Oregon Supreme Court denies smoker class action for "medical monitoring"

In a unanimous opinion with one concurrence, the Oregon Supreme Court yesterday upheld the dismissal of a large class action of smokers who sought injunctive relief for "medical monitoring, smoking cessation and education."  Plaintiffs are some 400,000 smokers who have no present symptoms, but sought to have a group of tobacco companies fund a program to cover the cost of CT scans and other diagnostic tests to identify future harm from smoking.  Even though they lack of any present injury, plaintiffs contended they could maintain an action for such relief based on the defendant tobacco companies' negligence.   The Court disagreed, holding that a common law negligence claim requires a present physical injury:  "The complaint does not allege that plaintiff has suffered any present physical harm as a result of defendants' conduct. The complaint alleges only that plaintiff has suffered a 'significantly increased risk of developing lung cancer' in the future."  The Court continued:

"Oregon law has long recognized that the fact that a defendant's negligence poses a threat of future physical harm is not sufficient, standing alone, to constitute an actionable injury. As this court has explained, 'the threat of future harm, by itself, is insufficient as an allegation of damage in the context of a negligence claim.' Zehr, 318 Or at 656; see also Bollam v. Fireman's Fund Ins. Co., 302 Or 343, 347, 730 P2d 542 (1986) (holding that "'[t]he threat of future harm, not yet realized, is not enough'") (quoting W. Page Keeton, Prosser & Keeton on Torts 165 (5th ed 1984)). As Prosser explains,

Since the action for negligence developed chiefly out of the old form of action on the case, it retained the rule of that action, that proof of damage was an essential part of the plaintiff's case. Nominal damages, to vindicate a technical right, cannot be recovered in a negligence action, where no actual loss has occurred. The threat of future harm, not yet realized, is not enough. Negligent conduct in itself is not such an interference with the interests of the world at large that there is any right to complain of it, or to be free from it, except in the case of some individual whose interests have suffered.

Keeton, Prosser & Keeton on Torts at 165 (footnotes omitted). Accordingly, a plaintiff's cause of action does not accrue, and the statute of limitations on that cause of action does not begin to run, until the plaintiff has suffered an "'actual loss.'" Bollam, 302 Or at 347 (quoting Prosser and Keeton on Torts at 165)."

You can find the full opinion 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. 

No common law wrongful death claim in Oregon, high court rules

In a much-anticipated ruling, the Oregon Supreme Court today in Hughes v. Peacehealth held that there is no common law wrongful death cause of action in Oregon.  Plaintiffs in numerous wrongful death cases over the years have argued in favor of a wrongful death claim outside of the statutory claim allowed under Oregon law. Today, the Supreme Court unequivocally ruled that no such claim existed at the time of the drafting of the Oregon Constitution in 1857. 

At issue in the case was whether the plaintiff could pursue--under a common law theory--non-economic damages in excess of the $500,000 limit imposed by statute.  Plaintiff argued that the limitation violates both Article 1, section 10 and section 17 of the Oregon Constitution.  Those sections protect remedies available at common law and the right to a jury trial, respectively.  Shooting down both arguments, the Court stated, "[T]he view expressed by this court in previous cases--that wrongful death in Oregon is purely statutory and has no secure basis in the common law as it existed in 1857--is correct."  You can access the opinon 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. 

Storms force Clatsop County Court to limit services

Following the winter storms earlier this week, Clatsop County Circuit Court is open but is handling only limited matters.  The court has a generator providing electricity, but no telephone service.  Updates are available on the Oregon Judicial Department web site.

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.

Washington Supreme Court holds that pregnancy is not a "disability" under employment discrimination laws

Yesterday, the Washington Supreme Court held that an employer who refuses to hire a job applicant because of her pregnancy is liable for sex discrimination under Chapter 49.60 RCW (Washington's Law Against Discrimination), unless a bona fide occupational qualification justifies the hiring decision.

Significantly, the Court rejected the trial court's analysis of the plaintiff's claim under a  "disability" discrimination framework, where an "accommodation" test is used to determine whether an applicant's disability prevents her from performing an essential function of the job.  Read the full opinion in Hegwine v. Longview Fibre Co.

Ater Wynne scores trial court victory in commercial lease dispute

Last Friday, Ater Wynne trial lawyer Steve Blackhurst obtained a jury verdict in favor of telecommunications provider Verizon, following a two-week trial in Grants Pass.  At issue was the interpretation of a lease associated with Verizon's West Coast fiber optic system.  By a vote of 12-0, the jury denied the landlord's effort to terminate the lease. 

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 Supreme Court briefs are now the web

Briefs filed with the Oregon Supreme Court are now available on the internet, via links at the calendar page on the court's web site.  See those links here.  Relatedly, a new court rule requires parties to submit briefs to the Supreme Court both on paper and electronically. 

Class action by blind users of Target Corp's website is allowed to proceed

In a potential blow to companies doing business on the Internet, a federal judge in California certified a class action on behalf of blind users of the discount retailer Target Corp's website.  The lawsuit alleges that Target's site is inaccessible to the blind, in violation of anti-discrimination laws.  A copy of yesterday's Order can be found here.

How do elected judges compare with appointed judges?

When it comes to things that Oregonians value, electing state court judges may rank right up there with no sales tax and no self-serve gas.  But some contend that judges who are appointed - as they are in the federal courts and many states - are "better" because they're not susceptible to political pressures and the whims of voters.

Three legal scholars have studied how both types of judges rank for independence, skill, and effort.  They found, overall, that appointed judges do not perform at a significantly higher level than elected judges.  See the details posted today on the University of Chicago Law School Faculty Blog.

Antitrust commentary in the Portland Business Journal

This week's Portland Business Journal has a commentary by blog contributor Lori Irish Bauman on the recent US Supreme Court opinion that overturned a 96-year-old antitrust precedent.  Here's a link to an on-line excerpt (subscription required for the complete article).

See our earlier coverage of the case, Leegin Creative Leather Products, Inc. v. PSKS, Inc., here.

Payments to corporate directors are subject to unemployment tax, Court of Appeals holds

The Oregon Court of Appeals ruled today that a corporation's payments to members of its board of directors constitute "wages" for "employment" under ORS Chapter 657, and thus are subject to state unemployment taxes.  In that chapter, the legislature chose to define the term "employment" as any service for an employer that is performed for remuneration.  This broad definition brings corporate directors within the scope of the unemployment insurance system.  The court cautioned that its holding Necanicum Investment Co. v. Employment Department does not mean that directors are deemed "employees" for any other purpose.

Do the math and split the circuit

Adding to the long-running debate about reorganizing the Ninth Circuit Court of Appeals, a Vanderbilt Law School professor argues that a circuit split would result in fewer reversals by the US Supreme Court.  In a piece published this week in the Los Angeles Times, Brian Fitzpatrick bases his claim not on ideology or administrative efficiency, but on mathematics and probability.

In the recently-completed term, the Supreme Court reviewed 22 cases from the Ninth Circuit, and reversed or vacated 19 of them.

See our earlier coverage of proposals to split the circuit here.

Oregon Court of Appeals limits wrongful death claims

In the latest of a series of cases interpreting the state's wrongful death law, the Oregon Court of Appeals held on Wednesday that a personal representative cannot pursue a wrongful death claim if the decedent had already recovered damages for personal injury based on the act or omission that underlies the wrongful death action.  In Union Bank of California v. Copeland Lumber Yards, the court concluded that the language of the wrongful death statute bars a claim where the decedent previously recovered damages for the same act or omission.

Supreme Court denies remedy to plaintiffs in Fair Credit Reporting Act case from Oregon

The third time was not the charm for local plaintiffs in the U.S. Supreme Court this term.  Today the court dismissed Fair Credit Reporting Act claims in a case that originated in U.S. District Court in Oregon.  This was the third case from Oregon that the court decided this term (the other two are described here), and the third in which the plaintiffs were denied the relief they sought.   

In Safeco v. Burr and GEICO v. Edo, the defendant auto insurers charged plaintiffs higher premiums due to their credit scores.  Plaintiffs claimed that, in violation of FCRA, the insurers failed to give them notice of this "adverse action."  Plaintiffs sought damages for a willful violation of FCRA.  The court held that, in the case of GEICO, plaintiff's premiums were not in fact affected by her credit score and there was no duty to give FCRA notice.  Safeco, in contrast, did increase premiums based on plaintiffs' credit scores.  But its failure to give notice of the adverse action was based on a reasonable interpretation of FCRA and therefore was not a "willful" violation of the law. 

See earlier coverage of this case in the Oregon Business Litigation Blog here.

You've read the opinion, now watch the video

In a novel use of technology, U.S. Supreme Court on Monday annotated a written opinion with a video recording, posted for public viewing on its web site.  In Scott v. Harris, the court ruled that police were not liable for injuries resulting from a car chase.  Justice Scalia wrote that the plaintiff and the Court of Appeals had understated the danger posed by the high-speed pursuit, citing as proof a dashboard video from a police car.  He added in a footnote:  "We are happy to allow the videotape to speak for itself."

Court of Appeals upholds mandatory arbitration in employment contract

This week the Oregon Court of Appeals reversed the trial court's finding of unconscionability and upheld a mandatory arbitration clause in an employment contract, sending an employee's discrimination and other claims to an arbitrator instead of a jury.  Upon initial employment with the defendant, plaintiff signed an agreement to arbitrate all disputes rather than file suit in civil court.  Both federal and Oregon law favor arbitration, but the enforceability of any arbitration agreement in Oregon is governed by Oregon contract law.  "Unconscionability" is one defense to the enforcement of contracts in Oregon.  The test for "unconscionability" has two parts, one procedural and the other substantive.  A contract is procedurally unconscionable, and therefore not enforceable, if there is "oppression" or "surprise" in the "conditions of contract formation," but unequal bargaining power alone is insufficient for a finding of procedural unconscionability.  A contract is substantively unconscionable if the "terms" of the contract are "unreasonably" one-sided, such that their "effect" makes the parties' respective obligations "so unbalanced as to be unconscionable."

The Court reviewed the terms of the arbitration ageement in light of the foregoing, and held that the agreement was enforceable, sending the case back to be litigated in the agreed-upon arbitration forum.  In doing so, the Court noted that the agreement did not unfairly impair the employee's rights because it provided for the same law as would have applied in court, and for many of the same procedures followed by the courts.  Further, the agreeement did not impose restrictions on the type or amount of recovery that could be awarded by the arbitrator; did not exclude punitive damages or attorney fees; did not impose unreasonable limits on discovery or admissible evidence; and did not impose tight deadlines on the filing of claims.  To read the entire opinion in Motsinger v. Lithia Rose-FT, Inc., click here.

Vioxx maker answers with defense verdict: Score--Merck 10, Plaintiffs 5

Just weeks after Merck was hit with a multi-million dollar verdict in another Vioxx case in New Jersey, a jury this week in the otherwise plaintiff-friendly Madison County, Illinois court handed the plaintiff a defense verdict after deliberating less than 6 hours.  Plaintiff Frank Schwaller sued the maker of the Cox-2 Inhibitor for the death of his wife.  After taking Vioxx for about a year and a half, in 2003, Patricia Schwaller died of a heart attack.  The jury may have been persuaded that Ms. Schwaller's heart attack was not caused by her prescription medication as she also suffered from high cholesterol, high blood pressure and obesity.  Merck continues to fight the Vioxx cases one-by-one.  As jury trials go in these kinds of high profile pharmaceutical cases, the company is doing pretty well.  The score now?  Merck 10, Plaintiffs 5.

Ninth Circuit tightens crime-fraud exception

The attorney-client privilege is not as iron-clad as some clients would like to believe.  Communications between a lawyer and client can be subject to discovery and used as evidence under the "crime-fraud exception," which eliminates the privilege for communications made in furtherance of a client's criminal or fraudulent scheme.

The on-going Napster copyright litigation has now spawned a Ninth Circuit opinion that makes it a bit more difficult to destroy the privilege via the crime-fraud exception.  Yesterday in In re Napster, Inc. Copyright Litigation, the court observed that the procedures for applying the crime-fraud exception in the federal courts are "surprisingly unclear."  The court sought to bring clarity the process, holding that (1) both the party seeking discovery of the communications and the party seeking to preserve the privilege must be allowed to present relevant evidence to the trial court, and (2) the burden of proof on the party seeking discovery is preponderance of the evidence.  Formerly, courts had held that the party seeking to enforce the privilege had no right to present evidence on the subject, and that the burden on the moving party was a hard-to-define "prima facie" test.

The copyright plaintiffs had claimed that Bertelsmann AG had made a "sham" loan to Napster, and sought to obtain attorney-client communications relating to that loan under the crime-fraud exception.  The Ninth Circuit held that plaintiffs failed to prove that the exception applied to what was apparently a routine business transaction.

See other law blog discussion of the case here and here.

Vioxx plaintiff hits homerun; Score: Merck 9, Plaintiffs 5

In a setback for Merck, the maker of Vioxx, a New Jersey jury today awarded plaintiff $20 million in compensatory and $27 million in punitive damages to a 61-year-old mail carrier who suffered a heart attack allegedly caused by his prescription Vioxx.  The pharmaceutical company has won nine of the fourteen Vioxx cases it has tried.  For more on the case, see here.

Proposed legislation would add a judgeship to relieve Ninth Circuit caseload

The Senate Judiciary Committee has approved legislation that would add one judgeship to the Ninth Circuit Court of Appeals, helping to relieve that court's extraordinarily high per-judge caseload.  The proposal would transfer a judgeship from the District of Columbia Circuit to the Ninth Circuit, reducing the number of DC Circuit judges to 11 while increasing the number of active Ninth Circuit judges to 29.  Last year the Ninth Circuit saw 523 appeals filed per judge, while in the DC Circuit there were 107 appeals filed per judge.

The legislation now goes to the full Senate for a vote.  See coverage of the proposal, and press releases by sponsoring Sens. Dianne Feinstein and Jon Kyl.

See the Oregon Business Litigation blog's coverage of earlier proposals to split the Ninth Circuit here and here.

Patent trolls (and others) get the Supreme Court's goat

By James G. Stewart and Rick Boyd

Last May, an arguably ancillary statement in the Supreme Court’s Ebay v. MercExchange ruling provided ample fodder for patent bloggers, and a warning to 'patent trolls.'  As its central holding, the Court simply clarified the discretionary powers of trial courts to issue permanent injunctions for patent infringement on a case-by-case basis.  In short, the Court concluded there is no presumptive eligibility for a permanent injunction against a patent infringer. 

However, what really caught bloggers’ attention may have been dicta in a plurality concurrence.  Wrote Justice Kennedy, “When the patented invention is but a small component of the product the [defendant] companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement”.  Some observers read a ‘working requirement’ into this statement -- i.e., that to receive the full range of patent remedies, plaintiff must actively use the patent it seeks to enforce.  This inference is consistent with growing concerns that the public is not getting the full benefit of the burden of patents on the advancement of the arts and sciences, especially in the protection of so-called business methods.

Broadly speaking, this statement might be a warning shot across the bow for opportunistic patent enforcers, disparagingly referred to as 'patent trolls.'  Such companies typically do not practice ('work') their patented inventions.  Rather, their business models focus on securing licensing revenue from infringing companies, often by or under the threat of (previously) presumptively automatic injunctions.  Under a 'working requirement,' non-patent-practicing companies would lose substantial leverage for negotiating patent licenses.

The Court’s majority opinion should assuage these concerns to some extent, suggesting that a universally applied 'working requirement' would injure "university researchers or self-made inventors."  However, it remains to be seen whether lower Courts, using their equitable powers, may selectively fold a 'working requirement' into permanent injunction analysis based on the characteristics of the litigants.

Wikis and the law

In this column about the phenomenal growth of on-line collaborative efforts, including Wikis and open-source projects, University of Chicago Law School Professor Cass Sunstein leads with an amazing fact:  online encyclopedia Wikipedia has been cited four times as often as the Encyclopedia Brittanica in judicial opinions in the past year.

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.

Court of Appeals holds that protected areas in the Columbia River Gorge are exempt from Measure 37

The Oregon Court of Appeals today issued an opinion interpreting Measure 37, holding that land use regulations restricting development within the Columbia River Gorge National Scenic Area are not subject to the measure's compensation scheme.  Measure 37 (ORS 197.352) requires governments to compensate land owners for loss of value caused by land use regulations, or to waive those regulations.  Measure 37 expressly does not apply to regulations "required to comply with federal law."  In Columbia River Gorge Commission v. Hood River County, the court held that counties' land use ordinances implementing the federal Columbia River Gorge National Scenic Area Act fit within that exemption.

Denying a Measure 37 waiver requires notice and hearing, Oregon Court of Appeals holds

Measure 37 meets the U.S. Constitution in a case decided by the Oregon Court of Appeals last week.  In Corey v. Department of Land Conservation and Development, the court addressed a limited question:  did it have jurisdiction to review an agency's refusal to waive certain land use regulations in response to a Measure 37 claim?  But the answer to the question required a detour into the law of governmentally-created property interests protected by the Due Process Clause of the Fourteenth Amendment.

Measure 37, codified at ORS 197.352, requires, under defined circumstances, that the government either compensate property owners for loss of value caused by land use regulations, or waive those regulations.  In response to the Corey's Measure 37 claim, the DLCD waived certain regulations but concluded that it was not required to waive others. 

Corey sought review in the Court of Appeals of the refusal to waive.  According to the court, it has jurisdiction if the DLCD proceeding was a contested case under the Administrative Procedures Act.  And the matter was a contested case if, for example, the claimant had a protected property interest would could be taken by the government only after notice and a hearing.  After reviewing U.S. Supreme Court precedent on constitutionally-protected interests, the court concluded that the DLCD created an entitlement to benefits when it accepted the Measure 37 claim, and that Corey was entitled to notice and a meaningful hearing before DLCD could refuse to waive any of the regulations.  Accordingly, the Court of Appeals had jurisdiction to review the matter as a contested case.

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.

Class action prohibition in arbitration agreements: Be careful what you ask for

For years now, courts have enforced mandatory arbitration provisions in consumer and employment agreements.  The usual mandatory arbitration provision in a consumer or employment contract provides that all disputes of any kind shall be decided not in court, but by an arbitrator.  Early on, it was assumed that mandatory arbitration could only resolve individual suits.  More recently, however, plaintiffs have pursued class actions in arbitration, and many arbitration services today provide for class action arbitrations.  As a result, some companies and employers have responded by including within the arbitration clause a prohibition on class actions. 

According to plaintiffs' lawyers, combining the mandatory arbitral forum for dispute resolution with a prohibition on class actions, effectively eliminates the class action mechanism for mass resolution of, often, small-value claims that individual claimants would not otherwise pursue.  Some courts are beginning to agree, finding that a prohibition on class actions is "unconscionable" and, therefore, not enforceable.  See Riensche v. Cingular Wireless in which a Washington federal district court determined that the prohibition against class actions was "unconscionable" and denied the defendant's motion to compel arbitration.  An Oregon Court of Appeals case decided today similarly held that a prohibition on class actions, in part, rendered the otherwise mandatory arbitration agreement unenforceable.  See Vasquez-Lopez v. Beneficial Oregon, Inc. 

In both of these cases, the courts threw out the entire arbitration agreement, and the plaintiffs were allowed to litigate in court, an outcome the defendant had sought to avoid with the arbitration agreement in the first instance.  In other cases, the courts have struck the specific prohibition on  class actions, but otherwise upheld the arbitration agreement.  This leaves the defendant in the untenable position of facing a class action with a single arbitrator without the many procedural protections afforded to defendants in civil court. 

While it may be tempting to push the limits of mandatory arbitration as a way to rein in costly and protracted litigation, one should proceed with caution and seek competent counsel in defining the parameters of such agreements.

U.S. Supreme Court to consider Fair Credit Reporting Act case from Oregon

On Tuesday the U.S. Supreme Court hears arguments in cases addressing how insurance companies interpret the Fair Credit Reporting Act.  If an insurance company raises a customer's rates based on the customer's credit score, the FCRA requires the insurer to give an "adverse action" notice to the customer.  The insurers claim that, when they issue policies to new customers, the setting of the premium does not constitute an increase triggering the FCRA notice requirement. But the Ninth Circuit held that FCRA requires the insurer to give such notice any time it considers a new customer's credit rating and then sets a premium higher than the company's lowest possible rate. 

Also on review in the Supreme Court is whether the failure to give an adverse action notice amounts to a "willful" violation entitling the customer to a remedy under the FCRA.

For more on Geico v. Edo and Safeco v. Burr, see here , here , and here.  These cases were filed in federal District Court in Oregon, marking the third time this session that the U.S. Supreme Court has considered cases originating in local courts.  See the Oregon Business Litigation coverage of the other two cases here and here.

Sometimes a Burrito is Just a Burrito

A burrito is not a sandwich.

That's the ruling of a Massachusetts judge in a food fight between Panera Bread Co. and Qdoba Mexican Grill. Panera wanted to block its landlord from leasing space to Qdoba, citing an exclusivity clause in its lease which prevented the landlord from leasing to another sandwich shop.

The court relied on testimony from a Cambridge, Mass., chef, a former high-ranking USDA official, and Webster's Third New International Dictionary.

"I know of no chef or culinary historian who would call a burrito a sandwich," Chris Schlesinger, the chef, said in his affidavit. "Indeed, the notion would be absurd to any credible chef or culinary historian."

The court cited Webster's definition of a sandwich and explained that the difference comes down to two slices of bread versus one tortilla: "A sandwich is not commonly understood to include burritos, tacos, and quesadillas, which are typically made with a single tortilla and stuffed with a choice filling of meat, rice, and beans," he wrote.

Schlesinger explained that a sandwich is of "European roots" and generally recognized as "two pieces of leavened bread," while a burrito is "specific to Mexico and typically contains hot ingredients rolled into a flat unleavened tortilla."

Judith A. Quick, a former deputy director of the Standards and Labeling Division at the US Department of Agriculture, said in her affidavit: "The USDA views a sandwich as a separate and distinct food product from a burrito or taco."

Oregon Supreme Court holds asbestos claim not barred by statute of limitations

Oregon Plaintiffs Lawrence and Patricia Keller may proceed to trial in their asbestos injury cases thanks to the Oregon Supreme Court's recent interpretation of the "discovery rule" in the Oregon statute of limitations.

The Kellers brought suit against various defendants alleging that Lawrence Keller was injured from exposure to asbestos.  The defendants moved to dismiss the suit, arguing that the statute of limitations had run on the claims.  Oregon's asbestos statute of limitations, ORS 30.907(1), provides that:  "A product liability civil action for damages resulting from asbestos-related disease shall be commenced not later that two years after the date on which the plaintiff first discovered, or in the exercise of reasonable care should have discovered, the disease and the cause thereof." 

Lawrence Keller had worked as a mechanic in a muffler shop where he allegedly was exposed to asbestos.  He later developed respiratory ailments and, from the mid-1980s to the mid-1990s, saw various doctors who told him that his exposure to asbestos was a possible cause of his problems.  More than two years before he filed his civil suit in 2000, he filed both workers compensation and social security disability claims in which he alleged that he suffered from his prior exposure to asbestos.

Nonetheless, in a unanimous opinion, the Oregon Supreme Court last week held that a reasonable juror could find that Mr. Keller did not discover his asbestos-related condition until a doctor diagnosed it.  That diagnosis came, for the first time, within the two-year limitations period.  The Court further held that knowledge of his condition and its cause should not be imputed to him while he engaged in a reasonable inquiry and was told by his doctors that the cause of his condition was uncertain.  You can read the opinion here:  Opinion.

Class Action Status Denied in Vioxx Cases

Federal Judge Eldon Fallon, who oversees the thousands of federal Vioxx painkiller cases facing drug maker Merck & Co., denied the plaintiffs' request to certify the personal injury and wrongful death cases as class actions.  Plaintiffs allege that Vioxx increases the risk of heart attacks and other ailments, and Merck pulled Vioxx from the market in 2004.  Judge Fallon determined that the individual differences among the many plaintiffs and their specific medical histories made any class adjudication unmanageable.  The ruling deprives the plaintiffs of leverage to negotiate a comprehensive settlement, as the cases must now proceed on an individual, and more costly, basis.  Merck has vowed not to settle, but to try all cases individually.  Judge Fallon's order can be found here:  Order

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.

Oregon Supreme Court Enforces Insurance Anti-Assignment Clause Affecting both Plaintiffs and Defendants

The Oregon Supreme Court, on November 16, 2006, issued a decision that will affect parties' ability to settle insured claims.  In Holloway v. Republic Indemnity Company of America, the court held that the anti-assignment clause in a liability insurance policy barred assignment by the insured of both pre-loss and post-loss rights and duties.

Insurance policies typically provide that the insured cannot assign its rights under the policy without the insurer's consent.  The issue in Holloway was whether a post-judgment assignment of rights as part of a settlement was barred by the anti-assignment clause.  The court held that the assignment was, in fact, invalid under the terms of the policy. 

The facts in Holloway reflect a common type of settlement in cases where an insurer declines coverage.  In that case a party made a claim against the insured, and the insurance company refused to defend the insured under the terms of the policy.  As part of a subsequent settlement, the insured agreed to allow the claimant to enter a judgment against it, and agreed to assign to the claimant its rights to any claim the insured might have against the insurer for breach of the insurance contract or for indemnity (payment of the claim).  The claimant then filed suit to recover against the insurer, but the Supreme Court held that the assignment to the claimant was invalid as contrary to the anti-assignment clause of the insurance policy.

States have split on how to interpret anti-assignment clauses.  Courts in many states hold that, while such clauses bar a pre-loss assignment, they do not prevent a post-loss assignment.  The reasoning is that a pre-loss assignment could unfairly increase the insurer's risk of loss by a new insured, while a post-loss assignment does not increase the insurer's risk.  Oregon has joined the states holding that an anti-assignment clause bars an assignment no matter when it occurs. 
The result in Holloway is important to insured parties and to those seeking to recover damages from an insured party as they seek to negotiate settlements. 

Significantly, though, the Supreme Court in Holloway did not consider the effect of ORS 31.825, which permits the post-judgment assignment of any cause of action an insured has against its insurer as a result of the judgment.  The court noted that the plaintiff did not identify any statute that would invalidate the anti-assignment provision of the policy.

This decision is also important whether you are an insured defendant, or a company acquiring a party, because assigned rights under an insurance policy may not really be an asset, or, on the other hand, the assignment may not be protection for a claim or judgment once thought to be settled.

Update: Voters reject overhaul of judiciary in Oregon, South Dakota

Voters rejected ballot measures in Oregon and South Dakota -- described in this earlier entry to the Oregon Business Litigation blog -- that would have significantly changed the judicial systems in both states.  Oregon's Measure 40, which would have required appellate judges to be elected from geographic districts -- failed by 56-44 percent.  Meanwhile, South Dakota's more radical "Jail 4 Judges" measure received support from only 10 percent of the state's voters. 

Voters consider changes to the judiciary in Oregon, South Dakota

On the ballot in Oregon this Election Day is Measure 40, which would require that appellate judges be elected from geographic districts.  While Measure 40 would make significant changes to Oregon's judiciary, it pales in comparison to a measure on the ballot in South Dakota.  There, a constitutional amendment called the Judicial Accountability Initiative Law -- or JAIL -- would create a system to punish judges for unpopular decisions.  The proposed South Dakota law would create a special grand jury with the power to remove judges from the bench and to cut their retirement benefits.  The measure would strip judges of judicial immunity, making them vulnerable to civil lawsuits and criminal charges based on their decisions.   

Retired U.S. Supreme Court Justice Sandra Day O'Connor has charged that the goal of the South Dakota measure is "judicial intimidation," and last week at the Ninth Circuit Judicial Conference she warned against threats to judicial independence throughout the country.

Meanwhile, the California Bar Journal reports that Ron Branson, the moving force behind the JAIL initiative, lives in California, and hopes to get a similar measure on the ballot there and elsewhere in future elections.

Appeals Court Stays Tobacco Sanctions

Without issuing a written opinion, the United States Circuit Court of Appeals for the District of Columbia, on October 31, 2006, stayed a trial court ruling which would have required the big tobacco companies to refrain from using "light," "low tar," and similar phrases in their advertising of so called "light" cigarettes.  In addition to the advertising sanctions, trial court Judge Gladys Kessler's underlying order would have required the tobacco companies to make costly corrective public statements about the harmful effects of smoking cigarettes.  In the absence of the stay, the companies would have had to comply with the prohibition on advertising phrases and taken the other corrective measures by January 1.  The stay by the appeals court allows the tobacco companies to avoid spending millions of dollars complying with the order while they try to convince the appeals court to reverse Judge Kessler's ruling altogether.

Oregon establishes a "commercial court" specially for business disputes

Thanks to a pilot program that became effective on October 1, parties to business litigation in Oregon can now receive specialized treatment in their own "commercial court."  The novel program operates under the auspices of the Lane County Circuit Court.  The commercial court is designed to handle complex disputes that would be burdensome to the regular court docket.  According to the program's Operating Statement, the commercial court will provide judges and litigants with mechanisms for "fair, efficient and expeditious management of commercial and business litigation." 
The court's features include assignment of each case to a judge with special expertise for all proceedings, and the posting of written decisions in commercial cases on the court's web site.  Parties whose cases are assigned to the court must agree to participate in early alternative dispute resolution efforts, and to make an effort to conduct limited-issue discovery for the purpose of early dispositive motions or settlement. 
Cases pending outside of Lane County may under certain circumstances be transferred to the program by a motion for change of venue.
At a conference yesterday sponsored by the Oregon Law Institute, new Chief Justice Paul J. De Muniz described the commercial court program as one of his initiatives to ensure that Oregon has a competent judicial system on which the business community and the public at large can rely.

Appellate Court Decides Lawsuit by Teachers' Unions Against Bill Sizemore

The Oregon Court of Appeals recently decided Bill Sizemore's appeal of the multi-million dollar judgment the teachers' unions obtained against Sizemore's educational foundation and political action committee. American Federation of Teachers-Oregon, AFT, AFL-CIO v. Oregon Taxpayers United PAC (Or App October 4, 2006).  The unions had successfully sued Sizemore's groups under Oregon's RICO statute claiming that the groups had engaged in racketeering activities in gathering signatures and filing forms in connection with two anti-union initiatives Sizemore sponsored in 2000.

The Court of Appeals affirmed the judgment against Sizemore's educational foundation, but reversed the judgment against his political action committee.  Both Sizemore and the unions claimed victory from the Court of Appeal's decision.  Sizemore also said, however, that he intends to ask the Oregon Supreme Court to review and reverse that portion of the decision adverse to him.

While the case is complex and the opinion technical, for non-combatants this portion of Judge Haselton's opinion is most instructive:

For generations of Oregonians, the initiative has been, and remains, a cherished legacy.  It is not only part of our heritage but, as such, a vital, integral part of our political present and future . . . .  The citizens who ratified the initiative in 1902 certainly never intended that it would confer a license for fraud and a shelter for "money laundering."  The citizens of Oregon did