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Archive for June, 2019

Can a California Supervising Lawyer Be Disciplined for an Associate’s Misconduct?

Posted on: June 28th, 2019

By: Greg Fayard

The answer to this question is yes, in certain circumstances. This is a change under the current rules of professional conduct for lawyers compared to the prior rules, which expired last October 31, 2018.

Rule 5.1 says supervising lawyers must make reasonable efforts to ensure the firm has measures to ensure all lawyers comply with the ethical rules. Such measures include policies and procedures on conflicts of interest, a calendaring system, guidelines on workloads and proper supervision of inexperienced lawyers. However, a supervising lawyer can be responsible for a subordinate lawyer’s violation of an ethical rule if the supervising lawyer ordered the violation, or knew the relevant facts and conduct and ratified it, or knew of the violative conduct at a time when its consequences could have been avoided but failed to mitigate it or take remedial action. A “supervising” lawyer is a case-by-case question of fact.

Where the potential ethical violation, however, was a reasonable resolution to a problem, or an arguable question of professional responsibility, then the supervising lawyer would not be subject to discipline for the subordinate’s ethical lapse.

The point is: supervising lawyers now have some responsibility for the ethical breaches of junior lawyers, or those they supervise. An experienced lawyer for example, who is supervising another experienced lawyer but who is practicing in a new area, could be disciplined for that equally seasoned lawyer’s ethical lapse. Rule 5.1 does not only apply to the experienced lawyer supervising a less experienced lawyer.

If you have any questions or would like more information, please contact Greg Fayard at [email protected], or any other member of our Lawyers Professional Liability Practice Group, a list of which can be found at www.fmglaw.com.

Duties of Care and Loyalty Coming to Investments Near You

Posted on: June 28th, 2019

By: Matthew Jones

The approval of Regulation Best Interest by the Securities and Exchange Commission last month continues to spark debate and controversy, and the future of the Rule remains uncertain.  The Rule’s implementation was set for June 30, 2020. However, on June 27, 2019, the United States House of Representatives passed a bill that would strip the SEC of its ability to implement the Regulation Best Interest package. The bill would prohibit the SEC from spending funds for Regulation Best Interest and the other items included in the Regulation. It is unclear whether the bill will pass both the Senate and White House, but the initial reaction is that the President will likely be advised to veto the bill.

Perhaps anticipating this potential obstacle, last week, Massachusetts released its own proposed fiduciary rule and is accepting comments until July 26, 2019. Its proposed rule requires that advice must be provided in the best interest of the customers without regard to the interests of the broker-dealer, advisory firm, or its personnel. The proposed standard permits the payment of transaction-based fees if the fee is reasonable, is the best of the reasonably available fee options, and the “care” obligation is complied with. This proposal applies to recommendations, advice, and the selection of account types. The stated goal of this standard is to protect the public interest and investors alike. This idea is nothing new, as the SEC’s Regulation Best Interest was designed to address and prevent similar issues. However, Massachusetts points out that the SEC Regulation fails to establish a strong and uniform fiduciary standard and fails to define the term “best interest.”

If you have questions or would like more information, please contact Matthew Jones at [email protected].

PG&E Reaches $1 Billion Settlement Following California Wildfires

Posted on: June 28th, 2019

By: Jenny Jin

Pacific Gas & Electric Co. recently reached a $1 billion settlement with 14 California local government agencies for the significant losses stemming from the 2015, 2017, and 2018 Northern California wildfires. The civil settlement was reached in a mediation based on allegations that PG&E’s equipment was the cause of the fires.

The 14 government agencies sought damages for destroyed municipal property, damage to infrastructure, and the overtime paid to all of the emergency personnel in response to the fires. The most recent 2018 fire destroyed Paradise, CA and killed 85 people. Paradise is expected to receive $270 million of the settlement, the largest of the 14 government agencies.

In January 2019, PG&E filed for Chapter 11 bankruptcy after it was facing more than $30 billion in potential liability, following the fires. At the time of its bankruptcy filing, PG&E was facing about 700 complaints, including at least five putative class actions for damages related to the fires. This $1 billion settlement payment will be incorporated into PG&E’s reorganization plan when it is filed.

If you have questions or would like more information, please contact Jenny Jin at [email protected].

The Standing Requirement Remains an Open Question But Still a Valid Defense to Cyber Claims

Posted on: June 26th, 2019

By: Jeff Alitz

In litigation proceeding in the Federal Courts, it has always been necessary for a successful plaintiff to in some manner establish that the harm sought to be remedied by a federal lawsuit falls within the authority of the courts to hear and decide such cases. Put another way, Article III of the Constitution limits the authority of Federal Courts to decide only those cases where the claimant has “standing” –  a cognizable interest in the dispute. That interest must be demonstrated by a showing of  1. A concrete injury, 2. The injury is attributable to the defendant’s actions and 3. The injury can in some way be addressed by a favorable decision in the case. Given the fact that in many cases claimants have demonstrated that a cyber breach has occurred for which a target defendant is responsible, only to be denied standing -and hence denied recovery- where no actual “harm” or loss has been established, just what constitutes that harm is an often-litigated issue that has been in many lawsuits a powerful defense to those parties alleged to have committed some type of cyber misstep. Several recent Supreme Court actions have both done little to clarify that issue – what type of “harm’ must be demonstrated for standing to be proven – but the actions have simultaneously served to preserve standing as a significant hurdle for cyber claim plaintiffs to clear in most states.

Specifically, on March 20, 2019, in reviewing the Frank v. Gaos decision decided by the Ninth Circuit which had approved the class action settlement between Google and a group (class) of Google users, the Supreme Court ordered the Ninth Circuit court to determine if the plaintiffs in that case had suffered a concrete injury before any settlement could be approved. But, in reaching that result, the Court did not give any guidance on how a court need decide if an injury- in- fact had occurred. Less than a week later, in denying certiorari to the parties in Zappos v. Stevens, the Court similarly declined to give any clarity to the injury in fact standard. In effect by refusing to resolve the split among the circuit courts where some have determined that simply identifying theft of information or cyber fraud and the THREAT of future misuse is sufficient to confer standing ( as the Sixth, Seventh, Ninth and D.C. Circuits have done) while others (the First, Second, Third, Fourth and Eighth Circuits) have held that simply alleging the threat of future harm is not enough to establish an actual harm sufficient for standing purposes, the Court has left that issue to the lower courts to continue to resolve on a piecemeal basis.

The Supreme Court’s inaction comes at a time when state legislatures are focusing on the injury -in- fact issue by enacting statutes that attempt to eliminate any requirement that a claimant must establish actual harm to succeed on cyber liability based lawsuit. California’s Privacy Act of 2018, Massachusetts Senate Bill 120 and the Illinois Biometric Privacy Act each either clearly state or simply suggest (in the case of the Illinois act)  that no injury apart from being subject to a theft or disclosure is needed to establish standing. Nevertheless, in those states that have NOT passed such legislation and in those states that are not within the jurisdictions of the Circuit Courts that have watered down the Article III requirement that a concrete injury be established to confer standing, defendants in cyber lawsuits – and their insurers and attorneys – can continue to focus on the lack of provable harm to defeat such claims.

If you have questions or would like more information, please contact Jeff Alitz at [email protected].

Kentucky Court of Appeals Reminds Plaintiffs They Bear a “Tall Burden” in Proving Bad Faith

Posted on: June 26th, 2019

By: Barry Miller

A Kentucky Court of Appeals decision adopted a federal court’s observation that Kentucky bad faith decisions fall into two broad categories. One category reflects “a more expansive approach to a finding of bad faith,” analyzing facts where the insurer’s conduct was oppressive and the facts establishing liability were clear. The second category represents the “greater number” of Kentucky cases which follow the “standards set forth in the landmark case of Wittmer v. Jones.”

In Wittmer the Supreme Court of Kentucky states three elements that a bad-faith claimant (whether first or third party) must meet: (1) The insurer must be obligated to pay the claim under the terms of the policy; (2) The insurer must have lacked a reasonable basis to delay or deny payment; and (3) The insurer must have known or been conscious of the fact that it lacked a reasonable basis to delay or deny. Later Kentucky cases make it clear that a claimant must show proof of all three.

According to the Messer court, the claimant thought his case fell into the “more expansive” category of bad faith claims, but instead it fell into the second and failed to meet the Wittmer standards. First, the case presented a legitimate coverage question. There was a question about whether the tortfeasor’s use of the insured vehicle was permissive, and if it was not, the claim was excluded. Messer makes it clear that an insurer does not have to prevail on a coverage question to avoid bad faith; the insured’s claim need only be reasonably debatable. Because coverage was debatable here, Messer could not meet the first Wittmer element of proving that Universal was obliged to pay his claim under the terms of its policy.

This was true even though Universal settled the claim against the tortfeasor. Liability also remained in doubt because that settlement occurred before the jury could decide the questions of liability and apportionment. The settlement did not foreclose the liability issue; under Kentucky law “settlements are not evidence of legal liability, nor to the qualify as admissions of fault.” Nor did the insurer’s reserves, which were discoverable, constitute evidence of coverage, liability, or fault.

The Court of Appeals concluded that Messer never produced evidence eliminating the possibility that a jury could have held him 100 percent at fault for causing the accident. Thus, it was reasonable for the insurer, throughout the case, to challenge the allegation that the tortfeasor was not liable for causing the accident, or for Messer’s damages.

Messer has 30 days to ask the Supreme Court of Kentucky for discretionary review. It can take the Supreme Court several months to consider such motions. If the Court of Appeals’ decision is allowed to stand, this opinion represents an important synthesis of Kentucky bad faith opinions that will remind bad faith plaintiffs of the “tall burden of proof” in a bad faith claim.

If you have questions or would like more information, please contact Barry Miller at [email protected].