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Posts Tagged ‘#fraud’

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].

Is “But-For” Causation In California Legal Malpractice Cases In Jeopardy?

Posted on: September 18th, 2018

By: Gretchen Carner & Brett Safford

California attorneys sued for fraud and intentional torts, as opposed to negligent legal malpractice, may be subjected to a different causation standard after the California Court of Appeal’s recent opinion in Knutson v. Foster (2018) 25 Cal.App.5th 1075.  The opinion has caused somewhat of a stir.  “But-for” causation and the “case-within-the-case” analysis are concepts used in virtually every lawsuit by a former client against his or her attorney.  It is axiomatic that a plaintiff, to establish a claim against his or her former attorney, must show that but for the conduct of the attorney, plaintiff would have achieved a better result.

Knutson modifies the causation analysis for certain claims against attorneys. Knutson held that the “but-for” standard should not be used when an attorney is sued by his or her former client for fraud and/or intentional breach of fiduciary duty. The Knutson court premised its reversal of the trial court on a supposed distinction between the “but-for” and substantial factor causation tests. In addition, the Knutson court appears to have abandoned the well-established “case-within-the-case analysis.”

In Knutson, Plaintiff Dagny Knutson filed a lawsuit against her former attorney Richard Foster for fraudulent concealment and intentional breach of fiduciary duty.  Knutson’s claims against Foster arose from his handling of her claim for breach of oral contract against USA Swimming.

Knutson, an internationally ranked swimmer in high school, committed to Auburn University on a full athletic scholarship.  She selected Auburn because Paul Yetter, one of its swimming coaches, was considered an expert in the individual medley, Knutson’s specialty event.  However, in March 2010, the head coach of USA Swimming Mark Schubert told Knutson that Yetter was leaving Auburn and advised her to swim professionally instead of attending Auburn or another university.  Schubert then orally promised her that she would receive training at USA Swimming’s “Center for Excellence” in Fullerton, California as well as room, board, tuition, and a stipend.  The agreement was to last through 2016—after the Summer Olympics in Rio de Janeiro.  Notably, the oral agreement did not include “performance markers,” which Knutson would have to meet to retain her benefits.  Knutson accepted the offer and hired a sports agent.  However, only a few months after moving to Fullerton, USA Swimming terminated Schubert’s employment.

At the suggestion of her agent, Knutson hired attorney Foster after she stopped receiving money from USA Swimming.  Yet, Foster did not disclose to Knutson his close personal ties with high-level persons in the aquatics industry or that he had well-established relationships USA Swimming and other swimming organizations.  Foster also did not disclose that he represented Schubert in 2006, or that following Schubert’s termination from USA Swimming in 2010, he refused to represent Schubert in a wrongful termination action because “he did not want to have a negative relationship with USA Swimming in the future.”

Foster, on behalf of his client, Knutson, ultimately reached a settlement with USA Swimming.  The settlement agreement provided tuition from January to December 2012, but between 2013 and 2016, all payments were contingent upon “perform markers,” i.e., Knutson maintaining a top 25 ranking in the world or a top three ranking in the United States.

After learning of Foster’s conflicts of interest, Knutson sued Foster for fraudulent concealment and intentional breach of fiduciary duty.  The jury found in favor of Knutson on both causes of action, but the trial court granted Foster’s motion for new trial on the grounds that Knudson “failed to adduce evidence of causation and that the jury’s award of damages was excessive.” The trial court also denied Foster’s motion on two other grounds.  Both Knutson and Foster filed notices of appeal.

The Court of Appeal reversed, holding that the trial court erroneously applied the “but-for” test for causation instead of the “substantial factor” test.  The Court explained, “Here, the trial court recognized the different standards of causation between legal malpractice claims and fraud claims, but nevertheless erroneously applied the malpractice standard of causation to the fraudulent concealment claim.  Although the court referred to the substantial factor for causation, it used and applied the but for test.”  After identifying Foster’s alleged concealments and breaches of loyalty, the court then concluded that “[a] substantial factor in Knutson’s decision to enter into the settlement agreement was Foster’s fraudulent concealment of the foregoing facts” and breaches of his fiduciary “caused Knutson harm initially by failing to provide her with all the information needed to make an informed decision about entering into the settlement agreement with USA Swimming and failing to ensure that Knutson’s best interests were being protected by Foster during the negotiations.”

The Court’s analysis in Knutson is problematic because it blurs the relationship between the “but-for” test of causation applied in legal malpractice claims and the “substantial factor” test of causation applied in intentional tort claims.  The “but-for” test has long been the appropriate causation standard for legal malpractice claims.  As explained by the California Supreme Court in Viner v. Sweet (2003) 30 Cal.4th 1232, “In a litigation malpractice action, the plaintiff must establish that but for the alleged negligence of the defendant attorney, the plaintiff would have obtained a more favorable judgment or settlement in the action in which the malpractice allegedly occurred. The purpose of this requirement, which has been in use for more than 120 years, is to safeguard against speculative and conjectural claims.”  (Id. at p. 1241, emphasis added.)  “This method of presenting a legal malpractice lawsuit is commonly called a trial within a trial.” (Blanks v. Seyfarth Shaw LLP (2009) 171 Cal.App.4th 336, 357.)  The “substantial factor” test requires that the “the plaintiff to establish ‘a reasonable basis for the conclusion that it was more likely than not that the conduct of the defendant was a substantial factor in the result.’ ” (Lysick v. Walcom (1968) 258 Cal.App.2d 136, 153, emphasis added.)

Knutson is a significant case because it not only contains a confusing analysis of the distinction between “but-for” causation and “substantial factor” causation, but it could also be read to dispose of the “case-within-the-case” analysis for claims against an attorney for fraud and/or intentional breach of fiduciary duty.  Review by the California Supreme Court is warranted to address the confusion Knutson creates.  Until then, it should be argued that Knutson is an outlier case which can be distinguished on its specific facts.  We will be keeping a close eye on this one.

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

Despite Causing Wildfires, PG&E Avoids Punitive Damages

Posted on: August 2nd, 2018

By: Carlos Martinez-Garcia

On July 2, 2018, the Third Appellate District of California awarded Pacific Gas and Electric Company (PG&E) its first critical victory in defending itself against fire claims caused by its power lines: Butte Fire Cases, (2018) 24 Cal. App. 5th 1150. In 2015, the “Butte Fire” started after a gray pine came into contact with one of PG&E’s power lines, burning more than 70,868 acres, damaging hundreds of structures, and claiming two lives. The subsequent lawsuits, which were consolidated in a judicial council coordinated proceeding in Sacramento Superior Court, are comprised of 2,050 plaintiffs who sought punitive damages under Civil Code § 3294.

The master complaint alleged that the utility company and two contractors failed to properly maintain the power line and adjacent vegetation, warranting punitive damages. The Third Appellate District disagreed, striking Plaintiffs’ prayer for a punitive damages award.

In California, punitive damages may be recovered under section 3294 “where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.” (Civ. Code § 3294) Malice is defined by section 3294, subdivision (c)(1) as “conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.”

In seeking summary adjudication, PG&E submitted evidence that it devotes significant resources to vegetation management programs intended to minimize the risk of wildfire, spending more than $190 million per year on vegetation management operations. The operations include routine annual patrols, quality assurance and control programs, and a public safety and reliability program. PG&E also contracted with ACRT, Inc. to conduct inspections and vegetation management, Quantum Spatial, to collect data using LiDAR to identify dead or dying trees, and Trees, Inc. to trim noncompliant trees. No inspections identified the subject tree as a danger.

The Third District was unpersuaded by Plaintiffs’ contention that PG&E’s vegetation management program was “window dressing”, PG&E’s vegetation management methodologies were defective, or that PG&E evinced a cavalier attitude towards public safety evidenced by the infamous San Bruno pipeline explosion and a 1994 “Rough and Ready” fire caused by PG&E.

Plaintiffs failed to demonstrate the existence of a triable issue of material fact that showed PG&E acted despicably, or with willful and conscious disregard for the rights and safety of others. PG&E’s nondelegable duty to safely maintain the power lines does not alter the analysis of punitive damages under § 3294. There was nothing despicable in the utility company’s assumption that contractors were training their employees as required, and any criticisms of PG&E’s methodologies do not amount to clear and convincing proof that PG&E acted with malice. At most, plaintiffs’ evidence showed mere carelessness or ignorance.

If you have any questions, or would like more information, please contact Carlos Martinez-Garcia at [email protected].

DOJ and USCIS Join Forces Creating a Tougher Road for Employers

Posted on: May 18th, 2018

By: Layli Eskandari Deal

On May 11, 2018, U.S. Citizenship and Immigration Services (USCIS) and Department of Justice (DOJ) entered into a Memorandum of Understanding regarding information sharing and case referrals.  USCIS and DOJ state that this effort is meant to improve the way the agencies share information and collaborate on cases “to better detect and eliminate fraud, abuse and discrimination by employers bringing foreign workers to the United States.”  The Memo allows the agencies to share information and help “identify, investigate and prosecute employers who may be discriminating against U.S. workers and/or violating immigration laws.”

This Memo has been entered into by the agencies in the spirit of “Buy American and Hire American” Executive Order issued by President Trump.  This new collaboration most likely will lead to more audits, site inspections and requests for evidence and create a difficult path for foreign workers and their employers.

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