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Archive for October, 2017

Dealing with Discovery Dangers in Bad Faith Litigation

Posted on: October 25th, 2017

By: Jessica C. Samford

Whenever an insurer could be facing a bad faith claim, what documents may be discoverable during litigation is an important consideration. While the ultimate outcome hinges on specific circumstances of the case, the discovery rules of the applicable jurisdiction is a major factor. Regardless of which state or federal laws apply, counsel often attempt to obtain the broadest scope of documents, which could include the claims file, underwriting file, internal communications, personnel files, claims of other insureds and claims handling procedures.

Although relevancy objections, as well as work-product and attorney-client communication privileges, can be asserted, a proactive rather than reactive approach is better. This is especially true because the scope of protection provided by work-product doctrines for documents created in anticipation of litigation is typically a qualified protection that can be overcome by showing substantial need for the documents and might not protect documents from production in discovery if they were created in the ordinary course of business of claims handling. Even further, it is possible for attorney-client privileges that are asserted based on the relationship between the insured and the attorney hired by the carrier to defend the insured to be waived by the insured. That means that despite the common interest the carrier and the insured once shared in the defense against the third-party claimant, in bad faith litigation, these attorney-client communications could now be discoverable. Therefore, best practice is to keep communications with counsel about defending the insured’s liability separate from communications with counsel about coverage defenses.

One option is to seek to bifurcate or stay discovery on bad faith claims and limit discovery to whether there is coverage under the policy before evidence of bad faith is addressed. The ideal way to accomplish this would be with the consent of opposing counsel early on so that, if necessary, it can be part of a discovery order or, in federal cases, a joint proposed discovery plan for court approval. If opposing counsel does not agree, this relief can be sought by motion to the court.

However, courts may not always grant such relief without consent of all parties. In Virginia, for example, a federal district court recently declined to bifurcate or stay discovery on the bad faith portion of the lawsuit for breaches of contract plus extracontractual attorneys’ fees and costs. Federal judges have the discretion to separate issues “for convenience, to avoid prejudice, or to expedite and economize.” FRCP 42. Delaying discovery on bad faith has been found to meet this standard because bad faith discovery may not ultimately be necessary if it can be established that there was no policy coverage, in the first place, upon which the extra-contractual bad faith claim is based. Similarly, courts applying Georgia law typically follow this reasoning because evidence of bad faith is irrelevant absent coverage.

The court in Virginia, however, noted that the issue of bifurcation was not raised until after considerable discovery and a motion to compel, found “obvious overlap in discoverable evidence that would support” breach of contract as equally as bad faith, and commented that “it would be difficult to imagine a scenario in which there was evidence to support bad faith and not breach of contract.” Hopeman Bros. v. Cont’l Cas. Co., 2017 U.S. Dist. LEXIS 164434. Other courts may be more inclined to agree with persuasive arguments focusing on overreaching discovery requests for documents that are not claim specific, that generate costly (regarding time, effort, and expense) discovery disputes over relevancy and privileged materials, and that is generally more complex an issue, especially if coverage can be determined as a matter of law based on the policy terms and liability allegations themselves.

With advance assistance of counsel, insurance carriers can more effectively evaluate these strategies in defending bad faith claims and navigate these discovery pitfalls in particular.

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

Is the EB-5 “Golden VISA” Losing it’s Luster? Why Reduced Interest in the EB-5 Program May Lead to an Increase in the U.S. Unemployment Rate

Posted on: October 25th, 2017

By: Kenneth S. Levine

For the last several years the EB-5 Green Card program has been widely touted as a relatively quick and direct path to obtaining U.S. Permanent Residency. The program, which grants permanent residency based on a $500,000 minimum investment in USCIS approved regional center projects, has been especially popular in China. According to a CNBC article from April 2017, USCIS estimated that Chinese citizens represented 85% of all Applicants in the EB-5 Program. News interviews with Chinese EB-5 Applicants reveal that, for the vast majority, their prime motivation to invest in the program was based on a desire to permanently settle their children in the U.S. Aggressive efforts to attract Chinese EB-5 Investors gave rise to a cottage industry of EB-5 agents and financial advisors in Beijing, Shanghai and Shenzhen.

Every year the United States makes available the same number of green cards to every country in the world, regardless of the size of their population. When more green card applications from one country are submitted than there are visas made available for that year, a green card backlog results. For example, the State Department is processing EB-5 green cards only for Chinese Applicants who submitted their applications prior to July 1, 2014.

Based on mainstream media reports, the EB-5 backlog for China has resulted in diminished interest in the program among Chinese citizens. Due to the quota backlog, green card cases may not be processed before the children of Chinese Applicants turn 21. That is the key concern for Applicants, because under the Immigration and Nationality Act, once a child turns 21, they are no longer eligible to act as dependents on green card cases filed by their parents. Accordingly, Chinese Investors are beginning to turn their attention to immigrant investor programs in Canada and Australia as a backup option to permanently settle their children.

If Applications from Chinese citizens begin to dwindle then less investment capital will be available to fund new or ongoing EB-5 regional center projects, directly translating into reduced jobs for U.S. workers. Unless Congress is willing to pursue a legislative fix to this issue, it may be difficult if not impossible to replicate that same level of EB5 interest from other countries.

For additional information related to this topic and for advice regarding how to navigate U.S. immigration laws you may contact Kenneth S. Levine of the law firm of Freeman, Mathis & Gary, LLP at (770-551-2700) or [email protected].

California Bans Employers from Seeking Salary History Information

Posted on: October 24th, 2017

By: Laura Flynn

California has joined a growing number of states and cities that ban employers from inquiring as to a job applicant’s salary history. Governor Brown recently signed California Labor Code section 432.3 into law. It becomes effective on January 1, 2018.  Studies have shown the wage gap between men and women is present regardless of industry, occupation or education level and the disparity is even larger for women of color.  Across the country, women still make roughly 80 cents for every dollar earned by their male counterparts. Proponents of the new legislation believe closing the wage gap starts with barring employers from asking questions about salary history so that previous salary discrimination is not perpetuated.

The law prohibits an employer from relying on the salary history information of an applicant as a factor in determining whether to offer an applicant employment or what salary to offer an applicant. The law prohibits an employer, either personally or through an agent, from seeking salary history information and requires employers, upon reasonable request, to provide the pay scale for a position to an applicant. The law does not prevent applicants from voluntarily and without prompting disclosing salary history information to a prospective employer. When an applicant voluntarily discloses the information, an employer may consider or rely upon that information in determining the applicant’s salary. The bill applies to all employers, including state and local government employers. In light of the new law, California employers will want to revise their employment applications to remove requests for salary history; modify their screening and interview practices to eliminate questions about salary history; and train hiring personnel regarding what compensation questions are permissible, as well as how to respond to requests for pay scale information and voluntary disclosure of salary history by an applicant.

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

HOA Wins Beach Tax Brawl

Posted on: October 20th, 2017

By: Michael Kouskoutis

In Beach Club Towers Homeowners Ass’n v. Jones, 2017 Fla. App. LEXIS 14235, Florida’s First District Court of Appeal held in favor of an HOA in an attempt to settle a series of property tax disputes over government-owned land.

Before the DCA’s ruling, the trial court held that condominium unit owners were required to pay property taxes on land underneath the condo, despite the fact that the condo merely leased the underlying land from the County (and each unit owner subleased from the condo’s master lease). In reaching its conclusion, the trial court found that unit owners were the “equitable owners” of the underlying land for ad valorem tax purposes, since the condo held “virtually all the benefits and burdens of ownership of the leased property.”

Upon close examination of the lease itself, the 1st DCA reversed, holding instead that unit owners were not responsible for these property taxes. Key to the court’s decision was that the lease was not perpetually renewable–each unit owner’s sublease contained an option to renew for an additional term, with “conditions to be renegotiated at such time.” Therefore, since the renewal of each sublease was negotiable rather than automatic, none of the “primary hallmarks of equitable ownership” were present. The court also noted that whether land is improved has no bearing on the issue of equitable ownership. The County plans to appeal the decision to the Florida Supreme Court.

Condominium associations situated on government-owned land should keep in mind that the renewal terms contained in their leases could have profound impacts on the tax responsibilities of its members.

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

Employee Claim is Scattered, Smothered, and Covered by Waffle House Arbitration Agreement

Posted on: October 19th, 2017

By: Brad Adler and Will Collins

A recent Georgia Court of Appeals case not only reinforced that state law permits the Federal Arbitration Act (“FAA”) to control arbitration agreements, but also illustrated that state law broadly interprets and defines claims arising from employment when determining whether a claim is covered by an arbitration agreement. In Waffle House, Inc. v. Pavesi, 2017 Ga. App. LEXIS 442, No. A17A1281 (October 4, 2017) the Georgia Court of Appeals held that an employee’s personal injury claims for negligent hiring, supervision, and retention of a co-worker were all covered claims subject to mandatory arbitration under the arbitration agreement signed by the employee because: (1) the agreement showed intent to be governed by the FAA and that intent was not destroyed by merely referencing that the agreement is governed by Georgia law; and (2) the agreement covered the claims arising out of employment and, under Georgia law, this language is interpreted broadly such that “nothing more than a causal connection is required to show that a claim arose out of that relationship.”

In October of 2015, the Waffle House franchise where the complainant, Brian Mikeals, worked was re-purchased from the franchisee by Waffle House, Inc. At that time, all employees were required to re-apply for non-probationary employment and complete on-boarding paperwork, including an arbitration agreement. Mikeals entered into the arbitration agreement on November 6, 2015 and again on November 14, 2015, due to a problem in the Waffle House computer system requiring employees to complete the paperwork for a second time.

In December of 2015, Mikeals suffered a severe injury at work after a co-worker placed an illegal substance in his drink. After Mikeals’ court appointed guardian initiated this suit, Waffle House filed an emergency motion to compel arbitration. The trial court denied the motion; however, the Court of Appeals reversed.

First, where the agreement stated that it “should be construed in a manner consistent with the principles and provisions of the Federal Arbitration Act … [T]his Agreement shall be governed by and interpreted in accordance with the laws of the State of Georgia” the Court of Appeals found that the language demonstrated the parties’ intent to be bound by the FAA. Contrary to the trial court, the Court of Appeals concluded that the passing reference to a Georgia choice of law provision did not transform the intent of the parties to be subject to the Georgia Arbitration Code. Instead, the court emphasized that Georgia law permits the parties to agree to arbitrate claims and elect that such arbitration will be governed by the FAA.

Second, the court reinforced the broad application and coverage of claims arising from an employment relationship. Here, the arbitration agreement covered all claims “arising out of any aspect of or pertaining in any way to [Mikaels’] employment” and included specific language listing tort claims as covered. Before even discussing that the claims in this case were tort claims that the agreement expressly covers, the court emphasized that it has a long history of broadly including claims arising from a special relationship, requiring “nothing more than a causal connection . . . to show that a claim arose out of that relationship.” According to the court, the only claims that do not arise out of an employment relationship are those “which do not have any relationship to an employee’s work or relationship to the employer.” So, the bottom line is that this decision reinforces the need to be deliberate and wise in drafting an arbitration clause and further highlights a tendency in many courts to view an arbitration provision with a wide lens.

If you have questions or would like more information, please contact Brad Adler at [email protected] or Will Collins at [email protected].