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Posts Tagged ‘conflict of interest’

Qualified Immunity Applied to Employment

Posted on: October 3rd, 2018

By: Owen Rooney

In Kramer v. Cullinan 878 F.3d 1156 (9th Cir., 2018) the Ninth Circuit reversed the denial of a Motion for Summary Judgment, holding that that the employer’s public statement was not “stigmatizing” and defendant was entitled to qualified immunity.

Plaintiff served in dual roles as Executive Director of Public Radio and a related Foundation. He reported to Southern Oregon University President Cullinan who became concerned that plaintiff was engaged in costly projects and a potential conflict of interest existed in plaintiff serving in both capacities. The University system conducted an asset liability investigation which concluded that the projects could cause a financial strain on the university and that the projects were not aligned with the university’s interests. Plaintiff resisted the university’s efforts to remove him from both roles by trying to have the Board pass resolutions to keep him in both positions. The university president sought advice of counsel who authored a letter urging the Foundation not to adopt plaintiff’s resolutions and also raising the potential liability of plaintiff and the Directors. The letter was given to the Board members prior to voting on plaintiff’s resolutions, a meeting at which the press was present.  At the meeting, President Cullinan spoke, again raising the issue of possible legal liability, but expressing hope for an amicable resolution.

Thereafter, plaintiff’s annual appointment was not renewed. Following the grievance procedure, plaintiff filed suit, alleging, among other things, a civil rights violations for deprivation of his liberty without due process. The District Court granted summary judgment as to all claims except the civil rights cause of action. In reversing, the Ninth Circuit held that the letter did not actually impute bad faith, willful or wasteful conduct. Rather, the letter in question stated that “if” plaintiff had engaged in bad faith, willful or wasteful conduct, he would not be entitled to indemnity.

Secondly, the Court recognized that an employer’s statement about an employee may implicate a liberty interest. Thus, an employee charged with fraud, dishonesty or immoral conduct is entitled to a name-clearing hearing under the 14th Amendment. The Court also held that prior legal precedent was not sufficient to put the university president on notice that her conduct violated plaintiff’s constitutional rights because the prior cases did not involve the conditional language at issue here.

The take away is that qualified immunity is still alive in the Ninth Circuit and is applicable in an employment context.

If you have any questions or would like more information please contact Owen Rooney at [email protected].

Cumis Counsel Limited: Insurer-Appointed Counsel Requires Actual Conflict of Interest

Posted on: February 9th, 2018

By: David G. Molinari

The California Third District Court of Appeals has ruled that the right to Cumis counsel, independent counsel paid by the insurer (San Diego Federal Credit Union v. Cumis Insurance Soc’y, 162 Cal. App. 3d 358 (1984)) requires an actual as opposed to a potential conflict.  In Centex Homes v. Saint Paul Fire & Marine Insurance Company, (Case C081266, January 22, 2018) the Court of Appeals concluded that Cumis counsel is not required absent a reasonable likelihood of an actual conflict when an additional insured carrier accepts a tender of a developer/general contractor’s defense subject to a reservation of rights and appoints defense counsel.

In Centex Homes the homeowners sued developer for construction defects.  Developer tendered the defense to the insurer of a subcontractor involved in the project as an additional insured.  The insurer provided an attorney to defend the developer under a reservation of rights against any claims not covered by the subcontractor’s policy.  Developer hired their own attorney who filed a cross-complaint against the subcontractors, including the subcontractor under whose policy the developer was being defended.  The developer argued that the case presented a “potential” conflict of interest that required the appointment of independent counsel under Cumis.

The Third District Court of Appeals ruled otherwise.  The court concluded to the extent Cumis suggests a potential conflict arises wherever the insurer reserved its right to deny coverage being sufficient to require the appointment of independent counsel, the plain language of California Civil Code Section 2860 limits the Cumis right.  Under Civil Code Section 2860 the conflict must be actual, not merely potential.  The insurer-appointed counsel in Centex Homes was in no position to control the outcome in the case which focused on causation.  On the issue of causation, the insurer and the developer had the same interests defending the underlying claim.

Further, the developer argued independent counsel was required because the insurer-appointed counsel had a conflict of interest under Rule 3-310 of the Rules of Professional Conduct: “Avoiding Representation of Adverse Interests.”  Again, the Court of Appeals determined otherwise.  The court concluded that while generally conceptualized, defense counsel represents the interests of both the insurer and the insured, they are not necessarily both clients in the matter as contemplated under the Rules of Professional Conduct for conflicts of interest.  As the Court of Appeal viewed Rule 3-310 (C), the rule was not intended to apply to the relationship between an insurer and a member of the bar when the insurer’s interest is as an indemnity provider and not a direct party to the action.  In Centex the court concluded there was no actual conflict of interest presented in the case.

Centex Homes may signal the limitation and narrowing of the right to independent counsel in construction litigation.

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