WreckageAnother pyramid scheme collapses. Another accounting firm (Eide Bailly) is sued. And then sued again.

First a bankruptcy trustee sued Eide Bailly. After Eide Bailly lost its motion for summary judgment on a claim for aiding and abetting a conspiracy in that action, Eide Bailly settled the bankruptcy trustee’s claim.

Some fraud victims opted out of assigning their claims to the bankruptcy trustee. And now it is their turn…

Check out the complexity of the financial fraud (Complaint, Paragraphs 42-134)As just mentioned in a post yesterday, when you plead fraud, the law requires a little extra. The plaintiffs in the case against Eide Bailly took that obligation extremely seriously with a 76 page complaint (and without stuffing it with oddities as some voluminous complaints do)

I think I would have to get an accounting degree to understand the allegations of the complaint and form an opinion as to whether Eide Bailly was a perpetrator or a itself another victim…

 

Photo by Jeffrey Dorfman

Photo by Jeffrey Dorfman

On the continuum of condemnation there is, of course, some spread between intentional wrong-doing and negligence. And the law recognizes that simply being accused of serious wrong-doing — of intentional wrong-doing — can be more reputationally damaging than being accused of negligence. So the law gives allegations of intentional wrong-doing a bit more of a hard look at the very outset of civil litigation. The law pushes plaintiffs who claim others have committed fraud to back up those claims with more detail than other claims they might allege. Lawyers call this the requirement “to plead fraud with particularity.”

A company called AcceleDent worked with a company called Devicix, a designer of medical devices to design a new product, the AcceleDent Aura.

Apparently, the process was rocky and AcceleDent sued Devicix in U.S. District Court for the District of Minnesota on numerous counts, including fraud, fraudulent inducement, intentional misrepresentation, along with other claims (like breach of contract and negligence). The issue, apparently, is whether Devicix was to blame for this “rocky” process and, if so, was it an outright sham, negligence, or merely the ancient and revered doctrine of “sh*t happens.”

So, the threshold question for U.S. District Court Judge Donovan W. Frank (D. Minn.) was whether Acceledent’s allegations were pled with sufficient particularity or were Devicix’s alleged fraudulent statements or misleading omissions “mere puffing,” the kind of positive, enthusiastic, “can do” attitudes that simply go along with sales.

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Photo thanks to tipstimes.com/pregnancy via flickr

Photo thanks to tipstimes.com/pregnancy via flickr

I am no M.D. but it seems pretty clear that an epileptic surgeon might pose a significant risk to patients.

So for Dr. Cheryl Hansen, an unfortunate board-certified obstetrician/gynecologist whose epilepsy twice caused her to lose consciousness from “syncope episodes” while in surgery, the question was not whether or not she should continue to perform surgery. The question was whether her inability to perform surgery qualifies her for ‘total disability’ or ‘partial disability’? She could still do office work and lots of other things OB/GYN’s apparently do. On the other hand, it is not at all clear that an OB/GYN that cannot perform surgery could ever find a job.

It turns out in Hansen v. Northwestern Mutual Life, however, that “the insurance policy does not condition entitlement to total-disability benefits on an insured’s employability.” The issue to be decided by the courts was whether Dr. Hansen could perform her “principal duties” or not.

The Hennepin County District Court (Robiner, J.) found that, “Under no reasonable interpretation of the policy and this record, can the broad constellation of duties that [Dr. Hansen] continues to be able to perform be considered non-principal duties of an OB/GYN.” And the Court of Appeals agreed this week.

If it is true that Dr. Hansen is unemployable as an OB/GYN because she cannot perform surgery, does it not seem harsh that she should be deemed “partially disabled” if she is, in fact, totally unemployable in her chosen field?

 

 

BNSF_7520_GE_ES44DC_in_Mojave_DesertUpdate (August 3, 2015): In a 33-page decision, U.S. District Court Judge Patrick J. Schiltz (D. Minn.) went along with all of the findings and conclusions of Plaintiff Gunderson’s previous administrative proceedings, all of which held that BNSF fired Gunderson for harassing a co-worker and threatening another. He would have been fired for these actions regardless of whether BNSF also wanted to get rid of him for being “an outspoken safety advocate,” Judge Schiltz concluded.

Judge Schiltz held that “no reasonable jury could find that BNSF’s decision to fire Gunderson was motivated by hostility to his protected activity.”

Really? If you read the 33-page opinion, believing all of Gunderson’s evidence and making “all justifiable inferences in his favor,” there is still no way a “reasonable jury” could find for him?

Perhaps a jury could look at the evidence in this case and conclude that Paul Gunderson’s immediate supervisors in BNSF’s Willmar railyard, Beam and Babik, despised Gunderson for his history of being a “safety bulldog” and that they enlisted the help of their Minneapolis based supervisor, Ebel, to run Gunderson out of town on trumped up charges? Perhaps Beam and Babik’s antipathy for Gunderson was widely known among others at the Willmar site? Isn’t an excellent way to curry favor with one’s bosses to help them eliminate their enemies, which could explain the BNSF witnesses arrayed to testify against Gunderson?

This, however, is the stuff of conspiracy theories; it is not the type of evidence that defeats a summary‐judgment motion,” Judge Schiltz seems to have concluded.

This reminds me of a favorite aphorism of mine, “Just because I am paranoid does not mean no one is out to get me.” Put another way, “Just because a theory of what happened includes speculation does not mean the speculation is wrong.”

Put yet another way, in a case of alleged bureaucratic beheading, could one’s sense of what are “justifiable inferences” from the evidence hinge on subtle points of witness credibility, finely drawn judgment calls, and the varied experiences of the fact-finders? In other words, shouldn’t a jury decide?

Judge Schiltz seems to place great emphasis on Gunderson’s serial losses in the administrative proceedings, the “PEPA board,” the “PLB,” and “OSHA.” But, as attorney David Schlesinger points out in his comment below (and as Judge Schiltz recognizes in his opinion at footnote 5, page 17) there are procedural safeguards in federal court that are not present in these other contexts. In fact, should the results of the administrative proceedings be relevant at all in the federal action? Isn’t the case considered “de novo” (that is, without any regard to the results of the administrative proceeding)?

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Cow in Winter

Update (July 31, 2015): This week, the Minnesota Supreme Court has affirmed the Court of Appeals decision, discussed below, in which Minnesota Court of Appeals Judge Margaret H. Chutich issued a dissent. (Judge Chutich found ambiguity in a regulatory scheme (calling for judicial deference to agency interpretation) where the Minnesota Supreme Court saw none.)

Environmental lawyer, Thad Lightfoot, suggested in the earlier post that affirmance of the Court of Appeals’ decision would pose thorny problems of federal and state regulatory cooperation and collaboration. We’ll see how they navigate around this judicially (or legislatively?) created mire.

(Coincidentally, Judge Chutich is now one of three judges on a short list to replace Justice Alan Page on the Minnesota Supreme Court.)

Here is what Mr. Lightfoot has to say about the Supreme Court’s decision:

As I wrote back in August 2104 when the Minnesota Supreme Court granted review of the case, the issues were whether Reichmann needed a National Pollutant Discharge Elimination System (NPDES) permit under federal Clean Water Act regulations governing concentrated animal feeding operations and a State Disposal System (SDS) permit under a similar Minnesota statute. MPCA said he needed both, Reichmann argued he needed neither, and the Court of Appeals held he did not need an NPDES permit but needed an SDS permit. The Minnesota Supreme Court affirmed. It relied on the Court of Appeals’ analysis for the NPDES permit issue but found that Reichmann needed an SDS permit under a slightly different interpretation than that employed by the Court of Appeals.

There are three interesting aspects to this case. The first is that the Minnesota Supreme Court granted review but then affirmed the Court of Appeals, albeit on different grounds for the SDS permit holding. When the Minnesota Supreme Court grants review, particularly in an environmental matter, it almost always reverses some aspect of the Court of Appeals’ opinion. Granting review and then affirming, even on slightly different grounds, is unusual.

Second, there is no dissent in the case. Although that is not shocking, there was a persuasive dissent by Judge Chutich in the Court of Appeals on the NPDES issue and I expected that issue to be more controversial than it appeared to be in the Minnesota Supreme Court. Given two plausible readings, Judge Chutich determined the Clean Water Act regulation was ambiguous and would have deferred to the EPA preamble to the final rule, which suggests that the Reichmann winter feeding field requires an NDPES permit. In the Minnesota Supreme Court, MPCA cited the EPA preamble to the final rule, the EPA preamble to the proposed rule, and dicta from a Second Circuit case, all of which supported MPCA’s interpretation of the regulation to require an NDPES permit. But all seven Minnesota Supreme Court justices found that the Clean Water Act rule was unambiguous on its face and did not require Reichmann to obtain a permit. The Court refused to consider external sources in interpreting the regulation. Writing for the Court, Justice G. Barry Anderson observed that an EPA preamble “does not have the force of law” and that if EPA intended the regulation to extend to winter feeding facilities, it could have amended the regulation.

Third, EPA’s reaction to the case will be interesting. MPCA clearly believes that EPA intended the federal Clean Water Act regulation to apply to winter feeding facilities such as Reichmann’s. The Minnesota Supreme Court has now held that the federal regulation, which MPCA is delegated to implement and enforce in Minnesota under the Clean Water Act, does not apply. MPCA is bound by the Minnesota Supreme Court’s interpretation of the regulation, which appears to differ from EPA’s interpretation. Of course, EPA could amend the regulation, as Justice Anderson suggested. But amending national Clean Water Act regulations is no easy task.

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Photo thanks to photographer torbakhopper on Flickr

Photo thanks to photographer torbakhopper on Flickr

Legal malpractice cases under Minnesota law remind me of Russian Matryoshka dolls, also known as “nesting dolls” or layer cakes because we deal with “the case within a case.”  The theory is that if Attorney A screws up and Client loses Lawsuit #1, Attorney A cannot be held liable for legal malpractice if Client never could have won Lawsuit #1 in the absence of the legal malpractice.

There is no question that legal malpractice lawsuits that include the “case-within-a-case” challenge face substantial hurdles.

Now imagine a case-within-a-case-within-a-case…A piece of cake, right?

In a case first noted in a 2013 Minnesota Litigator post, Ryan Contracting Co. sued the law firm of Meagher & Gear for alleged malpractice in a lien foreclosure matter, having hired Patrick O’Neill, then of  the St. Paul plaintiff’s-side legal malpractice law firm of O’Neill & Murphy. Ryan then sued O’Neill for alleged malpractice in the malpractice claim against Meagher & Gear.

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Service of Tennis Ball, 2012 French Open : Agnieszka Radwanska (POL) def. Venus Williams (USA)

Service of Tennis Ball, 2012 French Open : Agnieszka Radwanska (POL) def. Venus Williams (USA)

Last month, Minnesota Litigator noted the Supreme Court is taking up a “service of process” (“SOP”) issue in a case where an adult son in a residence to be foreclosed received the summons and complaint and the question to be answered was whether this was sufficient SOP for “dad” to be bound by the foreclosure proceeding on the property. “Dad” claimed that his son did not “reside” in the property and that he, Dad, was unaware of the foreclosure, and that he, Dad, could not be considered to have have been “served process” by virtue of the fact that his adult son was handed the summons and complaint while at the residence in foreclosure.

How about where a lawyer contacts a hospital’s “Risk Management Department,” asks to be directed to a person authorized to accept service of process of a lawsuit against various physicians and other care providers, and the person at the hospital says that she is authorized to accept service?

But she’s not. She’s not authorized to accept service for the hospital itself, much less the named doctors and nurses…The Minnesota Supreme Court has now taken up another case in which the Court will focus on “sufficiency” of “service of process.” (There were also other problems with SOP in DeCook, which you can read about if you like here.)

(1) Should courts adopt a bright-line rule and make plaintiffs (or plaintiffs’ lawyers?) follow SOP requirements to a “T”?

(2) What if the consequences of a defective SOP are that the allegedly injured plaintiff is left high and dry if the case is dismissed for insufficient SOP (that is, time ran out to bring the suit again with proper service (tripped up by the statute of limitation bar))?

(3) What if the actual defendants had actual knowledge of the lawsuit all along? Is that relevant? What if they say they did not have actual knowledge but the plaintiff has reason to believe they are lying?

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HourglassWhich is more just: allowing for “substantial compliance” or requiring “strict compliance”? Requiring “actual knowledge” or allowing for “constructive knowledge”?

(“Constructive knowledge” is a legal fiction whereby courts can avoid requiring “knowing or proving what is inside a person’s mind” and, instead, courts can require certain steps be taken that would tend to ensure notice and knowledge, after which the court simply assumes knowledge, “constructive knowledge,” that is (really, “constructed knowledge,” “imputed knowledge,” or “well-if-you-didn’t-know-X-then-that’s-your-problem – we’re going to pretend you did”).

How about deadlines? Do you favor courts’ “strict” application of the rules or “flexible” application? Some fans of “strict” application would call “flexible” application, “non-application.”

How about, for example, when a party wishes to amend a pleading (that is, a complaint, an answer, a counterclaim, and the like) after the case schedule deadline? Should courts apply those rules strictly or should they bend them in the name of justice?

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Bacon Meme PicIn a recent Minnesota Litigator profile, lawyer/poet Tim Nolan said of writing poetry:

There is a real virtue in poetry to being stupid. What I mean by that is being unassuming, open. The effect of that, of practicing that in writing, is that you meet the reader at the exact same place they’re at because the reader is stupid too when he comes in to a poem; he doesn’t know what to expect.

I see his point, and I raise him. In fact, I am all in. I would go so far as to say, “There is a real virtue IN LIFE to being stupid. What I mean by that is being unassuming, open…”

And this, in turn, is why I not very comfortable “attorneys’ eyes only” (“AEO”) confidentiality designations. We all fully understand and appreciate why it is essential to certain kinds of litigation. When commercial competitors fight about their secret methods or technologies, one can hardly require that each side share its secrets with the other side to figure out what, exactly, the other side is up to and whether it implicates one’s own company’s secrets. (Fortunately, the AEO designation is practically non-existent in my practice.)

But limiting information to the stupid lawyers really must take a toll in a great deal of litigation where there is the AEO confidentiality designation. The complexity of the subject matter would seem to almost require that clients are “in the loop.”

But what if having your smart clients “in the loop” with their stupid lawyers (you) simply cannot be? What then? (Below, I reveal the answer to this riddle.) And what about the risk that a company could engage in “litigation by designation,” using the AEO designation to hobble the other side’s ability to litigate the case (whether prosecuting it or defending against it)?

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Minnesota Litigator - federal rule changesNew Minnesota court rules took effect on July 1, 2015.   The changes are, in the main, prompted by increased digitization of document filing, service and access.

Court staff presented training sessions on the new rules around the state.

A few highlights from the sessions follow.

When and how you must efile and eserve:

  • You must efile now for almost all cases in the 11 pilot counties. You may efile now in all other counties.  That will become mandatory for cases statewide around July 1, 2016.
  • Once you efile a document in a particular case, you must continue to do so for that case.
  • You can efile up to 11:59 pm on the date a document is due. But if you efile after 5:00 pm, your opponent gets an extra day to respond.
  • Your efiling is effective as of the time you submitted the document, unless it is rejected. There are limited grounds for rejecting an efiling (e.g., failure to pay a filing fee).
  • A filed document will be available for downloading via the system for 30 days.

 

A few words on eservice:

  • You must serve conventionally to start an action.  After that, eservice works.
  • Discovery may be served through the electronic system, but should not be efiled (unless, for example, it is attached to an affidavit in support of a motion).

 

About the content and format of efiled documents:

  • Restricted identifiers (like social security numbers and bank account numbers) may not be filed in publicly available documents.  If court staff see that a filing improperly includes restricted identifiers, it will be segregated for a period of time to allow time to correct the document.  It is the filer’s responsibility, though, to assure that restricted identifiers are handled correctly.
  • As you can see, I really like bullet points. But you should not use bullets in efiled and eserved documents. (For some technical computer reason.)  A few other symbols may not be used.  But most other symbols may be used.  Including ¶ and §.

The new rules include many more twists.  To see a guide to efiling for users, click here.  To see the rule amendments, click here and go through each set of amended rules.  Additional resources are available here.