Monthly Archives: February 2013

Minnesota Lodestar Fees in Consumer Protection cases

On February 13th, the Minnesota Supreme Court held that the lodestar method must be used when determining attorney fees in consumer protection cases.

An unanimous Minnesota Supreme Court in Green v. BMW of N. Am., A11-0581 (Minn. Feb. 13, 2013), ruled that the lodestar method applies for the attorney fee calculation under Minnesota’s lemon law.  In addition, the Minnesota Supreme Court stated that courts must consider, among other factors, the amount involved in the litigation and the results obtained.

In the Green case, the district court issued a verdict in favor of Green and awarded her $25,157 in damages.  The district court also granted attorney fees and costs in the amount of $229,064.  The Minnesota Court of Appeals affirmed.  The Minnesota Supreme Court reversed the decision, and remanded.

When determining the appropriate amount for fees – the court did not consider any other factors, other than the reasonableness of the fees.  The court heavily relied on the policy behind the fee-shifting provisions.  The court explained that the purpose of fee-shifting provisions was to provide incentives for attorneys to take these types of cases.

The district court did not award fees under the Magnuson-Moss Warranty Act because the court did not allow for double recovery.

The Supreme Court reversed the fees decision because the lodestar method should have been applied.  Under Minnesota’s Lemon Law, Minn. Stat. 325F.665, subd. 9, consumers “may bring a civil action to enforce” the lemon law and “recover costs and disbursements, including reasonable attorney’s fees incurred in the civil action.”

The Supreme Court explained that Minnesota courts have consistently used the lodestar method for determining the reasonableness of fees.  In fact, courts have used the lodestar method in numerous settings, including MFLSA, MHRA, Minnesota Securities Act, and in polygraph testing.  Given the broad application of lodestar, the Supreme Court held that applying lodestar in consumer protection cases was appropriate.

When applying the lodestar method, courts must first determine the number of hours reasonably expended and multiply those hours by a reasonable hourly rate.  When determining “the reasonable value of legal services,” the court must consider “all relevant circumstances.”  The Supreme Court explained,

The circumstances that inform a court’s “determine[ation of] reasonableness include ‘the time and labor required; the nature and difficulty of the responsibility assumed; the amount involved and the results obtained; the fees customarily charged for similar legal services; the experience, reputation, and ability of counsel; and the fee arrangement existing between counsel and the client.'”

The Supreme Court rejected the argument that the “amount involved” was confined to a consideration of the amount involved only as it relates to a prevailing party’s percentage of success.  The Supreme Court held that courts look “to both the amount involved and the results obtained.” (emphasis in original).

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NLRB Overrules Anheuser-Busch, Favors Balancing Test on Witness Statements

The National Labor Relations Board (NLRB) on Piedmont Gardens, 359 NLRB No. 46, overruled a 36-year-old “bright-line rule” that denied labor organization representatives access to witness statements obtained by unionized employers, finding NLRB should balance the interests of unions and employers in assessing union requests for the names or statements of witnesses interviewed during a company investigation.

By overruling Anheuser-Busch, 237 NLRB 982 (1978), and applying instead the Detroit Edison balancing test, the NLRB found that respondents violated the NLRA by failing to provide the witness statements.  In the Detroit Edison balancing test, the board will balance the union’s need for relevant information against the legitimate and substantial employer’s interest in keeping information confidential.

via Adjunct Law Prof Blog: NLRB Overrules Anheuser-Busch Precedent, Favors Balancing Test on Witness Statements.

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Campaign donation issue reopened

On Tuesday, the Supreme Court agreed to hear McCutcheon v. Federal Election Commission, 12-536.   The gist of this case deals with the constitutionality of the two-year ceilings that federal law sets on what an individual can give during a campaign for the presidency or Congress, in donations to candidates, to political parties, or to other political committees.

The Supreme Court did not explicitly promise whether it would reconsider its decision in Buckley v. Valeo (1976).  Since Buckley, the government had more leeway to control contributions to candidates or political organizations than over spending by candidates or by independent political activists.

In 2010, the Supreme Court decided a hotly controversial decision in Citizens United v. FEC.  In Citizens United, the Supreme Court declared unconstitutional any limit on spending during federal campaigns by corporations or labor unions, so long as they spent the money independently of a candidate or candidate organization.

In McCutcheon, McCutcheon wants to be able to give more contributions than the two-year overall limits.  McCutcheon’s contributions, if he could go over the limit, would have exceeded the two-year ceiling by $26,200.

Under federal law, the ceiling for the 2011-2012 campaign season was $2,500 per election to any candidate or a candidate’s campaign organization, no more than $30,800 per year to a national political party, no more than $10,000 per year to a state political party, and no more than $5,000 to any other political committee.

The two year ceiling for that same period, which is the issue in this case, is set at $177,000 overall.  That is broken down into $46,200 to a candidate for federal office and $70,800 to non-candidate entities.  The second amount was restricted in that no more than $46,200 could be given to a state party or a non-candidate committee.

via Campaign donation issue reopened : SCOTUSblog.

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Donning and Doffing: paying for changing “work clothes”?

The U.S. Supreme Court agreed Tuesday to decide the Donning and Doffing issue as, how does Section 203(o) of the Fair Labor Standards Act (“FLSA”) define “changing clothes.”

In Sandifer v. U.S. Steel, a class of 800 members filed a collective action against U.S. Steel Corp.  The issue on the 7th Circuit Court was whether workers deserved overtime pay for the time spent changing into work clothes and walking from locker rooms to their work site.

The FLSA ordinarily requires that workers be paid at least the federal minimum wage for all hours worked, and time and a half for hours worked over 40 hours in a week.  However, Section 203(o) provides that any time spent changing “clothes” at the beginning or end of each workday may be excluded from working time by the express terms of, or custom or practice under, a bona fide collective bargaining agreement.  In Sandifer, the collective bargaining agreement did not require compensation for changing time.

In this collective action, the class argued that Section 203(o) exclusion was inapplicable because their work attire did not constitute “clothes,” but rather “safety equipment.”  The alleged work clothes in this case included: flame-retardant pants and jacket, work gloves, metatarsal boots, hard hats, safety glasses, ear plugs, and a “snood” (a hood that covers the top of the head, the chin, and the neck).

The district court held that the FLSA did not require compensation for clothes-changing time.  The 7th Circuit Court of Appeals affirmed.  The 7th Circuit explained that the articles seems to be clothing.  The 7th Circuit stated that the articles of clothing were both, clothing and personal protective equipment,

Protection – against sun, cold, wind, blisters, stains, insect bites, and being spotted by animals that one is hunting – is a common function of clothing, and an especially common function of work clothes worn by factory workers.  It would be absurd to exclude all work clothes that have a protective function… and thus limit the exclusion largely to actors’ costumes and waiters’ and doormen’s uniforms.  Remember that the section covers not only clothes-changing time but also washing-up time, and workers who wear work clothes for self-protection in a dangerous or noxious work environment are far more likely to require significant time for washing up after work than a waiter.”

(emphasis added).

In addition, the 7th Circuit relied heavily on the fact that the collective bargaining agreement did not imply that workers were to be compensated for the time spent changing into work clothes, and washing up and changing back.

via Courthouse News Service.

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Zubulake revisited: Shifting standards in e-discovery

InsideCounsel has a very insightful article regarding the changes in Zubulake.  As previously addressed, the Zubulake cases are the leading guide posts of electronic discovery.  Nevertheless, recent case law signals potential departures from Zubulake.

InsideCounsel’s article states as follows:

 

Litigation holds 101

While the American concept of the litigation hold (also known as legal hold) received a passing reference in the advisory notes to the 2006 Federal Rule of Civil Procedure (FRCP) amendments, it was not until Zubulake, and later, Pension Committee, that courts connected the legal hold to the spoliation sanction framework.

Generally, sanctions are warranted when a party with control over discoverable information and under a duty to preserve acted with a culpable state of mind when destroying or losing relevant information. Once a party has established spoliation, a court must assess which sanction (ranging from further discovery to dismissal) aligns with the culpability of the spoliating party and the prejudice caused.

In Pension Committee, the court held that failing to issue a litigation hold is gross negligence per se. The court found that not only can relevance and prejudice be presumed when a spoliating party is grossly negligent, but that an adverse inference instruction was the appropriate sanction in that case.

Departures from Zubulake

In 2012, in Chin v. Port Auth. of New York & New Jersey, 11 plaintiff employees sued the defendant employer for alleged civil rights violations. In discovery, the plaintiffs learned that the defendant failed to implement a document retention policy, which resulted in the spoliation of at least 32 folders used to make promotion decisions from August 1999 to August 2002. The plaintiffs also learned that the defendant failed to issue a litigation hold regarding the promotion folders at any point between 2001 and 2007, and thus argued that this inaction amounted to gross negligence. However, the court rejected the argument that a failure to institute a litigation hold automatically constitutes gross negligence per se, contrary to the rule of Zubulake.

Instead, the court ruled in favor of a case-by-case approach, in which failure to preserve documents is one of multiple factors in the determination of whether to issue sanctions. In the end, the court upheld the district court’s conclusion that an adverse inference instruction was inappropriate in light of the limited role of the destroyed folders in the promotion process, as well as the plaintiffs’ ample evidence regarding their relative qualifications when compared with the officers who were actually promoted.

What does it all mean?

Chin established that, depending on the facts, if a party acts reasonably and in good faith to preserve documents, it may be off the hook for severe sanctions. However, many commentators have argued that this does not change best practices—that parties should still issue a written litigation hold in accordance with Pension Committee.

For large organizations that touch many jurisdictions (many of which still follow Zubulake), corporate counsel should not disband their litigation hold systems just yet—in fact, they probably do not want ever to disband them. The litigation hold is an incredible powerful and defensible means to preservation. Large organizations often must track many custodians storing potentially relevant information on complicated IT systems. Corporations derive substantial benefits from being able to maintain holds, as well as being able to internally track multiple simultaneous preservation obligations.

It is worth noting, however, that not every case, or company, is the same. Should a tight-knit company of a few employees in a non-complex litigation have to issue a written legal hold in order to be safe from sanctions? As case law in 2013 develops, perhaps litigants in these types of cases will take a second look at the role of the litigation hold.

A breath of “reasonable” fresh air

On the topic of preservation, case law developments are not the only item on the horizon for 2013. The discovery subcommittee tasked with developing potential FRCP rule changes has been scrutinizing the preservation topic. In one possible version amending FRCP 37, the drafters adopted a factor-based approach to determining culpability. While one factor looks at the reasonableness of a party’s efforts to preserve the information, “including the use of a litigation hold,” another factor includes “the proportionality of the preservation efforts to any anticipated or ongoing litigation.” On Nov. 2, 2012, when the Advisory Committee voted to adopt the subcommittee’s proposal, a common opinion was that even this minor reference to the litigation hold should be omitted or reverted to the commentary to underscore the factor-based nature of draft Rule 37. As we continue down the road to Federal Rule amendments, it is becoming clear that the gold standard of Zubulake may be shifting in the coming year.

via Zubulake revisited: Shifting standards in e-discovery.

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NBA Union Executive Director Dismissed

The last couple of days, I have been reading about the possible ousting of NBA Union Executive Director.  Yesterday (Saturday), the union representatives voted unanimously to dismiss him.

After a 469-page audit report conducted a law firm, the report charged former executive director Billy Hunter with nepotism, poor management, and abuse of union resources.  The audit did not find any criminal wrongdoing.  Nevertheless, the report concluded that Hunter had put his own interests ahead of the union’s and recommended that the players reconsider his employment.

The move to dismiss the former NBA union Executive Director Billy Hunter was announced by the union president Derek Fisher.  Hunter’s business practices had drawn the scrutiny of three government agencies.

In his blog, Hunter announced, “During the days and weeks ahead, my legal team and I will begin carefully reviewing the actions taken and statements made against me in the meeting room in my absence.”

via N.B.A. Players Dismiss Union Leader – NYTimes.com.

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Misclassification of workers and the DOL’s take on it

Labor Employment Perspectives reports on a possible change that the Department of Labor (“DOL”) regarding classification of workers.

DOL suggests that it may push forward changes to the record keeping requirements under the Fair Labor Standards Act (“FLSA”) regulations.  These changes will bring to the forefront issues relating to the misclassification of workers as independent workers when they are, in fact, employees.

On January 11, 2013, the DOL requested comments on a public survey designed to look at worker classification and determine the workers’ knowledge and understanding of employment laws and rules regarding basic laws and misclassification.

The DOL states,

The purpose of this study is to design and administer a new survey to collect information about employment experiences and workers’ knowledge of basic employment laws and rules so as to better understand employees’ experience with worker misclassification…..

The data collection effort with this group will gather information about workers’ employment and pay arrangements and will measure workers’ knowledge about their current job classification, and their knowledge about the rights and benefits associated with their job status.

As a backdrop, in 2010, DOL commissioned a study, which found that 10% to 30% of audited firms for state unemployment insurance had one or more of its employees misclassified as independent contractors.  In the fall of 2010, the DOL proposed a change to the regulations regarding record keeping designed to “enhance the transparency and disclosure to workers of their status as the employer’s employee or some other status, such as an independent contractor…”

In other words, the regulations, if passed as suggested in 2010, would require employers to inform workers of whether they are (1) employees, (2) independent contractors, or (3) other status.  Currently, the law does not require this.

Given their renewed interest, as evidenced by the public survey focused on worker classification, FMLA regulations may change.

 

via Right-to-Know Regulations May Move Back to the Forefront; Time to Check If You Have Misclassified Your Workers! | Labor & Employment Law Perspectives.

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FMLA and Adult Children?

On January 14, 2013, The Department of Labor issued a new interpretation that clarifies its position on the ability of employees to take leave under the FMLA to care for an adult child who has a disabling medical condition.  You can read the DOL’s guidance for adult children here.

The FMLA allows employees to take leave to care for a son or daughter with a serious health condition.  However, the scope of allowable leave narrows once an employee’s son or daughter reaches 18 years old.  At that point, a parent is entitled to take FMLA leave when all four of the following occur:

(1) the adult child has a disability as defined by the ADA;

(2) the child is incapable of self-care due to that disability;

(3) the child has a serious health condition; and

(4) the child is in need of care due to the serious health condition.

Prior to this interpretation, there was some question as to whether the adult child’s disability must have developed before the child reached 18 years of age for the parent to be eligible for FMLA leave.  The Department of Labor has now clarified that the age of onset of the disability is immaterial so long as the child at issue has a disability under the ADA.

This interpretation reflects the impact of the ADAAA’s expansion of the definition of “disability” on the FMLA and will enable more parents to take FMLA-protected leave to care for their adult sons and daughters with disabilities.

via New Department of Labor Interpretation on FMLA Leave for Adult Children | Baker, Donelson, Bearman, Caldwell & Berkowitz, PC – JDSupra.

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ERISA: Is risk of relapse a disability?

This ERISA long-term disability case brings an interesting question.  Is an individual still disabled even though the disabling event has already passed – just because of the possible risk of relapse?  In other words, if person A had a disability event in 2000, is person A still considered disabled just because of what might or might happen in the future?

In Colby v. Union Sec. Ins. Co., 11-2270, the First Circuit Court of Appeals decided just that.  In this case, the issue was whether the future risk of relapse by an anesthesiologist who had been diagnosed with addition rendered the anesthesiologist disabled for purposes of a long-term disability policy.

The First Circuit Court of Appeals decided this case based on the language of the policy.  Under the policy language, covered “sickness” including mental health issues, including substance abuse, dependence, and addiction.  While in treatment, plaintiff’s doctors consistently held that the risk of relapse was “high” and recommended plaintiff not return to work for a period of 6 months.  Shortly thereafter, plaintiff relapsed.  After the relapse and due to the continuing high risk of relapse, plaintiff’s doctors agreed plaintiff should remain disabled for some period of time after plaintiff’s discharge.

This case arose because the the insurance company maintained that the risk of relapse (regardless of the degree) did not constitute as a disability under the plan.

After looking at the policy language, the First Circuit Court of Appeals disagreed.  There was nothing in the policy that stated that risk of relapse should not be covered as a disability.  The court stated,

To begin, the language of the plan admits of no such categorial bar.  It does not mention risk of relapse, let alone exclude risk of relapse as a potential basis for a finding of disability.

In the words of the Boston ERISA Law Blog:

So there you have it: if you don’t want to cover the currently rehabilitated participant whose risk of relapse means he can’t go back to work, you better write that down somewhere in the plan or the policy.

via Is the Risk of Relapse a Disabling Condition for Purposes of an LTD Policy? : Boston ERISA Law Blog.

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ERISA – changing the reason for denial not allowed

I came across this interesting ERISA cases.  In both cases, the court held that the claims administrator could just not change the reason for denying the benefits.

In both of these cases, the courts ultimately held that the record and the basis for denying benefits were effectively frozen and could not be changed at a later time.

In Rossi v. Precision Drilling Oilfield Servs. Corp. Employee Benefits Plan, 11-50861 (5th Cir. 2013), the Fifth Circuit Court of Appeals held that the claims administrator was not allowed to change the basis for a denial of benefits during the internal appeal.

Initially, the claims administrator denied the benefits because Rossi was not receiving sufficient medical care to be incurring medical expenses.  During the administrative appeal, however, the claims administrator changed his rationale.  The claims administrator denied the benefits because the plan had an exclusion for inpatient care.  The 5th Circuit Court of Appeals reversed summary judgment and remanded the case.

In Sun Life Health Ins., SACV 11-01516, the District Court for the Central District of California held that the claims administrator was not allowed to deny benefits based on factual investigation during the litigation.

In this case, Sun Life granted short-term disability benefits, but denied the plaintiff long-term disability (LTD) benefits.  Sun Life denied the LTD benefits because plaintiff had failed to satisfy the 180 elimination period, and because plaintiff was not employed at the time the medical evidence supported the disability.

During the litigation, Sun Life identified other facts to support its allegation that the claims should be denied.  As a side note, none of the facts raised during the litigation (which never came up during the investigation or appeal) were reviewed by any doctors.

  • First, Sun Life stated that the denial was supported by the fact that plaintiff “did not seek or receive any treatment” prior to the mental-breakdown event.  Sun Life explained that the treatment that plaintiff received after the mental-breakdown event was not his choice.
  • Second, Sun Life stated that plaintiff was unlikely to be disabled because prior to the mental-breakdown, he had gone on a gambling spree.
  • Third, Sun Life stated that after the mental-breakdown but before the hospitalization of plaintiff, plaintiff “appeared to have lived with his family…without incident.”

The district court did two things.  First, it stated that those rationales were inapplicable because they were not raised before and never reviewed by medical professionals.  Second, the court went through the factual rationales and explained why they were unsupported based on the facts.

 

via Don’t Look Back, Something Might Be Gaining On You: Whether a Plan Administrator Can Raise New Bases For Denying a Claim Beyond Those Raised in the Initial Denial of Benefits : Boston ERISA Law Blog.

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