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Posts Tagged ‘Inc.’

Cal. Supreme Court Says Attorneys May Not Get Paid If They Have A Flawed “Blanket” Conflict of Interest Waiver

Posted on: September 13th, 2018

By: Greg Fayard

The California Supreme Court has weighed in on the vital importance of conflict of interest waivers. A flawed one could deprive attorneys of their fees.

On August 30, 2018, the Supreme Court analyzed the validity of a conflict of interest waiver in a law firm’s retainer agreement for a high stakes case.  In Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc. (2018) 2018 Cal. LEXIS 6399, J-M Manufacturing Company, Inc. (J-M) retained California law firm Sheppard Mullin to represent it in a large federal lawsuit where J-M was sued for over $1 billion in damages. Sheppard Mullin’s agreement had a general conflict waiver, where J-M waived any and all conflicts of interest. It turns out, however, that Sheppard Mullin had, and was, representing one of J-M’s adversaries in the federal case—specifically the South Lake Tahoe Public Utility District (South Tahoe), but in unrelated employment matters. That prior and concurrent representation was not specified in the conflict waiver that J-M agreed to.

South Tahoe learned of the conflict, and successfully moved to disqualify Sheppard Mullin. Unfortunately, Sheppard Mullin had already billed 10,000 hours in the huge federal action, to the tune of some $3 million in fees, with over $1 million unpaid by J-M. Sheppard Mullin then sued J-M for its unpaid fees. J-M cross-complained, seeking to disgorge its fees it paid to Sheppard Mullin and to not have to pay the additional fees owed. The law firm’s retainer agreement had an arbitration clause, which Sheppard Mullin successfully invoked. The arbitrators ruled in favor of Sheppard Mullin, allowing the law firm to keep its earned fees, but also requiring J-M to pay Sheppard Mullin the over $1 million it still owed. The arbitrators described Sheppard Mullin’s flawed conflict waiver as a minor and it did not warrant disgorgement of all the fees J-M had paid. J-M claimed the flawed conflict waiver was an ethical breach by Sheppard Mullin that rendered the whole contract illegal and unenforceable, in violation of public policy (to protect the public from unethical attorney conduct). The trial court disagreed and affirmed the arbitrators’ ruling. J-M appealed. The Court of Appeal reversed, holding the entire agreement was illegal, and Sheppard Mullin was not entitled to any of its $3 million in fees, including the millions J-M already paid the firm. Sheppard Mullin petitioned the Supreme Court, which granted review and issued a 41-page opinion and dissent.

The Supreme Court held that the whole Sheppard Mullin-J-M contract was unenforceable because the flawed conflict waiver violated public policy. The Supreme Court held that at the time it represented J-M, Sheppard Mullin represented an adverse party in that case, which the firm knew about but did not tell J-M. Hence, the general conflict waiver J-M agreed to was not “informed.” Sheppard Mullin’s representation of J-M’s adversary (South Tahoe), was a “present reality” and not a “future possibility” and should have been specifically disclosed. Hence, the Supreme Court vacated Sheppard Mullin’s attorneys’ fee award. Sheppard Mullin was therefore not entitled to the over $1 million in unpaid fees.

But what about the millions of dollars J-M already paid Sheppard Mullin? Should those fees be disgorged? Could Sheppard Mullin keep those fees based on a quantum meruit theory? The Supreme Court held that quantum meruit was not before the court, as it did not have a robust-enough factual record on the fees J-M already paid, and remanded to the trial court. The Supreme Court provided guidance to the trial court on the quantum meruit analysis. Attorneys may be entitled to quantum meruit fees even under the cloud of an unwaived or improperly waived conflict of interest, which is a case-specific inquiry that focuses on whether the flawed conflict waiver was willful, whether any value had been provided to the client, and the amount of harm to the client. The Court held that there is no categorical rule barring quantum meruit fees when an unwaived or improperly waived conflict of interest exists. It depends on the circumstances.

Specifically: “When a law firm seeks fees in quantum meruit that it is unable to recover under the contract because it has breached an ethical duty to its client, the burden of proof on these or other factors lies with the firm. To be entitled to a measure of recovery, the firm must show that the violation was neither willful nor egregious, and it must show that its conduct was not so potentially damaging to the client as to warrant a complete denial of compensation. And before the trial court may award compensation, it must be satisfied that the award does not undermine incentives for compliance with the Rules of Professional Conduct. For this reason, at least absent exceptional circumstances, the contractual fee will not serve as an appropriate measure of quantum meruit recovery. . .  Although the law firm may be entitled to some compensation for its work, its ethical breach will ordinarily require it to relinquish some or all of the profits for which it negotiated.” (Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc., 2018 Cal. LEXIS 6399, *56.)

The trial court, therefore, should decide if such legal fees should be completely or partially forfeited.

The lesson here is straightforward and applies to all jurisdictions, not just California: conflict of interest waivers are very important. They should be as clear and specific as possible so that the client knows exactly what it is waiving. Blanket, general, waivers can be insufficient, creating the risk of attorneys losing millions of dollars in legal fees.

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

Don’t Get Bitten… Are You In Compliance With DOL’s COBRA Continuation Coverage Election Notice?

Posted on: August 21st, 2018

By: Pamela Everett

The United States District Court for the Middle District of Florida has certified a class action suit against Marriott International, Inc. for allegations that it failed to provide required notices of eligible terminated employees’ right to continued health care coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).  The law suit was filed by Alina Vazquez, individually and on behalf of all others similarly situated, who alleges violations of the Employee Retirement Income Security Act of 1974 (ERISA), as amended by COBRA.  The Plaintiff asserted that after her termination as a covered employee and participant in Marriott’s health plan she was not provided with adequate notice of her rights to continued coverage under COBRA thus causing her to fail to enroll and incur excessive medical bills.

Marriott’s  plan provided medical benefits to employees and their beneficiaries, and is an employee welfare benefit plan within the meaning of 29 U.S.C. § 1002(1) and a group health plan within the meaning of 29 U.S.C. § 1167(1).  COBRA requires the plan sponsor of each group health plan normally employing more than 20 employees on a typical business day during the preceding year to provide each qualified beneficiary who would lose coverage under the plan as a result of a qualifying event to elect, within the election period, continuation coverage under the plan.  This notice must be in accordance with the regulations prescribed by the Secretary of Labor. To facilitate compliance with these notice obligations, the Department of Labor (“DOL”) has issued a Model COBRA Continuation Coverage Election Notice which is included in the Appendix to 29 C.F.R. § 2590.606-4.

Plaintiff alleged that, “Marriott authored and disseminated a notice that was not appropriately completed, deviating from the model form in violation of COBRA’s requirements, which failed to provide Plaintiff notice of all required coverage information and hindered Plaintiff’s ability to obtain continuation coverage”.  The  Model Notice also requires that notice shall be written in a manner calculated to be understood by the average plan participant.   Specifically, in her suit the Plaintiff asserted that Marriott’s Notice violated the following requirements:

a. The Notice violates 29 C.F.R. § 2590.606-4(b)(4)(i) because it fails to provide the name, address and telephone number of the party responsible under the plan for the administration of continuation coverage benefits. Nowhere in the notice provided to Plaintiff is any party or entity clearly and unambiguously identified as the Plan Administrator.

b. The Notice violates 29 C.F.R. § 2590.606-4(b)(4)(iv) because it fails to provide all required explanatory information. There is no explanation that a legal guardian may elect continuation coverage on behalf of a minor child, or a minor child who may later become a qualified beneficiary.

c. The Notice violates 29 C.F.R. § 2590.606-4(b)(4)(vi) because it fails to provide an explanation of the consequences of failing to elect or waiving continuation coverage, including an explanation that a qualified beneficiary’s decision whether to elect continuation coverage will affect the future rights of qualified beneficiaries to portability of group health coverage, guaranteed access to individual health coverage, and special enrollment under part 7 of title I of the Act, with a reference to where a qualified beneficiary may obtain additional information about such rights; and a description of the plan’s procedures for revoking a waiver of the right to continuation coverage before the date by which the election must be made.”

In her certification of the class, U.S. District Judge Mary S. Scriven also rejected Marriott’s argument that Vazquez’s claims were not typical because Vazquez could not understand English, could not  have understood the notice once it had been translated and could not afford COBRA continuation coverage.  Currently there is no requirement that the Notice be provided in any language other than English.  Perhaps this suit will change that requirement in a manner similar to some of the provisions in the Affordable Care Act.

Most importantly, this case highlights the importance of ensuring that your company complies with DOL regulations, and to the extent practicable, utilizes the forms provided.

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

Another Day, Another Dollar: Private Detention Center Sued By Detainees for Violations of the Washington Minimum Wage Act

Posted on: August 9th, 2018

By: Layli Eskandari Deal

A lawsuit filed by thousands of detained immigrants held at the Northwest Detention Center (NWDC) in Tacoma, Washington alleges systematic wage theft by GEO Group, Inc.  The Plaintiffs seek to recover wages under the Washington Minimum Wage Act, as well as other damages allowable under State law.

GEO Group, Inc. has owned and operated the NWDC, which has 1,500 beds for immigrants, since 2005.  The lawsuit alleges that rather than hire from local workforce, GEO relies upon “captive detainee workers to clean, maintain, and operate NWDC.”  It further states that “GEO’s NWDC Detainee Handbook describes detainee work assignments as including kitchen and laundry work, as well as recreation/library/barber and janitorial services.  The Handbook refers to these various tasks as ‘work’ and a ‘job,’ and references ‘wages earned’ by detainee ‘workers.’”

The Plaintiffs asked the Federal District Court for class certification.  Judge Robert Bryan of the U.S. District Court for the Western District of Washington determined that the detained immigrants have an “employment relationship with GEO.”  The Judge determined that the group of detained immigrants all participate in a volunteer program at NWDC and allege the same “injury,” which is that they are only paid a $1 per day for work, “an amount not commensurate” with the law.  The Judge granted certification for the Plaintiffs to proceed as a class.

In addition to the Federal lawsuit, the State of Washington has also brought a lawsuit against GEO Group, Inc. in the State Superior Court that alleges GEO is violating the State’s minimum wage laws.  The Attorney General for the State of Washington, Bob Ferguson, stated, “A multi-billion dollar corporation is trying to get away with paying its workers $1 per day. That shouldn’t happen in America, and I will not tolerate it happening in Washington. For-profit companies cannot exploit Washington workers.”

Multiple lawsuits have been filed against private prisons, including GEO and others, over detainee pay and other issues. The lawsuits allege that the private prison giants use voluntary work programs to violate state minimum wage laws, the Trafficking Victims Protection Act, unjust enrichment and other labor statutes.  The outcome of these cases will have significant effect on the way prison systems treat and compensate detained workers.

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].

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].

Where Are They Now: The “Selfie Monkey” Naruto?

Posted on: June 1st, 2018

By: Shaun Daugherty 

Acknowledgment to the monkey that took the photo, public domain.

Remember Naruto?  No?  Well he received his 15-minute flash-in-the-pan fame over a picture very similar to the one that you see above.  (The photo is in the public domain for reasons explained below.)  The issue started when the question of whether a selfie taken by a monkey had any copyright protection attached.

See, what happened was, nature photographer David Slater had been traveling to Indonesia trying to get some good pictures of the indigenous Celebes crested macaques.  During an excursion, one, maybe more, of the furry pranksters snapped several close-up selfies.  Unconfirmed rumors claim that the frisky macaque was going to use the best photo on his MDate.com dating profile.  In any event, Slater thought that the photos were fantastic and considered himself the owner.  He licensed the photos to be published in July 2011 to several publications.  Shortly thereafter, Wikimedia Commons caught wind of the unusual artist and published the photographs without asking permission.  Slater demanded that they be taken down.  Initially Wikimedia complied, but then decided that the images were in the public domain because the copyright could not be vested in a non-human.

A blog, Techdirt, picked up the story and published the photos too.  Slater continued to demand that the pictures be removed insisting that he owned the photographs because he had made “significant contributions” to their creations.  After all, it was his equipment.  In the midst of this row, the United States Copyright Office published its 2014 “Compendium of U.S. Copyright Office Practices.”  The publication confirmed the Copyright Office’s long-standing policy that “materials produced solely by nature, by plants, or by animals are not copyrightable.”  In the 2014 edition, they specifically listed examples of what could not be registered, including a photograph taken by a monkey and a painting made by an elephant.  As an aside, the Copyright Office will also not register any work purportedly created by divine or supernatural beings or generated purely by a machine.  Sorry Thor, sorry Ultron.

In 2015, Slater published the “monkey selfies,” in a book titled “Wildlife Personalities” through publisher Blurb, Inc.  Here is where it gets interesting.  PETA (People for the Ethical Treatment of Animals) sued Slater on behalf of Naruto seeking to have the Northern District of California Court do what the US Copyright Office would not, essentially grant copyright protection to a non-human.  If they won, PETA graciously volunteered to administer any proceeds received, on behalf of Naruto and other similarly situated macaques, of course.

The District Judge declined to extend copyright law protections to animals citing the clear lack of intent in the plain language of the law to allow monkeys to sue humans.  PETA appealed to the Ninth Circuit and oral arguments were held.  Shortly thereafter Slater and PETA came to a settlement of the claims wherein Slater agreed to “donate” 25% of all future proceeds from the use of the photos to wildlife charities.  The parties informed the Ninth Circuit of their settlement and asked that the court not issue a ruling and sought vacatur.  It is an interesting legal concept that would nullify the record of the lower court.

The Ninth Circuit declined to dismiss or vacate and issued their ruling on April 23, 2018 in favor of Slater finding that animals have no right to sue under copyright law.  The court also openly questioned the motives of PETA in the case and the purported settlement as Natuto was not a party to the same.

Much of the majority and dissenting analysis involved standing to sue in general.  Based on the 2004 precedent of Cetacean Community v. Bush, surely you remember that one, the court was bound to find Article III standing for the animal.  However, even though there was Constitutional standing, there was no statutory standing as there has been a lack of specific intent in the Copyright Law to allow non-humans to sue for infringement.  It turns out that on May 25, 2018, a Ninth Circuit judge has called for an en banc review of Cetacean Community to revisit the issue of standing for animals under Article III.

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