West Virginia Business Litigation

Interview with Patricia Glaser, Counsel for Conan O'Brien

Jeffrey V. Mehalic — Fri, 29 Jan 2010 11:27:36 -0500

For much of this month, we watched as, for better or worse, NBC dismantled its late-night programming schedule, when it attempted to move Conan O'Brien and "The Tonight Show" to 12:05 a.m. from its traditional slot at 11:35 p.m. in order to move "The Jay Leno Show" from 10 p.m. to 11:35 p.m.

As everyone knows now, O'Brien would not agree to move "The Tonight Show" to a later time, and his final show aired last Friday night. According to media reports, NBC paid O'Brien a total of $45 million; he will get approximately $33 million and the balance will go to his 200-person staff for severance payments.O'Brien can return to television on September 1 when his non-compete expires. After the Winter Olympics end, NBC will air Leno's show in the 11:35 p.m time slot.

I am particularly pleased today to share a brief interview I conducted with Patricia Glaser, name partner and litigation department co-chair at Glaser, Weil, Fink, Jacobs, Howard & Shapiro, LLP in Los Angeles, who represented O’Brien in his negotiations with NBC.

Patricia is a native of Charleston, West Virginia, and attended Rutgers University Law School. She clerked for United States District Judge David W. Williams of the Central District of California, after which she practiced at Wyman, Bautzer, Christensen, Kuchel & Silbert until 1988, when her current firm was formed. Patricia was kind enough to agree to answer a few questions, and I thank her for her time.

Q.     How did you get into entertainment law?

A.      I don't consider myself an entertainment lawyer. I'm a business trial lawyer. If you're in Los Angeles, and you don't do some matters related to entertainment, it's surprising. The studios are here, TV is here, production companies are here, and artists are here. So you're going to touch on it in your practice.

Q.     How would you describe your practice, both in terms of what you do and the composition of your client base?

A.      When you litigate in entertainment cases, the jargon is distinct, but a contract is a contract, antitrust and securities law principles are the same no matter in which industry one is litigating. Those things don't change. In my practice, I would say I touch on entertainment matters in about 40% of my cases.

Q.     In your most recent high-profile case, you represented Conan O'Brien in his dispute with NBC. How long have you represented Conan?

A.      I represented Conan regarding potential litigation with NBC. I am not his transactional lawyer, and he's not particularly litigious.

Q.     Can you provide any specifics on the terms of Conan's settlement beyond what have been reported?

A. No.

Q. When your client is a celebrity, does his or her status or fame affect your representation -- or are the issues in a dispute the same regardless of who your client is?

A. It depends on the client and the context of the dispute. Some celebrities in some cases are so concerned with public perception and therefore how a conflict is perceived is an important consideration in the overall strategy of a case. In cases where a celebrity is involved, public relations is more often a factor than in other types of business disputes.

Does Your Company Have a Trade Secret Protection Program?

Jeffrey V. Mehalic — Fri, 08 Jan 2010 11:18:28 -0500

A few days ago, I wrote about the dismissal of Charter Oak Lending's lawsuit against a larger rival for alleged misappropriation of proprietary information and other claims. The outcome of Charter Oak's lawsuit demonstrates the perils of trade secrets litigation.

With that case in mind, I want to share an end-of-the-year post from Nancy Geenen, one of the authors of Foley & Lardner LLP's Trade Secret/Noncompete Blog, which explains why a company needs a trade secret protection program and how to implement one. I would add that even if a company doesn't have trade secrets, which Nancy defines as "formulas, devices, methods, techniques, or processes," more than likely it has information that it wants and needs to keep confidential, such as clients' or customers' names, operating agreements, financial records, etc., which could be included in such a program.

By the way, Nancy is also the author of an article I discussed last week about the need for your engagement letter to accurately describe the scope of your representation.

Party's Counsel May Conduct Ex Parte Interviews of Opposing Party's Non-Supervisory Employees

Jeffrey V. Mehalic — Thu, 31 Dec 2009 11:08:18 -0500

For the last day of 2009, I thought I'd write about Smith v. United Salt Corp., 2009 WL 2929343 (W.D. Va.), a decision from the United States District Court for the Western District of Virginia regarding a lawyer's ex parte contact with an opposing party's employees. Mike Holm and Jim Kinsel discussed Smith in this post in their Unfair Business Practices Blog.

The facts are that the plaintiffs alleged that while they were employed by United Salt, they had been sexually harassed, discriminated and retaliated against, and subjected to assault and battery by United Salt's manager, all in violation of Title VII of the Civil Rights Act of 1964. Their lawyer sought to conduct ex parte interviews with United Salt employees "not to obtain admissions imputable to the corporation[,]" but "to gather information relevant to the incidents of sexual harassment that occurred on the premises of United Salt." United Salt predictably sought to prevent the interviews from taking place, and asserted that such ex parte contacts were prohibited by Lewis v. CSX Transp., Inc., 202 F.R.D. 464 (W.D. Va. 2001).

The plaintiffs relied on Rule 4.2 of the Virginia Rules of Professional Conduct, which provides that, "[i]n representing a client, a lawyer shall not communicate about the subject of the representation with a person he lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized by law to do so." The plaintiffs also pointed out that Comment 7 to Rule 4.2 clarified that "[i]n the case of an organization, this Rule prohibits communications by a lawyer for one party concerning the matter in representation with persons in the organization's "control group" as defined in Upjohn v. United States, 449 U.S. 383 (1981) or persons who may be regarded as the 'alter ego' of the organization."

The Comment explains that the "control group" test:

prohibits ex parte communications with any employee of an organization who, because of their status or position, have the authority to bind the corporation. Such persons may only be contacted with the consent of the organization's counsel, through formal discovery or as authorized by law.

Thus, the plaintiffs argued that because the employees whom their counsel wanted to interview did not have the authority to bind the corporation, they were not within its "control group," and so Rule 4.2 permitted the interviews to take place.

However, the court found that the Lewis court had explained that Rule 801(d)(2)(D) of the Federal Rules of Evidence required a court to look to federal law, and not just the Rules of Professional Conduct, to decide whether ex parte contacts with the corporate defendant's employees were permissible.

The court distinguished Lewis on the grounds that it involved a plaintiff's claim under the Federal Employer's Liability Act for damages resulting from injuries sustained due to the negligence of his employer. Under those circumstances, the plaintiff's co-workers could make statements regarding the allegedly negligent condition of the empoyer's equipment that would constitute admissions, even though those employees were not management or otherwise members of the "control group."

That was not the case with the plaintiffs' claims against Salt Rock and their manager under TItle VII, though, where "the employer is subject to vicarious liability only for acts of supervisory employees." Consequently, only those supervisory employees could impute liability to the employer:

While statements from co-workers regarding the actions of supervisory personnel could be used as evidence to prove that sexual harassment had occurred, those statements, from non-supervisory personnel, would not be an admission imposing liability on the employer. With this distinction in mind, it appears that the rationale for the Lewis decision -- to prevent an attorney from circumventing opposing counsel to obtain statements from employees which could be used to impute liability on the employer -- is not present in this case.

The court held that the plaintiffs' counsel could contact the plaintiffs' co-workers, but not any supervisory or managerial employees.

Holm and Kinsel point out that Smith means that a company involved in a dispute should inform its employees that litigation could result, in which case the other party's lawyer may contact them. They suggest that the company should also consult its lawyers about what to say to its employees about the potential contact by the other side, which makes sense. But as I read Smith, a corporation's non-supervisory or managerial employees are under no obligation to talk the opposing party's lawyer, so that may be the best advice to give the employees.

And finally, I wish everyone a happy, healthy, and successful 2010!

Make Sure Your Engagement Letter Accurately Reflects the Scope of Your Representation

Jeffrey V. Mehalic — Mon, 28 Dec 2009 19:24:01 -0500

The December issue of the ABA Journal features its third annual Blawg Review, which I highly recommend. But I want to address the Practice Pitfalls section of the magazine, particularly the entry by Nancy J. Geenen entitled "A Well-Crafted Engagement Letter Saves Trouble Down the Line."

In her article, Geenen writes about Jane, who signs up her first commercial client, a small technology company, and sends a letter confirming the engagement, which pertains to a joint venture. But Jane also provides advice to the company's president, Jim, on a variety of other matters, such as employment and trade secret issues.

Jim contacts Jane when a competitor starts to raid his employees, but Jane discovers that her firm has represented the competitor so her firm can't represent either party. It goes from bad to worse for Jane when the court rules that the noncompete provisions in the employment agreements are not enforceable -- the same employment agreements about which Jane had advised Jim.

None of this sits well with Jim, who sues Jane and her firm for malpractice because she failed to advise him about new court decisions that made the noncompete provisions unenforceable.

Geenen suggests that Jane's problems started with the vagueness of her engagement letter, which led Jim to believe that she and her firm represented his company in all matters, not just the joint venture.

She points out that Rule 1.2 of the ABA Model Rules of Professional Conduct permits a lawyer to restrict his or her representation: 'A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent." I compared that language to West Virginia Rule of Professional Conduct 1.2, which provides at subsection (b) that "A lawyer may limit the objectives of the representation if the client consents after consultation." So unlike the Model Rule, West Virginia's rule does not mention the reasonableness of the limitation of the representation, although it requires that the client consent to any such limitation.

The take-away is that Jane should have specified in the engagement letter that she and her firm were representing Jim's company regarding only its joint venture, rather than "the matter we discussed," then followed up with engagement letters for any other matters in which the parties agreed that Jane would provide representation.

Although a client needs to understand clearly and unequivocally when it is and is not being represented, the burden is on the lawyer to ensure that the client understands the scope of the representation. As a lawyer, the last thing you want is a fight with your client about whether your engagement letter was sufficiently specific -- because at that point, that fight is probably the least of your problems.

Court Dismisses Connecticut Mortgage Lender's Claims Against Larger Rival

Jeffrey V. Mehalic — Mon, 28 Dec 2009 10:29:24 -0500

Some of you may recall that in 2007, I had written about Charter Oak Lending Group, LLC’s lawsuit against CTX Mortgage Company, and what Charter Oak claimed were CTX’s illegal – and successful – efforts to hire Charter Oak’s employees and obtain proprietary information regarding its clients for the purpose of damaging or ruining Charter Oak’s business.

In an order entered on August 27, 2008, Judge Vincent Roche of the Superior Court for the Judicial District of Waterbury, Connecticut dismissed Charter Oak’s claims for misappropriation of trade secrets, conversion and statutory theft, and breach of fiduciary duty. That decision left Charter Oak’s claims under the Connecticut Unfair Trade Practices Act, civil conspiracy, and unauthorized computer access.

The court ruled on those issues on July 7, 2009, when it dismissed all of Charter Oak’s remaining claims against CTX and its former employees whom CTX had hired.

Debra Killian, Charter Oak’s president, kindly provided me with copies of the court’s decisions and advised me by email that Charter Oak is appealing the rulings.

This is what the court had to say about Charter Oak’s claim for civil conspiracy:

The more credible evidence adduced at trial indicates that some individual defendants made independent decisions to leave the plaintiff’s employment and in effect sought out and related to the corporate defendant CTX as a possible source of employment. The individual defendants as independent contractors and “at will” employees, not under any contractual restraints from the plaintiff, could seek whatever employment opportunities were available in the marketplace without being conspiratorial about it. The fact remains that two or more defendants had a “book of work” and realized independently that their best economic interests as loan originators were not going to be served by remaining within the plaintiff’s employment. This does not mean that they engaged in some unlawful act(s) or were necessarily exercising unlawful means to seek new employment with a ready, willing and able new employer, namely CTX.

But I think this sentence in the July 8 order, which the court quoted from its August 27, 208 order, sums up the rationale for the court’s rulings:

The departure from one employer, who had announced a new business model with the cutting of benefits and other financial remunerations in order to go to another employer is not unfair and not unlawful especially in a situation where the parties are under no contractual obligations concerning confidentiality or competition and in effect are employed “at will.”

Womble Carlyle’s Trade Secrets Blog wrote this about the decision (the link is to the blog's October archive because the post doesn't have its own link), and Carlye Adler at CNN/Money wrote this aptly-titled article. And N. Kane Bennett, who writes the Connecticut Business Litigation blog, uses the Charter Oak decision to ask a particularly pertinent question.

I agree with Kane's analysis. Not having a non-compete or confidentiality agreement does not mean necessarily that an employer has no recourse if an employee unfairly competes, but an employer should err on the side of having employees, especially those with access to any proprietary or confidential information, execute such an agreement. Otherwise an employer may find itself in Charter Oak's position.

Officers of Same Company Cannot Conspire for Antitrust Purposes

Jeffrey V. Mehalic — Thu, 24 Dec 2009 09:33:14 -0500

One of the more interesting decisions -- at least to me -- issued by the Supreme Court of Appeals of West Virginia during its last term is Princeton Ins. Agency, Inc. v. Erie Ins. Co., 2009 WL 4020269 (W.Va. 2009), which involved an insurance company's termination of its business relationship with an insurance agency, and the agency's corresponding allegations that the insurer committed antitrust violations.

Kevin Webb and his insurance agency, Princeton Insurance Agency, had had an agency agreement with various Erie Insurance Group entities since the early 1990s. In 2002, Webb's agency established a relationship with a new agency known as Princeton Insurance Associates, which sold insurance on behalf of multiple insurers, but not Erie.

Thereafter, Erie alleged that it began to experience a decline in the profitability and quality of its products that Webb's agency was underwriting, which prompted Erie to question whether it should continue its relationship with the agency. Erie also suspected that Webb's agency was directly business to the new agency.

Erie attempted to learn how much business the new agency had written with State Auto, which Erie suspected was receiving a disproportionate amount of the new agency's business. Webb refused to produce the production reports for State Auto, although during a meeting with an Erie representative, he did scribble on a napkin a figure representing policy sales by the new agency on State Auto's behalf. A few months later, Erie terminated its contract with Webb and his agency under a termination clause that allowed either party to end the arrangement with 90-days notice.

Webb and the agency sued Erie and several of its affiliates and alleged that the parties' agency agreement violated public policy; that Erie violated the West Virginia Unfair Trade Practices Act by requesting confidential information (the production reports); and that Erie violated the West Virginia Antitrust Act by improperly restraining trade. The Circuit Court of Mercer County dismissed the public policy count, which left the UTPA and antitrust claims for the jury's consideration.

The jury found for the defendants on the UTPA claim, but returned a verdict for the plaintiffs on the antitrust claim for $1,411,429 in compensatory damages and the same amount in punitive damages. The opinion does not describe how or why, but the circuit court vacated the punitive damage award and trebled the compensatory damages, which resulted in an award to the plaintiffs of $4,233,627.

Erie appealed the circuit court's denial of its motions for judgment as a matter of law and other issues, which the Supreme Court of Appeals reviewed under a de novo standard. The court, in its unanimous per curiam opinion, identified the threshold issue as whether Erie's termination of the agency agreement with Webb and his agency constituted an antitrust violation.

Because the plaintiff had alleged a restraint of trade under West Virginia law, the court looked at federal law for a discussion of the elements for a restraint of trade claim under Section 1 of the Sherman Act: (1) concerted action by the defendants; (2) that produced anticompetitive effects within the relevant product and geographic markets; (3) that the concerted actions were illegal; and (4) that the plaintiff was injured as a proximate result of the concerted action.

The court focused on the concerted action requirement, as discussed by the Supreme Court of the United States in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984). Copperweld held that the unilateral actions of a single corporation cannot constitute concerted action for a Section 1 violation. If a corporation's subsidiary is wholly-owned or, if less than wholly-owned, the amount of control exercised by the parent is significant:

... Erie argues that its corporate structure precludes the element of concerted action required to establish a restraint of trade in violation of state antitrust law. The parent company of the Erie Insurance Group -- Erie Indemnity -- owns 100% of Erie Insurance Company and Erie Insurance Property and Casualty. With regard to Erie Family Life Insurance, Erie Indemnity owns 21.6% and Erie Insurance Exchange owns 53.5%. Because Erie Indemnity is the attorney-in-fact for the policyholders of the Erie Insurance Exchange, Erie maintains that Erie Indemnity has complete legal control over Erie Insurance Exchange.

The court found that the trial court erred in relying on the fact that Erie Family Life was not a wholly-owned subsidiary, without examining whether, under Erie's corporate structure, its various companies "were sufficiently independent of each other to prevent them from serving a unified corporate interest."

As a result, the circuit court erred in failing to grant the defendants' motions:

It is axiomatic that a corporation acts only through its officers, agents, and employees and that a corporation cannot conspire with its own employees. Because all of Erie's employees were employed by Erie Indemnity, Erie argues that the requisite plurality of actors necessary to create an actionable conspiracy under West Virginia Code § 47-18-3(a) is missing. We agree.

Thus, the defendants were legally incapable of conspiring with each other, and the plaintiffs failed to satisfy the requirement of concerted action.

The court then quickly dispensed with the plaintiffs' argument in the alternative that the defendants made Webb a part of their conspiracy to illegally restrain trade when they pressured him to provide State Auto production figures. Although the trial court had found that Webb was part of the conspiracy, the Supreme Court of Appeals held that Erie had the right to ask Webb whether certain sales were going to State Auto, and so Webb providing the sales figure to Erie was not an illegal act that supported an antitrust violation.

Finally, the court addressed whether the plaintiffs had sustained an antitrust injury, assuming that they had been able to establish a violation of antitrust law. There are two approaches to proving an unreasonable restraint on trade: per se and the rule of reason. Per se violations are what they sound like: violations that are so obvious that they do not require study of the industry. The more typical type, though, is "the rule of reason," which requires the plaintiff to show how the alleged conduct adversely affected competition in the relevant geographic area.

The plaintiffs attempted to prove their injury by showing a loss in income, but that is not sufficient: "Given that the consumer is the focus of anticompetitive conduct, it is fatal to Appellees' claim that they failed to introduce any evidence of how competition within the relevant insurance market was harmed."

Here's what you need to remember about damages resulting from an alleged antitrust violation: if the alleged damages can occur without the alleged anticompetitive conduct, then the damages are not antitrust damages.

Because the damages Appellees asserted were solely attributable to lost income and thus damages that could have been sustained whenever the agency agreement was terminated independent of any anticompetitive conduct, those alleged damages were not antitrust damages.

WV Supreme Court Holds Decisions in Medical Monitoring, Insurance Coverage Appeals

Jeffrey V. Mehalic — Mon, 21 Dec 2009 11:37:34 -0500

In case you haven't noticed, there are two opinions from the Supreme Court of Appeals of West Virginia that were not released during the term that ended on November 25, and presumably will be issued during the term that begins next month. One of the opinions is Perrine v. E. I. duPont deNemours and Co., which is DuPont's appeal from the $400 million verdict returned in the medical-monitoring class action resulting from its operation of a zinc smelter in Harrison County, West Virginia. That appeal was argued on April 7, which means that it has been held over for two terms already. The other opinion is Mylan Laboratories, Inc. v. American Motorists Insurance Co., which was argued on September 2, and is Mylan's appeal from summary judgment granted in favor of four insurance companies regarding their duty to defend and indemnify Mylan in two separate lawsuits.

Fourth Circuit Addresses Ashcroft v. Iqbal's Pleading Requirements

Jeffrey V. Mehalic — Wed, 09 Dec 2009 06:00:00 -0500

I have previously written about the significance of the United States Supreme Court's decision in Ashcroft v.Iqbal, 129 S.Ct. 1937 (2009), and its effect on federal pleading standards for both plaintiffs and defendants. And with the issuance last week of Francis v. Giacomelli, 2009 WL 4348830 (4th Cir. 2009), the Fourth Circuit has now weighed in and made clear that a plaintiff has a much heavier burden to satisfy in pleading its case.

I will not discuss Francis in great detail; for that analysis, I refer you to Mack Sperling's post at the North Carolina Business Litigation Report; Rob Hoskins' post at ERISABoard (registration required); and Jay O'Keeffe's post at DeNovo: A Virginia Appellate Law Blog.

I want to reiterate two points that Jay made. If you're a plaintiff, make the factual allegations in your complaint as specific as possible. Do not rely on generalizations or conclusory statements. A federal judge is not going to accept unsupported assertions or make assumptions in your client's favor to keep your case in court. If you're a defendant, file a motion to dismiss. You won't always prevail, but your odds have surely improved with Iqbal and Francis, and cases that a few months ago would not have been at risk of being dismissed now may end up getting tossed.

I have already encountered Iqbal in my own practice, and judging from Jay's statistics, the decision will be relied upon increasingly. Add to that the effect of Francis, and pleading for plaintiffs in federal courts, at least in the Fourth Circuit, is more arduous than ever.

Caperton Files Petition for Rehearing with WV Supreme Court

Jeffrey V. Mehalic — Wed, 02 Dec 2009 22:06:15 -0500

Hugh Caperton is not going down without a fight. Despite losing three times in front of the Supreme Court of Appeals of West Virginia, most recently on November 12 when the court voted 4-1 to reverse the $50 million verdict that he and his companies recovered against A. T. Massey Coal Co. and its subsidiaries, he has filed a petition for rehearing with the court, which focuses on its decision to apply retroactively the points of law established in its opinion. Here's the opening paragraph from the petition:

In its zeal and determination to deliver a complete, total and final victory to Massey, this Court, by adopting the written opinion of acting Chief Justice Robin Jean Davis, has violated Hugh Caperton's right to due process 1) by overturning settled West Virginia law and creating a new and drastically different test for the applicability of forum selection clauses, and then applying that test retroactively; 2) by refusing to follow the mandate of the Supreme Court of the United States by relying improperly upon the constitutionally-tainted previous opinions of this Court rather than reviewing the case anew; 3) by entirely ignoring the West Virginia Legislature's statutory enactments and policy pronouncements regarding venue and other procedural dismissals of cases; and 4) by granting the dismissal of Caperton's claims with prejudice even though improper venue serves as the sole basis for this Court's decision to overturn a fully justified jury verdict returned against Massey. The consequences of this Court's erroneous ruling are neither fair nor just.

I think Caperton's argument that the court's decision to apply retroactively its newly-enunciated test regarding a forum-selection clause is his most persuasive, but as a practical matter, with a vote of 4-1, two justices -- I'm assuming Justice Margaret Workman, who filed her strongly-worded dissent on Monday, would vote to grant the petition -- have to decide to rehear Caperton's case, which is an uphill battle, considering the history of this case.

The court's September term ended last week and its new term begins on January 12. According to the court's January calendar, its first rehearing conference is on January 14, which is when it will likely consider Caperton's petition.

Mylan Files Second Lawsuit Against Pittsburgh Post-Gazette

Jeffrey V. Mehalic — Thu, 26 Nov 2009 16:14:23 -0500

First of all, I hope that all of you have a happy and safe Thanksgiving with your families and loved ones, and take some time to think about who and what in your lives are important to you. (And in care you're wondering, Google's only connection to this post is that I liked its Thanksgiving logo.)

By the way, yesterday was the last day of the Supreme Court of Appeals of West Virginia's September Term, and the court has issued most, but not all, of its opinions. One opinion that is eagerly anticipated is DuPont's appeal of the $400 million verdict in the medical monitoring class-action brought by residents of a town where DuPont had operated a zinc smelter. In the past, the court has released opinions for several days after the end of the term, so we may have the opinion next week.

But today I want to discuss a lawsuit filed last month in the Circuit Court of Monongalia County, West Virginia by Mylan, Inc. and its subsidiary, Mylan Pharmaceuticals, Inc., against the Pittsburgh Post-Gazette, two of its reporters, Patricia Sabatini and Len Boselovic, and several John Does, which is the second action Mylan has filed against the paper and its reporters. Mylan, Inc. v. PG Publishing Co., Civil Action No. 09-C-807 (October 30, 2009).

In its first lawsuit filed on August 19, 2009, Mylan asserted claims for misappropriation of trade secrets, conversion, detinue, and trespass to chattels, as a result of a story written by Sabatini and Boselovic and published by PG on July 26, 2009 about alleged violations of drug-quality controls by Mylan employees at its Morgantown, West Virginia manufacturing facility.

Here is the complaint, in which Mylan asserts the purpose of PG's July 26 article:

From its alarmist headline to its foreboding conclusions, the July 26th article and subsequent Post-Gazette articles were designed to fulfill two objectives. The first was to instill apprehension in the minds of patients, shareholders, and the general public by communicating the frightening fiction that Mylan's pharmaceuticals are "unsafe," knowing that this could cause patients, caregivers, and customers to question the continued use of Mylan products. The second was to incite animosity against Mylan, its management and employees, by falsely accusing them of acting in callous disregard for patient health and well-being.

Then, Mylan describes the effect of the article:

The defamatory import of these articles is unmistakable: The Post-Gazette intentionally communicated to readers the false impression that Mylan deliberately glossed over serious and potentially dangerous production problems. Further, the Post-Gazette conveyed the false message that Mylan, its management and employees were sacrificing drug quality, safety and effectiveness for profit. Mylan believes that, in doing so, the Post-Gazette and its employees acted maliciously and with reckless disregard for the truth, knowing that the information it maliciously printed was false and knowing that the information it had did not warrant the implications and conclusions of the articles.

Although the complaint refers repeatedly to "numerous articles" published for several weeks after the July 26 article, it does not identify any article by date except the one on July 26.

Mylan asserts three claims for libel per se against the defendants based on the overall message of the July 26 article, its use of certain words and phrases, such as "tainted medications" and "catastrophically serious," and its allegedly false accusation that Mylan conducted an inadequate investigation into alleged deviations from its own internal procedures.

Here are PG's article on Mylan's libel lawsuit, as well as a post from Ed Silverman's Pharmalot blog and Russell Adams' article in The Wall Street Journal online.

For some additional background, here is my post in which I wrote about PG's decision to remove Mylan's first lawsuit on the grounds that Mylan's subsidiary, Mylan Pharmaceuticals, which is a West Virginia corporation, is not a proper party, which creates diversity between the parties and the basis for federal jurisdiction. According to PACER, PG's motion to dismiss and Mylan's motion to remand have been briefed and are pending before United States District Judge Irene M. Keeley.

I don't know whether this libel action was planned by Mylan or is a reflection that perhaps the first lawsuit is not having the intended effect. But even if the answer is the former -- which we are not likely to find out anyway --truth is a defense to libel and slander actions, which would seem to entitle PG and its reporters to broad discovery in their efforts to show that what they wrote about Mylan was accurate.

Former WV Supreme Court Justice's Personal Emails Are Not Public Records

Jeffrey V. Mehalic — Mon, 23 Nov 2009 17:18:27 -0500

Although the Supreme Court of Appeals of West Virginia's decision on November 12 in Caperton v. A. T. Massey Coal Co., Inc., 2009 WL 380607 (2009), has received most of the attention, the court issued another decision that day that was also a victory, at least indirectly, for Massey.

In Associated Press v. Canterbury, 2009 WL 3805646 (2009), the Associated Press had appealed the Circuit Court of Kanawha County's ruling that it could have access to only five of 13 emails exchanged between Massey chairman Don Blankenship and Supreme Court of Appeals Justice Elliott E. "Spike" Maynard while Maynard was on the court. (He was defeated in the primary in May 2008.) The circuit court determined, after conducting an in camera review, that the remaining eight emails did not relate to Maynard's duties as a justice or any other matter that would permit disclosure under West Virginia's Freedom of Information Act.

In February 2008, the AP submitted a FOIA request to Steve Canterbury, the Supreme Court of Appeals' administrative director, for all emails between Blankenship and Maynard between January 1, 2006 through February 2008, which included the period that Blankenship and Maynard had vacationed in Monaco while Massey's first appeal of the $50 million verdict was pending before the court. Canterbury denied the request on the grounds that such disclosures were not subject to disclosure, and the AP sought declaratory and injunctive relief.

Following an evidentiary hearing, the circuit court reviewed in camera the 13 emails during the requested period, and found that five involved Maynard's campaign for re-election and thus were public records subject to disclosure, while eight were not public records and not subject to disclosure.

Justice Robin Davis, who also wrote the majority opinion in Caperton, wrote the majority opinion, which was joined by Chief Justice Brent Benjamin and Justices Thomas McHugh and Menis Ketchum. Justice Margaret Workman concurred in part and dissented in part.

The appeal presented two issues: the procedural issue of the circuit court's decision to order production of the emails for an in camera review, and the substantive issue of whether the emails are subject to disclosure as public records under FOIA.

Typically, when a public entity claims an exemption from production under FOIA, it provides the trial court with a Vaughn index, named for Vaughn v. Rosen, 484 F.2d 820 (D.C. Cir. 1977), which requires "a relatively detailed justification as to why each document is exempt, specifically identifying the reason(s) why an exemption under W. Va. Code, 29B-1-4 is relevant and correlating the claimed exemption with the particular part of the withheld document to which the claimed exemption applies." Canterbury submitted a Vaughn index, but the trial court also ordered production of the documents.

The Supreme Court found that the trial court did not abuse its discretion in ordering production of the documents, but pointed out that a court should not conduct an in camera review "as a matter of course," the idea being that the public entity should have the opportunity to justify the exemption from disclosure before the court reviews the documents for itself.

As for the issue of whether the emails are subject to disclosure, the court addressed the AP's arguments that the emails were public records according to the FOIA definition, or alternatively became public records because of the public interest context in which they were sought.

Although the court had no trouble concluding that an email is a "writing" as defined by FOIA, whether it is a public record was another matter, particularly when the email is personal in nature. After reviewing decisions from several jurisdictions, the court concluded that the majority position was in favor of "nondisclosure of purely personal e-mail communication by a public officer or employee":

We believe the majority position on e-mail communication by public officials or employees is consistent with our FOIA definition of a public record. Therefore, we hold that a "public record" under the West Virginia Freedom of Information Act (FOIA) is defined as "includ[ing] any writing containing information relating to the conduct of the public's business, prepared, owned and retained by a public body." W. Va. Code § 29B-1-2(4) (1977) Repl. Vol. 2007). Under the clear language of the "public record" definition, a personal e-mail communication by a public official or public employee, which does not relate to the conduct of the public's business, is not a public record subject to disclosure under FOIA.

And here is the court's holding regarding the emails that the AP sought:

... we conclude that none of the thirteen e-mails at issue herein constituted a public record under FOIA. None of the e-mail's contents involved the official duties, responsibilities or obligations of Justice Maynard as a duly-elected member of this Court. Twelve of the e-mails simply provided URL links to privately-operated internet websites that carried news articles Justice Maynard believed Mr. Blankenship would be interested in reading. All twelve of the news articles were written by private entities and were already in the public domain. The thirteenth e-mail did nothing more than provide Mr. Blankenship with the agenda for a meeting being held by a private organization. Consequently, logic dictates that we conclude that not one of the thirteen e-mails was related in any manner to either the conduct of the public business, or to the official duties, responsibilities or obligations of the particular public body, which was in this instance, Justice Maynard. In the final analysis, if we adopted the AP's position that these e-mails constituted public records, then "a grocery list written by a government employee while at work, a communication to schedule a family dinner, or a child's report card stored in a desk drawer in a government employee's office would be subject to disclosure. [FOIA] was never intended to encompass such documents[.]"

Lastly, the court rejected the AP's position that the emails were public records because of the public interest context in which they were sought. The circuit court had employed a context-driven analysis in finding that the AP was entitled to five of the emails, but the Supreme Court held that under West Virginia's FOIA and the majority position of other courts, only a content-driven analysis was appropriate, and that it was up to the legislature to add "an examination of the record's context by virtue of the public's interest in the record" to FOIA's definition of a public record.

This is one of those cases where I think the dissent understood the issue, or at least the significance of the issue, far better than the majority opinion. The following excerpt sums up why the emails should have been disclosed, regardless of their apparently innocuous content:

In the case at hand, a Justice sitting on the West Virginia Supreme Court of Appeals communicated by e-mail on a somewhat regular basis with a friend who was the Chairman and CEO of a party litigant with a case pending before the Court. With one exception, the literal content of those e-mails did not contain information relating to the conduct of public business. The fact that those e-mails had been sent, however, did contain relevant information. First and foremost, it discloses the existence of a personal relationship between a sitting Justice and a CEO of a party litigant. In addition, when the AP made its first FOIA request, a motion filed by the Plaintiffs in Caperton seeking Justice Maynard's recusal from that case was pending, the basis of which was his personal relationship with Mr. Blankenship. The fact that the e-mails were sent, albeit on issues unrelated to matters pending before this Court, is clearly relevant to the relationship between Justice Maynard and Mr. Blankenship. Because that relationship was the basis of a motion for recusal, the relationship was itself related to Justice Maynard's conduct of the public's business. (Emphasis added.)

Because of the context in which the e-mails in this case were sent, and in light of the legislative intent expressed in West Virginia's FOIA statute, as well as extensive case law from this Court indicating that our statute is to be given a liberal interpretation in favor of the public's right to access to information, I would hold that all thirteen of the e-mails at issue were public records, because they contained information relating to the conduct of the public's business. Put simply, when a judge or justice communicates, via a record that is prepared, owned and retained by a public body, with a party litigant (or someone closely connected therewith) while that party's case is pending before that judge, such communication necessarily contains information that relates to that judge or justice's conduct of the public business to the extent that it reveals the nature of the relationship between the two. (Emphasis added.)

WV Supreme Court Finds Forum-Selection Clause Requires Reversal of $50 Million Verdict

Jeffrey V. Mehalic — Sat, 14 Nov 2009 08:49:12 -0500

I want to discuss in more detail the Supreme Court of Appeals' decision in Caperton v, A. T. Massey Coal Co., Inc., which was issued on Thursday. I'll discuss in a separate post another decision issued on Thursday, Associated Press v. Canterbury, in which Massey was involved but not a party.

Because this decision represents the third time the court reversed the plaintiffs' verdict and the third time that Justice Robin Davis has written the majority opinion, there is not a lot of new ground in the opinion. But as with the first two, it is exhaustive in its discussion and analysis of the issues.

Comparing the court's syllabus points in this decision to those in its decision in Caperton v. A. T. Massey Coal Co., Inc., 679 S.E.2d 223 (W.Va. 2008), which the United States Supreme Court reversed on the grounds that current Chief Justice Brent Benjamin should have recused himself, there is one entirely new syllabus point and another that represents the combination of two syllabus points from the 2008 opinion. (I realize that the 2007opinion was vacated and the 2008 opinion was reversed, but the majority has never departed from its original rationale for reversing the verdict, which I think makes the opinions valuable if they have no precedential weight.)

The new syllabus point deals with procedure before the court. As I explained in this post in August, after the United States Supreme Court reversed and remanded the case to the Supreme Court of Appeals, the corporate plaintiffs moved to affirm the trial court's judgment order due to Justice Brent Benjamin's vote in favor of Massey in the 2008 decision. They argued that because he should have recused himself, without his vote in Massey's favor, the vote would have been 2-2, which should have resulted in an affirmance of the judgment order.

The corporate plaintiffs argued alternatively that the court should reconsider its decision in 2007 to accept Massey's petition for appeal because four of the five justices now hearing the appeal had not been on the court in 2007 when the appeal was accepted, and therefore never had the opportunity to decide whether to accept the appeal and if so, as to what issues.

The opinion noted that, "[a]lthough this Court denied the motions by order entered September 3, 2009, we nevertheless wish to discuss our grounds for so doing, and to establish a clear procedure to be applied in the event that similar circumstances arise in the future."

The court determined that its denial of the motion to affirm the judgment was proper under the United States Supreme Court's decision in Aetna Life Ins. Co. v. Lavoie, 475 U.S. 813 (1986), which had addressed a similar situation from the Alabama Supreme Court. Because West Virginia has no statute comparable to Alabama's "that expressly addresses the issue of the disqualification of a justice," the new syllabus point deals with a disqualification of a justice by the United States Supreme Court -- an infrequent occurrence, to say the least -- or when a justice decides to disqualify him or herself after an opinion has been issued and which makes the court's decision a tie vote:

Where the disqualification of a Justice of this Court, either by decision of the United States Supreme Court or by his or her personal decision made after an opinion has been issued by this Court, renders the decision of this Court a tie vote, then the Chief Justice or Acting Chief Justice of this Court may, in his or her discretion, assign a senior justice, senior judge, or circuit judge to serve in the place of the disqualified justice pursuant to Art. VIII, § 3 of the Wes Virginia Constitution, and Rule 29 (g) of the West Virgina Rules of Appellate Procedure.

The court reiterated its earlier denial of the motion for the court to reconsider its acceptance of Massey's petition for appeal on the grounds that the remand from the Supreme Court was general rather than limited, which enabled the Supreme Court of Appeals to address all matters within the scope of the remand. Also, the court acknowledged that even if it "were obliged to reconsider whether the petition for appeal should be granted, it is plain from the record that this case presents several points that are proper for the consideration of this Court, and that the appeal was properly allowed."

Substantively, the crux of the decision remains the interpretation of the forum-selection clause present in the 1997 coal supply agreement between Harman Mining, Sovereign (another Caperton-owned corporation) and Wellmore Coal Corporation, which Massey bought in 1997, and which required that "[a]ll actions brought in connection with this Agreement shall be filed in and decided by the Circuit Court of Buchanan County, Virginia." And in fact, Harman Mining and Sovereign sued Wellmore in the Circuit Court of Buchanan County in 1998 and alleged breach of contract and breach of the covenant of good faith and fair dealing as a result of Wellmore's declaration of force majeure, which resulted in a verdict in their favor of $6 million.

To address the effect of the forum-selection clause, the court applied the four-part test set forth by the Second Circuit Court of Appeals in Phillips v. Audio Active Ltd., 494 F.3d 378 (2nd Cir. 2007), to "determin[e] whether a claim should be dismissed based upon a forum-selection clause." The court adopted the Phillips test in Syllabus point 4:

Determining whether to dismiss a claim based on a forum-selection clause involves a four-part analysis. The first inquiry is whether the clause was reasonably communicated to the party resisting enforcement. The second step requires classification of the clause as mandatory or permissive, i.e., whether the parties are required to bring any dispute to the designated forum or are simply permitted to do so. The third query asks whether the claims and parties involved in the suit are subject to the forum-selection clause. If the forum-selection clause was communicated to the resisting party, has mandatory force and covers the claims and parties involved in the dispute, it is presumptively enforceable. The fourth, and final, step is to ascertain whether the resisting party has rebutted the presumption of enforceability by making a sufficiently strong showing that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching.

The court had also enunciated these two syllabus points in its 2008 opinion:

10. A plaintiff who is a non-signatory to a contract containing a forum-selection clause may be bound by that clause when it is shown that his or her claims are closely related to the contract.

11. A defendant who is a non-signatory to a contract containing a forum-selection clause may enforce that clause when it is shown that the claims against him or her are closely related to the contract.

In this opinion, the court combined those two into new Syllabus point 8:

A range of transaction participants, signatories and non-signatories, may benefit from and be subject to a forum selection clause. In order for a non-signatory to benefit from or be subject to a forum selection clause, the non-signatory must be closely related to the dispute such that it becomes foreseeable that the non-signatory may benefit from or be subject to the forum selection clause.

After the court adopted the principles set forth in the Phillips test and resolved the issue of whether non-signatories to the coal sales agreement could be bound by the forum-selection clause, the only remaining issue was whether to apply retroactively those principles to the parties. The court found that the three-part test found in Bradley v. Appalachian Power Co., 256 S.E.2d 879 (W.Va. 1979), did not bar the retroactive application of the principles.

Syllabus point 9, which was also present in the 2008 opinion, held that:

In determining whether to extend full retroactivity to a new principle of law established in a civil case that does not overrule any prior precedent, which is an issue that was not addressed in Syllabus point 5 of Bradley v. Appalachian Power Co., 163 W.Va. 332, 256 S.E.2d 879 (1979), the following factors will be considered. First, we will determine whether the new principle of law was an issue of first impression whose resolution was clearly foreshadowed. Second, we must determine whether or not the purpose and effect of the new rule will be enhanced or retarded by applying the rule retroactively. Finally, we will determine whether full retroactivity of the new rule would produce substantial inequitable results. (Emphasis in original.)

Having written all that, I want to make two points about the opinion. First, I think the comments of Bruce Stanley notwithstanding, this decision is the end of the line for the plaintiffs in their fight to keep their jury verdict. There's no further appellate review available in West Virginia and I don't see any issues that would create federal court jurisdiction. But if someone thinks differently, I'd love to hear it.

I also think that the court's observation in its 2007 opinion that Massey's conduct justified the size of the verdict detracts from the reasoning behind this opinion. The court commented that:

At the outset we wish to make perfectly clear that the facts of this case demonstrate that Massey’s conduct warranted the type of judgment rendered in this case. However, no matter how sympathetic the facts are, or how egregious the conduct, we simply cannot compromise the law in order to reach a result that clearly appears to be justified. As we will demonstrate below, the law simply did not permit this case to be filed in West Virginia.

Neither that statement nor anything similar appeared in either of the subsequent opinions, which may not mean anything. Then again, it may mean that the court recognized that its decision to reverse the verdict on procedural grounds meant that Massey's conduct was an issue the court would not have to address and therefore should not address. Consequently, a comment about the egregiousness of Massey's conduct, when the plaintiffs weren't going to receive a cent of their $50 million verdict -- now more than $80 million with interest -- was unnecessary and distracting.

WV Supreme Court Reverses $50 Million Verdict Against Massey for Third Time

Jeffrey V. Mehalic — Thu, 12 Nov 2009 15:43:14 -0500

The Supreme Court of Appeals of West Virginia has again reversed the $50 million verdict obtained in 2002 by Hugh Caperton and his companies against Massey and several of its subsidiaries. Caperton v. A. T. Massey Coal Co. was before the Court for the third time, following the United States Supreme Court's ruling in June that Chief Justice Brent Benjamin should have recused himself from earlier appeals.

As in the two earlier appeals, Acting Chief Justice Robin Davis wrote the opinion, which relies on the forum-selection clause "contained in a contract that directly related to the conflict giving rise to the ... lawsuit" as the basis for finding that the circuit court erred in not granting Massey's motion to dismiss. Justices Ketchum and McHugh and Senior Status Judge Holliday joined in the opinion, and Justice Workman dissented.

I will write another post after I've had a chance to read the opinion in more detail.

WV Supreme Court Addresses Substance, Procedure of Arbitration in Two New Decisions

Jeffrey V. Mehalic — Sat, 07 Nov 2009 13:37:26 -0500

Today I want to bring to your attention two new decision from the Supreme Court of Appeals of West Virginia, which deal with the substance and procedure of the arbitration process.

In the first opinion, State ex rel. Clites v. Clawges, 2009 WL 3320488 (W.Va. 2009), Clites was hired as a customer service representative of TeleTech, and participated in a group employee orientation session that included the discussion and completion of employment-related paperwork. After nearly three years of employment, however, TeleTech terminated Clites. She filed suit and alleged that her termination was due to a sexual harassment complaint she had filed against TeleTech.

TeleTech moved to dismiss and/or stay Clites' lawsuit because she had signed an arbitration agreement that required her to arbitrate and to give up her right to a jury trial. The agreement provided that the arbitration would be conducted by an American Arbitration Association arbitrator in the city where the employee is employed, and that each party would bear its own fees and costs, except that the arbitrator would have discretion to award fees and costs to the prevailing party as provided by law.

The Circuit Court of Monongalia County, West Virginia denied the motion to dismiss and granted the motion to stay. The court found that the arbitration agreement was a contract of adhesion, but that TeleTech had stipulated through an affidavit that the arbitration would take place in Morgantown, West Virginia and that TeleTech would pay for all costs that would not be incurred by Clites in court, such as the cost of the arbitrator, the hearing room, and stenographer.

Clites sought a writ of prohibition against the court's order on the grounds that the arbitration agreement was a contract of adhesion with unconscionable terms and therefore was unenforceable. She asserted that a reference in the agreement to Denver, Colorado required the arbitration to take place there and that she was responsible for fees and costs in excess of what she would have to pay in a civil action.

The Supreme Court, in a unanimous per curiam opinion, identified two issues. First, whether the Federal Arbitration Act ('FAA") permitted the Court to review the arbitration agreement, and second, whether the agreement was unconscionable.

The Court determined that, notwithstanding the FAA's scope and its preemption of state laws that invalidate the enforceabilty of arbitration agreements, "the issue of whether an arbitration agreement is a valid contract is a matter of state contract law and capable of state judicial review." (Emphasis in original). Thus, because Clites challenged whether the agreement was enforceable, the Court "is not preempted from giving judicial review to determine whether the Agreement at issue is valid and enforceable under our state contract law." (Emphasis in original.)

As to the second issue, the Court had no trouble finding that the agreement was a contract of adhesion: "The entire Agreement is boiler-plate language that was not subject to negotiation and there is no contention in the record that the Petitioner had any role or part in negotiating the terms of the Agreement."

But, and this is important, the fact that an agreement is a contract of adhesion does not necessarily render it unenforceable, which was the situation with Clites' employment agreement. The Court focused on the fact that the arbitration would take place in Morgantown and that TeleTech had agreed to pay for costs in excess of those that Clites would have had to pay in a civil action. In a footnote to its finding that the agreement was not unconscionable, the Court stated that:

While we find this particular agreement to be enforceable, we limit the application of our holding to the facts of this case. The record before us was not sufficiently developed for us to address the many varied issues that arise in contract disputes such as the one between the parties to this action, including the issue of whether sufficient consideration was given in exchange for the Agreement. While [Clites] invited this Court at oral argument to vitiate the contract on the ground that there was a lack of consideration, this issue was not raised before or briefed to this Court. Accordingly, we decline to consider that ground.

I think that if TeleTech had insisted that the arbitration take place somewhere other than Morgantown and had not agreed to pay for costs above what Clites would pay to maintain a civil action, the Court would have found the agreement to be unenforceable because those terms, which Clites did not have an opportunity to negotiate, would have been deemed unconscionable.

The Court's second decision, Crihfield v. Brown, 2009 WL 3642960 (W.Va. 2009), deals with the mechanics of the arbitration process. Brown filed suit against Crihfield for allegedly violating a restrictive covenant in a purchase agreement regarding the solicitation of various employees of The Home Show, LLC.

Crihfield moved to dismiss on the grounds that the purchase agreement required binding arbitration of all disputes. The Circuit Court of Kanawha County, West Virginia granted the motion, and Brown then instituted an arbitration proceeding against Crihfield, which proceeded through discovery and a preliminary hearing.

Then, on the evening before the final hearing, Brown's counsel faxed a letter to the arbitrator advising that Brown was "withdrawing" from the arbitration in order to pursue an appeal of the circuit court's order dismissing his state court action. Crihfield objected to Brown's withdrawal.

Brown filed his petition for appeal, which the Supreme Court of Appeals rejected. So Brown added The Home Show, LLC as a party and attempted to reinstate the arbitration, this time between The Home Show and Crihfield. The American Arbitration Association dismissed the arbitration because The Home Show was not a party to the purchase agreement and Brown provided no grounds to support its involvement.

Brown then attempted to reinstate the arbitration between himself and Crihfield. A preliminary hearing and scheduling conference were held, but then Crihfield sought injunctive and declaratory relief in circuit court against Brown and The Home Show and moved for summary judgment. At the summary judgment hearing, the court advised that the original arbitrator agreed to resume the arbitration at the point when Brown had withdrawn, with the arbitration to be scheduled within 60 days.

Crihfield alleged that Brown failed to contact the arbitrator within 60 days, and the arbitrator subsequently advised that he would be unable to continue. So Brown and The Home Show allegedly picked another arbitrator and scheduled another arbitration, prompting another motion for summary judgment from Crihfield on the grounds that another arbitration with a new arbitrator was a new arbitration, which had not been the circuit court's ruling. The circuit court denied the motion, however, and Crihfield appealed.

The Supreme Court first determined that the order denying Crihfield's renewed motion for summary judgment was a final order within the "collateral order" doctrine exception to the "rule of finality," as discussed in James M.B. v. Carolyn M., 456 S.E.2d 16 (W.Va. 1995). So the remaining issue was "whether a party to a binding, irrevocable arbitration can unilaterally withdraw from that arbitration without leave of the arbitrator or agreement of the remaining party or parties."

You could stop reading the opinion at that point because the Court's statement of the issue makes clear how it's going to rule. But in the interest of completeness, the Court found that the AAA rules, which the parties agreed to follow, do not provide for a party's unilateral withdrawal from arbitration, although there are provisions for postponement or modification of a schedule or for an arbitration to proceed in a party's absence. The Court also found that other jurisdictions had held that a party cannot unilaterally withdraw from an arbitration.

Thus, the Court held, in its single new syllabus point, that:

A party to a binding, irrevocable arbitration cannot unilaterally withdraw from participation in the arbitration after it has begun. If a party to a binding, irrevocable arbitration unilaterally withdraws from the arbitration, the claims or issues raised by the withdrawing party are abandoned, thereby precluding them from being pursued in any subsequent arbitration or civil action.

The opinion, written by Justice Margaret Workman for a unanimous court, pointed out that Brown could have prosecuted his appeal before initiating the arbitration process or could have sought a postponement or modification of the arbitration schedule under AAA rules. But because he did neither, "[t]here simply is no basis for allowing a party who unilaterally withdraws from a binding irrevocable arbitration to reinstate the process that the party voluntarily chose to abandon."

USDC Decision Relies on WV's Rejection of Learned Intermediary Doctrine

Jeffrey V. Mehalic — Thu, 05 Nov 2009 10:03:02 -0500

A couple of years ago, I discussed State ex rel. Johnson & Johnson Corp. v. Karl, in which the Supreme Court of Appeals of West Virginia declined to adopt the learned intermediary doctrine. In case you've forgotten, the learned intermediary doctrine provides that a drug manufacturer does not have a duty to warn each patient who receives its prescription drug when the manufacturer appropriately warns the prescribing physician of the drug's dangers.

Johnson & Johnson is once again a topic of discussion, this time in the influential Drug and Device Law blog written by Jim Beck and Mark Herrmann. In a post entitled Why Drug Companies Should Beware Of Doing Business In West Virginia, they point out that a recent decision from United States District Court for the Southern District of West Virginia held that West Virginia public policy prohibits the application of the doctrine even to patients treated outside of West Virginia.

Here are the relevant facts of Woodcock v. Mylan, Inc.,2009 WL 3271252 (S.D.W.Va. October 16, 2009), as related by Beck and Herrmann:

An Alabama physician prescribes a drug to an Alabama resident. The resident uses the drug in Alabama and is allegedly injured by the drug there. Alabama law recognizes the learned intermediary doctrine, for its own sound policy reasons. But the plaintiff sues in West Virginia, which is the only state that rejects the learned intermediary doctrine. A recent case [Johnson & Johnson] says that the drug company does not get the benefit of the learned intermediary doctrine because the doctrine is repugnant to West Virginia public policy.

Mylan moved to dismiss Woodcock's case based on a choice-of-law provision and the sufficiency of the complaint. Chief Judge Joseph R. Goodwin held that Alabama law governed all of the plaintiff's claims except her marketing defect -- failure to warn -- claim, and denied the motion. He reasoned that because West Virginia has rejected the learned intermediary doctrine based on public policy grounds, applying Alabama law to the plaintiff's claim would violate West Virginia's public policy, so West Virginia law applies.

But I disagree with Beck and Herrmann's characterization of West Virginia as the only state that has rejected the doctrine. According to then-Chief Justice Robin Davis, who wrote the majority opinion in Johnson & Johnson, "the total number of jurisdictions recognizing the learned intermediary doctrine, either by decision of the highest court or by statute, is only twenty-two." In addition, "[t]he highest courts of six other states have either referred to the doctrine favorably in dicta, or have adopted it in a context other than prescription drugs; but, they have not expressly adopted it with respect to prescription drugs." She then identified the remaining 22 states, including West Virginia, that have not adopted the doctrine, and summarized its adoption as follows:

Thus, while the doctrine is widely applied among lower courts, the number of high courts who have followed suit and expressly adopted the doctrine, while admittedly in the majority, do not make up the overwhelming majority that has often been suggested by courts and commentators. (Emphasis in original.)

So unless 21 other states have adopted the doctrine in the approximately two and a half years since Johnson & Johnson was decided, West Virginia is not the only state to have rejected the doctrine.

Beck and Herrmann also offer several solutions to drug companies that want to avoid being sued in West Virginia, starting with, somewhat sarcastically, their recommendation to avoid doing business in West Virginia. Other than that, they suggest a focus on the constitutional implications of choice-of-law provisions and public policy arguments.

Amendments to Federal Rules of Civil Procedure Take Effect Next Month

Jeffrey V. Mehalic — Mon, 02 Nov 2009 08:28:17 -0500

Regardless of your area of specialty, if you practice in federal court, you will be affected by amendments to the Federal Rules of Civil Procedure that take effect on December 1, 2009. Of particular importance are changes to calculating deadlines under Rule 6. My thanks to Mack Sperling at the North Carolina Business Litigation Report for his thorough discussion of the amendments in this post.

Satisfied W&C Client Tells Firm to Sue for Unpaid Fees

Jeffrey V. Mehalic — Sun, 01 Nov 2009 10:30:49 -0500

The conventional wisdom, according to many risk managers and lawyers, is that suing a client for unpaid fees is almost always a bad idea, usually because the client will respond with a legal malpractice claim, as reflected in this September 30 article by Debra Cassens Weiss from the ABA Journal.

But what if the client almost asks its lawyers to sue for unpaid fees? That's the situation that Washington D.C. powerhouse Williams & Connolly LLP faced when its former client, IDT Corporation, refused to pay $2 million for work performed in a patent case.

According to this post by Jordan Weissmann in The BLT: The Blog of Legal Times, IDT originally owed $3 million in legal fees. But after W&C agreed to a payment plan where IDT would pay $1 million every September 8 for three years starting in 2008, IDT made only the 2008 payment.

After IDT didn't make its payment in September 2009, Shmuel Jonas, son of IDT's founder, Howard Jonas, informed W&C that IDT was pleased with its work, but did not intend to pay the $2 million balance. Jonas acknowledged that W&C would win if it sued IDT, but that after a couple of years of litigation, IDT could settle with W&C for a reduced amount.

Here's W&C's complaint for breach of contract, which was filed on October 16 in United States District Court for the District of Columbia. Williams & Connolly, LLP v. IDT Corporation, Civil Action No. 1:09-CV-01958.

But there's been a development since Weissmann wrote about the case a couple of weeks ago. On October 30, W&C filed a voluntary dismissal of its complaint against IDT. The firm doesn't give any reason for its dismissal -- which is not required by Federal Rule 41(a)(1(A)(i) -- but I've emailed Beth Stewart, the W&C lawyer who filed the complaint and voluntary dismissal, and asked about the basis for the dismissal. I'll update this post if I hear back from her.

If the suit was dismissed because IDT came to its senses and decided to pay its bill, end of story. But if, for whatever reason, W&C refiles its suit, I expect the conventional wisdom to prevail, and for IDT to assert a malpractice claim against W&C, notwithstanding its CEO's praise for the quality of W&C's work.

These facts are unique, if only because of IDT's brazenness. But the reality is that a law firm likely faces a malpractice claim if it sues to recover fees, which -- usually -- makes the firm unwilling to proceed. And clients like IDT will take advantage of that unwillingness.

Wal-Mart's "Dead Peasant" Insurance Policies Are Focus of Proposed Class Action

Jeffrey V. Mehalic — Fri, 23 Oct 2009 21:14:35 -0500

Last month I wrote about litigation initiated by Wal-Mart against several insurance companies regarding “dead peasant,” or corporate-owned, life insurance policies purchased by Wal-Mart on 350,000 of its employees.

But a story in Tuesday’s Insurance Law 360 (subscription required) alerted me to a recent decision from the Eleventh Circuit Court of Appeals that could affect similar litigation pending against Wal-Mart in Florida. (Incidentally, although a subscription is required for the full text of stories from Insurance Law 360, if you don't want to subscribe, I highly recommend the free daily digest of top stories, which is emailed every morning, and is available for several practice areas. You can sign up at Law 360,)

In Atkinson v. Wal-Mart Stores, Inc., 2009 WL 3320322 (October 16, 2009), the court certified to the Florida Supreme Court the following question:

Whether the amendments to Fla. Stat. § 627.404 apply retroactively and enable the representative of an insured to sue for COLI benefits received by a party lacking an insurable interest or whether the amendments create a new cause of action such that a family would lack standing to sue for benefits obtained prior to the enactment of the amendments.

The background is that in 2008, the Florida legislature amended the statute as described in the proposed certified question. Under the prior version of the statute, a cause of action did not exist for an insured’s representative to sue for COLI benefits received by a party lacking an insurable interest, which typically would be the insured’s employer.

Based on the following facts provided by the Eleventh Circuit, the amount of money at stake is significant, perhaps even to Wal-Mart:

In 1993, Wal-Mart adopted a corporate owned life insurance (“COLI”) program through which the company would purchase life insurance policies for its employees. Wal-Mart funded the policies, at no cost to the employees. The policies provided benefits of $5,000 to $10,000 to the decedents’ beneficiaries, with the remainder of the policy amount paid to Wal-Mart. By 2000, as the result of new regulations, Wal-Mart had discontinued the COLI program.

Rita Atkinson and Karen Armatrout worked as a rank-and-file Wal-Mart employees paid hourly wages. Neither opted out of the COLI program and Wal-Mart obtained life insurance policies upon both. Atkinson died in 1996. After payment under her policy to her estate, Wal-Mart received the remainder of the benefits totaling $66,048.70. Armatrout died in 1997 and Wal-Mart received $72,820.30 in benefits under her policy.

A footnote indicated that employees were notified that they could opt out of the program, but the court does not indicate how large the putative class is or the amount at issue. But the opinion notes that Wal-Mart made over $135,000 from the policies on Atkinson and Armatrout, two “rank-and-file” employees, while each employee’s beneficiaries received, at most, $10,000. So there’s a lot of money at stake in COLI policies.

The plaintiffs filed a putative class action in Florida state court against Wal-Mart last year, and Wal-Mart removed the action. The United States District Court for the Middle District of Florida denied certification and dismissed the complaint on the grounds that, based on the law in effect in 2000, the plaintiffs' cause of action did not exist and the legislature gave no indication when it amended the statute that the amendment was to be applied retroactively.

The plaintiffs have appealed the dismissal of their action, and although the Eleventh Circuit's opinion doesn't say one way or the other, it appears that it is certifying the question to the Florida Supreme Court on its own motion.

Jeff Kuntz at The Florida Legal Blog, which focuses on appellate litigation in Florida state and federal courts, wrote about the Eleventh Circuit's opinion in this post. And from Tales of a Fictional Pirate Captain,here's an extensive list of companies that may have purchased COLI policies. I don't know how accurate or up to date the list is, but the sheer number of companies listed gives you an idea of how extensive the practice has been.

WV Supreme Court Holds Agency Relationship Can Be Inferred from Parties' Conduct

Jeffrey V. Mehalic — Wed, 07 Oct 2009 21:00:00 -0500

When I first looked at the Supreme Court of Appeals of West Virginia's decision in Timberline Four Seasons Resort Management Co. v. Herlan, 679 S.E.2d 329 (W. Va. 2009), which was issued at the end of the January Term, I did not realize its holding was quite so limited. But the facts are interesting and its discussion of an agency relationship is informative.

Timberline Four Seasons, a resort in eastern West Virginia, hired Pat Herlan as a real estate broker in 1991. Even though Herlan was employed until 2007, there was a written employment contract between the parties only from 1994 to 1996. In 2000, Herlan incorporated Timberline Resort Realty, Inc. and Timberline Realty, Inc.

Timberline Four Seasons claimed that Herlan was paid for the brokerage services she provided, while she claimed that her salary was for promotional work for the resort and for serving as a liaison between the resort and independent real estate developers. She asserted that she could not have been a broker for the resort, as she was neither an owner or officer, and that the resort itself could not have engaged in the real estate brokerage because it did not have a licensed broker as an owner or officer.

For whatever reason, in 2007, the resort asked Herlan to vacate her office. When she left, she took certain business records with her and also hired a computer technician to remove and delete some information from the computer in her former office and install it on the computer in her new location, at a cost of $25,000. She also took her former telephone numbers with her.

The resort and another plaintiff, Long Run Realty (whose role is not described) sought an injunction against Herlan and her businesses, which the circuit court denied on the grounds that Timberline Resort Realty was not owned or controlled by the resort and thus was not an agent under the resort's control as to the real estate brokerage functions performed by Herlan.

Timberline Four Seasons and Long Run alleged that the circuit court erred in not finding that an agency relationship existed between them and Herlan or her brokerage businesses and in not ordering Herlan to return certain business records and telephone numbers to the resort, as required by West Virginia Code § 30-40-12 (which specifies qualification for a broker's license).

For the purpose of determining whether an agency relationship existed, the Supreme Court relied on Paxton v. Crabtree, 400 S.E.2d 245 (W.Va. 1990), which sets forth four factors to consider: the selection and engagement of the servant; the payment of compensation; the power of dismissal; and the power of control. The Court found that the first three criteria were easily satisfied, while the fourth, the power of control, required some analysis.

Even though there had not been a written contract between the resort and Herlan since 1996, the Court found that "[p]roof of an express contract of agency is not essential to the establishment of the relation[,]" and found that it could infer that an agency relationship existed between the parties.

The Court also found that the circuit court's order "failed to analyze and all but ignored several other key facts demonstrating that Timberline Four Seasons actually maintained some level of control over Timberline Resort Realty and Pat Herlan."

For example, the Court focused on the resort's control over the operating checking account and its financial control over Herlan's real estate brokerages. The resort also paid taxes for the real estate operation, employed the individuals who worked for Herlan's real estate brokerage, and maintained control over the brokerage's payroll.

But the Court found that "the most compelling piece of evidence of an existing agency relationship is a business sign that remained hanging on the wall of the Timberline Four Seasons lodge stating, 'Timberline Resort Realty A division of Timberline Four Seasons Resort.'" (Emphasis in original.) Herlan testified that the sign had been present for four or five years and was hanging on the wall during the trial before the circuit court in 2007.

Accordingly, the Court concluded that the real estate division was not independent of, but was a division of, the resort, and that the circuit court abused its discretion in failing to award injunctive relief to the resort.

As for Herlan's retention of business records and telephone numbers, the Court rejected Herlan's argument that she could not return the documents because neither the resort nor anyone on its board of directors had a real estate broker's license. The Court found that Herlan, as the resort's agent, owed it a duty of loyalty, which she breached by taking and retaining the documents.

Likewise, the Court found that Herlan's retention of telephone numbers that were advertised as the resort's contact number (and printed on 400,000 brochures) was also a violation of her duty of loyalty to the resort. The Court reasoned that "the telephone numbers were registered and utilized by Ms. Herlan as a function of her agency and employment with [the resort] ...."

I attribute the decision's narrowness to the Court's fact-specific analysis. But as the opinion makes clear, once the Court concluded that an agency relationship existed, Herlan was going to have a very hard time justifying her actions in taking and retaining the records and telephone numbers.

Pittsburgh Post-Gazette Responds to Mylan Suit

Jeffrey V. Mehalic — Wed, 30 Sep 2009 13:07:09 -0500

Last month, I wrote about Mylan's lawsuit against the Pittsburgh Post-Gazette and two of its reporters for misappropriation of trade secrets, conversion, and other claims, based on articles that have not been favorable to Mylan. Based on PG's response to the lawsuit, Mylan may get more of a fight than it expected.

First, PG removed the case to the Northern District of West Virginia, even though diversity of citizenship does not exist. But PG argues that Mylan, which is a Pennsylvania corporation and is the parent of Mylan Pharmaceuticals, Inc., "has no standing to sue for or recover damages" because the plaintiffs' claims are "based on damage to property that is owned by MPI." Because Mylan's ownership of Mylan Pharmaceutical's stock is not the same as ownership of its property, Mylan is not a proper party and without it in the litigation, diversity exists and federal jurisdiction is proper.

In all likelihood, Mylan will move to remand, but PG's argument about whether Mylan is simply a plaintiff in order to defeat diversity and keep the case in Monongalia County, where it has a large manufacturing presence, is interesting. There is also the possibility that if the court would grant the motion to remand and the state court would grant PG's motion to dismiss Mylan, PG could again remove the case on the grounds that diversity exists. But that's nothing but speculation at this point.

PG has also moved to dismiss the complaint under Federal Rule 12(b)(6) on the grounds that Mylan has no standing to assert its claims. This is how PG sees Mylan's claims:

In sum, the Post-Gazette did nothing wrong whatsoever -- not in obtaining information for publication, and not in publishing. All of its conduct is fully protected under well-settled legal principles under the First Amendment to the United States Constitution, Article III, Section 7 of the Constitution of the State of West Virginia, and common law.

Mylan's effort to circumvent these principles and to impose liability on the Post-Gazette for constitutionally protected conduct is doomed to fail. This fact makes all the more evident that Mylan's suit is aimed, not at the meritless effort of holding the Post-Gazette liable, but at attempting to uncover the Post-Gazette's sources of information. Upon learning that the Post-Gazette had obtained information about Mylan's internal investigation, Mylan undertook a feverish hunt to uncover the sources, but the effort was unavailing. Only then did Mylan launch this suit, with the express purpose of obtaining an order "compelling the identity of all persons delivering the Documents to the Post-Gazette or Reporter-Defendants." (Emphasis added.)

In a footnote, PG describes Mylan's decision to file in state court as a "cynical appeal to local interests [] manifested , for instance, in the wholly gratuitous allegation that Mylan provides "jobs for thousands of West Virginia citizens."

PG's motion to dismiss is based on the argument in its notice of removal that Mylan is separate from Mylan Pharmaceuticals and has no standing independently to seek any damages from the defendants and therefore is not a proper party.

PG filed its answer to the complaint, but responds only to the allegations made by Mylan Pharmaceuticals, consistent with its position that Mylan is not a proper party. This post by Robert MacMillan in Reuters' MediaFile blog says that PG countersued Mylan, but I can't find any counterclaim in the answer or any separate pleading listed in the docket. I have contacted Fritz Byers', PG's counsel, and asked about a counterclaim, but haven't heard from him yet.

Patricia Sabatini and Len Boselovic, PG reporters whom Mylan also sued, have separate counsel and have filed motions to dismiss and answers that are patterned on PG's pleadings.