West Virginia Business Litigation

Non-Profit's Lawsuit Alleges Misappropriation of Trade Secrets, Creation of Monopoly

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Thu, 31 Jul 2008 13:21:00 -0500

A complaint filed last month in the Circuit Court of Kanawha County, West Virginia raises an interesting question: if an employee has not signed a non-compete or non-solicitation agreement, can her former employer sue her for going to work for a competitor and taking some of her former employer’s clients with her? That’s the issue presented by Job Squad, Inc. v. Champion Industries, Inc., Civil Action No. 08-C-1123 (June 10, 2008). Here are the complaint and the answer and counterclaim, courtesy of the plaintiff’s counsel, Lisa Kerr.

Job Squad, Inc. is a non-profit community rehabilitation program, which operates a presort mail service in Charleston, West Virginia. Rhonda Copen was employed by Job Squad, Inc. until she resigned on March 26, 2008 and went to work for Champion Industries, Inc. Champion is a printing and office stationery company, which operates several businesses, including The Herald-Dispatch, the Huntington, West Virginia daily newspaper.

Shortly after Copen began work for Champion, at least two of Job Squad’s customers, BB&T and TicketMaster, terminated their accounts and moved to Champion.

Job Squad has alleged in its complaint that Copen and Champion misappropriated its confidential financial information in violation of West Virginia Code §§ 47-22-2 and 47-22-3, which deal with trade secrets, and have monopolized or attempted to monopolize the commercial mailing business within West Virginia in violation of West Virginia Code § 47-18-4. Job Squad has also alleged that Copen and Champion tortiously interfered with its business relationships.

In addition to compensatory and punitive damages, Job Squad has also asked for a preliminary injunction that would require Copen and Champion to cease and desist from competing with Job Squad in the presort mail business; providing presort mail services to Job Squad's current or former customers; using Job Squad’s confidential information; and communicating with its employees or customers.

Job Squad did not allege that the defendants violated any non-compete agreement or non-solicitation agreement, and that may be the crux of their defense. Copen and Champion have denied any liability to Job Squad, and have asserted a counterclaim for tortious interference with Champion’s existing and/or expected contractual and business relationships with its customers.

The Trade Secrets Vault blog from the Franklin Pierce Law Center wrote about the lawsuit in this post earlier this month.

Bank Sues Prominent Analyst for Defamation, Negligence

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Thu, 24 Jul 2008 20:45:58 -0500

Earlier this month, Richard X. Bove, a well-known financial institutions analyst for Ladenburg Thalmann & Co., Inc., issued a report entitled “Who Is Next?,” in which he identified other financial institutions that could be at risk in the wake of IndyMac’s failure. Among the financial institutions Bove identified was BFC Financial Corporation, a holding company for BankAtlantic, which is headquartered in Fort Lauderdale, Florida.

BFC, one of two holding companies for BankAtlantic, was on the list because it was in Bove’s “danger zone,” but BankAtlantic was not on Bove’s list. Its absence did not stop BankAtlantic from filing suit on Monday against Bove and Ladenburg Thalmann in Broward County Circuit Court (Fort Lauderdale), alleging defamation and negligence. BankAtlantic v. Bove, Civil Action No. 0832714 (July 21, 2008). Here is an excerpt from the complaint:

The hysterical market conditions that existed when the Bove Report ["Who Is Next?"] was published, republished and promoted by the firestorm of media attention intentionally generated by Bove and Ladenburg, made it particularly critical that those seeking wide audiences to comment on the financial condition of financial institutions be careful for the harm careless assertion of false facts can cause. BankAtlantic and Bancorp bring this action not simply to collect the damages they have suffered to their reputations as a consequence of these inexcusable wrongs, but also to deal with the current reality that exists in this marketplace -- a falsehood, when widely circulated, becomes its own truth as it is repeated over and over again, at some point replacing the truth altogether. BankAtlantic for the benefit of its customers and employees and Bancorp for the benefit of its shareholders cannot let the lie become the truth.

According to this story on ABC News’ website, Eugene Stearns, BankAtlantic’s lawyer, declined to provide a copy of the complaint because he “can’t republish the defamation.” That’s the same answer he (very politely) gave me when I called to ask him for a copy of the complaint. Mr. Stearns’ theory is because Bove’s report was defamatory, then by disseminating the report, even by sharing the complaint, he makes his client’s situation worse.

This case has attracted a lot of attention from the financial press, which is concerned that Bove and his company are being sued because Bove expressed an opinion that BankAtlantic didn’t like, but which wasn't libelous or defamatory, and which may make other media outlets targets of future lawsuits.

The observation made in this post in Alphaville, the Financial Times’ blog, sums it up:

"Regardless of who has the legal upper hand, it is clear, as the FT notes, that as problems grow in the US banking industry, so does the sensitivity of banks to commentary on their financial health.

How far they can go to quell their critics, however, is a critical question raised by the Bove case for all in the banking, broking [sic] and legal industries."

These legal theories have been addressed very recently, as noted in Bloomberg.com’s story by Edvard Petterson, which considers BankAtlantic's lawsuit in the context of a North Carolina appeals court decision that held that analysts couldn’t be sued for expressing their opinions. Nucor Corp. v. Prudential Equity Group, LLC, 659 S.E.2d 483 (N.C. App. 2008).

In that case, Nucor, a steel manufacturer whose stock is traded on the New York Stock Exchange, sued Prudential and two of its analysts (one of whom had worked at Nucor previously) for making statements about possible antitrust violations committed by Nucor, and alleged claims for libel and unfair and deceptive trade practices. Prudential filed a 12(b)(6) motion to dismiss, which the court granted as to both claims.

The Court of Appeals of North Carolina found that the allegedly libelous statements, “construed only in the context of the document in which they are contained, ‘stripped of all insinuations, innuendo, colloquium, and explanatory circumstances[,]’” were not defamatory and affirmed the trial court.

Nucor's claim for unfair and deceptive trade practices had been based on the alleged libel and thus could not serve as the basis for relief. Nucor also alleged that its former employee’s alleged misappropriation of confidential information constituted tortious conduct that could support its claim for unfair trade practices, but Nucor did not allege in its complaint that its former employee had committed any such acts nor did it allege that the misappropriation proximately caused any injury. The court found that, at best, Nucor had alleged that its employee had breached his confidentiality agreement, which did not constitute an unfair or deceptive trade practice.

Andrew Ross Sorkin, who writes the DealBook blog for The New York Times, wrote a column on July 8 entitled “Psst! Hear The Rumor Of the Day?,” which discussed the rumor du jour tendency on Wall Street, especially since Bear Stearns’ meltdown in March, and a precipitous drop in Lehman Brothers’ stock price amid recent takeover rumors. Coincidentally, Sorkin quoted Bove in the column for the proposition that “absurd rumors can have legs,” which seems to be the point of BankAtlantic's lawsuit.

Fourth Circuit Reverses Remand of AT&T Class Action

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Mon, 21 Jul 2008 22:49:00 -0500

Last year, I wrote about the United States District Court’s remand of a class action that alleged that AT&T had improperly enrolled thousands of customers in a roadside assistance program and charged them $2.95 per month, in violation of the West Virginia Consumer Credit and Protection Act. Strawn v. AT&T Mobility , Inc., 513 F.Supp.2d 599 (S.D.W.Va. 2007).

The court remanded the case because AT&T could not establish to the court’s satisfaction that the amount in controversy exceeded the Class Action Fairness Act’s threshold of $5 million, exclusive of interest and costs, for federal jurisdiction. AT&T appealed the remand under 28 U.S.C. § 1453(c), which permits appellate review of remand orders in class actions.

In Strawn v. AT&T Mobility LLC, 2008 WL 2575871 (4^th Cir. 2008), which was decided on June 30, 2008, the Fourth Circuit concluded that “the district court either misread or construed too broadly the issues raised by the complaint and the definition of the putative class and therefore reverse[d] its order remanding this case to the state court.”

AT&T first argued before the Fourth Circuit that CAFA shifted the burden of proof in a removal from the party asserting federal jurisdiction to the party opposing it. The court acknowledged that CAFA’s legislative history contained language supporting that view, but found that the statute itself gave no indication that Congress intended to place the burden of proof on the party opposing removal.

The court did hold that “in removing a class action based on diversity jurisdiction under 28 U.S.C. §§ 1453 and 1332(d), the party seeking to invoke federal jurisdiction must allege it in his notice of removal and, when challenged, demonstrate the basis for federal jurisdiction.” The court noted that it was joining six other circuit courts that have considered the issue – the Second, Third, Sixth, Seventh, Ninth, and Eleventh.

AT&T challenged the class size on the basis that the plaintiffs claimed that AT&T violated West Virginia law by automatically enrolling all customers in the roadside assistance program for a trial period, then charging them $2.99 per month if they did not opt out.

The court agreed with AT&T that the plaintiffs’ complaint defined the class as all of AT&T’s customers who were enrolled in the roadside assistance program, regardless of whether they were in the program willingly or unwillingly:

“Such subjective inquiries about a customer’s “willingness’ or ‘unwillingness’ in continuing to pay the charge might relate to a limitation of damages by ratification, but it does not diminish the class defined in the complaint: those who were at the outset automatically enrolled in the program without their request-those who ‘were not given an option.’ At that point, none of the customers were ‘willing’ or ‘unwilling’; rather, all were unaware.

(Emphasis in original.)

The court found that the plaintiffs failed to rebut AT&T’s estimate that 58,500 customers remained enrolled in the roadside assistance program after the initial trial period expired and paid the monthly charge. Therefore, AT&T established that the amount in controversy, exclusive of interest and costs, exceeded $5 million and satisfied CAFA’s jurisdictional requirement.

The court noted in a couple of places that the plaintiffs had not appealed the district court's ruling that the plaintiffs could not rely upon stipulations to limit their damages and thereby establish the amount in controversy. As a result, the only issue before the Fourth Circuit was AT&T's appeal of the remand based on the amount in controversy.

Insurer Claims $25 Million Verdict Was First Notice of Lawsuit

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Wed, 16 Jul 2008 09:39:38 -0500

It turns out that Charleston Area Medical Center is facing two lawsuits over insurance coverage for Dr. R. E. Hamrick, Jr.’s $25 – now $10 – million verdict, not one, as I wrote yesterday.

In May, Employers Reinsurance Corporation now known as Westport Insurance Corporation filed a declaratory judgment action in federal court against CAMC and its captive insurer, Vandalia Insurance Company, to determine whether it owes any duty to CAMC. Employers Reinsurance Corporation v. Charleston Area Medical Center, Inc., Civil Action No. 2:08-CV-0303.

ERC reinsures CAMC's $25 million policy with Vandalia, and its policy with Vandalia requires that it be given “prompt, written notice” of any loss, occurrence, claim, event, etc. that has a “reasonable possibility of resulting in a claim for indemnity hereunder.”

ERC claims that CAMC did not notify it of Hamrick’s lawsuit until February 11, 2008, which was four days after the jury returned its verdict for $25 million. ERC argues that it did not receive the notice required by its policy with Vandalia and that it is entitled to a declaratory judgment that it has no obligation to indemnify Vandalia for any payments made to CAMC nor any obligation to directly indemnify CAMC.

Neither defendant has responded to the complaint yet. Because this action was filed before Executive Risk Indemnity’s lawsuit and involves the same subject matter, the two suits are likely to be consolidated before United States District Court Judge Joseph R. Goodwin.

Court Reduces $25 Million Verdict Against Hospital, Denies Motion for New Trial

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Tue, 15 Jul 2008 06:00:00 -0500

In February, a Kanawha County (Charleston), West Virginia jury awarded Dr. R. E. Hamrick, Jr. $25 million in compensatory and punitive damages when it determined that Charleston Area Medical Center improperly revoked his privileges and damaged his reputation due to his efforts in 2004 to self-insure his professional liability for $1 million. Here is my post about the verdict.

CAMC filed post-trial motions to reduce the verdict and for a new trial, which were argued in April. Judge Jack Alsop, who is presiding over the case after the seven Kanawha County Circuit Court judges recused themselves, ruled on the motions last week, and offered mixed relief to CAMC.

In its order granting CAMC’s motion for remitittur of damages, the court found that the compensatory damage award of $5 million “shocks the conscience” and was not supported by the evidence because Hamrick “has invariably admitted he has suffered no pecuniary harm or financial loss as a result of CAMC’s actions. There was no evidence adduced at trial of any type of emotional distress or physical harm. Dr. Hamrick’s reputation as one of the area’s finest surgeons was minimally reduced, if in any way.”

CAMC had requested that the compensatory damages award of $5 million be remitted to $1 million. The court found that Hamrick had asserted two causes of action, invasion of privacy and defamation, and was entitled to $1 million for each cause of action, and reduced the award to $2 million.

The court did not engage in as much analysis of the punitive damages verdict of $20 million, but did find that:

“CAMC’s misconduct [against Hamrick] was not an isolated event as to Dr. Hamrick, but was continual over a period of three to four years. There is limited evidence of any similar misconduct as to the treatment of other physicians with privileges at CAMC. Even with this, the degree of reprehensibility, it does not warrant an award of twenty million dollars in punitive damages.”

The court decided to maintain the same 4:1 ration of punitive damages to compensatory damages, and remitted the punitive damages award to $8 million, for a total award of $10 million.

In considering CAMC’s motion for a new trial, the court rejected CAMC’s arguments that the jury had a “mistaken view of the case,” that the court improperly allowed Hamrick’s expert to testify, that the court misapplied the law of the case doctrine, that the court allowed testimony regarding alleged profanity about Hamrick, and otherwise denied CAMC the opportunity to present evidence, and denied its motion. Here are the order denying the motion for a new trial, and the final order, from which either or both parties can appeal.

CAMC is also fighting another lawsuit resulting from the verdict. In June, Executive Risk Indemnity, Inc., which reinsures Vandalia Insurance Company, CAMC’s captive insurer, filed a declaratory judgment action in United States District Court for the Southern District of West Virginia, alleging that it has no duty to defend or indemnify CAMC as a result of the verdict. Executive Risk Indemnity, Inc. v. Charleston Area Medical Center, Inc., Civil Action No. 2:08-CV-00810.

Executive filed suit against CAMC, Vandalia, and Employers Reinsurance Corporation, now known as Westport Reinsurance Corporation. Its complaint also asserts that, if the court finds that coverage is available, Vandalia and Employers Reinsurance Corporation, it is entitled to equitable contribution for all or part of the verdict. None of the defendants has responded to the complaint yet.

Blawg Review #168

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Mon, 14 Jul 2008 00:33:00 -0500

First of all, I want to thank the editors and everyone who submitted posts for today’s edition of the Blawg Review. I was impressed, as I think you’ll be, by the range and variety of the posts, and hope you enjoy them.

The number of this Blawg Review, 168, has no numerical significance I could find except that it’s the number of hours in a week. But for this date, July 14, which is Bastille Day, let me start off with a post by Dan Hull at What About Clients, in which he explains the importance of the date in the Marquis de Sade’s start in politics.

Dan also offers a couple of posts on providing effective client service and battling legalese, which, as I learned recently in a seminar taught by Bryan Garner, identifies you as someone who really doesn’t know what he's talking about.

Speaking of legal writing, since I’m in Philadelphia right now, let me include a post from The Faculty Lounge entitled “Ben Franklin and the Art of Writing.” According to HBO’s John Adams, even Thomas Jefferson's writing needed some editing from Ben Franklin, so there’s hope for all of us.

And for one more post on legal writing, Set in Style references Ross Guberman’s post on the eight writing errors made in the Supreme Court’s majority and dissenting opinions about the District of Columbia gun ban.

Enrico Schaefer, who blogs at The Greatest American Lawyer and Traverse Legal, has an excellent post about his firm’s new website. I particularly like the combination of a traditional “brochure” with multiple blogs that focus on the firm’s practice areas. The website’s home page includes the three most recent posts from each of the niche blogs. Integration like this ultimately costs less than paying separately for a website and blog, and allows a firm, particularly a smaller one, to maximize its presence on the Internet.

On a related issue, Joshua Fruchter at LawyerCasting discusses screen size resolution considerations in law firm website design, and includes a tool that lets you determine the screen size for which any website is optimized.

For other bloggers with more than one post or blog, let me recognize Jamie Spencer, who blogs at Austin DWI Lawyer and Austin Criminal Defense Lawyer. He writes about a Texas state court ruling on the admissibility of a blood sample drawn by the police and suggests a simple way to avoid being in the position of having to challenge the admissibility of your own sample.

Thanks to Eric Goldman at the Technology & Marketing Law Blog, the next time you hear about someone’s sex tape making its way onto the Internet, you’ll be able to answer your friends’ questions about the types of sex tapes that exist and how to avoid the legal entanglements that seem to entrap so many celebrities.

Apple’s release of its 3G iPhone is discussed in David Lat’s Above The Law, which notes the phone’s relative popularity among law firm IT departments, and by Rob Hyndman, who describes Canadian cell phone provider Rogers’ limited data plan for iPhone subscribers.

David Giacalone at f/k/a writes about a story in The New York Times, entitled “Build a Wiffle Ball Field and Lawyers Will Come.” It’s about, you guessed it, the unintended consequences of a few kids clearing out a field in order to have a place to play wiffle ball. This quote from the story sums it up:

“It turns out that one kid’s field of dreams is an adult’s dangerous nuisance, liability nightmare, inappropriate usurpation of green space, unpermitted special use or drag on property values, and their Wiffle-ball Fenway has become the talk of Greenwich and a suburban Rorschach test about youthful summers past and present.”

And before reading David’s post, I didn’t know there were so many examples of baseball haiku (which have been collected in a book).

Sometimes you never know what will prompt a lawsuit. For instance, translation, not known as a hotbed of litigation, is the subject of posts by two bloggers. Language Log discusses the tort of negligent translation. It seems that the plaintiff, a homosexual, claims that he has been damaged to the tune of $70 million by two translations of the Bible, which condemn homosexuality and violate his rights as a gay man. The post’s author, Bill Poser, says that the plaintiff’s handwritten complaints are difficult to understand, but not as much, I bet, as the Greek and Latin versions of the Bible that the plaintiff is challenging.

In Drug and Device Law, Beck/Hermann asks whether a plaintiff can require a foreign defendant to translate into English documents that, in the ordinary course of business, are kept in its home language. The answer is no, as the cost is like any other litigation expense, and is to be borne by the party incurring it.

On a practice management topic, Allison Shields at the Legal Ease Blog writes about billing models and identifies five steps in a firm’s migration from hourly to value billing:

1.              Do some homework
2.              Find a new way to measure performance
3.              Be firm (stick to your guns)
4.              Get to know the business end of the practice
5.              Stop tracking time

I think that as the demand for legal services decreases, at least for some specialties, firms that never would have considered alternatives to the billable hour model will become more responsive to their clients’ preferences.

Nancy E. Hudgins, who blogs at Civil Negotiation and Mediation, reminds us that sometimes the facts aren’t as important to a jury as the story that lets the jury understand the facts.

The Brennan Center for Justice at New York University School of Law discusses its amicus brief in Mohamed v. Jeppesen Dataplan, Inc., which involves the application of the state secrets privilege to a claim for damages resulting from extraordinary rendition.

In my blog, I focus on business litigation and related issues, such as ERISA and employee benefit litigation, so here are some blogs that I follow.

David Rossmiller at Insurance Coverage Law Blog has written extensively about Richard “Dickie” Scruggs, the Mississippi plaintiff’s lawyer who went from being known as the brains behind the $250 billion tobacco settlement to the lawyer who was sentenced to five years in prison for attempting to bribe a state court judge for $40,000. Check out David's “Scruggs Nation” posts.

Stephen Rosenberg writes the Boston ERISA & Insurance Litigation Blog, and explains in a post from last week how his practice is divided into three areas, each of which consumes 50% of his time.

I also recommend my friend, Roy Harmon, who blogs at Health Plan Law, and writes in this post about the Supreme Court’s refusal to hear an appeal of a decision that held that death benefits are not recoverable under ERISA because they are money damages and therefore impermissible.

Bob Coffield at Health Care Law Blog (and the person who suggested that I host Blawg Review), does an excellent job of writing about health care in our home state of West Virginia and beyond, and related issues such as privacy concerns about medical information and the use of technology in providing medical care.

Once again, thanks to everyone who participated, and I hope these posts expand your view of the blawgosphere.

Blawg Review has information about next week’s host, and instructions how to get your blawg posts reviewed in upcoming issues.

Rodriguez, University of Michigan Will Pay $4 Million to WVU

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Wed, 09 Jul 2008 23:33:29 -0500

Various media reports today indicate that West Virginia University has settled its lawsuit against its former head football coach, Rich Rodriguez, for $4 million, the cost of the buyout in his contract. The settlement occurred yesterday at a court-ordered mediation. Here is Associated Press reporter Vicki Smith’s story about the settlement.

Also, according to this story in the Detroit Free Press, Rodriguez’s new employer, the University of Michigan, will pay $2.5 million of the amount immediately. Rodriguez will pay the balance in three payments of $500,000 each, with the first to be paid in 2010. UM also will pay Rodriguez’s attorney’s fees.

Yesterday was the deadline set by the Circuit Court of Monongalia County for Rodriguez to disclose whether UM or any other entity had agreed to pay the buyout on his behalf. Adding to the pressure on Rodriguez was a hearing scheduled today in Michigan on subpoenas that WVU’s lawyers had issued for the depositions of UM President Mary Sue Coleman and UM Athletic Director Bill Martin.

In the interest of completeness and for what they’re worth, here are the deposition transcripts of WVU President Mike Garrison, West Virginia Board of Governors members Steve Farmer and Parry Petroplus, WVU Chief of Staff Craig Walker, and WVU Assistant Athletic Director Mike Parsons.

Finally, this is unrelated to the parties' settlement, but I have to comment on the Transcript License Agreement present on page 2 of some of the transcripts. The agreement provides that:

By signing the Transcript Order Form to receive and pay for a copy of this transcript, (and/or video) I agree that [sic] I nor any person, attorney, paralegal or expert witness may make, copy and/or distribute to others or upload to any internet websites or deposition repositories for future sales, monetary gain or any other purpose any copies of this transcript (and/or video) without paying Streski Reporting & Video Service, a division of MDStreski, LLC, the ordinary and customary charges for any and all additional copies viewed on line or downloaded by any third party.

I have some questions. First, is this agreement even enforceable? Who owns a deposition transcript – the reporter who transcribes the deposition and prepares the transcript or the parties who hire the reporter? And how much are the ordinary and customary charges “for any and all additional copies viewed on line or downloaded by any third party”?

I don't see how a court reporter has any ownership interest in a transcript or video that could be enforced by such an agreement. A transcript isn't a software program that a developer like Microsoft owns and licenses to a user. But maybe those video depositions posted on YouTube
are making court reporters rethink their traditional role.

Fourth Circuit Rules Ex-Bank President Can't Rely on Flawed Audit Report

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Tue, 08 Jul 2008 06:00:00 -0500

The principal issue presented in this appeal is whether Grant Thornton LLP (Grant Thornton), an accounting firm retained by First National Bank of Keystone (Keystone), in response to an investigation by the Office of the Comptroller of the Currency (OCC) into Keystone’s banking activities, owed a duty of care under the West Virginia law of negligent misrepresentation to Gary Ellis, who allegedly relied on oral statements made by Stan Quay (Quay), a Grant Thornton partner, and a Grant Thornton audit report of Keystone’s 1998 financial statements in deciding to accept the job as president of Keystone. We hold that Grant Thornton owed Ellis no such duty under West Virginia law.

Ellis v. Grant Thornton LLP, 2008 WL 2514182 (4th Cir. 2008).

    In a bench trial before Judge David A. Faber of the Southern District of West Virginia, Ellis obtained a verdict of $2,419,233, based on the court’s finding that Grant Thornton negligently misrepresented Keystone’s financial condition, knowing that Ellis would rely on such misrepresentations in deciding whether to go to work for Keystone.

    And bear in mind that Grant Thornton's misrepresentation was not insignificant: it failed to uncover that Keystone had overestimated the value of its loans by $515 million. Ultimately, the FDIC paid $664 million to cover Keystone's losses after its collapse.

In addressing Grant Thornton's appeal, the Fourth Circuit had to predict how the Supreme Court of Appeals of West Virginia would rule on Ellis’ claim of negligent misrepresentation because the Supreme Court has not addressed directly or indirectly this issue,

Although the district court had relied on First Nat. Bank of Bluefield v. Crawford, 386 S.E.2d 310 (W.Va. 1989) in ruling for Ellis, the Fourth Circuit found that, “other than the adoption of the Restatement [(Second) of Torts § 552] approach, the Bank of Bluefield court gave no further meaningful guidance concerning under what circumstances an accountant can be liable to third parties for negligent misrepresentations under §552.”

The Fourth Circuit found that other courts had set forth six factors based on the Restatement's language, which emphasize the third party's reliance on the inaccurate information. Unlike Ellis' situation, however, the application of those factors focuses on the accountant or auditor's knowledge or intention that the third party will rely on the information.

    This decision provokes – to me, at least – an obvious question: why should Ellis’ reliance on the flawed Grant Thornton audit be any different than the bank management's or the OCC’s reliance on the audit? The audit report stated on its first page that it was for the information and use of Keystone’s management and its regulatory agencies and “should not be used by third parties for any other purpose.” But does that absolve Grant Thornton of liability if its employees misrepresented -- in any other context, lied about -- Keystone's condition?

    Apparently it does. But there is something fundamentally wrong with this decision. The Fourth Circuit declined to employ any type of "foreseeability" standard, even though it is reasonably foreseeable that a third party like Ellis will rely on the audit report, or the representations made to him by Grant Thornton employees, who did not preface their statements with the type of disclaimer found on the first page of the audit report.

Florida Offers to Buy U.S. Sugar for $1.75 Billion

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Mon, 30 Jun 2008 20:29:19 -0500

Last month, I wrote about the class action filed by employees of U.S. Sugar, who claim that their shares of company stock have been devalued as a result of mismanagement and self-dealing by the company’s officers. In 1983, the employees participated in an ESOP (employee stock ownership plan) which traded their participation in a pension plan for ownership of the company’s stock, which is not publicly traded. Thus, the employees have to depend on what the company is willing to pay to redeem their shares, which, according to allegations in the lawsuit, has been far less than what the shares are actually worth.

Then, last week, in an unexpected development, Florida Governor Charlie Crist announced that, as part of the restoration of the Everglades, Florida is willing to pay U.S. Sugar $1.75 billion for its 187,000 acres in four counties in southern Florida. The company would lease the property back from Florida for six years, then go out of business. Here are the statements issued by U.S. Sugar and by Governor Crist’s office, and an Associated Press story in today’s New York Times, which reports that the proposed purchase is moving forward.

This post by Suzanne Wynn in her Pension Protection Act Blog notes that the ESOP participants (U.S. Sugar's employees), as the owners of the largest block of stock, are the largest group affected by the purchase.

Although a lot has been written already about Florida’s proposal (and that’s all it is at this point), I have not seen any discussion of how a purchase price for the employees’ shares of stock would be formulated. This deal may represent an opportunity for U.S. Sugar’s employees (and remaining shareholders) to obtain some value for their stock, but it does not seem to affect the issues in the litigation.

SCOTUS Rules in ERISA Conflict of Interest Appeal

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Wed, 25 Jun 2008 21:34:41 -0500

An issue that always has to be addressed in ERISA disability claims is the standard of review to be applied to the plan administrator’s decision. If the plan language does not confer discretion on the administrator, then the court reviews any decision under a de novo standard. However, if the plan gives discretion, then the administrator’s decision is reviewed under an abuse of discretion standard.

But there can be another scenario, one that has confounded litigants, lawyers, and courts for years. It is where the plan administrator, which makes the decision about a claimant’s entitlement to benefits, is also the plan insurer and therefore responsible for paying benefits.

Courts have long recognized the conflict of interest that exists, even if they have not been sure how to deal with it. That’s why the Supreme Court of the United States’ decision in Metropolitan Life Insurance Company v. Glenn, 2008 WL 2444796 (June 19, 2008),was so eagerly awaited.

In Glenn, Metropolitan (“MetLife”) administered Sears, Roebuck & Company’s long-term disability plan and also paid the benefits. Sears’ plan’s language conferred discretion on Metropolitan, which meant that its decision whether to award benefits would be reviewed under the abuse of discretion standard.

Wanda Glenn applied for and received LTD benefits because she was able to show that she could not perform the material duties of her own job (the “own occ” standard). After 24 months, however, the plan’s standard for proving disability changed, and required her to prove that not only could she not perform her own job, but that she could not perform the material duties of any gainful occupation for which she was reasonably qualified (the “any occ” standard).

MetLife found that she did not satisfy this standard and denied her claim for benefits. The District Court for the Southern District of Ohio affirmed the denial, and Glenn appealed to the United States Court of Appeals for the Sixth Circuit.

In reversing the denial of Glenn’s benefits, the Sixth Circuit relied on a combination of factors, including MetLife’s conflict of interest (the others factors were specific to the treatment of Glenn’s claim). MetLife appealed to the Supreme Court.

In an opinion written by Justice Stephen Breyer for a majority of five justices, the Court affirmed the Sixth Circuit and identified two questions to be answered: the first, posed by MetLife, is “whether a plan administrator that both evaluates and pays claims operates under a conflict of interest in making discretionary benefit determinations.” The second question, posed by the Solicitor General, is “’how’ any such conflict should ‘be taken into account on judicial review of a discretionary benefit determination.’”

Personally, I find the second question to be much more significant than the first. Courts have noted for years the existence of a conflict of interest when the “entity that administers the plan, such as an employer or an insurance company, both determines whether an employee is eligible for benefits and pays benefits out of its own pocket.” The real issue is how a court is supposed to deal with the conflict.

The Court relied on principles of trust law in concluding that “for ERISA purposes a conflict exists,” and identified several reasons.

The employer’s own conflict may extend to its selection of an insurance company to administer its plan (an employer may be more interested in a company that offers low rates instead of one that has accurate claim processing);

ERISA imposes higher-than-marketplace quality standards on insurers (ERISA requires a plan administrator to adhere to a special standard of care; and

A legal rule that treats insurance company administrators and employers alike in respect to the existence of a conflict can nonetheless take account of the circumstances to which MetLife points so far as it treats those, or similar, circumstances as diminishing the significance or severity of the conflict in individual cases

Regarding the thornier problem of how to account for a conflict, the Court repeated its statement from Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), that a conflict “should be weighed as a factor in determining whether there is an abuse of discretion.”

The Court pointed out that the standard of review should not change, however, which “in practice could bring about near universal review by judges de novo-i.e., without deference-of the lion’s share of ERISA plan claims denials.” Rather, the Court envisioned that a conflict of interest is a “factor” to be considered in addition to other considerations. This was the approach taken by the Sixth Circuit; it considered the conflict, but may not have found it to be determinative of Glenn’s appeal in view of other factors.

Interestingly, in his partial concurrence, Chief Justice John Roberts cautioned that the majority’s approach would bring about a change in the standard of review: “The end result is to increase the level of scrutiny in every case in which there is a conflict-that is, in many if not most ERISA cases-thereby undermining the deference owed to plan administrators when the plan vests discretion in them.”

If you're interested in knowing more about MetLife v. Glenn (and who wouldn't be?), I recommend the knowledgeable and insightful comment and analysis of Roy Harmon at Health Plan Law, Brian King at ERISA Law Blog, Steven Rosenberg at Boston ERISA & Insurance Litigation Blog, Paul Secunda at Workplace Prof Blog, Suzanne Wynn at Pension Protection Act Blog, and Mark DeBofsky at DDBlog.

Lawsuit Challenges Member's Expulsion from Fraternal Organization

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Sat, 21 Jun 2008 11:33:33 -0500

For the past few months, any story in The New York Times about West Virginia has discussed Don Blankenship or the Supreme Court of Appeals or both. But a story in Monday’s edition focused attention on a lawsuit filed in the Circuit Court of Kanawha County (Charleston), West Virginia by Frank J. Haas against the West Virginia Masonic organization and its top officers. Haas v. Montgomery, Civil Action No. 08-C-1035 (May 30, 2008).

(In the interest of disclosure, I have known Frank for several years and appeared before him in his capacity as a West Virginia administrative law judge.)

The lawsuit alleges that Frank, a former West Virginia Grand Master, was expelled from the Masons as a result of his successful efforts to reform the organization and eliminate practices that were, at best, anachronistic and, at worst, illegal:

During his Masonic career and as Grand Master, Plaintiff Haas supported various progressive reforms in Masonry reflecting the will of the majority of the members of Defendant Grand Lodge which reforms were consistent with and promoted rules and regulations designed to respect and protect the constitutional and other rights of all Masons and prospective Masons. The proposed changes and reforms were not only morally right but were consistent with and designed to bring Masonic laws and attitudes into conformity with the substantial public policy of the State of West Virginia and the United States of America.

Plaintiff Haas' goal was to make Masonry more tolerant, friendly, decent and accepting of everyone regardless of nationality, race, religion or disability.

During the 2006 Annual Meeting, the members of Defendant Grand Lodge voted approval of various reforms proposed by Plaintiff Haas that were in his opinion designed to make Masonry more tolerant, friendly, decent and accepting of all Masons and prospective Masons. These reforms and proposals were intended to rid Masonry in West Virginia of the Orwellian, repressive, regressive and unconstitutional practices that were and are clearly unconstitutional and against the substantial public policy of this State.

The lawsuit raises questions about membership in a fraternal organization, such as whether a member is entitled to due process if he is to be expelled from the membership, and, if so, what type of due process.

But I think the more important question presented by the action is the public policy aspect: can an organization, even one that is private and fraternal, take punitive action against a member for activities that are intended to rid the organization of illegal or unethical practices? I would hope the answer is no, but that’s what the lawsuit will decide.

For more local coverage of the lawsuit, here are articles that appeared in the The Charleston Gazette and the (Charleston) Daily Mail, as well as some entries from a blog called Freemasons For Dummies (which did not think much of the Times’ article).

WV Supreme Court Rules in Dissenting Shareholders' Rights Case

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Sun, 15 Jun 2008 09:34:04 -0500

The Supreme Court of Appeals of West Virginia issued a decision on June 13 dealing with dissenting shareholders’ rights, an aspect of corporate law that the Court does not often address.

In Dodd v. Potomac Riverside Farm, Inc., 2008 WL 2390159 (June 13, 2008), the Court, in a per curiam opinion, considered rulings from the Circuit Court of Berkeley County, West Virginia, which established the fair value of the appellants’ shares in a corporation that owned a family farm and the rate of interest to which the appellants were entitled, and addressed the appellees’ motion for attorney’s fees.

The statute under which the appellants dissented from the proposed corporate action, West Virginia Code § 31-1-123, has since been repealed, but applied to the action because it was in effect when the appellants filed their lawsuit.

The Court’s rulings are specific to the facts of the appeal and do not represent any new pronouncements of law. All but one of the Court’s syllabus points address the standard of review to be applied to a circuit court’s rulings, and the other one holds that prejudgment interest is simple in nature, unless a statute or regulation provides otherwise.

When Is A Resignation Not A Resignation?, Part 2

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Sat, 14 Jun 2008 06:00:00 -0500

Last week, I wrote about the peculiar wording of Mike Garrison’s announcement that he was stepping down as West Virginia University's president, in which he avoided using the word “resign” to describe his departure. It seemed that there was a reason that he did not affirmatively state that he was resigning, which was reinforced by the statement issued by the WVU Board of Governors (it follows Garrison's statement), which acknowledged his departure from the position without using the word “resign” to describe his action. (I sent an e-mail to Garrison last Saturday, asking if there was any reason he didn't use the word "resign" in his announcement, but he has not responded.)

West Virginia Public Radio posted this article on its website on Wednesday, which suggests that Garrison is not resigning from his position as WVU president, even though he may not be in the position after September 1.

I wrote earlier that because Garrison’s employment agreement is silent regarding any compensation owed to him if he resigns, he is entitled to only his annual compensation and associated benefits though September 1.

That was accurate, but incomplete, because the period of time that is now relevant is between September 1, 2008 and June 30, 2010, when Garrison's contract with the BOG expires. And his compensation for that period of time appears to be set by paragraph 16:

Notwithstanding the provisions of paragraph 7 [which makes Garrison responsible to the BOG through its chairman], the Board commits to employ you as its President, or in some other capacity, in a position to be determined by it, at the Presidential salary provided for herein and as increased from time to time by the Board, for a term ending on June 30, 2010, unless (i) you voluntarily resign or retire, or (ii) you are terminated, all as provided for herein.

So it looks like the careful avoidance of the word “resign” was no accident, and was intended to enable Garrison to continue to receive his salary of at least $255,000 per year, working in some other capacity, until June 30, 2010.

Corporations and businesses negotiate severance packages and golden parachutes with departing executives as a matter of course. On Thursday, two executives at Lehman Brothers were removed from their positions, and reassigned elsewhere in the company.

But the difference between a corporation such as Lehman Brothers and WVU, among many others, is that a corporation is answerable in such matters only to its shareholders, while a public educational institution does not have such a limited constituency. If the speculation about Garrison's future is correct, and we may not know for sure until much closer to September 1, there will be significant opposition to his continued employment by the BOG.

When Is A Resignation Not A Resignation?

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Fri, 06 Jun 2008 20:14:05 -0500

Mike Garrison's "resignation" today as president of West Virginia University
presents a timely opportunity to review his employment agreement, including its provisions for severance pay. I put resignation in quotation marks not to be sarcastic, but because Garrison's announcement about his departure was vague. Here is Garrison's statement, in which he says that he will stay in office until September (presumably September 1), but for whatever reason, does not affirmatively state he is resigning.

There was some question whether September was chosen in order to entitle Garrison to additional or supplemental compensation if he stayed in office at least one year (he took office on September 1, 2007, which was moved up from his original start date of September 21). Here is the May 10, 2007 letter from the West Virginia University Board of Governors to Garrison, which serves as his employment agreement.

The agreement, which describes Garrison's service as "at the will and pleasure of the Board," requires him, in the event of his resignation, to give "at least sixty days notice before [his] last day in the office." Garrison's term as president under the agreement was scheduled to end on June 30, 2010.

This recent article in the Daily Mail reported that Garrison would receive his yearly salary of $255,000 if he was discharged without cause by the Board of Governors prior to June 30, 2008. If he was discharged without cause after June 30, 2008 but before June 30, 2010, he would be entitled to six months' salary. A termination for cause, as defined in the employment agreement, would not entitle Garrison to any further compensation.

Because the employment agreement is silent regarding any compensation owed to Garrison if he resigns, he is entitled to only his annual compensation and associated benefits through the remainder of his time as president.

I think Garrison's decision not to state that he is resigning has some significance, but I cannot see how he is entitled to continued compensation as WVU's president after he voluntarily leaves the position, regardless of how he describes his departure.

Rodriguez Testifies He Was Forced to Accept $4 Million Buyout

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Thu, 05 Jun 2008 06:00:00 -0500

The parties in West Virginia University’s breach of contract case against former head football coach Rich Rodriguez agreed not to release the videos of the depositions taken in the case, but fortunately for us, there is no such prohibition against releasing the transcripts themselves, as noted by this post from the blog published by the West Virginia University Sports & Entertainment Law Society.

So for your reading enjoyment, here are the deposition transcripts for WVU Athletic Director Ed Pastilong, Rodriguez, and Rodriguez’s agent, Mike Brown.

Here's one tidbit from Rodriguez's deposition. According to this Associated Press story in USA Today last month, Rodriguez testified that in August 2007, several members of the WVU Board of Governors told him that his outstanding demands for the football program would be met once Mike Garrison was president of WVU. The problem is that when the BOG members allegedly made those statements, WVU was conducting a supposedly nationwide search for the position and Garrison was simply one of the applicants.

Rodriguez’s testimony is being cited by some who opposed Garrison’s selection as evidence that the search was rigged and not intended to find the best candidate for the position. The depositions of Garrison and his chief of staff, Craig Walker, are scheduled for later this month.

In other news regarding WVU v. Rodriguez, the (Charleston) Daily Mail reported that the parties are required to complete mediation by August 1, but WVU does not seem inclined to settle for less than the $4 million buyout. Monongalia County Circuit Judge Robert Stone has scheduled a hearing on dispositive motions for November 10.

U.S. Sugar Employees Claim Company Insiders Cheated Them

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Fri, 30 May 2008 15:45:20 -0500

In The New York Times yesterday, Mary Williams Walsh wrote about the situation faced by thousands of employees of U.S. Sugar, who participated in an ESOP (employee stock ownership plan) in 1983, which traded their participation in a pension plan for ownership of the company’s stock. But as more employees reach retirement, they have discovered that their shares are not as valuable as they expected.

U.S. Sugar's shares are not traded publicly, so their value is determined by what the company is willing to pay to redeem them. Then, once an employee cashes in his or her shares, the shares are retired, which critics of the plan allege makes it easier for insider groups to maintain control, because the pool of shares is getting smaller.

According to the article, the company’s board turned down two offers by the Lawrence Group, a large agribusiness concern from Sikeston, Missouri, to buy the shares for $293 each, even though the company was paying employees from $194 to $205 per share at the time. The employees claim that they were not told about the offers or given the chance to sell their shares at the higher price.

To make matters worse, U.S. Sugar hired an outside appraisal firm to evaluate the Lawrence Group’s second offer, which was made in early 2007. The appraiser determined that U.S. Sugar’s break-up value was $2.5 billion, or $1,273 per share. Based on that estimate, U.S. Sugar rejected the Lawrence Group’s bid as inadequate, but did not increase the purchase price offered to employees.

The employees have filed a class action, Johnson v. White, Civil Action No. 08-CV-80101 (M.D. Fla.), which is described on this Website set up by their counsel, Colson Hicks Eidson. The site has most of the court filings from PACER in PDF format.

The most recent filing is an amended complaint filed on May 2, 2008, which alleges claims for breach of fiduciary duty against the company’s directors and officers and for violations of ERISA and equitable relief under ERISA Section 502(a)(3).

Chesapeake Cancels Plans to Build Regional HQ, Blames WV Supreme Court's Rejection of Appeal

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Thu, 29 May 2008 12:38:28 -0500

There is already one casualty from the Supreme Court of Appeals of West Virginia's rejection of Chesapeake Energy Corporation’s petition for appeal from the $404 million verdict in Estate of Garrison G. Tawney v. Columbia Natural Resources, LLC.

Today, Chesapeake announced that it is canceling plans to build a $35 million regional headquarters in Charleston, and blamed the Supreme Court’s decision not to hear its appeal. Here is George Hohmann's article about the decision in today's (Charleston) Daily Mail.

Chesapeake issued this media statement today:

On Thursday May 22nd, the West Virginia State Supreme Court issued a unanimous (5-0) decision against hearing NiSource and Chesapeake's appeal in the Tawney case. Chesapeake inherited the lawsuit when it purchased Columbia Natural Resources in 2005.

This decision was stunning, as it means we will not have the opportunity to challenge the verdict issued in Roane County in January, 2007. While we hold a less significant amount of the liability in the verdict, we do believe it sends a profoundly negative message about the business climate in the state. The reality of this decision is that nobody in West Virginia, similarly situated, has a guaranteed right of appeal in the judicial system. Chesapeake plans to join NiSource in appealing the case to the U.S. Supreme Court.

As a result, Chesapeake Energy has made the decision to cancel plans to build a new regional headquarters building in Charleston, WV.

We remain committed to our people and our operations in West Virginia and the Appalachian Basin. Chesapeake's Eastern Division will continue to be managed from Charleston, but we will do it from leased space.

--Scott Rotruck, Vice President -Corporate Development

I have no doubt that Chesapeake is frustrated by the rejection of its appeal, but that was always a possibility. Unlike federal district court, with its right of appeal, nearly all appeals from West Virginia state courts are discretionary.

Chesapeake’s reaction strikes me as a case where its assessment of the success of its appeal may have been based on considerations such as the amount of the verdict, its investment in the local economy, or the prominence of the defendants, and Chesapeake is dismayed that the Supreme Court did not agree with its view.

Court Approves More King Settlements, But Most May Remain Confidential

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Tue, 27 May 2008 06:00:00 -0500

A few days ago, I wrote that the Circuit Court of Putnam County had approved three settlements in cases alleging medical malpractice by discredited surgeon John King, and had rejected the parties' requests to keep those settlements confidential.

Last Thursday, the court approved and made public the terms of nine more settlements, but it appears unlikely that the terms of the settlements of the remaining 58 clients represented by Curry & Tolliver will be revealed.

Because the parties are not asking the court to make a specific finding in those cases that the settlements are good faith settlements, its approval is not necessary, and those plaintiffs will voluntarily dismiss their claims against the settling defendants. Here is the notice of presentation of stipulation for and order of dismissal presented by the Curry & Tolliver plaintiffs.

These are the details of the nine settlements approved last week, as described by Paul J. Nyden in his article in Friday’s Charleston Gazette:

Lisa and Stephen Coiner, $1.45 million for injuries to Lisa Coiner;

Linda and Marvin Goodpaster, $1.32 million for injuries to Marvin Goodpaster, including $46,773 set aside for each of two children;

John and Lisa Hansroth, $1.15 million in a settlement involving injuries from King's surgery on John "Andy" Hansroth, a Charleston Gazette reporter who died in March 2005. The settlement included money for their three children;

David and Zamba Holestin: $1.32 million for a failed spinal fusion operation to David Holestin, including $187,915 for one of the couple's two children who was alive at the time of the failed surgery;

Matthew and April Murphy: $150,000 for injuries to one of their daughters during an operation King performed on her broken arm. Their daughter suffered no permanent injuries;

Katherine and Barry Rutledge, $2 million for King's failed treatment of Katherine Rutledge's minor foot problem, which later caused her legs to be amputated; and

Carrie Ann and Mark Triplett, $730,000 for a flawed 2003 operation, which included $70,463 for each of their two children.

In addition, the court approved two other settlements by King patients whose competency to enter into their settlements had been at issue. In those settlements, Regina Bird received $2 million and Steven Dingess received $750,000.

I realize that the parties may have legitimate reasons for not wanting to disclose the terms of the remaining settlements, but I think that Putnam County Circuit Court Judge Spaulding is correct that the public has a right to know whether these were legitimate cases. Under these circumstances (did King operate on any patient without committing malpractice?), the court should determine whether every settlement was made in good faith and if so, order the disclosure of its terms.

WV Supreme Court Refuses Appeals in Natural Gas Royalties, Breach of Contract Cases

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Mon, 26 May 2008 08:37:41 -0500

Last week, the Supreme Court of Appeals of West Virginia rejected appeals in two widely-publicized cases. In Estate of Garrison G. Tawney v. Columbia Natural Resources, LLC, No. 080482, Columbia and NiSource, Inc. appealed the jury’s verdict of $404,335,138, which included punitive damages of $ 270 million. Here is my post about the verdict.

In Tawney, which the Court rejected by a vote of 5-0, Justice Robin Davis recused herself because her husband is counsel for the plaintiffs, and Justice Brent Benjamin recused himself because his former firm represents some of the defendants. Raleigh County Circuit Court Judge H. L. Kirkpatrick and Cabell County Circuit Court Judge Dan O’Hanlon were appointed in their places.

In Wheeling-Pittsburgh Steel Corporation v. Central West Virginia Energy Company, Nos. 080182 and 080183, Central West Virginia and Massey Energy Company appealed the verdict of $219 million, resulting from the jury’s finding that the defendants breached their contract with Wheeling-Pittsburgh Steel Company and committed fraud. That verdict included punitive damages of $100 million. Here is my post about that verdict.

In Wheeling-Pittsburgh, which the Court also rejected by a vote of 5-0, Chief Justice Elliott E. “Spike” Maynard recused himself because of his relationship with Massey chairman Don L. Blankenship, and retired Greenbrier County Circuit Court Judge Frank Jolliffe was appointed in his place.

At this point, the remedy for the defendants in both cases is to petition the Supreme Court of the United States for review. According to Veronica Nett, writing in yesterday's Sunday Gazette-Mail, the defendants in Tawney intend to appeal on the grounds that the punitive damages were excessive. But a two-to-one ("single digit") ratio of punitive damages to compensatory damages does not appear to be inherently excessive, according to State Farm Mut. Ins. Co. v. Campbell, 538 U.S. 408 (2003),

Massey is considering an appeal to the Supreme Court, according to the Associated Press' Tim Huber, but has not yet made a decision.

WV Class Action Complaint Against LifeLock Alleges Fraudulent Advertising, Deceptive Business Practices

jeff@mehaliclaw.com (Jeffrey V. Mehalic) — Tue, 20 May 2008 10:10:42 -0500

You may have seen the print ads or TV commercials for LifeLock, Inc., which feature its president, Todd Davis, disclosing his Social Security number and guaranteeing its security, and offering a $1 million service guarantee if a subscriber’s identity is stolen or compromised. But according to a lawsuit filed last week in the Circuit Court of Jackson County, West Virginia, not everyone is satisfied with LifeLock’s services. Here is the complaint, courtesy of the plaintiff's counsel, Davis Paris of Marks & Klein, LLP.

In Gerhold v. LifeLock, Inc., Civil Action No. 08-C-69 (May 12, 2008), the plaintiff alleges that LifeLock and Davis, who is also named as a defendant, engage in deceptive business practices and fraudulent advertising in having “induced nearly one million individuals, including Plaintiff and the Putative Class in the state of West Virginia, into subscribing to the identity theft protection services the company purportedly provides.”

The plaintiff seeks to certify a class consisting of “All persons in the state of West Virginia who subscribed to LifeLock, between 2005 and the present, including former residents who resided in West Virginia at the time they subscribed to LifeLock’s services.” The class is alleged to have more than 1,000 members.

LifeLock is alleged to misrepresent the scope and effectiveness of its services, and to conceal the potential harm that its services could have on its subscribers' credit profiles by LifeLock's placing and renewing fraud alerts on those profiles. LifeLock also fails to disclose that the credit reports it obtains for its subscribers are the free annual reports to which they would be entitled ordinarily, and that by LifeLock ordering the credit report, the subscriber is ineligible to order the report for 12 months.

The complaint also deals with Davis’ disclosure of his own Social Security number, which apparently has not been as secure as Davis has claimed:

9. While LifeLock has only publicly acknowledged that Davis’s identity was compromised on one (1) occasion, there are more than twenty (20) driver’s licenses that have been fraudulently obtained through the misappropriation of Davis’s personal information.

10. Furthermore, a simple background check performed using Davis’s social security number reveals that his entire personal profile has been compromised to the extent that the birth date associated with his social security number is November 2, 1940, which would make Davis 67 years old. This is clearly fraudulent information.

The complaint alleges causes of action for violations of the West Virginia Consumer Credit and Protection Act for unfair or deceptive acts or practices and by a credit service organization, unconscionability, injunctive relief, and declaratory judgment.

The lawsuit was the subject of a front-page story by Andrew Clevenger in the Sunday Gazette-Mail, which points out that Gerhold's counsel has filed similar class actions against LifeLock and Davis in New Jersey in March and in Maryland in April. For additional information, here are posts from, the Blogger News Network and from News Blaze.