Ninth Circuit Issues Decision in Novel Clean Water Act Case

The Ninth Circuit issued its long-anticipated decision in the Hawai’i Wildlife Fund v. County of Maui case yesterday. County of Maui affirmed a decision awarding summary judgment to environmental groups based on what the court viewed to be undisputed proof that four effluent disposal wells at a wastewater disposal facility were known to discharge into the Pacific Ocean and that the County of Maui had failed to secure an National Pollutant Discharge Elimination System (NPDES) permit for them.

We have previously blogged regarding existing regulatory uncertainty under the Clean Water Act (CWA). In this case, the Ninth Circuit’s decision focuses on whether a CWA “point source” that indirectly transfers material to relevant waterways falls within the statute. The Ninth Circuit essentially rejected the connection that the wells were “indirect,” instead holding that they were analogous to stormwater collection systems, which had previously been found to be regulated by the CWA.

The court supported this conclusion based on the evidence that the County of Maui knew from the time the wells were constructed “that effluent from the wells would eventually reach the ocean some distance from shore.” The court also noted that the fact that “groundwater plays a role in delivering the pollutants from the wells to navigable water does not preclude liability under the statute.”


© 2018 Schiff Hardin LLP
This post was written by J. Michael Showalter of Schiff Hardin LLP.
Read more Environmental News on the National Law Review Environment News page.

IP Litigation: Raising an Ensnarement Defense Defeats the Doctrine of Equivalents

Is the Doctrine of Equivalents (DOE) dead, once again? Effectively, yes.

All an alleged infringer needs to do is raise an ensnarement defense (a claim that a DOE enlarged hypothetical claim reads on the prior art), and then show that the equivalent element was known in the prior art. Most equivalent elements (not considering other claim elements) are known in the art, which is why they are equivalent!

Under current CAFC precedent, all an alleged infringer has to do is offer some prior art. There is no burden on the alleged infringer to show that a DOE enlarged claim is either anticipated or obvious in view of the prior art.For example, if the equivalent element is presented in any prior art reference, the burden then shifts to the patent owner to prove patentability. But patentability cannot be proven. To do that, one would have to present all that is known in order to argue that the prior art does not disclose the invention. And, of course, this is impossible. Could one even begin to present all knowledge in order to show the absence of some knowledge? Certainly not.

That is why, outside of a DOE enlarged hypothetical claim, at either the U.S. Patent Office (PTO) or before any court, someone arguing a claim is invalid first has the burden of at least presenting a prima facie case of anticipation or obviousness. The burden then shifts to the one urging claim validity to refute the prima facie case. Outside of ensnarement, the concept of proving patentability simply doesn’t exist, and for good reason.

The CAFC’s current precedent regarding how to consider the validity of a doctrine of equivalents enlarged hypothetical claim (hereafter hypothetical claim) is summarized In JANG v. BOS. SCI. CORP. & SCIMED LIFE SYS., INC., 2016-1275, 2016-1575, decided: September 29, 2017.

The Court stated:

“The first step is “to construct a hypothetical claim that literally covers the accused device.” Next, prior art introduced by the accused infringer is assessed to “determine whether the patentee has carried its burden of persuading the court that the hypothetical claim is patentable over the prior art.” Emphasis added.

“The burden of producing evidence of prior art to challenge a hypothetical claim rests with an accused infringer, but the burden of proving patentability of the hypothetical claim rests with the patentee.” Emphasis added.

This precedent does not require the alleged infringer to do any more than merely present the prior art. It fails to require the alleged infringer to provide a prima facie case of anticipation or obviousness.

Before Jang, there was an acknowledgment that the hypothetical claim should be one that would have been allowed by the USPTO. “The pertinent question then becomes whether that hypothetical claim could have been allowed by the PTO over the prior art. WILSON SPORTING GOODS CO. V. DAVID GEOFFREY & ASSOCIATES, 904 F.2d 677 (1990).” But the CAFC has failed to recognize that this means the alleged infringer must then first provide a prima facie case of claim invalidity, as would be required at the PTO.

Thus, the Doctrine of Equivalents is for all intents and purposes dead.


Copyright Davis & Kuelthau, s.c.
This post was written by James E. Lowe, Jr of Davis & Kuelthau, s.c.

Confusion Amongst Texas Courts: When Can Insureds Recover Policy Benefits for Statutory Violations?

While first-party bad faith claims may appear to be a dying notion in other jurisdictions, the tort-based claim in Texas is alive and well. Throughout the years, courts have continued to search for ways to define the common-law standard and balance it with public interest due to the unequal bargaining power in the insured-insurer relationship.For this reason, the law of bad faith in Texas is constantly evolving.

Texas imposes a common law duty on insurers to “deal fairly and in good faith with their insureds.”A breach of the duty of good faith and fair dealing gives rise to a tort cause of action that is separate from any action for breach of the underlying insurance policy.If an insurer breaches its duty of good faith and fair dealing, in addition to interest, court costs and attorney’s fees, the insured can recover actual, i.e. extra-contractual, damages for economic or personal injuries and exemplary damages if: (1) actual damages were awarded for an injury independent of the loss of policy benefits and (2) the insurer’s conduct was fraudulent, malicious, intentional or grossly negligent.Exemplary damages are within the jury’s discretion and “must be reasonably proportioned to actual damages.”5

Texas also provides a statutory scheme for bad-faith claims that allows recovery of extra-contractual damages through a private cause of action against an insurer. The statutory bad-faith tort is governed by Chapter 541 of the Texas Insurance Code (“Code”).The statutory claim is in addition, and a supplement, to the contractual cause of action against an insurer for breach of an insurance policy. Similar to the common law claim, for Code violations the insured may recover economic damages, but only up to three times the amount of economic damages, i.e. treble damages, for violations committed “knowingly.”7

It is not uncommon in first party bad-faith cases for the insured to assert a breach of contract claim against the insurer for breaching the insurance policy and a tort cause of action against the insurer for violations of the Code. However, extra-contractual tort claims brought pursuant to the Code require the same predicate for recovery as a bad faith claim under a good faith and fair dealing violation.Because the frameworks of the statutory and common law claims are so similar, most Texas courts have treated common law claims as redundant.

When considering the damages available under the policy and under the statute, there have been some inconsistencies amongst Texas courts regarding the recovery of policy benefits when there have been statutory violations of the Code. As such, in USAA Texas Lloyds Company v. Gail Menchaca, the Texas Supreme Court seized the opportunity clear up the confusion by addressing the issue of whether an insured can recover policy benefits for Code violations when there has been no breach of the insurance policy.9

USAA v Menchacha

In Menchaca, the Texas Supreme Court acknowledges, “When our decisions create such uncertainties, ‘it is our duty to settle conflicts in order that the confusion will as nearly as possible be set at rest.’”10 Thus, the goal in Menchaca was “to provide clarity regarding the relationship between claims for an insurance policy breach and Insurance Code violations.”11 The primary question was “whether an insured can recover policy benefits as actual damages caused by an insurer’s statutory violation absent a finding that the insured had a contractual right to the benefits under the insurance policy.”12

Following Hurricane Ike in September 2008, Gail Menchaca contacted her homeowner’s insurance company, USAA Texas Lloyds (“USAA”), and reported storm damage to her home.13 The USAA adjuster who inspected Menchaca’s claim found only minimal damage.14 USAA determined that the damage was covered under Menchaca’s policy but declined to pay benefits because the total repair costs did not exceed the deductible under Menchaca’s policy.15 Five months later, at Menchaca’s request, another USAA adjuster re-inspected Menchaca’s home.16 The second adjuster confirmed the first adjuster’s findings and again USAA declined to pay any policy benefits.17 Menchaca filed suit against USAA for breach of the insurance policy and for unfair settlement practices in violation of the Texas Insurance Code. Menchaca sought policy benefits for both claims.18 For the alleged breach of the insurance policy, she sought benefit of the bargain damages, i.e. the amount of her claim for policy benefits and attorney’s fees. For the statutory violations, she sought actual damages, i.e. the loss of the benefits that should have been paid pursuant to the policy, court courts and attorney’s fees.19

The case proceeded to a jury trial and three questions were submitted to the jury.20 Question 1 addressed Menchaca’s breach of contract claim and asked whether USAA failed “to comply with the terms of the insurance policy with respect to the claim for damages filed by Gail Menchaca resulting from Hurricane Ike” and the jury answered “No.” Question 2 addressed Menchaca’s claim for statutory violations and asked “whether USAA engaged in various unfair or deceptive practices, including whether USAA refused to “pay a claim without conducting a reasonable investigation with respect to that claim” and the jury answered “Yes.” Question 3 asked the jury to determine Menchaca’s damages that resulted from either USAA’s failure to comply with the policy or its statutory violations, calculated as “the difference, if any, between the amount USAA should have paid Gail Menchaca for her Hurricane Ike damages and the amount that was actually paid” and the jury answered “$11,350.”21

Both parties moved for judgment in their favor. USAA argued that Menchaca was not entitled to recover for bad faith or extra-contractual liability because the jury found that it did not breach the insurance policy. Menchaca argued that the jury answered Questions 2 and 3 in her favor and neither were dependent on a favorable answer to Question 1. The trial court disregarded Question 1 and entered judgment in Menchaca’s favor. The court of appeals affirmed and the Texas Supreme Court granted USAA’s petition for review.22

In analyzing whether an insured can recover policy benefits as actual damages caused by an insurer’s statutory violation absent a finding that the insured had a contractual right to benefits under the insurance policy, the Court set forth “five distinct but interrelated rules that govern the relationship between contractual and extra-contractual claims in the insurance context.”23 Following the Court’s analysis of these rules, it determined that the court of appeals erred by affirming the trial court’s decision to disregard the jury’s answer to Question 1. The Court further stated, “In light of the parties’ obvious and understandable confusion over our relevant precedent and the effect of that confusion on their arguments in this case, we conclude that a remand is necessary here in the interest of justice.”24 The rules outlined by the Court are as follows:

Rule 1:

General Rule: An insured cannot recover policy benefits for an insurer’s statutory violation if the insured does not have a right to those benefits under the policy.25 This rule is derived from the Court’s rule in that “there can be no claim for bad faith when an insurer has promptly denied a claim that is in fact not covered.”26 Although the fact pattern in Stoker was limited to the bad faith denial of a claim, the Court has since applied the general rule to other types of extra-contractual violations, i.e. failing to properly pay a claim, failing to fairly investigate a claim and failing to effectuate a prompt and fair settlement of the claim.27 The general rule is derived from the fact that Code “only allows an insured to recover actual damages ‘caused by’ the insurer’s statutory violation.”28 In determining whether the insured has to establish a right to benefits and then a breach of the policy to recover policy benefits for statutory violations, the Court stated, “While an insured cannot recover policy benefits for a statutory violation unless the jury finds that the insured had a right to the benefits under the policy, the insured does not also have to establish that the insurer breached the policy by refusing to pay those benefits.”29

Rule 2:

Entitled to Benefits Rule: An insured who establishes a right to receive benefits under an insurance policy can recover policy benefits as “actual damages” under the statute if the insurer’s statutory violation causes the loss of the benefits.30 “If an insurer’s ‘wrongful’ denial of a ‘valid’ claim results from or constitutes a statutory violation, the resulting damages will necessarily include ‘at least the amount of the policy benefits wrongfully withheld.’”31

Rule 3:

Benefits Loss Rule: An insured can recover policy benefits as actual damages under the Insurance Code even if the insured has no right to those benefits under the policy, if the insurer’s conduct caused the insured to lose that contractual right. 32 The Court has recognized this principle in cases alleging claims against an insurer for misrepresenting a policy’s coverage, statutory violations by the insurer which prejudice the insured by waiving its right to deny coverage or is estopped from doing so, and statutory violations that cause the insured to lose a contractual right to benefits that it otherwise would have been entitled to.33 “[A]n insurer that commits a statutory violation that eliminates or reduces its contractual obligations cannot then avail itself of the general rule.”34

Rule 4:

Independent Injury Rule: The first aspect of the rule is that if an insurer’s statutory violation causes an injury independent of the insured’s right to recover policy benefits, the insured may recover damages for that injury even if the policy does not entitle the insured to receive benefits.35 This rule takes into account that there may be some extra-contractual claims that may not “relate to the insurer’s breach of contractual duties to pay covered claims” and recognizes that there may be compensatory damages different from policy benefits that result from the tort of bad faith under common law.36

The second aspect of the independent-injury rule is that an insurer’s violation does not allow the insured to recover any damages beyond policy benefits unless the violation causes an injury that is independent from the loss of the benefits.37 For instance, the Court held in Twin City Fire Ins. Co. v. Davis that “an insured who prevails on a statutory claim cannot recover punitive damages for bad-faith conduct in the absence of independent actual damages arising from that conduct.38 Notably, as it relates to the independent-injury rule, the Court states that an independent-injury claim would be rare, they have yet to encounter one, and “have no occasion to speculate what would constitute a recoverable independent injury.”39

Rule 5:

No-Recovery Rule: An insured cannot recover any damages based on an insurer’s statutory violation unless the insured establishes a right to receive benefits under the policy or an injury independent of a right to benefits.40.


“It is the beginning of wisdom when you recognize that the best you can do is choose which rules you want to live by, and it’s persistent and aggravated imbecility to pretend you can live without any.”41 The Texas Supreme Court has attempted to clear up the confusion caused by its precedent by adopting five rules on the issue of recovery of policy benefits for statutory violations. While the rules appear fairly simplistic and undoubtedly will provide guidance, it remains to be seen whether the opinion actually brings clarity to the situation or simply a lesser degree of confusion for the courts to follow. In any event, the rules in Menchaca appear to weigh in favor of insurers because the law is settled, i.e. there must be a right to receive benefits or a (rare, but possible) independent injury to receive policy benefits for statutory violations.

[1] Universal Life Ins. Co. v. Giles, 950 S.W.2d 48, 53 (Tex. 1997).

[2] Arnold v. Nat’l Cty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987).

[3]Viles v. Sec. Nat’l Ins. Co., 788 S.W.2d 566, 567 (Tex. 1990).

[4] Pena v. State Farm Lloyds, 980 S.W.2d 949, 958 (Tex. App.—Corpus Christi 1998, no pet.); Giles, 950 S.W.2d at 54. See also Arnold, 757 S.W.2d at 168 (stating, “[E]xemplary damages and mental anguish damages are recoverable for a breach of the duty of good faith and fair dealing under the same principles allowing recovery of those damages in other tort actions.”).

[5] Pa Preston Carter Co. v. Tatum, 708 S.W.2d 23, 25 (Tex. App.—Dallas 1985, no writ). There is no set rule or ratio between the amount of actual damages and exemplary damages which will be considered reasonable and the determination is made on a case-by-case basis. Alamo Nat’l Bank v. Kraus, 616 S.W.2d 908, 910 (Tex. 1981).

[6] Texas does not adhere to the Uniform Deceptive Trade Practices Act adopted by many other states, but has its own set of laws, known as the Texas Deceptive Trade Practices Act (“DTPA”). Chapter 541 of the Texas Insurance Code addresses the protection of consumer interests against deceptive, unfair, and prohibited practices within the context of insurance. Chapter 17.50(a)(4) of the DTPA incorporates Chapter 541 of the Texas Insurance Code in its entirety.

[7] TEX. INS. CODE § 541.152

[8] National Sec. Fire & Cas. Co. v. Hurst, 523 S.W.3d 840, 840 (Tex. App.—Houston 14th Dist. 2017, no pet.).

[9] No. 14-0721, 2017 WL 1311752, at *1 (Tex. 2017).

[10] 2017 WL 1311752, at *1.

[11] Id. at *3.

[12[ Id. at *1.

[13] Id. 

[14] Id. 

[15] Id. 

[16] Id. 

[17] Id. 

[18] Id. 

[19] Id. at *3.

[20] Id. at *2.

[21] Id.

[22] Id.

[23] Id. at *4.

[24] Id. at *14

[25] TEX. INS. CODE § 541.151; Stoker, 903 S.W.2d at 341.

[26] Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995).

[27] Menchaca, 2017 WL 1311752, at *5.

[28] Id. (citing TEX. INS. CODE § 541.151).

[29] Menchaca, 2017 WL 1311752, at *7.

[30] Id

[31] Id. (citing Vail v. Texas Farm Bureau Mut. Ins. Co. v. Castaneda, 988 S.W.2d 189, 188 (Tex. 1998).

[32] Menchaca, 2017 WL 1311752, at *10 (emphasis in original).

[33] Id.

[34] Id.

[35] Id. at *11.

[36] Id.. ; see also Twin City Fire Ins. Co. v. Davis, 904 S.W.2d 663, 666 (Tex. 1995) (identifying mental anguish damages as an example).

[37] Menchaca, 2017 WL 1311752, at *11 (emphasis added).

[38] 904 S.W.2d 663, 666 (Tex. 1995) (citing Federal Express Corp. v. Dutschmann, 846 S.W.2d 282, 284 (Tex. 1993) (stating that “[r]ecovery of punitive damages requires a finding of an independent tort with accompanying actual damages.”). Therefore, insurers are not liable for punitive damages if there is not an independent injury resulting in extra-contractual damages.

[39] Menchaca, 2017 WL 1311752, at *12.

[40].Menchaca, 2017 WL 1311752, at *12; Casteneda, 988 S.W.2d at 198.



© Steptoe & Johnson PLLC. All Rights Reserved.
This post was written by Dawn S. Holiday of Steptoe & Johnson PLLC.

Whistleblower Fired for Disclosing Improper Asbestos Removal Wins at Trial

A jury awarded approximately $174,00 to a whistleblower who was fired for reporting improper asbestos removal practices at asbestos abatement and demolition company Champagne Demolition, LLC.  OSHA brought suit on his behalf under Section 11(c) of the Occupational Safety and Health Act, and the jury awarded $103,000 in back wages, $20,000 in compensatory, and $50,000 in punitive damages.  The jury instructions are available here.

According to the complaint, the company fired the whistleblower one day after he raised concerns about improper asbestos removal at a high school in Alexandria Bay, NY, and entered the worksite when it was closed to take pictures of the asbestos. The whistleblower also removed a bag containing the improperly removed asbestos.  A few weeks after Champagne Demolition terminated the whistleblowers’ employment, they sued him for defamation.  Champagne Demolition subsequently stipulated to the dismissal of the defamation claim.  OSHA alleged that both the termination of the whistleblower’s employment and the filing of a defamation action were retaliatory acts prohibited by Section 11(c) of the Occupational Safety and Health Act.

Although for procedural reasons the court did not rule on whether the filing of the defamation action against the whistleblower was retaliatory, the Secretary’s motion for summary judgment   stakes out an important position on retaliatory lawsuits against whistleblowers:

Lawsuits filed with the intent to punish or dissuade employees from exercising their statutory rights are a well- established form of adverse action. See BE & K Constr. Co. v. NLRB, 536 U.S. 516, 531 (2002) (Finding that a lawsuit that was both objectively baseless and subjectively motivated by an unlawful purpose could violate the National Labor Relations Act’s prohibition on retaliation); Torres v. Gristede’s Operating Corp., 628 F. Supp. 2d 447, 472 (S.D.N.Y. 2008) (“Courts have held that baseless claims or lawsuits designed to deter claimants from seeking legal redress constitute impermissibly adverse retaliatory actions.”); Spencer v. Int’l Shoppes, Inc., 902 F. Supp. 2d 287, 299 (E.D.N.Y. 2012) (Under Title VII, the filing of a lawsuit with a retaliatory motive constitutes adverse action).

OSHA should be commended for taking the case to trial and obtaining punitive damages.  As approximately 4,379 workers in the U.S. are killed annually due to unsafe workplaces, it is critical for OSHA to vigorously enforce Section 11(c) of the Occupational Safety and Health Act and counter retaliatory lawsuits against whistleblowers, an especially pernicious form of retaliation.


© 2017 Zuckerman Law
Written by Jason Zuckerman of Zuckerman Law.
Read more on court decisions on the National Law Review’s Litigation page.

Aqua Products Sinks PTAB Decision in Bosch v. Matal

The odd title of this post arose from the fact that defendant Autel U.S., Inc. chose not to appeal its IPR win against Bosch that included invalidation of the claims in suit, and the refusal of the Board to enter an amended claim set proposed by Bosch. With Autel out of the picture, the PTO effectively represented the Board and Acting Director Matal was named as the defendant: Bosch Automotive Service Solutions, LLC v. Joseph Matal (Intervenor), Appeal no. 2015-1928 (Fed. Cir., December 22, 2017).

The technology claimed was directed to an improved device for transmitting data from the tire pressure sensor to the receiving unit in the vehicle, that was “universal” in that the user could check the data when working with different types of tires and receivers (U.S. Pat. No. 6,904,796).

In the IPR judgment, the Board found one set of Bosch’s proposed claims to be indefinite and one set to be obvious. The Fed. Cir. affirmed the Board’s ruling that the original claims were obvious but vacated the Board’s denial of Bosch’s contingent motion to substitute the amended claim set and remanded “for further proceedings consistent with this opinion.” Even though the Board had provided some rationale for why the first group of claims proposed by Bosch was indefinite, the Fed. Cir. ruled as to both claim sets that the Board had impermissibly placed the burden of establishing the patentability of both proposed  claim sets on Bosch, in contravention to Aqua Products.

“See Aqua Products, 872 F.3d at 1311 (‘Where the challenger ceases to participate in the IPR and the Board proceeds to final judgment, it is the Board that must justify any finding of unpatentability by reference to evidence of record in the IPR’).”

Although not argued by the parties, the Fed. Cir. ruled that proposed amended claims could be challenged under s. 112.

Perhaps the most important sentence in the opinion is in the Fed. Cir.’s discussion of the Board’s erroneous holding that it was Bosch’s burden to establish the unobviousness of the proposed claims:

“In its final decision, the Board concluded that it was ‘unpersuaded that Bosch has demonstrated that the proposed substitute claims are patentable’  over the prior art… [Citing an earlier Board decision] the Board stated that ‘[t]he patent owner bears the burden of proof in demonstrating patentability of the proposed substitute claims over the prior art in general, and, thus, entitlement to add these claims to its patent.’”

Of course, this suggests that a failure of the Board or of the challenger to meet this burden of proof to demonstrate unpatentability would entitle the patent owner to add the substitute claims. This decision, strongly affirming Aqua Products,  tilts the legal playing field, to favor the patentee, even as it requires more work by the Board.

The Fed. Cir.’s analysis of the original (affirmed) obviousness rejection contains a very thorough discussion of the secondary factors of commercial success, licensing and acclaim by the industry, that I won’t try to summarize, except to note that these remain very difficult to “prove up” in an obviousness dispute, particularly if the patented technology is complex.

© 2017 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

Social Hosts Beware: “One More for the Road?” May Be a Bad Idea

The company was hosting its annual holiday party.  The company had arranged to hold the event that Saturday night in a hotel ballroom.  Moods were festive, especially because the company’s profits were up about 10%.  Because he enjoyed doing it and served as a freelance bartender in his spare time, one of the company’s new sales employees, Tom Collins, was helping to tend bar.

Much of the company’s success that year was attributable to the efforts of Johnny Walker, V.P. of Sales, who, for understandable reasons, was in a celebratory mood.  When he, at about 11 p.m., bellied up to the bar for a fourth round, Tom couldn’t help but notice that Johnny, normally the epitome of self-control, seemed more than a little impaired.  Tom said to Johnny, “Mr. Walker, with all due respect, don’t you think that it may be time to slow down?  In fact, given the hour, I’ll be happy to arrange a ride to take you home.”  Johnny, now irritated, replied “Tom, you make an excellent highball, but I’d be grateful if you’d mind your own business, OK?”  Tom did as he was asked and poured Walker another drink.  With that, Johnny, armed with another scotch and soda, disappeared into the crowd.

The next morning, Tom, to his shock, learned that Johnny had gotten into his Volvo to drive home and promptly collided with another driver.  The other driver, as a result, was seriously injured and remained hospitalized in a coma for about nine months.  He then died.

Candy is dandy, but liquor is quicker, so be careful out there . . .

May an employer with employees in North Carolina, in appropriate circumstances, be held liable for the malfeasance of its employees and, specifically, be held liable as a “social host” because one of its employees served alcohol to a person when the employee knew or should have known that the person was drunk and would soon be driving on public roads and might hurt or kill someone?

Absolutely.  The doctrine of “social host liability” was first declared in North Carolina about 25 years ago.  The North Carolina Supreme Court, in the 1992 case of Hart v. Ivey, ruled that the plaintiffs had stated a valid claim when they alleged that various defendants had been negligent in throwing a party at which beer was served to an 18-year-old, under circumstances in which the defendants knew or should have known that the young man was intoxicated at the time he was served, that he would drive a motor vehicle from the party, and that he was likely to injure someone.

The court wrote that it had not been able to find a North Carolina case dealing with similar facts, but concluded “that the principles of negligence established by our decisions require that we hold that the plaintiffs .  .  . have stated a claim.”  The court emphasized that it was not recognizing a new claim, but was merely applying the established elements of negligence to find that the plaintiffs stated claims recognized by law.

What had the plaintiffs claimed?  Only:

  • That “the defendants served an alcoholic beverage”;
  • To a person they knew or should have known was under the influence of alcohol; and,
  • That the defendants knew that person would shortly thereafter drive an automobile.

The court’s conclusions in Hart, if you think about them, aren’t surprising:

If proof of these allegations were offered into evidence, [then] the jury could find from such evidence that the defendants had done something a reasonable man would not do and were negligent.  The jury could also find that a man of ordinary prudence would have known that such or some similar injurious result was reasonably foreseeable from this negligent conduct.  The jury could find from this that the negligent conduct was the proximate cause of the injury to plaintiffs.

Sadly, the court later had occasion to encounter just such a claim brought by the estate of a man killed by an employee who had attended a party for a retiring supervisor at the home of an officer of the employer.  In the 1995 case of Camalier v. Jeffries, the employer sponsored the party and hired a catering company to help with food and drink service and another company to handle parking arrangements.  The catering company and a company that it hired supplied all of the bartenders at the party.

The employee downed three or four gin and tonics and then decided to leave, and was taken by van to his car.  He then drove his car into an automobile whose driver suffered serious injuries and then died of the injuries about nine months later.  Within two hours after the time of the accident, a blood sample was drawn from the employee showing that his blood-alcohol concentration was well over the legal limit.

In ruling on the case, the North Carolina Supreme Court reiterated the elements of “social-host liability” that it had declared in Hart.  In Camalier, the defendant company and one of its officers dodged liability, but only because the evidence was insufficient to show that they knew or should have known that the employee was hammered when he was served alcohol at the officer’s home.

The court observed that there was no question that the defendant employer and its officer caused alcohol to be served to the employee and knew or should have known that the employee would be driving an automobile after the party.  Thus, the first and third factors set forth in Hart were not in dispute.  But the court also found that the predicted evidence didn’t show that either the employer or the officer knew or should have known that the employee was drunk when he was being served.

The impaired employee who caused injury in Camalier had been served by a vendor hired by the employer rather than by an employee of the defendant employer.  It appears that North Carolina’s appellate courts have not yet held an employer liable as a “social host” based on the actions of an employee, but the circumstances in which a court may do so are not difficult to imagine.  Such liability can arise from an employer-hosted event at a restaurant, country club, pub, or similar establishment.  The location will not matter and a court is likely to find employer liability if there is proof that an employee, under circumstances intended to promote the interests of the employer, served alcohol to a person when the employee, or its representative, knew or should have known that the person was intoxicated and would soon be driving and that a third-party was injured as a result.

The Supreme Court of New Mexico, addressing such an issue, highlighted the principles of employers’ and employees’ liability as “social hosts” where the host purchases liquor and causes it to be served to a guest and, as a result, a third person is injured.  In the 2011 case of Delfino vs. Griffo, employees of a pharmaceutical company, in the course of their employment, entertained a physician’s employee in several restaurants.  The guest consumed considerable alcohol, became very intoxicated, departed in her car, and shortly thereafter caused a fatal accident.

The New Mexico court, discussing liability as a “social host,” observed:

Social hosting need not occur in a home; one may host in a bar or restaurant where the actual delivery of alcoholic beverages to the guests is performed by a licensed server.  Factors that are key to determining whether one is a social host in a public establishment are whether the alleged social host exercised control over the alcohol consumed by the guests; whether the alleged social host convened the gathering for a specific purpose or benefit to the alleged social host, such as promoting business good will; and whether the alleged host intended to act as ‘host’ of the event, meaning arrange for the service of and full payment for all food and beverages served to the guests.

The New Mexico court found, based on the facts of the Delfino case, that the employer was a “social host” for the drunk driver and, in such capacity, the employer could be sued and held liable.

Bring your carrier along for the ride . . .

Employers may consider purchasing general liability insurance to insure them against losses arising from the provision of alcohol by their employees to an intoxicated driver who then causes injury or death.  A typical general liability insurance policy includes a business liability provision that will pay for damages arising from causing or contributing to the intoxication of a third party, so long as the insured entity is not in the business of manufacturing, distributing, selling, or furnishing alcoholic beverages.  Employers can also buy a one-time special event policy if their current insurance doesn’t provide that kind of coverage.

Employers may also try to insulate themselves from “social host” liability by hiring professional caterers or bartenders who maintain such general liability insurance coverage, so that the employer, if it encounters a “social host” liability claim, may at least try to pass the liability to the caterer’s or bartender’s insurance carrier.

Employers should bear in mind, however, if tragedy occurs and litigation ensues, that it is the employer—not the insurance company—that will be sued, and that having insurance does not mean that the employer is immunized from liability.  It means only that the insurance carrier may have to pay if the employer is found liable (or, more likely, if the employer convinces the carrier to pay a pre-trial settlement to enable the employer to avoid an embarrassing lawsuit).  Moreover, a policy’s limits of liability are not always high enough to cover all claims.  The amount of liability can exceed the limits, in which case the employer, if held liable as a “social host,” can, to one degree or another, be on its own to pay a settlement or judgment.


One useful tip for employers who want to celebrate with their employees and host social events at which alcohol is served is to limit the access to alcohol, such as by setting limits on how much or how long alcohol is served at the event.  You can’t mandate good judgment, but you can decide how much temptation you’re willing to pour.


© 2017 Ward and Smith, P.A..
This post was written by Grant B. Osborne of Ward and Smith, P.A..
Read more Labor and Employment News on the National Law Review’s Labor and Employment Practice Group page.

Aglets, Who Knew?

SneakRTech Corp. wants you to defend their patent and challenge BadGuys, Incorporated’s patent at the U.S. Patent and Trademark Office Patent Trial and Appeal Board (PTAB). The subject matter: aglets.

You run to the internet and find that “aglets” are the metal or plastic component on the end of a shoelace. Even more, you are surprised to find that the science of aglets is varied and deep. There is technology behind the manufacturing of the aglets themselves, the assembly of the aglets to the laces, and the design of the aglets such that they easily insert into the eyelets of the shoe. Chemistry and material science play a role in the technology related to aglets – both metallurgy and polymer science. Some of these disciplines are relatively old (e.g., at least 15 years ago they were well developed), while some disciplines are rapidly evolving (e.g., nanocoatings to provide a color-change depending on the temperature of the environment).

To complicate things further, the patents being defended and challenged have very different applications—one is an aglet for a desert rock climbing shoe, known to be exposed to high heat, low humidity, and abrasive conditions. The other is directed to a snowboarding boot aglet.

So now you face important questions. Do you need two experts? And how do you choose an expert? There are a least four considerations associated with finding the right expert. 

1. Make a wish-list

The first step in selecting an expert is simple – make a wish-list of the ideal traits you want in your expert. This requires answering, or at least thinking about, several questions.

What, and how many, technology spaces are claimed? Consider whether you need multiple experts, based on the variation in technology, including between claims of the same patent. Although Daubert seems to come up less at the PTAB, consider how to position yourself so that any expert you choose will survive a Daubert challenge.

For our example, think about desired attributes of the eventual selected expert. Are we looking for an expert in aglet design, or perhaps manufacturing processes related to attaching the aglets to the lace themselves? Are we looking for industry or academic expertise, or both? Are we looking for a focused specialist in aglets or a broader expertise in understanding the chemistry, material science, and nanotechnology of aglets. Where is the eyelet going to be (e.g., dress shoe, trail runner, hockey skates, etc.)? Does it matter?

What level of education is required to helpfully explain the technology, and relatedly, how are we planning to define the person-of-ordinary-skill-in-the-art? If the technology is relatively developed, how will our expert opine on the state-of-the-art at a time where she may not have even been out of undergraduate school?

Do you need an experienced expert with deposition and court appearances, or will a more novice expert work?

2. Identify potential expert types and sources

Once you have a wish-list of what you want in an expert, you need to determine where to look to find it. A good start can be to research publications, patents, and industry groups in the claimed technology space.

For example, one aglet patent may relate to electroplating processes of aglets specifically designed to be applied after the aglet is attached to the lace, involving complex chemistry and manufacturing concerns. The other aglet patent could be focused on shape design for ease of entry into an eyelet on a shoe.

For the first aglet, the complex chemistry may require a high level of education. The latter aglet may be better suited to a manufacturing engineer having hands on experience in a final assembly plant, or an industrial designer focused on customer experience. These experts may travel in vastly different circles, and may lend themselves to different types of searching. Additionally, consider whether you’re looking for a generalist or a specialist. For specialist experts, several databases are available to search theses/dissertations. This may provide a list of potential experts to consider that have studied your issue deeply.

3. Consider using an expert service – or two

A helpful shortcut to finding your expert and getting them retained early can be utilizing an expert search service. As a practical matter, it can be helpful to use such a service to ensure quick turnaround, especially if you have a good relationship with the headhunter. You can take steps to make the search consultant’s job easier, which will net better results. This includes providing them a list of experts already disqualified, for example based on conflicts, co-counsel or client preference, etc. Coordination with the client and co-counsel is key, and evaluating potential experts and developing the definition of a person of ordinary skill in the art can quickly narrow the list of available experts.

Additionally, provide the expert service your anticipated timeline—it is critical that the expert is available when you need them (e.g., to prepare a declaration, at deposition(s), etc.).

4. Nail the expert interview – gain knowledge and assess quickly

The interview phase needs to include at least three considerations: experience as an expert, substantive background in the technology, and availability now and throughout trial. If an expert has never been deposed before, try to determine whether they have the soft skills needed to be effectively cross-examined. Push them to see how they react to hard questions both substantively and temperamentally. Ask them for some strategy advice for your case to see how they think. Research them – look for skeletons before hiring them. Ask for references.

You now have two experts: Ms. Boot and Dr. Slipper, PhD., to assist on two separate aglet patent cases.

This post was written by Jason D. Eisenberg of  Sterne Kessler., © 2017
For more Intellectual Property legal analysis, go to The National Law Review