investment and elder abuse is an admirable step in the industry.

For more information, please contact Ryan Baggs at [email protected].

Hiring Summer Employees? Make Sure Your Business is Covered.

Posted on: June 3rd, 2019

By: Allison Hyatt

Summer is here and many businesses are looking to hire additional employees to cover the influx of business inspired by vacation season. One option is to use a temporary employment staffing agency to cover seasonal employee needs. Staffing agencies usually provide their own worker’s compensation and employment practices liability (EPL) insurance. However, what if an accident occurs and a seasonal employee hired through a staffing agency files a personal injury tort claim against both the business and the agency? Business owners may be surprised to find themselves in a situation where the exclusive remedy of their state’s workers compensation statute may not apply to the claim against the business. The surprise may turn to shock when the claim is further denied by the business’ commercial general liability (CGL) insurer, citing the common exclusion for bodily injury to an employee.

How can businesses avoid this coverage gap? It is important to examine the definition of an “employee” in the CGL policy’s employee exclusion, which may include “leased employees” and “temporary employees.” Depending on your jurisdiction, both leased employees and temporary employees can be deemed employees of just the outside staffing agency or both the staffing agency and the business.  In the dual employment situation, which is usually a factual determination, the business would be covered by its own worker’s compensation insurance. Businesses can increase their coverage by requesting an endorsement to their CGL policy eliminating temporary and leased workers from the employment exclusion, just in case they find themselves in the situation described above.

For more information, please contact Allison Hyatt at [email protected].