U.S. Supreme Court gives expansive reading to civil RICO liability

In Bridge v. Phoenix Bond & Indemnity Co., the United States Supreme Court last week held that a plaintiff bringing a civil RICO claim predicated on mail fraud may recover for injury from the mail fraud, even if plaintiff did not rely on the defendant’s alleged misrepresentations.

The civil RICO statute was enacted to address mob-related activities but written broadly enough that other criminal activities fall within its reach. It establishes treble damages when a person “employed by or associated with” an enterprise engaged in interstate commerce engages in a “pattern of racketeering activity.” “Racketeering activity” is defined to include certain predicate acts, one of which is “any act indictable under” a federal statute dealing with mail fraud.

Previous case law has established that the mail fraud statute does not have a reliance requirement – in other words, the use of “the mail to execute or attempt to execute a scheme to defraud” was a predicate act of racketeering under RICO “even if no one relied on any misrepresentation.” Therefore a reliance requirement, if one existed, had to be found in the RICO statute in question, which enables “[a]ny person injured in his business or property by reason of” a pattern of racketeering activity to sue for treble damages.

Justice Clarence Thomas, writing for a unanimous court, noted that the statute lacks an express reliance requirement, and held that the broad language in the statute indicated that there was no such implicit requirement: “The statute provides a right of action to ‘[a]ny person’ injured by the violation, suggesting a breadth of coverage not easily reconciled with an implicit requirement that the plaintiff show reliance in addition to injury in his business or property.”

The Court also noted that the causation requirement of RICO, which requires that a person be injured “by reason of” a pattern of racketeering activity, indicates that the activity in question must be the proximate cause of the injury. It held that first-party reliance is not “necessary to ensure that there is a sufficiently direct relationship between the defendant’s wrongful conduct and the plaintiff’s injury to satisfy . . . proximate cause principles.” Instead it is sufficient to allege that a plaintiff was harmed because someone else relied on a misrepresentation.

The Court rejected petitioners' claims that an overly broad reading of RICO would result in the “over-federalization” of traditional state law claims, stating that “[w]hatever the merits of petitioners' arguments as a policy matter, we are not at liberty to rewrite RICO to reflect their—or our—views of good policy.”

$79.5 million punitive damage award against Philip Morris returns to the U.S. Supreme Court

The U.S. Supreme Court has agreed to review for the third time the $79.5 million in punitive damages that a Multnomah County jury awarded in a tobacco products liability case.  The court today accepted review in Williams v. Philip Morris USA, following the Oregon Supreme Court's decision earlier this year to affirm the punitives award of 97 times compensatory damages.  The state court reached that result by citing a state law defect in a proposed jury instruction on punitive damages, thereby avoiding the question of the instruction's compliance with the federal constitutional standards for due process. 

The U.S. Supreme Court today agreed to review only whether the state court was prohibited from, in effect, ignoring its directive to apply the federal constitutional standard.  It will not address whether the punitive damages are excessive under the Due Process Clause.

See the petition for writ of certiorari here , our coverage of the most recent state court ruling here, and the SCOTUS Blog report on the case here.

Seventh Circuit rejects liability for craigslist housing ads

Interpreting the law protecting providers of interactive computer services from liability for content provided by others, the Seventh Circuit recently held that the online service craigslist may not be liable under the Fair Housing Act for discriminatory housing ads appearing on its site. 

In Chicago Lawyers' Committee for Civil Rights under Law, Inc. v. craigslist Inc.,  the court last month held that the Communications Decency Act, 47 U.S.C. sec. 230(c)(1), prevents craigslist from being considered the "publisher or speaker" of information provided by users who post content to its website.  In rejecting the plaintiff's argument for liability, the court stated that Section 230(c)(1) barred the Fair Housing Act claims.  Accordingly, craigslist could not be held liable as the "messenger," even though the message was one of unlawful discrimination.  To read our earlier coverage of this case at the trial court level, click here.

More recently, the Ninth Circuit reached the contrary result in a housing discrimination case against roommates.com, holding that the roommate matching service may be subject to liability for discriminatory content on its website.  Read our coverage of that case here.  And read our additional coverage of the Communications Decency Act here.

Communications Decency Act doesn't shield on-line service, Ninth Circuit holds

The Ninth Circuit held yesterday that Roommates.com is not immune under the Communications Decency Act ("CDA") from liability for discriminatory content on its site.  The en banc panel in Fair Housing Council of San Fernando Valley v. Roommates.com held that the roommate-matching site can be subject to liability under the Fair Housing Act for posting discriminatory housing preferences. 

While the CDA shields a provider of an interactive computer service from liability for content provided by others, the court concluded that Roommates.com actively created problematic content by having users complete questionnaires as part of the listing process.  In that sense the web site was not merely a passive service, and it could be sued under the fair housing laws. 

See our earlier coverage of the case here and here. 

Oregon Supreme Court affirms negligence claim against builder for property damage

The Oregon Supreme Court on Thursday held that a builder may be liable to a subsequent purchaser for repair costs resulting from negligent construction.  The defendant in Harris v. Suniga unsuccessfully urged the court to bar damages under the 'economic loss' doctrine, which provides that a defendant is ordinarily not liable for negligently causing a stranger's purely economic loss without injuring his person or property.

Defendants argued that plaintiffs' losses amounted to nothing more than a decrease in the value of their investment, and did not constitute injury to property.  The court, affirming the Court of Appeals, rejected that characterization: "plaintiffs here seek recovery for physical damage to their real property, and this court's cases generally permit a property owner to recover in negligence for damages of that kind."

See our coverage from December 2006 of the economic loss doctrine and the Court of Appeals opinion in Harris v. Suniga.

Oregon Supreme Court adopts a 4-to-1 ratio for punitive damages against insurer

The Oregon Supreme Court today significantly reduced a punitive damage award against an insurance company on a claim of bad faith failure to settle.  In Goddard v. Farmers Insurance Co., a jury found that an automobile insurer had in bad faith refused to settle a wrongful death claim within policy limits, and entered an award to the insured of more than $20 million in punitive damages.  That punitive damages amount was 16 times greater than plaintiff's compensatory damages. 

On review the Supreme Court held that, where the defendant's wrongful act resulted in economic injury but not personal injury, the ratio of punitive damages to compensatory damages should generally not exceed four to one in order to avoid violating the Due Process Clause of the US Constitution.  The court ordered a new trial limited to the amount of punitive damages, unless defendant accepts the reduced award of four times compensatory damages.

Find our earlier coverage of the law of punitive damages here, here, and here.

Evidence of immigration status allowed on claim for future wage loss under Washington law

In a case of first impression, Washington Court of Appeals, Division I, held yesterday that a plaintiff's immigration status may be admissible where plaintiff claims damages for future wage loss.

The case, Salas v. Hi-Tech Erectors, involved an injured worker's claims against a scaffold supplier for damages caused when the worker slipped from a scaffold ladder at a construction site.  Plaintiff entered the United States on a valid visa, which had since expired, and he had applied for citizenship.  Plaintiff sought to exclude evidence of his immigration status at trial.  The trial court found that if he chose to pursue his claim for impairment of future income, his status as a non-legal resident would be allowed as probative as to the extent of the future impairment.  The Court of Appeals affirmed, stating "we conclude that evidence of a party's illegal immigration status should generally be allowed only when the defendant is prepared to show relevant evidence that the plaintiff, because of that status, is unlikely to remain in this country throughout the period of claimed lost future income."

In the opinion the court discussed differing holdings from several other states.  Look for this and related immigration status issues in other appellate court cases across the country.

Flawed jury instruction leads Oregon Supreme Court to affirm punitive damages

The 10-year saga of Williams v. Philip Morris, Inc. yields this lesson for Oregon litigators:  keep your jury instructions short.  After remand of the cigarette products liability case by the U.S. Supreme Court, the Oregon Supreme Court last Thursday rejected a jury instruction proposed by Philip Morris, and on that basis affirmed a $79.5 million punitive damages award.  While the lengthy jury instruction may have accurately stated federal law on punitive damages, it misstated Oregon law.

Last year the U.S. Supreme Court, applying federal Due Process law on punitives, issued an opinion signaling that the jury instruction should not have been rejected by the trial court.  But the Oregon Supreme Court has now found that a different section of the three-and-a-half page jury instruction did not accurately recite Oregon's punitive damages law.  Because a jury instruction can be rejected if any part of it is invalid, the trial court did not err in refusing the Philip Morris instruction.  According to Justice Michael Gillette, "asking the court to give a multiple-page instruction . . . involves a significant danger that the proffered instruction will be erroneous in some aspects."  If the instruction had recited only federal law, the Oregon Supreme Court may have found error in refusing to give the instruction, resulting in reversal of the judgment.

See our earlier coverage of the case here.

Oregon Supreme Court ends cap on claims against public employees

On December 28, 2007, the Oregon Supreme Court held that the damage cap in the Oregon Tort Claims Act (OTCA) violates the Remedy Clause in Article 1 Section 10 of the Oregon Constitution when it was applied to claims against employees of public bodies.  In Clarke v. OHSU the plaintiff claimed over $15,000,000 in damages as a result of the negligence of OHSU and certain of its staff members. The OTCA limited the available damages to $200,000. 

The Remedy Clause states that “every man shall have remedy by due course of law for injury done him in his person, property, or reputation.”  In order to establish that the legislature has violated the Remedy Clause by abolishing a cause of action, a plaintiff must first show that the common law of Oregon recognized a cause of action for the alleged injury in 1857, when the drafters wrote the Oregon Constitution. Once this is established a plaintiff must then show that the legislature has not provided an adequate substitute remedy for the common law cause of action it abolished. 

The opinion, written by Chief Justice Paul J. De Muniz, held that the damage limitations in the OTCA were constitutional as applied to the claims against OHSU, because OHSU was an instrumentality of the state and therefore would have been protected from lawsuits in 1857 under the doctrine of sovereign immunity.  The court also held, however, that the OTCA requirement that OHSU be substituted as defendant in the place of its staff members—which resulted in the cap on damages being applied to the claims against the staff members—violated the Remedy Clause.  Employees of public bodies were liable for negligence in 1857. By subjecting claims against such employees to the damage cap, the legislature violated the Remedy Clause because the substituted remedy was inadequate: “an emasculated version of the remedy that was available at common law.”

Justice Thomas A. Balmer, joined by Justice Rives Kistler, concurred, noting that the remedy for medical malpractice claims against OHSU “should have been increased long ago by the legislature.”  The concurrence also emphasized that while the OTCA provisions were unconstitutional because they did not provide a substantial remedy to medical malpractice claims as a class, there are situations in which statutory limits on damages are constitutional even though the statutes might “limit the damages that can be recovered by a particular plaintiff for a particular claim.” 

The Ohio Supreme Court also issued an opinion dealing with damage caps last week.  It upheld as constitutional caps on noneconomic and punitive damages included in recent tort reform legislation. 

Whistle-blower wasn't wrongly fired, Oregon Court of Appeals holds

Under Oregon law, the firing of an at-will employee may be wrongful - and may entitle the employee to sue his former employer - if the firing results from the employee's exercise of some important public duty.  On Wednesday, the Oregon Court of Appeals demonstrated again that not all 'whistle-blowers' fall within the 'important public duty' exception to the at-will employment doctrine. 

In Lamson v. Crater Lake Motors, Inc., an employee of a car dealer claimed he was fired for, among other things, complaining to his supervisors about unlawful sales practices within the company.  Earlier case law shows that an employee fired for 'whistle-blowing' may have a wrongful discharge claim if he complains about significant issues of workplace health and safety.  But, according to the court, a complaint about sales tactics that may violate the Unlawful Trade Practices Act does not fulfill an important public duty and therefore does not give the employee a claim for unlawful discharge.

Conflicting decisions in Washington Court of Appeals regarding fraudulent transfer liability

On Monday, the Washington Court of Appeals, Division I, held that under Washington's Uniform Fraudulent Transfers Act, lack of an "actual intent to defraud" will not protect an asset transferee from liability to the transferor's creditors, where the assets were acquired for less than reasonable value.

In Thompson v. Hanson, the Court affirmed the trial court's decision to impose personal liability on a couple who acquired two real estate parcels from a construction company several months before the filing of a breach of contract lawsuit against the company.  The evidence at trial showed that the transferred lots were worth $465,000, but the couple acquired them simply by assuming $325,000 in  debt.  Based on the evidence that the construction company did not receive "reasonably equivalent value" for the lots, and that the company's remaining assets were unreasonably small in relation to its business, the trial court  concluded that the couple was liable for "constructive fraud" under the UFTA (to the extent of the equity they received), even though the plaintiffs had failed to prove actual intent to defraud.

In its decision, the Court noted that there are conflicts among divisions of the Court of Appeals regarding whether actual intent to defraud is required to impose liability on a transferee.  For example, the Court expressly disagreed with the 1991 opinion from Division III of the Court of Appeals in Park Hill Corp. v. Sharp, which held that transferees cannot be held liable absent proof of actual intent to defraud.  This issue now appears ripe for review by the Washington Supreme Court.

Oregon Court of Appeals turns away tort claims against a dissolved corporation

Last week the Oregon Court of Appeals declined to expand the limits on claims against dissolved corporations and successor corporations.  In Dahlke v. Cascase Acoustics, Inc. plaintiff asserted asbestos products liability claims against several defendants, including a dissolved corporation and a corporation that had purchased some of the assets of that dissolved corporation. 

Plaintiff filed suit after the time had expired for making claims against a dissolved corporation under Oregon's statutes.  Plaintiff argued that he should nonetheless be entitled to pursue his claim under the common law "trust fund" doctrine, contending that a judgment against a dissolved corporation can be satisfied through assets distributed to stockholders upon dissolution.  The court held that the trust fund doctrine will not revive a claim that has been extinguished by the corporations statute, currently found at ORS Chapter 60.  On that basis the trial court had properly entered summary judgment against plaintiff as to the dissolved corporation.

As to the claim against the corporation that had acquired some of the assets of the dissolved corporation, the court held that defendant could not be held liable as a "successor" to the dissolved corporation because it had not acquired all of the latter's assets.  The court declined plaintiff's invitation to expand Oregon's law on successor liability "to accomodate the special issues raised by liability for defective products."

Government not liable in "economic loss" case, according to the Oregon Court of Appeals

Today the Oregon Court of Appeals issued an en banc opinion further refining the economic loss doctrine, finding no liability when a local government makes statements to a private individual that turn out to be wrong.

In Loosli v. City of Salem, plaintiffs sought to open an auto dealership in Salem, and to that end applied for a state-mandated vehicle dealer certificate. As part of the process, plaintiffs obtained a certificate from the City of Salem stating that the property complied with all relevant land use and business ordinances. Shortly after plaintiffs opened their business, the City notified them that they were in violation of the city's land use ordinances and ordered them to cease operations. The plaintiffs eventually were required to relocate, incurring monetary damages. They brought a negligence suit against the City for economic losses resulting from their reliance on the City's erroneous certification.

Under the economic loss doctrine, a negligence claim for purely economic losses must be based on some special duty that defendant owes to plaintiff beyond the ordinary duty to exercise reasonable care to avoid foreseeable harm.  That special duty can arise from either:  (1) a legislative intent to protect persons in plaintiffs' circumstances, or (2) the existence of a "special relationship" between the City and plaintiffs. The Court rejected the legislative intent argument, and further held that no "special relationship" exists between government officials and applicants for government permits.  The court affirmed summary judgment for the City.

See the Oregon Business Litigation Blog's discussion here and here of two economic loss cases issued by the court last December.

Housing discrimination claim against on-line service gets new hearing in the Ninth Circuit

The Ninth Circuit will reconsider whether an internet roommate-matching service can be held liable under the Fair Housing Act for postings on its site.  On Friday the court ordered that Fair Housing Council v. Roommate.com will be re-heard by an en banc panel. 

In May of this year, a divided three-judge panel held that Roommate.com was immune from liability under the Communications Decency Act, even though it had allegedly published listings stating discriminatory preferences.  See our earlier coverage of the case here.

Oregon Court of Appeals on wrongful initiation of civil proceedings

If one person sues another without cause and with malice, the target of the lawsuit may have a tort claim for wrongful initiation of civil proceedings.  The Oregon Court of Appeals last week issued an opinion that may open the door to more such claims where the underlying lawsuit is resolved by a settlement and dismissal.

In Perry v. Rein, the court weighed in on a dispute in which a lawyer had been sued for his alleged role in a scam.  Following settlement and dismissal of that claim, the defendant sued the lawyer who prosecuted that first action, for wrongful initiation of civil proceedings.  One of the elements of such a claim is the termination of the first proceeding in favor of the party now suing for wrongful initiation.  The defendant in the second action obtained summary judgment on the ground that the settlement and voluntary dismissal in the first case showed that it was not terminated in the opposing party's favor.   The Court of Appeals reversed, holding, among other things, that it cannot be presumed that a dismissal associated with a settlement defeats a subsequent claim for wrongful initiation of civil proceedings. 

The Oregon Court of Appeals on premises liability: Is the UPS man an invitee or a licensee?

Do you have to warn the UPS delivery person about your slippery front steps?  Maybe so, according to the Oregon Court of Appeals in an opinion issued yesterday.  In Johnson v. Short, the court held that a delivery driver who routinely delivers packages to a residence is a "business invitee" and not a "licensee."  The possessor of the premises has a duty to use due care for the safety of his invitee, while he has less responsibility for the safety of a mere licensee.  In the Johnson case, the court reversed summary judgment for the defendant and remanded the case for trial on, among other things, whether the delivery man realized just how slick the moss-covered steps were.

Two cases shape the legal contours of the Internet

This week the Ninth Circuit issued two opinions that apply longstanding legal concepts to novel, Internet-based disputes.

The first case addresses a clash between two federal statutes: the Fair Housing Act and the 10-year-old Communications Decency Act.  The FHA prohibits, among other things, publishing discriminatory advertisements for housing.  The CDA, meanwhile, states that a provider of an "interactive computer service" cannot be treated as a publisher of content provided by others.  In Fair Housing Council v. Roommate.com, plaintiff claimed that Roommate.com, an online roommate matching web site, violated the FHA by publishing listings stating discriminatory preferences.  Roommate.com argued that it was merely an Internet-based conduit for information provided by others, shielding it from liability
under the CDA.  Judge Alex Kozinski disagreed, noting that the listings were in the form of questionnaires provided by Roommate.com, thus making Roommate.com responsible for the creation or development of the content and taking it outside of the CDA shield.

For further discussion of the CDA shield, see this Oregon Business Litigation blog item from November 2006.

In Perfect 10, Inc. v. Amazon.com, Inc., the issue was whether the Google search engine violates copyright law.  In particular, do links on a Google search illegally facilitate access to a third party's images and web sites which infringe on plaintiff's copyright?  The Ninth Circuit considered the legality of both thumbnail images from infringing web sites accompanying Google search results, and search results providing links to infringing web sites.  Judge Sandra S. Ikuta wrote that the thumbnail images constituted "fair use" and did not infringe on plaintiff's copyright.  But the court remanded the second issue to the district court, directing it to reconsider whether Google's links illegally assist users to access infringing sites.

Update: Splenda lawsuit settlement

At the end of a month-long trial, the manufacturer of Splenda artificial sweetener settled the false advertising claim brought by the manufacturer of rival product Equal.  As earlier noted here in the Oregon Business Litigation blog, the trial in Philadelphia addressed whether the advertising slogan "made from sugar, so it tastes like sugar" is false, in violation of the Lanham Act and state law.

The terms of the settlement were undisclosed -- it's unknown whether the ad slogan will change, for example.  But defendant evidently saw the handwriting on the wall:  settlement talks started in earnest when the jury, during its deliberations, asked the judge for a calculator and copies of expert reports on damages.  The parties announced the settlement just before the verdict was to be read. 

See coverage of the settlement at How Appealing, Law.com, MSN, and the Wall Street Journal Law Blog.

Marketing agreement may be a RICO violation, Ninth Circuit holds

Courts must resist the impulse to narrowly interpret the standards for civil RICO liability.  That's the message an en banc panel of the Ninth Circuit sent on Friday, as it reinstated a case in which the plaintiffs claimed that a marketing agreement between Microsoft and Best Buy formed the basis for a RICO claim.  Odom v. Microsoft Corp. concerns allegations of a marketing arrangement under which Best Buy gave its customers CDs for trial subscriptions to the MSN service.  Plaintiffs alleged that customers were charged for the MSN subscriptions without their consent, and that because the activity involved wire fraud it constituted a civil violation of the Racketeer Influenced and Corrupt Organizations Act. 

Parsing the technical language of the RICO statute, the court held that, to state a viable claim, plaintiff need not plead that an "associated-in-fact enterprise" has an ascertainable structure separate from its "pattern of racketeering activity."  The court consequently reversed the lower court's dismissal of the complaint.  The court acknowledged a split among the circuits on this pleading issue, but asserted that it's bound by U.S. Supreme Court precedent to read the statute broadly in order "to effectuate its remedial purpose."

See other law blog coverage of the case at How Appealing, Legal Pad, and Blawgletter.

Oregon Supreme Court strengthens plaintiff's hand in shareholder derivative litigation

A shareholder who files a derivative action against corporate directors seeking changes in corporate policies can be awarded attorney fees in the action even if the defendants later voluntarily make those changes, mooting the litigation.  That was the holding last week by the Oregon Supreme Court in Crandall Capital Partners v. Shelk, a case that may embolden shareholders seeking to challenge corporate governance. 

The shareholders had filed suit to require the directors to remove the corporation's takeover defenses and to engage in negotiations with a proposed purchaser.  Before judgment was entered, the corporation took the very actions which the plaintiffs sought in their lawsuit.  Equitable principles allow a court to award fees to a shareholder whose actions have conferred a benefit on the corporation.  According to the court, a claim for fees based on those equitable principles does not become moot simply because plaintiffs' substantive claims are moot.  The court remanded to the Court of Appeals to determine whether plaintiffs' lawsuit had conferred a benefit on the corporation, entitling plaintiffs to fees.

Battle of the artificial sweeteners

Starting on Monday, a jury is set to consider whether the Splenda advertising slogan "made from sugar, so it tastes like sugar" is false advertising.  Merisant, the manufacturer of artificial sweetener Equal, has sued McNeil Nutritionals, the maker of market-leader Splenda, in federal court in Philadelphia, claiming violations of the federal Lanham Act and Pennsylvania state law.  Whether the slogan is false will involve issues of both marketing and chemistry:  Is Splenda really made from sugar?  And does the slogan falsely imply that the product is "natural"?

See the New York Times description of the case here, and law blog coverage here and here.

Supreme Court answers the $79 million questions: No and no

Two cases making legal news have a few things in common:  they were both tried in Portland, the juries in each case punished the defendants by assessing $79 million in damages (give or take half a million), and today both cases were overturned by the U.S. Supreme Court.

In Philip Morris v. Williams, the products liability plaintiff obtained a $79.5 million punitive damages verdict against the cigarette manufacturer.  The Supreme Court voted 5-4 that the Due Process clause of the Constitution prohibits punitive damages awards that punish defendant for harm inflicted on any party other than plaintiff.  In a bit of constitutional hair-splitting, the Court stated that a plaintiff can offer evidence of harm to non-parties to show that the wrongful conduct was reprehensible, but the jury can't use that evidence to punish defendant for the harm caused to others.  How to ensure that juries don't cross the line?  It's up to the states to figure that out, according to the court, beginning with the Oregon Supreme Court as it will again take up the Williams case.  See the Oregon Business Litigation Blog's earlier coverage of the case here and here.

In Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., the Supreme Court threw out a novel antitrust theory that had resulted in a verdict of $ 26 million, trebled by law to $79 million.  Plaintiffs claimed that Weyerhaeuser had engaged in an unlawful monopsony -- or buyer-side monopoly -- by bidding up the price of alder logs (as input for its mills) to levels higher than other mills could afford to pay, thereby putting those mills out of business.  This theory is called predatory bidding.  The unanimous court held that to prove predatory bidding, plaintiff must show that (1) bidding up the price of the input caused the price of the resulting output to exceed the revenues generated by the sale of that output, and (2) defendant has a dangerous probability of recouping the resulting losses  by exercising its monopsony power once competitors are run out of business. 

At trial, Judge Owen Panner did not require plaintiff to make such a stringent showing, instructing the jury that plaintiff was required to show only that Weyerhaeuser had bid the cost of logs above a "fair price."  The Supreme Court reversed the verdict resulting from that instruction.  See the Oregon Business Litigation Blog's earlier coverage of the case here, here,  and here.

Find other law blog coverage of today's rulings here and here.

Ninth Circuit upholds Oregon's split recovery law for punitive damages

The Ninth Circuit Court of Appeals yesterday upheld the constitutionality of Oregon's statute allocating a portion of punitive damage awards to the state.  The 'split recovery' statute, ORS 31.735, sends to the state's victim compensation fund 60 percent of any punitive damage judgment, while the plaintiff who is awarded the punitive damages receives 40 percent. 

In Engquist v. Oregon Department of Agriculture, plaintiff made various state and federal law claims against her former employer.  Under a state law claim for interference with contract, the jury awarded punitive damages.  The Ninth Circuit concluded that the law allocating 60 percent of those damages to the state did not violate the Fifth Amendment's Taking Clause or the Eighth Amendment's Excessive Fines Clause. 

In addition to her constitutional arguments, plaintiff made a creative 'judicial estoppel' argument, drawing on the fact that the state was both a defendant and the beneficiary of the split recovery.  The Justice Department, in defending the case, had naturally contended at trial that defendants did not act with willfulness or malice with regard to her employment.  Plaintiff claimed that, once the jury awarded punitive damages, the state was estopped from changing its position: the state could not accept the jury's conclusion that the agency was in the wrong and thereby claim 60 percent of the award.  The Ninth Circuit concluded that the operation of the split recovery statute was not the same as a flip-flop by the Department of Justice.

Punitive damages in Oregon are measured against potential harm and not actual harm

The Oregon Court of Appeals this week weighed in on the debate over when punitive damages are so grossly excessive as to violate the US Constitution.  The US Supreme Court, Oregon Supreme Court, and Oregon Court of Appeals have previously ruled that reviewing courts must determine whether an award of punitive damages is excessive under the Due Process Clause of the Constitution, and in doing so must consider, among other things, the ratio between punitive and compensatory damages.  There has been much debate regarding the appropriate ratio, and the US Supreme Court has noted that few punitive damage awards exceeding a single-digit multiple of compensatory damages will satisfy due process. 

The case decided this week involved predatory lending practices.  The the jury awarded $500,000 in punitive damages, 15 times the amount of compensatory damages of approximately $32,000.  The Oregon Court of Appeals ruled that, in determining whether a punitive damages award is excessive, the ratio of punitive damages to compensatory damages may be based upon the harm likely to result from defendant's actions, as opposed to harm actually caused.  Vasquez-Lopez v. Beneficial Oregon, Inc.  In other words, the amount of punitive damages should not be compared to the actual compensatory damages awarded in the case, but rather to the potential compensatory damages that would have likely resulted from defendant's actions.  Although the jury awarded plaintiffs only about $32,000 in compensatory damages, plaintiffs presented evidence that the potential damages from defendant's conduct exceeded $325,000, the amount of interest which defendant would have charged over the life of the predatory loans.  The ratio between the punitive damages and potential damages was only 1.53 to 1, which the court upheld as not excessive.

This ruling means that plaintiffs seeking to recover punitive damages will in the future litigate not only actual damages, but also the scope of potential damages.

In addition to its analysis of punitive damages, the Vasquez-Lopez case has an important impact on the interpretation of arbitration clauses, as noted in this previous post to the Oregon Business Litigation blog.

Court of Appeals holds landowner can't sue county for faulty advice

The Oregon Court of Appeals issued its second opinion this month addressing the so-called economic loss doctrine, holding that a resident can't sue the county government for damages resulting from a land use planner's erroneous advice.  In Wild Rose Ranch Enterprises LLC v. Benton County, plaintiffs had sought to use their property as a quarry.  In response to an inquiry, the county's land use planner told the proposed quarry operator that a conditional use permit was not necessary.  Months later, the same county official informed plaintiff that a conditional use permit was required for the quarry after all.  The county denied plaintiff's subsequent application for such a permit. 

Plaintiffs sued the county for amounts spent on developing the quarry, and for their anticipated profits.  Plaintiffs pursued claims for negligence and negligent misrepresentation, due to their reliance on the initial, erroneous advice.  Plaintiffs acknowledged that, because of the economic loss doctrine, damages for negligence would be available only if the county had a "special relationship" with plaintiffs which gave rise to a duty to protect plaintiffs from economic harm.  Judge Haselton, writing for the court, agreed with the county that its development code was not intended to create tort liability in situations where the planning official's interpretation proved to be faulty.  The claims were dismissed.

See the Oregon Business Litigation Blog's discussion of Harris v. Suniga, the economic loss case decided earlier this month, here.

An advance payment extends the tort statute of limitations, the Oregon Supreme Court holds

Earlier this month the Oregon Supreme Court gave a broad reading to ORS 12.155, which suspends the statute of limitations on a tort claim when a "person" makes an advance payment on that claim, unless the person making the payment also gives written notice of the date that the statute of limitations expires.  While the Court of Appeals held that ORS 12.155 tolls the statute of limitations only when an insurer makes an advance payment, the Supreme Court reversed, holding that an advance payment by any person can extend the limitations period. 

In Hamilton v. Paynter, plaintiff alleged that she was injured when a forklift owned by defendants rear-ended her vehicle.  She claimed that defendants several months later made a $1,000 "partial payment" for the injuries she suffered, but did not give her written notice of the date the statute of limitations would expire on her claim.  She filed suit more than two years after the accident, which defendants claimed was beyond the limitations period.  The court disavowed earlier case law suggesting that only a payment by an insurer can toll the statute of limitations.  Because the defendants made an advance payment but failed to give notice of the limitations period, the statute of limitations was tolled and the claim was timely.

Oregon Court of Appeals puts limits on the "economic loss" doctrine

The Oregon Court of Appeals this week clarified the scope of the "economic loss" doctrine, an important limitation on the type of damages recoverable for negligence.  Under Oregon's economic loss doctrine, a plaintiff cannot recover damages for purely economic losses resulting from defendant's negligence, unless the defendant owes some special duty to plaintiff beyond the common law duty to exercise reasonable care.   So, for example, an employer cannot sue a party for the loss of the services of its employee based on that party's negligent injury of the employee; in such a case, the employer suffered no injury to its person or property, so its losses are purely economic and cannot be recovered from the tortfeasor.

The issue the Court of Appeals addressed in Harris v. Suniga was how to define "economic losses."  In that case, the plaintiffs were subsequent purchasers of an apartment building, and the defendant was the builder whose negligent construction allegedly resulted in extensive dry rot.  Because plaintiffs had no contractual relationship with the builder, they could not sue for breach of contract.  Instead, they made a claim for negligence.  The defendant sought to dismiss based on the economic loss doctrine, arguing that plaintiff's loss was simply a decrease in the value of their investment and therefore was not recoverable in a negligence claim.  Judge Landau, writing for the court, disagreed.  He concluded that plaintiffs' claim was based on injury to their property and was not purely economic.  On that basis, the economic loss did not bar a negligence claim and plaintiffs are entitled to proceed against the builder.

Communications Decency Act shields web publishers from liability

Two recent cases confirm that web publishers and operators of other on-line forums cannot be held responsible for content provided by others. 

In a case filed in Chicago, a federal district court judge ruled that the federal Communications Decency Act of 1996 barred a federal housing discrimination claim against the popular Craigslist web site.  A public interest group filed the action, charging that the site allowed individuals to post discriminatory housing ads. While a publisher of discriminatory ads can be held liable under the Fair Housing Act, the Communications Decency Act states that a provider of "an interactive computer service" cannot be treated as a publisher of content provided by others.  This broad protection of on-line forums prompted the judge to dismiss the action.

The California Supreme Court last week similarly held that the Communications Decency Act shielded the operator of an on-line news group from liability for defamation arising from a letter she posted on her site.  The court expressed concern about the policy of "blanket immunity for those who intentionally redistribute defamatory statements on the internet," but concluded that the law required dismissal of the action.

Supreme Court may send punitive damage case back to Oregon

At yesterday's U.S. Supreme Court argument in the Oregon case Philip Morris USA v. Williams, the justices signalled that they may return the case to the Oregon Supreme Court for clarification.  Doing so would avoid for now further explication by the Court of the Due Process limits on punitive damages, and in particular the extent to which a jury can consider harm to non-parties in setting punitive damages.  Link: Law.com - Justices May Return Punitive Damages Case to Oregon High Court.

U.S. Supreme Court to scrutinize Oregon punitive damage award

Next Tuesday, October 31, the U.S. Supreme Court will hear oral argument in the latest of a series of  cases concerning the proper scope of punitive damages.  Philip Morris USA v. Williams was tried in Multnomah County Superior Court in 2002.  Plaintiff Mayola Williams claimed that the tobacco company misled her deceased husband about the danger of smoking, and received an awarded of $79.5 million in punitive damages.  Beginning with BMW v. Gore in 1996, the Supreme Court has issued a series of cases imposing Due Process clause limits on excessive punitive damages.  The Williams case has a particular focus on the extent to which punitive damages can be awarded as punishment for harm to persons other than the parties to the action.  The Court granted certiorari to address these questions:

1.  Whether, in reviewing a jury's award of punitive damages, an appellate court's conclusion that a defendant's conduct was highly reprehensible and analogous to a crime can "override" the constitutional requirement that punitive damages be reasonably related to the plaintiff's harm.
2.  Whether due process permits a jury to punish a defendant for the effects of its conduct on non-parties.

The briefs filed in the Supreme Court are available here.

Trademark Owner Waited Too Long to Raise Its Beef with Alleged Infringer

The Tillamook County Creamery Association, a well-known maker of cheese and other dairy products, began using the TILLAMOOK mark for its products as early as 1918.  It registered the mark with the US Patent and Trademark Office in 1921 and 1950.  Years later, a different entity, the Tillamook Country Smoker began processing meat products.  The general manager of the Creamery Association informed the Country Smoker that he did not object to the Country Smoker provided that it did not build a cheese factory. 

The Country Smoker expanded and started selling its products under the name TILLAMOOK COUNTRY SMOKER in grocery stores as well as at the Tillamook Creamery.  In 1985, the Country Smoker applied for a trademark.  While the Creamery did not object, the PTO rejected the application because the mark was confusingly similar to the Creamery's TILLAMOOK mark.  Nonetheless, the Country Smoker continued to use its mark without objection from the Creamery, and in 1995, the Country Smoker filed a new application that combined the words TILLAMOOK COUNTRY SMOKER with a ribbon design.  The Creamery did not object and the PTO granted the registration.  The Country Smoker later reapplied to register the words TILLAMOOK COUNTRY SMOKER and the PTO granted the registration over the opposition of the Creamery. 

The Creamery began recording instances of actual confusion between the two marks in grocery stores.  The Creamery then sent a cease and desist letter to the Country Smoker which prompted the Country Smoker to file a declaratory judgment action to seek a ruling that it was not infringing the Creamery's mark.  The trial court ruled, in part, that the Creamery's objections to use of TILLAMOOK COUNTRY SMOKER were barred by laches (i.e., the expiration of the limitations period for filing a claim).  In a recent ruling, the Ninth Circuit Court of Appeals agreed. 

The appellate court ruled that the limitations period for laches starts from the time that plaintiff knew or should have known about its potential cause of action.  The court found that the Creamery knew about the use of the infringing mark on complementary products in the same geographical area but did nothing for 25 years to prevent it.  The Creamery argued that the delay in enforcement was excused by the doctrine of progressive encroachment, which allows a trademark owner to wait to sue a junior user until the junior user engages in direct competition.  The Creamery claimed that the Country Smoker's sales expanded significantly in the late 1990s, making the infringement claim timely.  The court held that the doctrine of progressive encroachment does not apply under these circumstances because the Country Smoker merely grew its existing business and did not expand into a new product market in competition with the Creamery.

The court also rejected the Creamery's argument that an injunction should issue to protect the public from inevitable confusion, holding that inevitable confusion is actionable only where the product is harmful or a threat to public safety, which was not the case here.  Accordingly, the Tillamook Creamery was barred from asserting claims for infringement and from obtaining injunctive relief to stop the use of the TILLAMOOK COUNTRY SMOKER mark.   This case may be found here.

Lawyers Breathe Sigh of Relief

Recent decisions by the Oregon Court of Appeals had expanded potential liability for lawyers who were alleged to have aided their clients in breaching a fiduciary duty to a third party even if the lawyer was merely acting in his or her capacity as a lawyer.  The Oregon Supreme Court seems to have restored some sanity to this area of the law.

In a unanimous opinion written by Justice Thomas A. Balmer, the Supreme Court held that a lawyer, acting within the scope of the lawyer-client relationship, is not liable for assisting the client's breach of fiduciary duty to a third party. The Court expanded on prior cases that provided immunity from tort liability for conduct as an agent or on behalf of another that comes within the scope of a privilege. The Court concluded that a lawyer acting on behalf of a client and within the scope of the lawyer-client relationship is protected by such a privilege.

The impact on the legal profession is obvious, but the impact on clients is also important.  Expanding lawyer liability to third parties for the mere performance of legal services for a client, when the effect of the action is claimed to be a breach of fiduciary duty, risked a chilling effect on a lawyer's zealous representation, as well as increasing the potential transactional costs of such corporate legal services.

The case is Diane Reynolds v. Donna Schrock et al., (TC C9913S7CV)

(CA Al19200) (SC SS2503), opinion issued September 6, 2006.

Loose Lips Still Sink Ships

An example of employee stupidity that keeps lawyers in business was highlighted in the case of Denny v. Elizabeth Arden Salons, Inc., No. 05-1228 (4th Cir.), decided August 9, 2006.  An African-American woman ordered a gift certificate for her mother.  She later went into the store to add a service to the gift, at which point she was told by the receptionist that there was "a problem" because the salon "did not do black people's hair."  Mother and daughter sued for civil rights violations for discrimination in a place of public accommodation and discrimination in the making and enforcement of contracts, along with a state law claim for intentional infliction of emotional distress.  The trial court granted summary judgment to the defendant salon.

The Fourth Circuit reversed in part, holding that the actions of the receptionist did constitute discrimination in the making and enforcement of contracts.  The court affirmed the dismissal of the public accommodation claim, holding that the salon did not fall within the legislative definition of a public accommodation.

Even in this day and age discrimination of this sort, whether intentional or merely thoughtless, occurs and creates liability for employers.  For employees who lack a keen sense of the obvious, this most basic of lessons bears repeating.

Full text of the opinion can be viewed at:  http://pacer.ca4.uscourts.gov/opinion.pdf/051228.P.pdf

Washington Denies Shareholder Status to Credit Union Members

In an opinion issued July 25, 2006, the Washington Court of Appeals affirmed a trial court dismissal of certain claims brought by the group Save Columbia Credit Union. The court held that the group, composed of credit union members, did not have standing to bring direct claims for breach of fiduciary duty against directors, nor could the group avail itself of statutory entitlements to access to records afforded to shareholders in other corporations. Although the opinion examines a number of Washington statutes, the fiduciary duty analysis is based on common law principles that could be applicable in other jurisdictions, including Oregon. Case information: Docket Number: 32858-5-II Title of Case: Save Columbia CU Committee etal, Appellants v. Columbia Community Credit Union etal, Respondents File Date: 07/25/2006