Category: Litigation

Watt’s New? Michigan Energy News

Varnum LLP

Community Solar Success

Cherryland Electric Cooperative has installed 48 solar panels on a site adjacent to its offices in Grawn.  Individual customers have signed up to lease each panel for 25 years for a one-time fee of $470 per solar panel. A rebate of up to $150 will be given the customer to account for energy optimization credits. The customer will also receive a monthly billing credit for the electricity produced by the solar panel, which is expected to be at least 25 kWh per month. As many as 360 panels will be installed on the racking at the site, depending on customer support.

Energy Innovation with Nanoparticles

Grid Logic Incorporated of Lapeer is developing a low-cost superconducting wire for electric utility application. Using a new manufacturing technique, it will embed very fine particles into metals to induce superconductivity. This will reduce the cost of transmission lines, motors, wind turbines, and other electric devices. At Michigan Technological University in Houghton research on growing manganese dioxide nanorods may lead to new high performance electric capacitors. By minimizing internal resistance, such material will store more energy, allow extraction of energy more quickly, and operate longer between recharging. University of Michigan labs in Ann Arbor have added silver nanoparticles to increase solar cell efficiency by 8 percent. The nanoparticles also allow for thinner silicon layers, which means lower costs (ten times less silicon used) and flexible substrates for solar panels.

Annual Meeting of Energy Group

The Michigan Energy Innovation Business Council held its Annual Meeting on April 17 in Lansing and elected new Board members. The meeting featured a solar industry panel discussion and a keynote address on the Department of Energy’s New Clean Energy Manufacturing Initiative. The new Board is composed of top officials from Astraeus Wind Energy, Growth Capital Network, Novi Energy, Ecotelligent Homes, Dowding Industries, Advanced Energy Group, Dow Chemical Company, TOGGLED, Sakti 3, First Energy Finance, Wind Resource LLC, and Ventower Industries. These are companies already engaged in wind, solar, bioenergy, geothermal, energy storage, and energy efficiency businesses. Committees on policy and advocacy, membership and marketing, and market and business development were also formed. The group participated in all seven energy forums held around Michigan in February, March, and April.

Wind Buoy Goes Back into Lake Michigan

The Grand Valley State University Wind Sentinel research buoy, one of only three in the world, will be returned to Lake Michigan this month. It will be placed about seven miles offshore, northwest of the Muskegon Channel, for its third research season. The project is running short of funding, and its future activities beyond this year are uncertain. Project partners include researchers from: Michigan Technological University, who are studying wind turbulence; Michigan Natural Features Inventory, a component of the Michigan State University Extension program, who are studying bird and bat activity (and who confirmed for the first time ever last summer that bats do fly over the Great Lakes); and the University of Michigan, who are conducting research on large data sets.

DOE Renews MSU Biofuels Funding

The U.S. Department of Energy has awarded $25 million per year for another five years to fund the Great Lakes Bioenergy Research Center. Michigan State University is a partner in the Center which is physically based at the University of Wisconsin-Madison. The Center supports nearly 400 researchers, students and staff working in disciplines ranging from microbiology to economics to plant biology to engineering aimed at advanced cellulosic biofuels technologies.

Courts to Rule on Wind Issues

Seventeen neighbors of the Consumers Energy Lake Wind Energy Park have filed a complaint in Mason County claiming the wind farm has negatively impacted property values and caused sleep disruption, headaches, ringing ears, dizziness, stress, extreme fatigue, nausea, and other physical and mental problems. A cease and desist order is being sought, together with damage awards, in a jury trial. In Clinton County, Forest Hill Energy-Fowler Farms LLC is suing Essex, Dallas, and Bengal townships for adopting ordinances that effectively block its wind farm development. The county had previously granted a special land use permit to Forest Hill Energy for its $120 million wind project, and the townships have moved to override that permit.

Energy Forums Concluded

With the conclusion of the last of the seven energy forums ordered by Governor Snyder in November, the next stage of fact-finding is underway. The schedule describes the May-June period as the time when the two forum chairs will be “outlining reports in each program and laying out plan for development of information that is not yet available.” The following three months is reserved for “compilation/development of information.” October-November will see the release of draft reports for public feedback. Final reports will be released in the November-December timeframe. Governor Snyder will be “making his comprehensive recommendations regarding Michigan’s energy future in December of 2013.”

Orisol Energy US, Inc. of Ann Arbor is one of the companies selected to bid on leases for submerged land in the Atlantic Ocean for offshore wind developments in the coastal waters of Virginia Midwest Independent System Operator (MISO) reported that on November 23 more than a quarter of its total generation came from wind turbines at 10,012 MW  The Michigan Public Service Commission has approved a special rate contract between Cloverland Electric Cooperative and the Manistique paper mill of MPI Acquisition LLC  State Senator Hoon-Yung Hopgood has introduced a bill to increase Michigan’s renewable energy standard to 22 percent by 2022  Mascoma, cellulosic ethanol maker with plans for commercial operations in the U.P., has withdrawn its $100 million initial public offering citing market conditions

Exporting Pure Michigan

Two years ago President Obama challenged the nation to increase its exports. American exports are up 34 percent since that time, with 70 percent of total exports being manufactured goods. “Made in America” still has a huge cache around the world. “Made in Michigan” can and should have significance overseas as well. Now is the time for Michigan’s alternative energy supply chain and manufacturers to look abroad for new markets, niche and otherwise. The demand for electricity is exploding in emerging markets of developing and less developed countries. The Kyoto Treaty and other international efforts are aimed at satisfying this demand with renewable resources rather than fossil fuels. With its technology, engineering, and lean manufacturing prowess, Michigan could be on the leading edge of this effort. The export market is wide open. Let’s go to work on exporting “Pure Michigan.

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SEC Announces First Non-Prosecution Agreement Involving Foreign Corrupt Practices Act (FCPA) Violations

DrinkerBiddle

On April 22, 2013, the Securities and Exchange Commission (SEC) announced it had entered into a Non-Prosecution Agreement (NPA) with Ralph Lauren Corporation under which the company agreed to disgorge approximately $700,000 in connection with certain unlawful payments made by a foreign subsidiary to government officials in Argentina from 2005 to 2009.  This is the first time the SEC has used a NPA for violations of the Foreign Corrupt Practices Act (FCPA).

According to the NPA, Ralph Lauren Corporation’s Argentine subsidiary paid “bribes,” i.e., payments in violation of the FCPA, to government and customs officials to improperly secure the importation of Ralph Lauren Corporation’s products in Argentina.  The purpose of the unlawful payments, made through a “customs broker,” was to obtain entry of Ralph Lauren Corporation’s products into the country without certain paperwork and to avoid certain inspections by customs officials.  The unlawful payments to Argentine officials totaled $593,000 during a four-year period.

The NPA further notes that the unlawful payments occurred during a period when Ralph Lauren Corporation lacked meaningful anti-corruption compliance and control mechanisms over its Argentine subsidiary.  The company discovered the misconduct in 2010 as a result of measures it adopted to improve its worldwide internal controls and compliance efforts, including implementation of a FCPA compliance training program in Argentina.  The NPA notes that the SEC determined not to charge Ralph Lauren Corporation with violations of the (FCPA) in light of several factors including:  (1) the company’s prompt reporting of the violations on its own initiative, (2) the completeness of the information it provided, and (3) the company’s extensive, thorough, and real-time cooperation with the SEC’s investigation.  According to the SEC, Ralph Lauren Corporation’s cooperation saved the Commission “substantial time and resources.”

In parallel criminal proceedings, the Justice Department also entered into a Non-Prosecution Agreement with Ralph Lauren Corporation under which the company will pay an $882,000 penalty.[1]

NPAs are part of the Enforcement Division’s Cooperation Initiative announced in 2010.  Prior to 2010, the SEC did not have the ability to enter into NPAs or Deferred Prosecution Agreements (DPAs).  The purpose of the Cooperation Initiative was to give the Commission the flexibility to incentivize and reward cooperation while at the same time ensuring that cooperators are held accountable for their misconduct.  Since 2010 and prior to this instance, the Commission has entered into three NPAs[2] and two DPAs[3]  It is likely that the SEC will continue to use DPAs and NPAs particularly in connection with FCPA matters given the factual complexity of the cases and the difficulty in discovering violations, which almost always occur outside the U.S.

The Ralph Lauren NPA provides useful guidance as to what the SEC will consider in assessing corporate cooperation by detailing the significant actions that Ralph Lauren Cooperation took in connection with the parallel investigations.  According to the NPA, Ralph Lauren Corporation:

  • reported preliminary findings of its internal investigation to the staff within two weeks of discovering the illegal payments and gifts:
  • voluntarily and expeditiously produced documents;
  • provided English language translations of documents to the staff;
  • summarized witness interviews that the company’s investigators conducted overseas; and
  • made overseas witnesses available for staff interviews in the U.S.

The NPA also notes that Ralph Lauren Corporation entered into tolling agreements during the staff’s investigation.  The statute of limitations with respect to the 2005 conduct, the earliest conduct charged, would have likely run in 2010, just as the company reported the violations to the SEC.

The Ralph Lauren NPA provides several other takeaways.  First, the Ralph Lauren Corporation agreed to enter into the NPA “without admitting or denying liability.”  While the NPA also contains the standard provision prohibiting the Ralph Lauren Corporation from “denying, directly or indirectly, the factual basis of any aspect of the” NPA, the inclusion of the “without admitting or denying language” seems to run counter to the policy announced by the Enforcement Division in January 2012 to eliminate the use of “neither admit nor deny” language from settlement documents involving parallel (i) criminal convictions or (ii) NPAs or DPAs[4]  This may suggest that the “without admitting or denying liability” language remains negotiable.

Second, under the agreement, the Company must seek the staff’s prior approval of the contents of any press release concerning the NPA.  Third, while the SEC emphasizes the Ralph Lauren Corporation’s enhanced compliance program and successful implementation of the enhancements, it also highlights that the Ralph Lauren Corporation has ceased retail operations in Argentina and is in the process of winding down all operations there.  It is possible Ralph Lauren Corporation’s decision to close operations in Argentina was a significant factor in the SEC’s decision to use a NPA in this circumstance.  Fourth, notably, the NPA does not require the Ralph Lauren Corporation to retain an independent consultant to review its policies and procedures and to prepare a report to the staff regarding any findings.  The financial burden of independent consultant “reviews” is often significant.  The staff’s willingness to forego such an undertaking demonstrates the value of taking quick and full remedial action during an investigation.

Fifth, the NPA also refers to “gifts” such as perfume, dresses and handbags valued at between $400 and $14,000, which were provided to three different government officials during the relevant time.  This underscores the importance of having policies and procedures that extend beyond prohibiting monetary payments to government officials.  Finally, the NPA requires that the Ralph Lauren Corporation “to pay disgorgement obtained or retained as a result of the violations discovered during the investigation.”  In its press release, the SEC notes that Ralph Lauren Corporation will “disgorge” $700,000 in illicit profits and interest.  The disgorgement, however, appears to be the total amount of unlawful payments plus interest made rather than any profit earned as a result of the unlawful payments.  Disgorgement is frequently difficult to calculate, especially in FCPA cases.  It appears that rather than tracing the unlawful payments to profits, the SEC was satisfied to use the amount of unlawful payments as a proxy for disgorgement.  Moreover, the low monetary value of the unlawful payments may have also contributed to the SEC’s decision to enter into a NPA in this instance.

[1]  The agreement with the Justice Department stands as yet another example of DOJ’s position that senior management be intricately involved in anti-corruption compliance efforts.  More specifically, the agreement requires that Ralph Lauren’s “directors and senior management provide strong, explicit, and visible support and commitment to its corporate policy against violations of the anti-corruption laws and its compliance code.”  Further, the agreement requires that the company “assign responsibility to one or more senior corporate executives of the Company for the implementation and oversight of the Company’s anti-corruption compliance code, policies and procedures.” 

[2]  In December 2010, the SEC entered into a NPA with Carters Inc. in connection with a financial fraud perpetrated by a former Executive Vice President of Carters.  The NPA focused on the isolated nature of the misconduct, Carters’ prompt self-reporting, extensive cooperation and remedial actions.  In December 2011, the SEC entered into DPAs with Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) in connection with certain misleading statements claiming that the companies had minimal holdings of higher-risk mortgage loans including subprime loans.  The NPA focused on Freddie Mac’s and Fannie’s Mae’s cooperation in connection with the SEC’s litigation against former senior executives.

[3]  In May 2011, the SEC entered into a DPA with Tenaris S.A. in connection with FCPA violations.  The DPA required Tenaris to disgorge approximately $5.4 million.  The DPA focused on Tenaris’ early self-reporting, extensive cooperation and remedial actions.  InJuly 2012, the SEC entered into a DPA with Amish Helping Fund in connection with certain misrepresentations and omissions in offering documents.  Again, the DPA focused on Amish Helping Fund’s immediate and complete cooperation, its willingness to offer investors a right of rescission and its remedial efforts. 

[4]  The Amish Helping Fund DPA entered into on July 18, 2012, does not contain the “without admitting or denying” or “neither admitting nor denying” language.

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Progressive Casualty Litigation Stayed Pending Outcome of Liberty Mutual Covered Business Method Patents

Schwegman Lundberg Woessner

Progressive Casualty Insurance Co. sued different insurance companies for patent infringement of 5 of its patents in 2010-2012 in the Northern District of Ohio.  (Cases 1:10CV01370 and 1:11CV00082 against Safeco; Case 1:12CV01068 against State Farm; and Case 1:12CV01070 against Hartford.)  One of the defendants is Safeco Insurance Company, which has Liberty Mutual as its parent.  In 2012 and 2013 Liberty Mutual filed ten covered business method patent review (CBM) petitions (two CBM petitions were filed per patent).  Eight of these ten petitions were instituted for trial and two petitions were denied, but each of the five patents has at least one CBM where trial was instituted by the PTAB.

Liberty Mutual and the remaining defendants moved to stay the litigation based on the CBMs instituted.  Progressive opposed the motion to stay.  The District Court heard oral arguments on April 11, 2013, and granted the motion stay on April 17, 2013.

The court used a four-factor test set forth in the AIA section pertaining to CBMs (AIA § 18(b)(1), P.L. 112-29, 125 Stat. 284, 331):

  • (1) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;
  • (2) whether discovery is complete and whether a trial date has been set;
  • (3) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and
  • (4) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

It is interesting that the Liberty Mutual litigation was previously stayed pending the outcome of ex parte reexaminations, yet the Court found the benefits of inter partes covered business method review compelling enough to order another stay pending the outcome of the PTAB trials.  Some of these benefits observed by the Court include:

  • CBM proceedings are inter partes rather than ex parte, which allows Liberty mutual “a better platform to advocate its interests.”
  • CBM proceedings are “presided over by a panel of three administrative judges whom are required to have ‘competent legal knowledge and scientific ability,’ 35 U.S.C. § 6(a), as opposed to a single patent examiner.”
  • To institute CBM review, the petitioner must show the claims are likely invalid, 35 U.S.C. § 324(a), which is more onerous than meeting the “substantial new question of patentability” standard required to initiate ex parte reexaminations.
  • The Court also found the short timeline of the CBM proceedings (to be completed within 18 months of institution of trial), to be attractive and likely to decide issues before the Court.

For further information the order for stay provides the details of the Court’s findings and has a detailed table attached at the last page showing the different CBMs and their status.

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Violence Against Women Act Renewed

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Early last month, Congress renewed and extended federal legislation known as the “Violence Against Women Act” or “VAWA.”  The VAWA was originally enacted in 1994, and at that time, its objective was as clear as its name – to prevent and address domestic violence, primarily against women.  The VAWA reformed how the law grapples with domestic violence.  But the VAWA’s enactment has perhaps transformed how we look at domestic violence and the victims who struggle with it at home.

The original legislation that made up the VAWA ensured free access to court protective orders regardless of income level, established the National Domestic Violence Help-Line, and was the legislative source for fiercely contested “rape shield laws” that prohibit evidence relating to a victim’s past sexual history.  The VAWA also required training among civil servants and medical personnel to help encourage victims of domestic violence to identify themselves and reach out for help.  We likely do not notice how the VAWA has kept us mindful of the dangers of violence in the family.  After all, how often does one reflect on anti-stalking laws?  Yet, with any trip to an urgent care, emergency room, or radiologist’s lab a medical provider will ask: “Are you involved in a relationship where you don’t feel safe?”  That’s the VAWA.  And while the VAWA’s name may seem to have everything to have to do with women, the act’s recent reenactment has a much more expansive view – and reach.

Under the original enactment, some Native American tribal members were previously left out in the cold following a 1978 Supreme Court ruling in the case of Oliphant v. Suquamish Tribe, 435 U.S. 191 (1978), which limited a tribe’s jurisdiction over non-Indian abusers.  Native American tribes will now have greater authority to prosecute non-Indian abusers under the reenacted VAWA, based on a special jurisdictional provision to the law. However, a tribe’s jurisdiction to address the victimization of a tribal member is restricted only to those non-Indians with significant ties to the prosecuting tribe, those who reside in the Indian country of the prosecuting tribe, or are employed in the Indian country of the prosecuting tribe, or are either the spouse or intimate partner of a member of the prosecuting tribe.  Although some critics question whether limited jurisdiction over non-Indian defendants will withstand Constitutional muster, many in support of the VAWA’s reenactment are hopeful that the ability of tribes to prosecute non-Indian offenders in some instances will reduce the nearly 40-70% of rape potential prosecutions against non-Indians that are declined by federal prosecutors.

The VAWA reenactment is also aimed at targeting cyber-bullying and other instances of abuse that were not the focus of the VAWA originally.  Protections for men and members of the “LGBT” (Lesbian Gay Bisexual and Transgender) community who are struggling with domestic violence now enjoy greater recognition under the updated law.  These changes to the VAWA send a clear message that domestic violence is not a “women’s issue” – it’s a family one because anyone can be a victim of domestic violence.

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Supreme Court Hears Oral Arguments Regarding Limits on Class Arbitration Waivers in Federal Cases

Womble Carlyle

Recently, the United States Supreme Court heard oral argument in American Express Co. v. Italian Colors Restaurant, a case that will have a substantial impact on the enforceability of arbitration agreements that contain class action waivers.  Italian Colors picks up where the Supreme Court left off in AT&T Mobility, LLC v. Concepción when a sharply divided Supreme Court held that a state law purporting to invalidate class action waivers in arbitration agreements was preempted by the Federal Arbitration Act.

Here, the Supreme Court is confronting the question of whether, as the Second Circuit Court of Appeals put it, the “federal substantive law of arbitrability” can invalidate class action waivers in arbitration agreements when the underlying claims are based on federal law.  The Second Circuit Court of Appeals determined that federal law requiredthe invalidation of the class action waiver because the cost of litigation compared to the relatively minimal amount of potential damages would effectively prohibit plaintiffs from pursuing their federal claims.  Concepción did not compel a different result, according to the Second Circuit, because in that case there was no showing that ”the practical effect of the enforcement would be to preclude [the plaintiff class’s] ability to vindicate their statutory rights.”

The Supreme Court’s decision in this case will have a substantial impact on the viability of class action waivers contained in arbitration clauses.  If the Second Circuit’s ruling is upheld, it will provide plaintiffs with a way around the limitations of Concepción if they are able to show that litigating a matter on an individual basis would be prohibitively expensive.  A decision reversing the Second Circuit would give business owners a greater ability to avoid complex and expensive class action litigation through carefully worded arbitration agreements.

The Supreme Court is expected to decide the case before the end of June 2013.

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Do You Need Employment Practices Liability Insurance?

McBrayer

According to the 2012-2013 Edition of Jury Award Trends and Statistics, the national median award for employment practice claims in 2011 was $325,000, up from $172,500 in 2010. This figure confirms what many in the employment law community already know to be true, that the number of employment practices claims has increased, and with that increase there has been an increase in the size of awards over the years as well.  There is no reason to believe that this trend will not continue, and no business should believe itself to be immune from employment practice claims.

Every business of size should seriously consider carrying Employment Practices Liability Insurance (“EPLI”) to protect itself from employment-related claims, which can encompass everything from sexual harassment, to wrongful termination, to defamation.  Although a business’s first line of defense should always be thorough up-to-date and well written HR procedures and policies, EPLI coverage can be a valuable lifeline when an expensive and lengthy lawsuit is looming and it just may save your business from financial ruin.

Costs of EPLI policies vary greatly; the price is generally based on your business type, size and associated risk of employment practices.  Insurance companies will normally want to review copies of the HR forms, policies, and manuals to assess risk probability.  If you seeking EPLI, there are some things you should be looking for in a policy. These include, but are not limited to,

  • A broad definition of “insured,” so that all directors, officers, and employees are covered;
  • A broad definition of “claim,” so that criminal, civil, and administrative proceedings are covered, as well as arbitrations and investigations;
  • A practical deductible that can be met if the insurance is needed;
  • A carve-out for claims under federal statutes; if an employee brings a whistleblower claim for exercising rights pursuant to certain statutes such as COBRA, ERISA, or OSHA, you will likely want these claims to be covered by the policy; and
  • A choice of counsel provision so that the business can utilize an employment attorney that is familiar with the business, locality, governing law, and particular claim.

As an added bonus, some EPLI insurers even offer additional services free to their customers, such as a call-in line for general employment questions or sample employee handbooks. EPLI can offer peace of mind and valuable protection in the increasingly litigious employment law arena.

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A Reminder About Pollution Legal Liability Coverage

GT Law

A recent decision from the federal district court in Pittsburgh highlights the importance of carrying environmental insurance, especially in connection with properties or facilities with an increased potential for environmental legacy liabilities. Many property owners believe that comprehensive general liability (CGL) policies adequately protect against environmental liabilities. However, standard CGL policies will typically only cover certain, very limited environmental liabilities and are by no means an effective tool for comprehensive environmental protection. Pollution legal liability (PLL) policies, designed to respond to contamination found on properties, are a far more useful and comprehensive mechanism to mitigate potential liability stemming from current or past ownership of environmentally sensitive properties.

Wiseman Oil v. TIG Insurance, 2013 U.S. Dist. LEXIS 14747 (W.D. Pa. Jan. 22, 2013), report and recommendation adopted, 2013 U.S. Dist. LEXIS 37501 (W.D. Pa. Mar. 19, 2013), involved a claim by Wiseman for coverage and for defense under Wiseman’s CGL policy for underlying claims against Wiseman under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

The CERCLA claims against Wiseman arose out of environmental contamination at property formerly owned by Wiseman. TIG asserted that it owed no such defense or coverage-related duties to Wiseman. Among other arguments, TIG asserted that the CGL policy contained an exclusion for bodily injury orproperty damage claims arising out of the release of hazardous materials “into or upon land.” However, the exclusion contained an exception to releases that were considered “sudden and accidental.” “Sudden and accidental” was not defined under the policy. TIG asserted that the CERCLA claims brought against Wiseman did not allege any sudden or accidental event and thus it had no duty to defend or otherwise provide coverage.

The case was assigned to Chief Magistrate Judge Lisa Pupo Lenihan for a report and recommendation. She clarified that TIG’s duty to defend did not hinge on whether the underlying complaint “expressly alleges specific factual predicates clearly within the applicable policy terms.” Rather, the duty to defend arose when a fair reading of the underlying complaint did not “expressly rule out the possibility of insurance coverage under the applicable policy terms.” Pupo Lenihan stated further that TIG could not reasonably conclude from the face of the underlying complaint that the allegations “precluded or negated any potential applicability” of the “sudden and accidental” qualifiers.

Based on the foregoing, Pupo Lenihan held that the language of the underlying complaint was a sufficient basis to deny TIG’s asserted grounds for summary judgment and to grant Wiseman’s motion for partial summary judgment on the question of TIG’s duty to defend.

Last month, U.S. District Judge Joy Flowers Conti of the Western District of Pennsylvania adopted Pupo Lenihan’s report and recommendation. (See 2013 U.S. Dist. LEXIS 37501 (W.D. Pa. Mar. 19, 2013).)

Although in this case Wiseman succeeded in thwarting its insurer’s summary judgment motion on the dutyto defend, in order for Wiseman ultimately to obtain coverage for its claim it will face a significant burden in demonstrating that the “sudden and accidental” exception to the policy exclusion applies. Given that the property was likely contaminated over a long period of time rather than in a single abrupt, catastrophic event, actually obtaining coverage under the policy will require a factually intensive showing that the gradual contamination was sufficiently like the abrupt event to qualify as “sudden and accidental.” In short, the case highlights the difficulty of obtaining coverage for environmental liabilities under a CGL policy.

That controversy could have been avoided if the plaintiffs had considered other insurance products that are better suited to cover this type of pollution-related risk. This is especially true of properties on which manufacturing or other environmentally sensitive operations may have occurred.

Generally speaking, PLL insurance policies can help landowners mitigate known and unknown risks associated with the acquisition and divesture of real property, and offer more robust protections for environmental risks than the CGL policy that the plaintiffs sought to rely on in the Wiseman case. In situations comparable to the facts at issue in Wiseman, a PLL policy would have been a more appropriate coverage and likely would have negated the need to bring a lawsuit to enforce the policy.

PLL coverage is the most common type of insurance to address potential environmental liabilities associated with real property.

It is generally used to address cleanup costs for environmental contamination, third-party claims for bodily injury or property damage arising from environmental contamination (both pre-existing or first occurring during the policy term), and business interruption losses resulting from a covered environmental condition or claim.

Among other things, PLL policies can also provide for protection against natural resource damages, risk stemming from non-owned disposal sites, and legal defense costs associated with all of the foregoing. PLL policies cover unknown pre-existing contamination discovered after the policy inception, as well as new conditions that occur after the inception date.

Known conditions are included under most PLL policies unless they are specifically scheduled and excluded from coverage under the policy. Capital improvement exclusions are quite common and would exclude costs of remediating known conditions, such as urban fill material, in connection with redevelopment of a property.

However, costs arising in connection with government claims stemming from known conditions can still be covered under a typical PLL policy. CGL policies will typically exclude coverage for underground storage tanks, fuel or chemical storage, waste storage and business interruption, which can be included under a PLL policy. It is also important to note that off-site disposal sites or landfills (often called “non-owned disposal sites” in PLL policies) can be scheduled onto policies. If liability arises at the disposal facility and liability attaches to your client as a generator, the PLL policy would kick in.

PLL policies also can cover re-opener type situations. In many states, parties that have received no-furtheraction determinations after cleaning up a contaminated property may be audited, and the cleanup decision re-opened to require further investigation or remediation. This is likely to occur in situations where the remediation standards governing a particular contaminant are revised, or where new data become available at a later date suggesting that remediation was not properly completed. With a PLL policy in place, costs associated with a re-opener become less of an uncertainty. PLL policies also entitle the policyholder to legal defense of any of the above situations.

PLL policies are claims-made-and-reported policies, meaning that claims must be made during the term of the policy. So, for example, Wiseman would have had to have an existing PLL policy covering the property to avail itself of that policy’s protections when the underlying CERCLA claim arose. It would not have been enough to have had the policy during ownership of the property.

Underwriting on PLL policies is typically conducted using readily available environmental documents, including Phase I and Phase II environmental site assessments, as well as other environmental reports, and agreement documents.

Wiseman offers an important lesson, especially to those that own or operate properties that have current or former facilities with environmentally sensitive operations: CGL policies are not an effective tool to manage environmental liability risks. Although not perfect, PLL policies are a more appropriate type of coverage to mitigate unknown risks associated with present and legacy property ownership. PLL policies can offer particular value to address the residual risk after a cleanup.

Kyle R. Johnson also contributed to this article.

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Broad Advance Waivers of Future Conflicts and Galderma Re: Rules of Professional Conduct

ArmstrongTeasdale logo

Lawyers sometimes doubt the effectiveness of advance waivers of future conflicts, particularly when the waiver is broad and does not specify potential adverse parties or representations. The recent trend nationally, however, is to enforce such waivers, at least where the client is sophisticated and has independent counsel evaluate the waiver.

One recent important decision evidencing this trend is Galderma Laboratories, LP v. Actavis Mid Atlantic LLC, Case No. 3:12-cv-2038 (N.D. Tex. Feb. 21, 2013). This column examines the enforceability of advance waivers of future conflicts, particularly in Galderma.

As-Needed Conflict Waivers. Ordinarily lawyers seek conflict waivers when a disqualifying conflict – a conflict that must be resolved for a representation to continue – has arisen. Then, as discussed in my October 2012 column “Resolving a Conflict of Interest,” the Missouri Rules of Professional Conduct normally require the lawyer to obtain an affected client’s “informed consent confirmed in writing” to assume or maintain the conflicted representation. See, e.g., Mo. S. Ct. R. 4-1.7(b)(4).

For an as-needed conflict waiver to be effective, the lawyer must adequately address three aspects with each affected client: (1) the circumstances giving rise to the conflict; (2) the risks created by those circumstances; and (3) reasonably available alternatives to the conflicted representation.

Advance Waivers of Future Conflicts. When a lawyer seeks an advance consent to future conflicts, instead of an as-needed waiver of a present conflict, uncertainty about future circumstances and risks complicate obtaining a client’s informed consent. The lawyer and client must speculate who may be adverse or what representations may arise, and there is an increased likelihood the conflict that actually does arise was not previously considered.

Read more…St. Louis Lawyer (PDF)
Reprinted with permission

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Petitioner Allowed to Submit Supplemental Information After Institution of Covered Business Method Patent Trial and Appeal Board Trial

Schwegman Lundberg Woessner

In Interthinx, Inc. v. Corelogic Solutions, LLC (CBM2012-000007), the Petitioner (Interthinx) was allowed to submit supplemental information under 37 C.F.R. § 42.223 after trial was instituted in this covered business method patent review (CBM).  Trial was instituted by the PTAB on January 31, 2013.  On February 27, 2013, Interthinx filed a Request for Authorization to File Motion to Submit Supplemental Information Pursuant to 37 C.F.R. § 42.223.  Corelogic sought to oppose the Petitioner’s request and motion.  Corelogic requested authorization to oppose Petitioner’s motion to supplement the record.  The PTAB denied Corelogic’s request and granted Petitioner’s request.

The supplemental information included testimony by the inventor (Dr. Jost) in an action styled Corelogic Information Solutions, Inc. v. Fiserv, Inc. et al. (1:10-CV-132-RSP)(E.D. Texas).  The PTAB reasoned that the Corelogic v. Fiserv trial occurred after the petition in the instant action was filed, and therefore the information from Dr. Jost was not available at the time the petition was filed.   The Petitioner also sought to submit testimony of another inventor (Krishna Gopinathan) taken in a depostion before the trial.  The inventors’ testimony relates to what the inventors invented, which the PTAB found to be directly related to an issue for which the trial was instituted.

The PTAB concluded the order by granting the Petitioner’s motion to submit supplemental information.  The order was entered April 16, 2013 as paper number 28.

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Supreme Court Finds Fair Labor Standards Act (FLSA) Collective Action Mooted By Offer Of Judgment

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In a traditional lawsuit, when a defendant offers a plaintiff the full amount the plaintiff seeks, that generally ends the litigation because the plaintiff no longer has a justiciable interest in the matter.  On April 16, 2013, the Supreme Court held in Genesis Healthcare Corp. v. Symczyk that a collective action under the Fair Labor Standards Act (FLSA) affords no exception to that rule.

Symczyk, a registered nurse, sued her former employer, Genesis Healthcare Corporation, a nursing home operator, for allegedly automatically deducting a half hour’s pay for lunch breaks irrespective of whether an employee took one.  Symczyk brought her claim as a collective action under the FLSA, which requires that similarly situated employees must opt in to the action in order to be represented by the plaintiff.

Two months after Symczyk filed her complaint, Genesis offered her full recovery on her claim, plus attorneys’ fees and costs, pursuant to Federal Rule of Civil Procedure 68.  The offer gave Symczyk 10 days in which to respond.  Symczyk failed to respond within 10 days, after which Genesis moved to dismiss on the ground of mootness.  The District Court granted the motion, reasoning that no other plaintiffs had joined the action and that Symczyk’s individual claim was moot because she could not recover more than Genesis had offered her.  The Third Circuit reversed.  Although it found that the settlement offer mooted Symczyk’s individual claim, it ruled that the defendant’s strategy nonetheless frustrated the FLSA’s goals by “short circuit[ing]” the collective action process.

On April 16, 2013, the Supreme Court reversed.

In doing so, the majority declined to reach the question of whether Symczyk’s individual claim had been mooted by virtue of an unaccepted offer, finding that the question had been waived:

[W]e do not reach this question, or resolve the split, because the issue is not properly before us.  The Third Circuit clearly held in this case that respondent’s individual claim was moot….  Moreover, … [i]n the District Court, respondent conceded that “[a]n offer of complete relief will generally moot the [plaintiff ’s] claim, as at that point the plaintiff retains no personal interest in the outcome of the litigation.”  Respondent made a similar concession in her brief to the Court of Appeals, and failed to raise the argument in her brief in opposition to the petition for certiorari.  We, therefore, assume, without deciding, that petitioners’ Rule 68 offer mooted respondent’s individual claim.

Relying on Article III’s case-or-controversy requirement, the majority concluded that the District Court properly dismissed the case because “respondent has no personal interest in representing putative unnamed claimants or any other continuing interest” and thus “respondent’s interest became moot when her individual claim became moot.”  Justice Thomas concluded by noting that the claims of employees other than Symczyk had not been extinguished:  “While settlement may have the collateral effect of foreclosing un-joined claimants from having their rights vindicated in respondent’s suit, such putative plaintiffs remain free to vindicate their rights in their own suits.  They are no less able to have their claims settled or adjudicated following respondent’s suit than if her suit had never been filed at all.”

Justice Kagan’s dissent took the majority to task for relying on legal errors that she believes the lower courts had committed and the plaintiff had not challenged below:

The Court today resolves an imaginary question, based on a mistake the courts below made about this case and others like it.  The issue here, the majority tells us, is whether a ‘collective action’ brought under the [FLSA] ‘is justiciable when the lone plaintiff’s individual claim becomes moot.’  Embedded within that question is a crucial premise: that the individual claim has become moot, as the lower courts held and the majority assumes without deciding.  But what if that premise is bogus?  What if the plaintiff’s individual claim here never became moot? …. Feel free to relegate the majority’s decision to the furthest reaches of your mind: The situation it addresses should never again arise.

She then proceeded to offer her answer to the question the majority had declined to reach:

[A]n unaccepted offer of judgment cannot moot a case. When a plaintiff rejects such an offer—however good the terms—her interest in the lawsuit remains just what it was before.  And so too does the court’s ability to grant her relief.  An unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect….  Nothing in Rule 68 alters that basic principle….  So assuming the case was live before—because the plaintiff had a stake and the court could grant relief—the litigation carries on, unmooted.

She concluded by complaining that allowing a defendant to “eliminate the entire suit by acceding to a defendant’s proposal to make only the named plaintiff whole … would short-circuit a collective action before it could begin, and thereby frustrate Congress’s decision to give FLSA plaintiffs the opportunity to proceed collectively.”

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