Defendant Breached Partnership Agreement, Corporate Veil Pierced (PA)

A plaintiff in Philadelphia recently prevailed in a business dispute with his former real estate partner.  In Bravo v. 2536-38 North Broad Street Associates, C.P. Philadelphia No. 141101464, the defendant was ordered to pay his former business partner over $782,000 as a result of a breach of their partnership agreement by failing to pay the plaintiff money owed under the terms of the limited liability partnership.

According to the judge’s opinion following a bench trial, the parties formed a real estate partnership in 2010. The plaintiff initially joined as a limited partner and purchased a 10% ownership stake in the business, for which he was to receive a 10% cash flow payment from the partnership.  A few months later, the plaintiff invested additional funds in exchange for a 51% ownership stake of the business.  However, subsequently, the plaintiff did not receive his proportion of cash flow payments from the partnership, and the defendant also failed to inform him that there was a lien on one of the partnership’s properties, and that the property was listed for foreclosure sale.

During the time period in which the plaintiff did not receive his proportional disbursements, the judge also found that the defendant had transferred hundreds of thousands of dollars from the partnership to other business entities under the defendant’s control; and that the defendant had paid himself a salary from the partnership.  The defendant claimed that the money was diverted from the partnership in order to maintain his ability to secure a mortgage loan for the partnership, however the judge determined that such diversion of partnership funds was not contained in the partnership agreement between the plaintiff and the defendant.  The judge was similarly un-receptive to the defendant’s claim the plaintiff was not issued cash flow payments because the partnership was unable to obtain a mortgage loan.

Ultimately, the judge determined that the corporate veil should be pierced, since the defendant essentially ignored corporate formalities.  Morover, by failing to pay the plaintiff his proportional share of the partnership’s cash flow, the defendant had breached the partnership agreement.  We surmise that the judge’s findings relied heavily on financial data supporting the plaintiff’s claims of, essentially, theft, which supported the plaintiff’s version of events.  Thanks to Greg Herrold for his contribution to this post.  Please email Brian Gibbons with any questions.

Evidence of Remedial Measures Inadmissible (PA)

The Superior Court of Pennsylvania recently upheld a lower court’s judgment in favor of the defendant in  Gold v. Plesset Properties.  The case arises out of a slip and fall on July 8, 2011 when plaintiff Debra Gold slipped and fell exiting Plesset Properties Partnership’s (“PPP”) property.  Shortly after the incident, PPP installed skid-resistant adhesive strips to prevent future slipping in the area.

Gold filed a complaint against PPP alleging negligence.  On the eve of trial, PPP filed a motion to exclude any evidence at trial mentioning remedial measures to the property subsequent to the incident, such as the skid-resistant strips.  Gold filed her own motion seeking to preclude PPP’s expert testimony.  The court granted PPP’s motion and denied Gold’s.  The subsequent jury trial found PPP not negligent and Gold appealed.

Gold asserted that the trial court erred in not permitting her to cross-examine a part owner of PPP on subsequent remedial measures.  Generally, in Pennsylvania, evidence of subsequent remedial measures is not admissible to show negligence.  However, it can be admissible for impeachment, to show ownership of a property, or the feasibility of precautionary measures.  The court disagreed with Gold and found there was no basis for impeachment in the matter since the witness did not contradict himself on ownership or the existence of skid-proof strips.

Gold also argued that the court erred in denying her to cross-examine PPP’s expert on subsequent remedial measures.  The court again disagreed with Gold and found that the defense’s expert did not base any of his testimony on the remedial measures, but rather solely the video of the incident.  Gold also argued unfair surprise in that she was unaware that PPP’s expert would testify.  Again, the court denied this argument and cited that Gold was notified the expert would testify a month before trial and was provided with his report in PPP’s pre-trial report 30 days before trial.

This case demonstrates the factor of subsequent remedial measures in cases. It is important for defense counsel to keep an eye on repairs and remedial measures made by clients.  Plaintiff’s counsel will try to use this as evidence that a defendant was negligent, because “why wouldn’t they be negligent if they’re installing remedial measures?”  The rationale behind excluding evidence of subsequent remedial measures is policy-based.  In short, property owners will be less inclined to improve defects, if evidence of those improvements help a plaintiff’s case.

Evidence of such measures present a compelling, but prejudicial argument to a jury, making it all the more important that defense counsel seek to preclude such evidence, and make sure their expert relies on the pre-repair conditions in his findings.  Thanks to Peter Cardwell for his contribution to this post.  Please email Brian Gibbons with any questions.

 

Who’s Behind the Wheel? Unlisted Resident Driver Exclusion Applies (PA)

On September 18, 2017, the Superior Court of Pennsylvania affirmed summary judgement in favor of Safe Auto Insurance Company (“Safe Auto”) in Safe Auto v Oriental Guillermo.  The case stems from a two-car motor vehicle accident in Allentown, Pennsylvania on April 29, 2013.  Rachel Dixon  was driving a car that her boyfriend, Rene Oriental-Guillermo (“Oriental-Guillermo”) owned, and Priscila Jimenez was a passenger in the other vehicle.  Guillermo insured his car through Safe Auto, which had an Unlisted Resident Driver Exclusion, which excluded from coverage those individuals who lived with Oriental-Guillermo, but were not related to him and whom he did not specifically list on the policy.  Here, Dixon lived with Oriental-Guillermo, but was not related to him and was not listed as a driver on his policy.

On May 13, 2015, Safe Auto filed a declaratory judgment action to enforce the Exclusion, and Safe Auto’s a motion for summary judgement was granted by the trial court.  The trial court enforced the Exclusion and held that Safe Auto had no duty to defend or indemnify Dixon.  Priscila Jimenez and Luis Jimenez timely appealed arguing that: (1) the Exclusion does not apply to the facts of the case; and (2) the Exclusion is unenforceable because it violates the Motor Vehicle Financial Responsibility Law, 75 Pa.C.S. 7501 et seq. (“MVFRL”) and public policy of the Commonwealth of Pennsylvania.

The court held that the policy language was unambiguous, and further stated that there is no dispute that Dixon lived with Oriental-Guillermo, is unrelated to him, and he did not list her as an additional driver on the policy.  Thus, the trial court properly found that the exclusion applied and Safe Auto was not obligated to defend Dixon.

Next, the court considered whether the Exclusion violated the public policy expressed in the MVFRL.  Appellants specifically argued that the Exclusion contravenes the MVFRL’s requirement that an owner of a motor vehicle ensure that all drivers of his vehicle are covered by insurance.  The court held that this argument supports the trial courts interpretation of the exception because it places the onus on the owner of the vehicle to ensure that everyone who drives his car have insurance.  There is no provision in the MVFRL that suggests the legislature intended to shift the risk to insurance companies to insure unidentified individuals who live with the insured, but are not related to the insured.

Finally, the court held that the Exclusion does not violate public policy.  Appellants argued that the Exclusion is contrary to the MVFRL by analogizing it to a Named Driver Only Exclusion.  This type of policy allows a policyholder to exclude certain individuals from his or her policy.  But the court ruled that the legislature placed the burden on the insured to make sure that individuals who drive the insured’s vehicle have insurance — the insurance company does not bear that burden.  Thus, the court affirmed the trial court ruling and concluded that Safe Auto was entitled to Summary Judgment. Thanks to Garrett Gittler for his contribution to this post.  Please email Brian Gibbons with any questions.

Police Defamation Case Properly Venued in Philadelphia

In Reed v. Brown, the plaintiff, the Deputy Chief of Police, resigned from the Colwyn Borough (PA) police department during an open meeting before borough council and  later applied for a job with the City of Philadelphia. The plaintiff was offered a job, provided that he pass a background check. So when the City of Philadelphia was told by the Colwyn borough police manager that the plaintiff was fired for misconduct, the City of Philadelphia rescinded the job offer.

The plaintiff sued the borough and police manager for defamation in Philadelphia County, and the defendants moved for transfer of venue. The Court of Common Pleas transferred the case to Delaware County, finding that the cause of action occurred in Delaware County (where the police manger was when he made the alleged defamatory statement), and the plaintiff appealed.

On appeal, the plaintiff argued that venue was proper in Philadelphia because the trial court failed to give proper weight to his choice of forum and that the cause of action occurred in Philadelphia. Defendants, on the other hand, argued that the allegedly defamatory statements were made in a phone call that did not occur in Philadelphia and that the statements were not “published” in Philadelphia.

In considering these arguments, the Superior Court noted that the plaintiff’s claim was based on statements made by the borough police manager in response to the background check company hired by the City of Philadelphia, and those statements were ultimately communicated to the City of Philadelphia’s representatives and employees. The Court found that the plaintiff’s allegations sufficiently alleged that publication of the statements occurred in Philadelphia and that republication by the background check company was authorized, intended or reasonably expected. Thus, as the republication occurred in Philadelphia, venue was proper where the republication occurred, in Philadelphia, was proper.

Thanks to Alexandra Perry for her contribution to this post and please write to Mike Bono for more information.

Even In Victory, The Rules Of Professional Conduct Still Apply

Following a favorable judgment in a bad faith case, plaintiff’s counsel in Clemens v. New York Central Mutual Fire Ins. Co., sought $1.12 million in fees, costs and interest.

While Pennsylvania’s bad faith statute does permit an award of attorneys’ fees when an insurer has acted in bad faith, U.S. District Judge Malachy E. Mannion of the Middle District of Pennsylvania denied counsel’s request and referred the case to the Disciplinary Board of the Supreme Court of Pennsylvania.

The plaintiff’s attorneys sought $48,050 for their work on the UIM claim, $827,515 for working on the bad-faith claim and $27,090 for preparing the fee petition, for a total of $902,655 in fees for a case that had been litigated for nearly nine years. Judge Mannion began his memorandum opinion with a cautionary reminder that “attorneys are quasi-officers of the court and they are expected to be careful and scrupulously honest in their representations to the court . . . they must exercise care, judgment, and ethical sensitivity in the delicate task of billing time and excluding hours that are vague, redundant, excessive or unnecessary.”  Judge Mannion then spent the next 100-pages going through plaintiff’s counsel’s request line-by-line, slashing fees he deemed vague, duplicative and excessive.

Even in victory, lawyers are expected to adhere to the rules of professional conduct. As a self-policing profession, the enforcement of such rules can be lax, but this federal case is a strong reminder that unscrupulous conduct has no place in the court room.

Thanks to Hillary Ladov for her contribution to this post.

Tendering Policy Limits Could Constitute Settlement Agreement

A Pennsylvania Court found a settlement existed once policy limits were tendered to a plaintiff.

In Wise v. Hyundai Motor Company, plaintiffs’ daughter died in an automobile accident.  Plaintiffs sued Hyudai Motors (and others). USAA insured the defendants. After commencing the lawsuit in 2010, plaintiffs sent a letter to defense counsel demanding full insurance policy limits.  In response to this demand, in 2012, defense counsel responded with a letter “offering” the policy limits.  After the offer letter was issued, defense counsel was only minimally involved in the litigation, since the products liability action against the car manufacturer had taken precedence.  Four years later, once the plaintiffs and the manufacturer settled, plaintiffs informed defendants they would be now be asserting a bad faith claim against their insurer, USAA, for failing to properly defend defendants in the action.

Defendants countered that plaintiffs’ new claim must fail since the parties entered into a settlement back in 2012, when defendants tendered the policy limits to plaintiffs.

In determining whether plaintiffs and defendants agreed to settle the claim in 2012, the court first looked to the plaintiffs’ 2010 letter.  The court noted that although the letter did not use the word “settlement,” the letter was clearly intended to act as a settlement offer, because plaintiffs had demanded policy limits from defendants.  The court then looked to defendants’ 2012 letter, which, it determined, clearly tendered the policy limits to plaintiffs, despite using the phrase “offering.”  Thus, the court reasoned there had been a meeting of minds, and a settlement had been reached based on the two letters.

Thus, this case illustrates the importance of making sure any offer or demand to opposing counsel expressly states what is being demanded, offered or accepted, to avoid unnecessary motion practice to clarify whether the parties actually intended to settle a matter.

Thanks to Colleen Hayes for her contribution to this post.

 

Slippery When (possibly, maybe) Wet – Not Enough to Defeat SJ Motion (PA)

On August 15, 2017, the Superior Court of Pennsylvania affirmed summary judgment in favor of Coakley & Williams Hotel Management Company in Demisew v. Coakley & Williams Hotel  The case stems from a slip and fall at a Days Inn, managed by Coakley & Williams on October 16, 2013.  Specifically, plaintiff Gela Demisew fell down a stairwell at the Days Inn, due to an allegedly slippery step.  She alleged that Coakley & Williams were negligent in allowing this dangerous condition to persist.

In September 2015, the trial court granted summary judgment in favor of Coakley & Williams and the Plaintiff filed a timely appeal.  On appeal, the Plaintiff argued that Coakley & Williams owed her a duty, as a business invitee, to exercise reasonable care in discovering the dangerous condition.  To support her assertion, the Plaintiff alleged that Coakley & Williams only had the stairwell cleaned on a weekly or “as needed” basis.  Further, the Plaintiff asserted that it rained on the day of the accident and someone could have tracked water into the stairwell as a result.

However, the Plaintiff testified that she did not know the substance she slipped on and never revisited the accident site.  Further, the director of maintenance at the Days Inn testified that the maintenance staff walked the property twice per day including the stairwells.  The director of maintenance also noted that the stairwell was cleaned once per day and no issues were documented on the date of the accident.

Thus, the court held that the Plaintiff merely speculated at the cause of her slip and fall and did not put forth any evidence to show whether the step was slippery or that the hotel had constructive notice of the alleged dangerous condition.  Thus, the grant of summary judgment was proper.   Had plaintiff testified that she was certain she slipped on tracked in rain water, as opposed to being uncertain of what she slipped on, she may have raised an issue of fact as to defendant’s negligence.   Thanks to Garrett Gittler for his contribution to this post.  Please email Brian Gibbons with any questions.

Store Owes No Duty to Control Unexpectedly Rowdy Patrons (PA)

On August 17, 2017, the Superior Court of Pennsylvania affirmed an entry of summary judgment in favor of several defendants in Reason v. Kathryn’s Korner Thrift Shop et al.  The case involves a fight at a thrift shop in Philadelphia.  On the date of loss, Reason went shopping at Kathryn’s Korner Thrift Shop, where Defendant Riley was a cashier, and her daughter, Thomas, was also present at the store.  (Thomas has a history of mental illness, but there is no evidence that she was violent.)  As Reason was making purchases at the register, Thomas accused Reason of throwing something at her mother, and Reason and Thomas began fight.Riley pushed a panic button at the store and called the police with her phone.

We surmise Reason lost the fight, because she filed suit against Riley, Thomas, the thrift store, and the other owners of the property, alleging various claims for negligence and assault and battery.  All of the defendants, except for Thomas, were granted summary judgment.  Reason then appealed on the issues of whether the defendants owed her a duty to protect her against acts by third persons and whether they breached a duty to provide aid.

In Pennsylvania, there is generally no duty to control the acts of third parties unless a defendant stands in a special relationship with either the actor or the victim.  The relationship between a business and its invitee is one of those relationships.  Pennsylvania then follows the Second Restatement of Torts section that states that a possessor of land owes a duty to invitees for negligent or intentional acts by third parties only if they can reasonably anticipate such conduct.  The court found no evidence that defendants should have reasonably anticipated Thomas’s violent behavior.

When it comes to a duty to aid, Pennsylvania has rejected the Restatement of Torts and only imposes a duty upon businesses to call for medical professionals or police when necessary.  Businesses and their employees are under no duty to jump into the role of a medic or police officer since this would then place untrained persons in harm’s way as well.  The court again affirmed the lower court’s decision and found that because Riley pressed the store’s panic button and called the police on her phone, that she and the other defendants had fulfilled their duty to come to Reason’s aid.  As such there was no breach.  Thanks to Peter Cardwell for his contribution to this post.  Please email Brian Gibbons with any questions.

Plaintiff’s Slip and Fall Case Doesn’t Hold Water (PA)

A Plaintiff was denied recovery in a slip and fall case when a jury concluded that he failed to prove that a water leak caused his injuries.  In Bowman v. Giant Eagle, C.P. Allegheny No. GD-14-016640, the plaintiff sued a Giant Eagle grocery store in Pittsburgh, claiming that he slipped on liquid near a water fountain, adjacent to the entrance to the men’s room.  The plaintiff alleged that Giant Eagle was negligent in allowing the dangerous condition to exist.

In support of his claim, the plaintiff alleged that an employee at the store had walked by the accumulation of water at the time the accident occurred, but did not address the issue.  The plaintiff also claimed that the water fountain was leaking and that the store had failed to repair the leak.

The plaintiff sustained multiple fractures to his right leg, underwent surgery and had hardware implanted.  The plaintiff later participated in physical therapy over the course of a few months, and eventually underwent a second surgery to remove some of the hardware.  The plaintiff sought damages for medical costs as well as past and future pain and suffering.

Giant Eagle did not dispute the plaintiff’s injuries or his treatment, but did argue that there was no evidence to support the plaintiff’s claim that the water fountain had been leaking.  Giant Eagle cited a store manager’s incident report that found no water on the floor and no leaking from the fountain in support of its defense.  Ultimately,  the jury found that Giant Eagle was negligent, but that its negligence was not a factual cause of any harm to the plaintiff.  This case serves as an ever-important reminder that plaintiffs bear the ultimate burden of proving each and every element of their case, and that an effective defense will force plaintiffs to carry this burden at every step of the litigation process.  Just because a defendant may have been negligent does not equate to proximately causing a plaintiff’s injury.  Thanks to Greg Herrold for his contribution to this post.  Please email Brian Gibbons with any questions.

 

Cyber Rules About to Get Real.

We have previously reported on NY’s onerous cyber rules. The rules go into effect by month’s end.

Specifically, n August 28, 2017, insurance companies that do business in NY will be obligated to institute policies and procedures that preserve and protect PII of clients, insureds, and other entities in accordance with 23 NYCRR §500 (et seq.). The rationale of the policy was explained by the Superintendent of the DFS:
Consumers must be confident that their sensitive nonpublic information is being protected and handled appropriately by the financial institutions that they are doing business with. DFS designed this groundbreaking proposed regulation on current principles and has built in the flexibility necessary to ensure that institutions can efficiently adapt to continued innovations and work to reduce vulnerabilities in their existing cybersecurity programs. Regulated entities will be held accountable and must annually certify compliance with this regulation by assessing their specific risk profiles and designing programs that vigorously address those risks.

Insurance companies, and other covered entities, are required to perform cybersecurity assessments in accordance with a written policy developed by the covered entity, that includes:
• An evaluation of encryption of data containing PII (both in transit and at-rest);
• The development of a Crisis Response Team (“CRT”) to respond to a breach;
• TFA or MFA;
• Identify and assess internal and external cybersecurity threats;
• Utilize defensive infrastructure in conjunction with appropriate policies and procedures to protect PII;
• Capability of detecting and responding to any intrusion;
• Ability to fulfill the statutorily required breach notification statutes.

Moreover, the regulations require a specific policy that regulates 14 different aspects of the covered entities operations. If this is not enough to develop specific in-house policies, the regulations also require that insurance companies ensure that other entities it does business with and transfers materials containing PII, to maintain and adhere to strict cybersecurity regulations that include a requirement for TFA, encryption, written policies, and periodic assessments of the efficacies and compliance to the policies. The insurance company is required to promulgate a policy for its third-party service providers that complies with the above requirements. If not, the insurance company may be held liable.

Furthermore, we note that this will soon be the policy in all 50 states. It is easier to implement these changes and requirements now as opposed to being forced to implement the policies at a rush and possibly not achieving full compliance.

Special thanks to Matt Care for his contributions to this post.

For more information about this post please e-mail Bob Cosgrove.