Court Decisions

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Massachusetts’ Supreme Judicial Court has expanded premises liability to include a broader definition “mode of operation” which relieves plaintiffs from having to prove actual or constructive notice of conditions. In BOWERS vs. P. WILE’S, INC the court found that “where the manner of operation of a business creates a reasonably foreseeable risk of a hazardous condition, the approach permits a plaintiff to recover for injuries resulting from such conditions if the plaintiff establishes that the business did not take all ‘adequate steps’ reasonably necessary under the circumstances to protect patrons against that risk’.

Amicus briefs were submitted by the Massachusetts Academy of Trial Attorneys, the Property Casualty Insurers Association of America, and the Massachusetts Defense Lawyers’ Association. 

Despite the broader applicability of mode of operation, the court observed that “even where a plaintiff is able to prove notice through a defendant’s mode of operation that a dangerous condition was reasonably foreseeable, that alone does not establish liability. A plaintiff still must establish that the steps the defendant took to protect customers from the condition that resulted in the injury were unreasonable in the circumstances.”

In the aftermath of the Bowers decision, Massachusetts retail businesses should re-examine their operations in view of this expanded risk of liability. Summary Judgments will be harder to obtain in cases where mode of operation applies. 

 

Thumbnail image for FullSizeRender.jpg A recent unpublished decision by the Massachusetts Appeals Court found that an employee could not establish a case for age discrimination under Massachusetts law when his entire job class was eliminated as part of a reduction in force. See Richard A. Porio v. Department of Revenue, 13-P-1621, (memorandum and order pursuant to Rule 1:28, August 27, 2015). Plaintiff is an employee who was laid off when his job class was eliminated, while other, younger members of his same job classification were “provisionally promoted” to a higher job class prior to the cuts. The court held that plaintiff could not establish a prima facie case of age discrimination — that is, his termination did not result in a reasonable presumption of age discrimination sufficient for the court to allow him to proceed with his claim against his employer. In order to raise that presumption, plaintiff would have had to show evidence that the employer failed to treat age neutrally in deciding which positions to eliminate, which the plaintiff failed to do.

The court also found that plaintiff could not proceed on a “disparate impact” theory. Disparate impact does not require a discriminatory motive, but instead focuses on business practices that have the effect of excluding a protected class of people from hiring or promotions. Generally, a plaintiff must show statistical evidence that a particular business practice, usually a testing or measuring procedure, has the same effect as intentional discrimination, and is not a practice that is related to job performance. The court did not specifically apply the facts of plaintiff’s case to this analysis, but instead found that the “fundamental premise” of disparate impact theory does not apply to this scenario, where an entire group of employees is affected by a reduction plan.

Age discrimination suits in Massachusetts can have costly impacts on businesses. Even in the case discussed above, which was ultimately a win for the plaintiff’s employer, the parties were involved in proceedings from 2002 to 2015. Massachusetts businesses are subject to both federal and state age discrimination statutes, and may be liable if age was a contributing factor to a decision at any stage in the employment process, including hiring, promotion, and termination. In addition tothe time and cost of litigation, if found liable, a business may need to pay extensive damages, including emotional distress and treble damages. Furthermore, employers may be hit with fines and other administrative penalties through the Massachusetts Commission Against Discrimination (MCAD).

America’s workforce is growing older, and will continue to do so for the foreseeable future. Now more than ever, employers should begin to think about mitigating the risk of an age discrimination lawsuit through planning and development of employment practices. Whether you are facing a lawsuit or trying to avoid one, an experienced business attorney can help mitigate potential losses in a way that is right for your business.

A Massachusetts superior court has recently ruled that an insurance company choosing to appeal a jury’s decision to a higher court rather than extend a formal settlement offer after a verdict has been entered against them is NOT a commission of unfair settlement practices.

The decision, Graf v. Hospitality Mutual Ins. Co., held that the “functional equivalent” of a settlement offer from the insurer was not a failure to “effectuate a prompt, fair and equitable settlement,” which would violate G.L.c. 176D, §3(9)(f).  The insurer stopped short of a formal offer due to a dispute over the policy limits in question.  The court found this dispute to be in good faith, and Hospitality Mutual’s open offer of the $500,000 settlement, based on the limits they believed existed, was a valid “functional equivalent” during the appeals process.

Plaintiff’s argument relied on Rhodes v. AIG Domestic Claims, Inc., which was decided three years prior.  The family of a woman who was hit by a truck, rendering her a paraplegic, was awarded $11.3 million by a jury, and an additional $22 million in damages after AIG made willful and intentional attempts to thwart settlement.  AIG unsuccessfully argued that their conduct did not affect the actual jury verdict, and that plaintiffs would not have accepted their offer anyway, so the plaintiff was not damaged and AIG was not liable.

The Right to an Appeal

One key difference between Rhodes and Graf, however, was the blatant, undisputed liability in the case.  Rhodes was so straight forward, in fact, that the primary insurer of the truck company, Zurich, tendered their entire policy to AIG as the excess insurer, knowing that they would be paying the plaintiff in full.  This tendering of policy limits freed Zurich from liability in the eventual lawsuit against AIG.  Policy limits were of no dispute in Rhodes either, whereas a genuine dispute existed in Graf. 

Had Graf been ruled in the same manner as Rhodes, it would functionally deny any insurer from filing an appeal – a bad faith claim would automatically exist if an insurer chose to appeal.  The Graf decision, however, pulls back the reins on that, allowing 176D to be read as a breach only when there is a clear determination of liability.

Functional Equivalent versus Formal Extension

But what Graf clears up in its right to an appeal for insurers, it muddies in determining what type of settlement offer is sufficient to avoid a 176D claim.  A claim is typically not prevalent unless a plaintiff has no opportunity to accept an offer.  In Rhodes there was no way for the plaintiff to settle on $3 million, given the extent of injuries and liability of the truck driver.  AIG’s offers were so incredibly low that it was impossible for the plaintiff to be remedied by the settlement.

The insurer in Graf, however, had their $500,000 policy limit available to the plaintiff at all times – the dispute was over whether this was the proper policy.  The judge in the case saw this as the “functional equivalent” of an offer, and just like in Rhodes, whether or not the plaintiff would turn down the offer anyways is irrelevant.  This ruling seemingly broadens the definition of a settlement offer.

What to do as an Insurer

The Graf decision seems to give back some flexibility to insurers that the Rhodes decision took away, in making sure that the right to an appeal is still available to insurers and also by broadening the scope of a settlement offer.  Still, money must be available to the plaintiff in order for a settlement to be valid.  It is important for an insurer to put some value of money on the table that can be bargained over in order to protect them from falling in to a 176D claim.  Honest efforts of settlement can protect an insurer from liability.

Not only should insurers make sure that the plaintiff always has access to a settlement that is more respectable than in Rhodes (at one point, plaintiffs demanded $16.5 million, to which AIG offered $3 million), but it is also essential to make sure that an appeal is not frivolous.  The right to an appeal is an important piece of American law, however, if an insurer were to extend a judgment by appealing for some minute detail in an attempt to prolong settlement and avoid paying, they could still be found liable of 176D.  Failing to settle after a jury verdict can be allowed in some cases, but an insurer must make sure that they are not unreasonable in doing so.

Law Clerk Shaun Loughlin contributed substantially to this post.

 

Smartphone manufacturer HTC agreed in February to settle Federal Trade Commission (FTC) charges that the company failed to take reasonable steps to secure software it developed for its mobile devices including smartphones and tablet computers. In its complaint, the FTC charged HTC with violations of the Federal Trade Commission Act.  On July 2 the FTC approved a final order settling these charges.

The FTC alleged HTC failed to employ reasonable security measures in its software which led to the potential exposure of consumer’s sensitive information. Specifically, the FTC alleged HTC failed to implement adequate privacy and security guidance or training for engineering staff, failed to follow well-known and commonly accepted secure programming practices which would have ensured that applications only had access to users’ information with their consent. Further, the FTC alleged the security flaws exposed consumers to malware which could steal their personal information stored on the device, the user’s geolocation information and the contents of the user’s text messages.

HTC is a manufacturer of smartphones but it also installs its own proprietary software on each device. It is this software that the FTC targeted. While HTC smartphones run Google’s Android operating system, the HTC software allegedly introduced significant vulnerabilities which circumvented some of Android’s security measures.

As part of the settlement consent order, HTC agreed to issue security patches to eliminate the vulnerabilities. HTC also agreed to establish a comprehensive security program to address the security risks identified by the FTC and to protect the security and confidentiality of consumer information stored on or transmitted through a HTC device. HTC further agreed to hire a third party to evaluate its data and privacy security program and to issue reports every two years for the consent order’s 20 year term. The implication of the FTC’s policy makes it clear that companies must affirmatively address both privacy and data security issues in their custom applications and software for consumer use. HTC_Desire_-_Sense_2_1.jpg

Today the Federal Trade Commission’s (FTC) rules promulgated under the Children’s Online Privacy Protection Act (COPPA) become effective. COPPA, passed by Congress in 1998, requires the FTC to issue and enforce regulations concerning children’s online privacy.

The purpose of COPPA is to protect children under age 13 and seeks to place parents in control over what personal information is collected from their children online. The rules promulgated by the FTC apply to operators of commercial web sites and services that collect, use or disclose personal information from children.

The updated rules require operators of online services to:

–          Post a clear and comprehensive online privacy policy describing what information they collect from children online

–          Provide direct notice to parents and obtain parental consent before collecting personal information

–          Provide parents access to their child’s personal information and allow them to have the information deleted

–          Maintain the confidentiality of a child’s personal information

Under the rules personal information includes names, addresses, screen names, telephone numbers as well as any photographs, geolocation information or other online contact information.

The rules require businesses to immediately obtain parental consent for all geolocation information, photos or videos and screen names they have collected from children under age 13. Prior to the enactment of these rules the FTC sent more than 90 letters to online App Developers as part of an ongoing effort to help businesses comply with COPPA’s requirements. The FTC was careful to explain in the letters that receiving such a letter does not reflect a formal FTC evaluation of the company’s practices but rather seeks to assist companies to comply with the requirements prior to the rules becoming effective.

COPPA imposes additional requirements on online services that collect personal information from children who reside in Massachusetts. It is separate and distinct from the requirements imposed by M.G.L. c. 93H which concerns businesses that collect or license personal information about a Massachusetts resident.

The FTC has enforcement power and the penalty can be up to $16,000 per violation. Operators of websites, developers of apps and other online services that collect the personal information of children in Massachusetts should consult with an experienced attorney to navigate the complexities posed by COPPA’s implementation and to evaluate whether their services are in compliance with the updated rules.  

As originally discussed on this blog back in February, a lawsuit brought by Advanced Micro Devices (AMD) against former employees accused of taking AMD trade secrets with them to competitor Nvidia has been ongoing and a recent opinion in the case highlights the uncertainty surrounding the Computer Fraud and Abuse Act (CFAA).

A recent opinion issued by Judge Timothy S. Hillman narrowly interpreted the CFAA in this case. Judge Hillman declined a broad interpretation of the CFAA and held that AMD’s allegations in its complaint are insufficient to sustain a CFAA claim.

The relevant portion of the CFAA provides that it is a violation of the CFAA to:

Knowingly and with intent to defraud, [access] a protected computer without authorization or [exceed] authorized access, and by means of such conduct [further]the intended fraud and [obtain] anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer and the value of such use is not more than $5,000 in any 1-year period.

There exists a circuit split on the interpretation of this clause. As Judge Hillman noted, the 1st Circuit has not clearly articulated its position on the issue. The broad interpretation defines access in terms of agency or use. That is, whenever an employee breaches a duty of loyalty or a contractual obligation and acquires an interest adverse to their employer, then all subsequent access exceeds the scope of authorized access. Proponents of the narrower interpretation argue that the intent of the CFAA was to deter computer hacking and not to supplement common law trade secret misappropriation remedies and therefore fraudulent means must be used to obtain the information initially.

 Judge Hillman utilized a narrow interpretation of the CFAA and held that AMD had not pleaded sufficient facts to maintain a cause of action under the CFAA. AMD had pleaded that the defendants used their authorized access to computer systems to download and retain confidential AMD information which they retained when they left to go work at Nvida. The complaint, while alleging the defendants had the intent to defraud AMD, provided no facts which support the allegation that the defendants obtained the information through fraudulent or deceptive methods.

Judge Hillman did not outright dismiss the claim given the truncated evidentiary record and has allowed AMD the opportunity to plead specific details indicating that some or all of the defendants used fraudulent or deceptive means to obtain the confidential information and that they intentionally defeated or circumvented technologically implemented restrictions to obtain the confidential information. If other judges in the 1st Circuit follow Judge Hillman’s approach, plaintiffs will need to ensure that they plead with sufficient detail that the defendants obtained the information through a fraudulent or deceptive method as opposed to simply obtaining the information through permissible access. 

The SJC recently affirmed the Massachusetts Appeals Court’s  ruling that a commercial landlord whose tenant broke a 12 year lease after only two years has to wait until the lease term expires before collecting damages.

In 275 Washington Street Corp. v. Hudson River International, LLC, the landlord and tenant entered into a 12 year lease for commercial space. The lease required the tenant to occupy and use the premises for a dental office and to pay the landlord monthly rent. The lease contained an indemnity provision which provided that “[t]enant shall indemnify Landlord against all loss of rent and other payments which Landlord may incur by reason of such termination during the remainder of the term.”

After one year the tenant closed its dental office and moved out of the premises but continued making payments for an additional year. At which point the tenant notified the landlord that it would be making no further rental payments and that it would not resume occupation of the premises.  The landlord subsequently re-entered the premises and signed a new ten year lease for the premises with a replacement tenant at a lower rent than was agreed on under the original lease.

In 2008 the landlord filed suit against the tenant and sought to recover all damages arising from the breach. The landlord subsequently prevailed on a motion for summary judgment as to liability. Prior to trial the parties stipulated to a judgment but the defendants reserved their right to appeal.

On appeal, the Appeals Court held that the bright line rule remains that a landlord must wait to collect damages until the end of the original lease term. While the Appeals Court affirmed the finding of liability in favor of the landlord, it vacated the judgment assessing damages and remanded to the trial court to calculate the damages as of the time the landlord recovered possession of the premises.

On subsequent appeal to the Supreme Judicial Court, the SJC held that it is well settled that when a landlord terminates a lease following the default of a tenant, the tenant is obligated to pay the rent due prior to the termination but has no duty to pay any rent that accrues after the termination unless the lease expressly provides.

The landlord’s argument regarding the indemnification clause in the lease also failed because the SJC said an indemnification clause only reimburses a landlord for actual losses and the precise amount of those losses would not be known until the end of the period specified in the lease.  The landlord argued the damages could be calculated because it had obtained a replacement tenant.

The SJC ruling underscores the importance of incorporating a clause in a commercial lease which explicitly describes the landlord’s remedies in the event of a default.  The decision makes clear that the law will not change to accommodate a landlord that failed to include a rent acceleration clause in its lease. To protect against a default landlords should insist on a rent acceleration clause to be part of the remedy provided for in the lease.  Otherwise, as in 275 Washington St, the landlord will have to wait until the end of the lease to collect damages. 

A scientific or technological advantage is something to be protected. A case in the Business Litigation Session of Suffolk Superior Court demonstrates how cutthroat competition can be in the medical device industry and how the law deals with companies that disregard fair trade practices to gain an unfair advantage.

In 2007, Lightlab Imaging, a company that provides OCT medical imaging for human coronary arteries, had developed the most powerful laser in the industry. Lightlab had a cooperative relationship with Axsun to convert Axsun’s basic laser into one that could be used by Lightlab. Volcano, a competitor of Lightlab, desired a foothold in OCT technology and was well behind in the research and development of a laser with similar capabilities.

 In 2008, Volcano acquired Axsun and viewed the acquisition as a means to both advance its entry into the OCT market and impede the growth of Lightlab. However, the contract between Lightlab and Axsun contained a confidentiality and exclusivity provision which prevented Axsun from selling high performance lasers to Volcano. In connection with Volcano’s indemnification of Axsun as part of the acquisition, Axsun breached its duty of confidentiality and provided Volcano with the specifications for the high performance laser.

In 2009, Lightlab filed suit in Suffolk Superior Court and its application for a preliminary injunction was granted. A subsequent jury trial on liability returned a verdict in favor of Lightlab finding that Axsun had violated the confidentiality provision of the contract with Lightlab. The jury also found that Volcano had misappropriated Lightlab’s trade secrets and interfered with Lightlab’s contract with Axsun.

Instead of trial on damages, the parties stipulated to damages of $200,000. Subsequently, after two jury waived trials, the Court granted Defendant’s summary judgment motion finding that Lightlab had not shown “use” of the trade secrets by Axsun and Volcano other than the due diligence use evidenced during the jury trial and therefore Lightlab had not proven misappropriation of those trade secrets.

On the 93A count, the court found that Lightlab was entitled to $200,000 in damages and because the defendant’s conduct was found to be knowing and willful, Lightlab received another $200,000 in punitive damages plus attorney fees which totaled $4,500,000.

The Supreme Judicial Court recently granted direct appellate review on whether the trial judge correctly excluded expert testimony on future lost profits on the grounds that the methodology used by the expert failed Daubert and was speculative and whether the trial judge correctly ruled that permanent injunctions may protect only specific trade secrets a defendant has already used.  The SJC is soliciting amicus briefs with argument scheduled for Fall of 2013.