We previously discussed an ordinance adopted by the city of San Francisco that requires employers to provide their employees with health benefits costing at least certain amounts or to pay those amounts to the city to fund the city's public health care program. Employer organizations sued to enjoin enforcement, claiming that ERISA preempted the ordinance. Initially, the employers did well, prevailing in District Court. In January 2008, however, the Ninth Circuit stayed the District Court decision, allowing the city to begin enforcing the law while the Ninth Circuit considered the appeal.
Today, in Golden Gate Restaurant Association v. San Francisco, the Ninth Circuit ruled in favor of the city, holding that ERISA did not preempt the ordinance. It also held the city's financing structure did not constitute an ERISA plan. The court distinguished the San Francisco ordinance from a similar Maryland statute we discussed last year. The Maryland statute, which was struck down due to ERISA preemption, did not provide anything to Wal-Mart, the sole employer subject to the law. Instead, it required the employer to provide better benefits or to pay a fee to the state. In contrast, the San Francisco ordinance offers a choice: provide better benefits or pay a fee for the City to provide benefits to your employees.
The employers are likely to seek U.S. Supreme Court review. We will see in Round 6 whether the Supreme Court agrees with the Ninth Circuit view of preemption.
Parties engaged in litigation in federal courts could see cost savings thanks to a new rule affecting pre-trial discovery. On September 19, President Bush signed into law S. 2450, which adopts new Federal Rule of Evidence 502 concerning discovery of information protected by the attorney-client privilege and work-product doctrine.
Given the cost of reviewing large volumes of electronic documents, the risk of waiver of the attorney-client privilege or work-product doctrine following inadvertent disclosure has become a hot litigation issue. New Rule 502 states that disclosure of privileged materials will not be a waiver of the privilege if (1) disclosure is inadvertent, (2) the holder of the privilege took reasonable steps to prevent disclosure, and (3) the holder took reasonable steps to rectify the error. The rule also states that parties in litigation may enter into an agreement on the effect of disclosure of privileged materials.
The rule addresses the problem of "subject-matter waiver" by providing that, when a party produces one privileged document, any resulting waiver of the privilege will not extend to other documents, as long as there was no intentional or misleading use of protected information. The rule will also make federal court orders protecting against waiver enforceable in both federal and state courts, and will make confidentiality agreements between parties that are incorporated into court orders enforceable against nonparties.
Rule 502 should limit the cost of litigation by simplifying privilege review and preventing discovery disputes over privilege issues. Legislative information about the new rule - which goes into effect immediately - can be viewed here and here.
Last week, the Ninth Circuit, in South Ferry LP v. Killinger, limited the use of the "core operations inference" to meet the heightened pleading standard of the Private Securities Litigation Reform Act in alleging securities fraud by a corporation's management.
The "core operations inference" is the principle that facts critical to a business's "core operations" or important transactions are known to key company officers when making statements about company operations that later turn out to be wrong or misleading. Plaintiffs in a securities fraud case may seek to use that inference to show defendants' state of mind in making the false statements. However, as explained by the Supreme Court in the 2007 case Tellabs, Inc. v. Makor Issues and Rights, Ltd., the PSLRA requires plaintiffs alleging securities fraud to plead facts that give rise to a "strong inference" of knowing or intentional misconduct that "must be cogent and compelling, thus strong in light of other explanations." Given this guidance from the Supreme Court, the Ninth Circuit held that, in most circumstances, plaintiffs could not rely on the core operations inference alone to meet the PSLRA pleading standard. Instead, the inference may be one of several factors that a district court considers as part of a holistic approach to evaluating a complaint. In limited cases the inference might independently satisfy the PSLRA. The court explained:
"In summary, allegations regarding management's role in a company may be relevant and help to satisfy the PSLRA scienter requirement in three circumstances. First, the allegations may be used in any form along with other allegations that, when read together, raise an inference of scienter that is 'cogent and compelling, thus strong in light of other explanations.' * * * This view takes such allegations into account when evaluating all circumstances together. Second such allegations may independently satisfy the PSLRA where they are particular and suggest that defendants had actual access to the disputed information[.] * * * Finally, such allegations may conceivably satisfy the PSLRA standard in a more bare form, without accompanying particularized allegations, in rare circumstances where the nature of the relevant fact is of such prominence that it would be 'absurd' to suggest that management was without knowledge of the matter. "
Following the Senate's passage of S. 3406 - the Senate version of the ADA Amendments Act of 2008 - the US House of Representatives unanimously passed the bill without change on September 18. President Bush is expected to sign the bill in the next few weeks.
To see our earlier coverage of this legislation that amends the Americans with Disabilities Act, go here.
This week the Oregon Supreme Court reversed the Court of Appeals and allowed the admission of a medical expert's testimony on the causation of an alleged injury. In Marcum v. Adventist Health System/West, plaintiff had received an injection of contrast dye in her hand in anticipation of undergoing an MRI. The technician injected the dye into the surrounding tissues instead of the vein, and plaintiff suffered immediate and ongoing symptoms, including pain, swelling and discoloration of plaintiff's hand. At the ensuing trial, plaintiff's expert sought to testify that the dye injection caused plaintiff's injuries.
In its "gatekeeping" role, the trial court considered the seven factors for admissibility of scientific evidence, excluded the testimony, and entered a directed verdict for defendant. Those factors are: (1) the technique's general acceptance in the field; (2) the expert's qualifications and stature; (3) the use which has been made of the technique; (4) the potential rate of error; (5) the existence of specialized literature; (6) the novelty of the invention [if one is involved]; and (7) the extent to which the technique relies on the subjective interpretation of the expert. The Court of Appeals affirmed, stating that the expert failed to identify a scientifically valid cause of the injury.
The Oregon Supreme Court concluded that the trial court should have allowed the testimony. The Court noted that while some of the admissibility factors pertain to techniques and tests, the key issue in this case was causation. Justice Thomas Balmer, writing for the Court, discussed at length the case of Jennings v. Baxter from 2000, which allowed the use of a "differential diagnosis"---the inclusion of all potential causes, followed by the elimination of all but the posited cause---to prove causation. While some of the factors in the instant case weighed in favor of exclusion (novelty, lack of a mechanism to explain causation, lack of published studies and rate of error), the Court determined that the nature of plaintiff's injury (sudden, immediate, localized), coupled with the "differential diagnosis" evidence proffered by her expert, weighed in favor of opening the gate to this plaintiff. Accordingly, the Court reversed and remanded to the Court of Appeals for further consideration of other unresolved issues. You can find the Oregon Supreme Court's opinion here.
On September 12, the U.S. Senate passed S. 3406, the Senate version of the ADA Amendments Act of 2008. The bill is intended to overturn a number of U.S. Supreme Court cases that narrowed the scope of protection afforded by the Americans with Disabilities Act (ADA), including the interpretation of the term “disability.” Specifically, the proposed Senate amendments would eliminate the requirement that the evaluation of whether an impairment substantially limits a major life activity be determined with reference to the ameliorative effects of mitigating measures, such as medication, low-vision devices (which do not include glasses or ordinary contact lenses), or assistive or prosthetic devices. Major life activities are defined to include a broader range of activities that some courts had previously excluded from coverage, such as performing manual tasks, standing, lifting, bending, learning, reading, concentrating, thinking, communicating, and, significantly, working, as well major bodily functions including “functions of the immune system, normal cell growth, digestive, bowel, bladder, neurological, brain, respiratory, circulatory, endocrine, and reproductive functions.”
The Senate version of the amendments also expand and clarify the scope of coverage to individuals who are “regarded as disabled.” An individual “regarded as” disabled is now defined as someone subjected to discrimination due to an actual or perceived physical or mental impairment, whether or not the impairment limits or is perceived to limit a major life activity. However, a “regarded as” claim will not lie with respect to impairments that are “transitory and minor,” which are defined as impairments with an actual or expected duration of six months or less.
The bill will now go to the House for a vote, where another version of the ADA Amendments Act of 2008, HR. 3195, passed by a vote of 402-17 earlier this year. Given the broad based support for the amendments, it is likely that President Bush will sign whatever version of the bill comes to his desk.
This week the Oregon Court of Appeals struck down a jury award of punitive damages 30 times the amount of compensatory damages, in a case where the harm to plaintiff was economic and not physical. In Hamlin v. Hampton Lumber Mills, Inc., plaintiff was a former employee who was not reinstated after recovering from a workplace injury. He sued for damages, claiming he was discriminated against for making a workers compensation claim. The jury awarded $6,000 in compensatory damages and $175,000 in punitive damages.
Judge Rex Armstrong, writing for the court, held that the punitive damages award was grossly excessive under the Due Process Clause of the U.S. Constitution. For a wrongful act resulting in economic harm but not personal injury, punitive damages should generally not exceed four times compensatory damages. The Court of Appeals directed the trial court to reduce the punitive damages award accordingly.
See our coverage of Goddard v. Farmers Insurance, the Oregon Supreme Court case that recently set guidelines for punitive damages in non-personal injury cases.
In response to the Washington Supreme Court's decision in Stevens v. Brink’s Home Security, which defined the parameters for paid travel time in Washington, the Department of Labor and Industries (L&I) committed to updating its administrative policy to address the ambiguity created by that opinion. L&I's update of administrative policy ES.C.2 (section 2) pertaining to hours worked can be found here.
In an opinion issued last week, a federal district court in California dismissed a lawsuit against Veoh Networks, Inc., a self-described "Internet Television Network," which provides software and a website enabling the sharing of user-submitted video content over the Internet. The lawsuit sought to impose liability on Veoh as a result of its website users' copyright-infringing postings on the video sharing website.
The court ruled that Veoh qualifies for the safe harbor provisions of the Digital Millennium Copyright Act, 17 U.S.C. sec. 512, because it does not “actively participate or supervise the uploading of files. . . . Instead, video files are uploaded through an automated process which is initiated entirely at the volition of Veoh’s users.” The court added that the evidence “demonstrates that, far from encouraging copyright infringement, Veoh has a strong DMCA policy, takes active steps to limit incidents of infringement on its website and works diligently to keep unauthorized works off its Web site.” The court found that Veoh need not shoulder the entire burden of policing third-party copyrights on its website and risk losing its business if it cannot. Rather, the crucial issue was whether Veoh took appropriate steps to deal with copyright infringement that took place. Because Veoh did act appropriately under the facts, it was shielded from damages that may have resulted from its users' copyright violations.
In a similar case filed in a New York federal court, Viacom is suing Google for $1 billion, alleging that Google-owned YouTube has been illegally hosting Viacom's proprietary content. Whether other courts adopt the analysis in the Veoh decision remains to be seen; however, the result may bolster the arguments of video-hosting services seeking the benefits of the DMCA safe harbor provisions.