No Liability Insurance Coverage for Defective Additive to Women’s Supplement Tablets

supplementThe Wisconsin Supreme Court ruled that a defective ingredient included in recalled health supplement tablets did not amount to “property damage” as covered under a commercial general liability insurance policy.

The court reversed an appellate court decision, ruling that the insurance companies were not required to cover the claims against two drug additive manufacturing companies.

Wisconsin Pharmacal (Pharmacal) supplies daily probiotic supplements to a major retailer.  Included in the supplement are various ingredients including the probiotic bacteria species Lactobacillus rhamnosus (LRA).

The ingredients for the supplement were supplied by Nebraska Cultures of California, Inc. (Nebraska Cultures) and Jeneil Biotech, Inc. (Jeneil), who were insured by The Evanston Insurance Co. (Evanston) and the Netherlands Insurance Co. (Netherlands), respectively.

Wrong additive supplied

The LRA Nebraska Cultures and Jeneil provided was actually Lactobacillus acidophilus (LA), rather than LRA.  The retailer notified Pharmacal that the supplement contained LA instead of LRA, which Pharmacal confirmed through its own independent testing.  As a result, the supplement was recalled and Pharmacal destroyed the tablets containing the defective LA ingredient.

Pharmacal sued Nebraska Cultures and Jeneil, and its respective general liability insurers, Evanston and Netherlands for various tort and contract claims.  Nebraska Cultures and Jeneil moved to bifurcate the proceedings pending the circuit court’s determination on whether the insurance policies provided coverage for the loss of the defective supplement.  The insurance companies, Evanston and Netherlands, moved for summary judgement claiming that the insurance policies did not cover the defective supplement.

The Circuit court granted summary judgement for the insurers, but the court of appeals reversed finding the insurance policies did provide coverage for Pharmacal’s loss because the defective product constituted property damage and exclusions under the policy did not apply.

No coverage from liability insurance

The Supreme Court reversed again finding that the commercial general liability policy applied to physical injuries to tangible property caused by a defect in the product, but not to the product damaged itself.

The court wrote that the sole purpose of the damage to property clause is to “cover the risk that the insured’s goods, products, or work will cause bodily injury or damage to property other than the product…of the insured.”

The court further determined that the appeals court erred in not conducting an integrated systems analysis, which would have determined whether the damage caused by the defective ingredient could be separated out, treating the product as a unified whole.  If the defective ingredient could be separated out, the damage would constitute damage to property other than the defective component, which would be covered under the insurance policy.

The court found that in this case, the defective ingredient included in the supplement made a unified whole product, and damage to the whole product as an integrated system, in this case, damaged the tablets themselves and was not covered under the insurance policies.

Jeneil attempted to assert that packing and shipping materials associated with the tablets suffered physical injury constituting damages coverable by the policy.  The court rejected the argument, writing that no physical damage occurred to the shipping materials.

Exclusions further negates coverage

The court also determined that even if the defective supplement tablets were eligible as a damaged product under the insurance policies, the exclusions in the policies would negate the coverage.  In examining the exclusions of the insurance policies, the court wrote that a “diminution in value, even of worthlessness, is not the same as loss of use” and an inadequate product that fails to perform as intended is not property damage.  The court found that the insurance policies did not provide a clause for coverage for loss of use of property, and so the damaged tablets were not covered.

The court further referenced an insurance policy exclusion that precluded loss of use as damages arising out of the insured’s negligent failure to perform its contractual obligations for coverage.

The court found that because there was no property damage caused by the incorporation of the defective LA ingredient, and because the exclusions in the insurance policy would negate coverage, Netherlands and Evanston were not responsible to cover the loss alleged by Pharmacal against Nebraska Cultures and Jeneil.

 

The case is Wisconsin Pharmacal Co. LLC v. Nebraska Cultures of California Inc. et al., case numbers 2013AP613 and 2013AP687, in the Supreme Court of Wisconsin.

North Carolina’s “Bathroom Bill” Has Serious Implications for State Employment Law

resist hateThe North Carolina “Public Facilities Privacy & Security Act,” or House Bill 2 (“HB2”) is arguably the most anti-LGBT statute that has ever been passed in the United States of America. But HB2 is about more than just adding limits on what local government entities can do regarding public bathroom usage.

News coverage of HB2, which has largely been referred to as a “bathroom bill,” lacks an important understanding of a detrimental change in employment discrimination law that accompanies the bill’s passage. As Charlotte School of Law Professor Brian Clarke points out, most articles about the passage of HB2 omit “a hugely significant issue, the bill’s complete elimination of the ability of NC employees to sue employers under state law for employment discrimination based on the protected categories of race, sex, national origin, religion, color, or age.”

Prohibits the right to sue for discrimination

Clarke, who has practiced employment law for more than 11 years and published significant research in the field believes, “The single sentence that accomplished this feat overturned decades of well-established North Carolina law, eliminated a critical legal protection for all employees in North Carolina, and – of course – is utterly unrelated to bathroom usage.”

Clarke is referring to Part III of HB2 (143-422.2), or the North Carolina Equal Employment Practices Act. Section 422.2 decrees that employment discrimination based on the standard protected classes referred to in Title VII is illegal, but the following section – 422.3 – completely prohibits the right to a cause of action for such discrimination. By its own language, 422.3 overrides the protections of 422.2 by removing its teeth: “This Article does not create, and shall not be construed to create or support, a statutory or common law private right of action, and no person may bring any civil action . . .” So, in North Carolina, employers may not discriminate against employees; but, if they do, employees have no right to sue.

The North Carolina Equal Employment Practices Act (“EPA”) was originally passed in 1977 and tort of wrongful discharge was recognized in 1982. Wrongful discharge was premised on the language of 422.2, but the passage of HB2 takes away this private right of action North Carolina employees have relied on for more than 30 years. Race, sex, religion, national origin, color, and age are now no longer subject to a private right of action in the state.

Final avenue of justice is gone

The real problem a lot of employees face with employment discrimination suits is that they simply do not know their rights. When employees do not find out their legal rights until after the 180 days to sue allowed for by Title VII, their only recourse is to sue under the EPA for wrongful discharge in violation of public policy. Now, that final avenue of justice is gone. Arguments were made on the House floor by Republican Representative and HB2 co-sponsor Dan Bishop that the EPA was never intended to create a private right of action for employees, but evolved through the common law; according to HB2 sponsors like Bishop, this new language removing the private right of action is meant to “correct” that.

Both the legal community and country as a whole remain shocked at the passage of HB2. Andrew Gordon, President of the LGBT Legal Society in Charlotte believes there have been major abuses of power throughout the un-democratic process of HB2’s passage. “The fact that an ‘emergency session’ was called in response to HB2 is a blatant waste of thousands of taxpayer dollars. There are far more pressing needs in this state; not the least of which is the fact that we rank as one of the worst states in the entire country regarding quality of education, teacher pay, and student spending,” Gordon stated.

Gordon’s mission for the LGBT Legal Society is to bring the legal community’s attention to issues of special concern to LGBT students by serving as a bridge between students, law school alumni, and the legal profession at large.

Revokes anti-discrimination laws

The unfair process Gordon mentions is this: HB2 was not revealed to those required to vote on it until the morning it was to be voted on. HB2 passed both the House and Senate and was signed by Governor McCrory within the short span of 12 hours.

“This process, this bill not only harms LGBT communities and establishes that North Carolina does not tolerate LGBT diversity, it revokes the power of any state locality to establish any anti-discrimination laws. HB2’s passage thereby removes the ability of any city to protect citizens it determines should be protected. Now, after HB2, any discrimination complaint can only be brought to the state’s Human Relations Commission and no civil cause of action exists for a perceived violation of the state’s non-discrimination statute.”

Gordon sums up HB2’s passage by saying, “Our state’s politicians preyed on an irrational fear: that protecting the dignity and civil rights of transgender citizens will somehow also allow predators to molest children and women in bathrooms. As if signs on bathroom doors will ever be enough to prevent predators who would misuse such a protection from harming others. One thing has proven true that the LGBT community assumed from the start: the discrimination politicians have long-attempted to couch in religious freedom has never been about religion at all; it was only ever about legalizing discrimination.”

View House Bill 2 here.

Harvested Marijuana Covered Under Commercial Liability Insurance

marijuana insuranceA Colorado District Court has ruled that a commercial general liability insurance policy covers marijuana plant buds harvested for sale by a retail medical marijuana business and growing facility.

“Mother plants” that are not cultivated to produce harvestable marijuana, but instead provide the supply through genetically identical clones of each strand of marijuana, are not covered under the policy.

Green Earth Wellness Center (Green Earth) is a retail medical marijuana grower and distributor in Colorado Springs, Colorado.  It obtained a commercial general liability insurance policy from Atain Specialty Insurance Company (Atain).  The policy became effective on June 29, 2012.

Claims for marijuana damage

A week before the policy commenced, a wildfire started near Colorado Springs in the Waldo Canyon and eventually spread to the city.  The wildfire smoke and ash seeped into the Green Earth’s ventilation system, destroying its marijuana plants.  Green Earth submitted a claim to Atain for the damage to the plants.  After a months-long investigation, Atain denied the claim finding that the damage had occurred prior to the policy effective date and that Green earth misrepresented the state of the loss and failed to mitigate the damages.

The following year, burglars broke into the facility through its roof and ventilation system, stealing marijuana plants.  Green Earth filed a claim for the damage to the roof and ventilation system caused by the burglary, but not for the loss of the marijuana plants.  Atain denied the claim because its adjustor determined the cost of the damage was less than the policy deductible.

Insurance company contraband exclusion

Atain argued that it was not required to cover Green Earth’s loss of harvested marijuana plants caused by the wildfire smoke damage because its policy contains an exclusion of coverage for contraband or property used in the course of illegal transportation or trade.  Atain further argued that federal public policy required the denial of coverage of marijuana plants for sale.

The court defined the term contraband using the common ordinary meaning of forbidden possession.  The court pointed out the federal government’s ambivalence towards the enforcement of the controlled substance act in circumstances where the possession and distribution of marijuana are consistent with a well regulated state law.  The court rendered the contraband exclusions ambiguous because of the difference between federal and state law.

The court applied state law, finding the medical marijuana business legal and not contraband.  The court also looked to the policy quote and pre coverage documents, which clearly indicated the parties mutually intended to include coverage to the harvested plants and inventory.  Atain was well aware of Green Earth’s business, and at the time of extended coverage, knew that federal law prohibited the business.  The court refused to rule on the public policy issue asserted by Atain and ruled that its only function was to “apply Colorado law” and in doing so, found that the harvested marijuana for sale is covered by the insurance policy.

Insurance company denies coverage

Green Earth brought a lawsuit against Atain for breach of insurance contract and for unreasonable delay in payment.  Atain filed a motion for summary judgement claiming that the benefit to the marijuana plants was barred by the “growing crops exclusion” in the policy and that the damage to the roof claim was barred by the policy’s theft exclusion. Atain also argued that its contraband exclusion in the policy coverage applies to marijuana.

Atain further filed motions for the court to determine if it is legal for an insurance policy to pay for the loss of marijuana in light of the Colorado Medical Marijuana Act, federal law, and federal public policy.  Green argued that coverage is warranted because its marijuana plants constitute stock under the policy terms and were not excluded by the growing crop or contraband exclusions.

Policy excludes “growing crops”

For the wildfire damage claims, the court assessed the “mother plants” used for various marijuana strain seeds and the plants that are harvested for sale, separately.  Green argued coverage was warranted because the growing crops exclusion was ambiguous and marijuana plants grown indoors constitute stock under policy terms.

The court relied on Colorado State law and determined that stock is considered merchandise held for sale and raw materials used for the process of finished goods.  The court said that stock could cover growing plants, but the Atain policy specifically excludes growing crops.  As further support, the court looked to the original insurance quote issued to Green Earth that included a provision that coverage did not extend to growing or standing plants.

The court found Green Earth’s arguments “elaborate” and used the policy quote and temporary binder contract to resolve any ambiguity, finding that the phrase “growing crops” contained no inherent ambiguity, and that Atain’s quote and contracts unambiguously encompass mother plants and are not covered by the policy.

Case remanded to trial

The court denied Atain’s motions for summary judgement on the breach of contract and delay in payment claims, finding that a dispute of fact existed as to when the policy coverage commenced and when the damages from the wildfire occurred.

The court further remanded the issue of the theft claims to trial because the policy provides coverage for building damage caused by a burglar breaking in or exiting the facility.  Green Earth provided surveillance footage of the burglar causing damage and a general contractor’s quote for repairs estimated at $8,000.  Atain only provided a quote from its own adjuster, who priced the repairs at $2400, just $100 shy of the $2500 deductible amount.

 

The case is The Green Earth Wellness Center, LLC v. Atain Specialty Insurance Company, Civil Action no. No. 13-cv-03452-MSK-NYW, in the U.S. District Court for the District of Colorado.

 

 

Illinois Court Affirms $3 Million Jury Award to Chicago State University Whistleblower

CSU

An Illinois Appellate Court affirmed a $3 million jury verdict to plaintiff James Crowley for a whistleblower retaliation claim brought under the Illinois State Official and Employee Ethics Act.

Determining that punitive damages are available under the Ethics Act, the Illinois Appellate Court ruled that Chicago State University’s conduct was “thoroughly reprehensible,” and the ratio between the compensatory and punitive damages award was entirely reasonable.

Obeying the Law

Crowley, former Senior Legal Counsel for Chicago State University (CSU), reviewed contracts and processed the university’s FOIA (Freedom of Information Act) requests. Crowley alleged he was retaliated against after he refused to withhold certain documents from FOIA requests inquiring about the university’s President. Crowley reported his concerns about the FOIA requests and Chicago State’s contracting practices to the Illinois State Attorney General’s Office.

According to the Illinois opinion, Crowley’s employment was without incident until 2009, when defendant Dr. Wayne Watson was hired to become president of CSU. Watson had just finished a job as the head of the Chicago City Colleges and planned to draw his state pension. Shortly after the announcement of the CSU job, it was discovered that, in order to begin receiving pension payments from the State University Retirement Systems (SURS), the rules required him to have a three-month gap between state jobs.

Improper Use of Funds

During the gap, amidst significant public controversy about the merits of Watson’s appointment, allegations focused on Watson’s alleged use of state funds to renovate the so-called “presidential residence” while making decisions at CSU when he was not yet officially in office. During this period, in the view of all parties at trial, Watson was not a CSU employee and thus could not authorize any sort of activity at the university.

Numerous FOIA requests were received by CSU from curious citizens (including a rather prolific document requester named Phillip Beverly, a tenured political science professor at CSU) which called for any documents concerning Watson’s hiring and the work at the residence. Crowley went about the task of collecting all documents that he believed would be responsive to these numerous requests.

Adverse Employment Action

According to Crowley, during a meeting in President Watson’s office, which the interim acting president, Dr. Sandra Westbrooks joined, Watson demanded that nothing be produced without his personal review — despite the notable facts that Watson was not yet an university employee and that it was Crowley’s job to fully respond to FOIA requests. Crowley testified at trial that a rather animated Watson grabbed his wrist and told him, “If you read this my way, you’re my friend. If you do it your way, you’re my enemy.”

On February 1, 2010, Crowley was escorted off CSU premises after being summarily suspended by Patrick Cage, CSU’s newly hired (November 2009) general counsel and a longtime colleague of Watson’s. Crowley was brought back to CSU on February 19, 2010, for a very brief meeting with Cage in which he was told that financial irregularities were found in an audit relating to Crowley’s work.

Hours later, Crowley’s employment was officially terminated. There is no indication in the court record that Crowley was given any opportunity to correct these perceived shortcomings, which Crowley claimed was in violation of CSU’s policies and procedures.

$3 Million Award for Retaliation

A Cook County jury found that Crowley was retaliated against in violation of the Ethics Act and awarded him $480,000 in back pay and an additional $2 million in punitive damages.  Pursuant to the statute, the trial court doubled the back pay to $960,000, ordered the University to pay attorneys’ fees of $318,000, and awarded prejudgment interest in the amount of $60,000.

The trial court also ordered the University to reinstate Crowley to his former position or provide “front pay” based on a $120,000 annual salary through the resolution of any appeals.

The appellate court affirmed and held that punitive damages are available under the Ethics Act, rejecting the University’s position that it was immune from liability for punitive damages pursuant to the doctrine of sovereign immunity. The court also held that the jury’s award did not violate the University’s due process rights as the University’s conduct was “thoroughly reprehensible” and the ratio between the compensatory and punitive damages award was entirely reasonable.

This ruling clarifies that punitive damages are available under the Ethics Act and affirms the serious risks employers face for taking adverse action against employees engaging in lawful activity under state whistleblower laws.

Wisconsin Supreme Court Rules for Employees in Donning & Doffing Class Action

Donning

The Wisconsin Supreme Court affirmed workers who spend time putting on and taking off clothing and other work gear before and after their shift (“donning and doffing” in employment law terms) must be paid for the time these activities take.

The class action case, filed by the United Food & Commercial Workers Union on behalf of 330 current and former Hormel employees, was decided in the Rock County Circuit Court in favor of the union, and affirmed in the circuit court.

Integral Part of the Work Day

The United Food & Commercial Workers Union (Local Section 1473) alleged that Hormel violated Wisconsin wage and hour laws for failing to pay for the additional 5.7 minutes of time per day it takes workers to don (get dressed for work) and doff (remove work clothing). The time spent putting on and taking off the required clothing and equipment has not previously been included in the employees’ compensation, which resulted in employees working more than 40 hours per week without being paid overtime.

As Justice Shirley Abrahamson noted in her lead opinion, the “Work Rules” Hormel employees are required to abide by state that employees wear certain clothing and equipment on daily basis. “If employees do not wear the required clothing and equipment, the employees are subject to discipline, up to discharge,” Abrahamson wrote.

Hormel employees must don Hormel-provided hard hats, hearing protection, eye protection, and hair nets. Employees must also wear clean and sanitary footwear at all times. The clothing, which cannot under any circumstances be worn outside the Hormel plant, is provided by the company and must be changed daily. In certain cases, Hormel clothing must be changed more often than once daily.

Abrahamson cited the Wisconsin Department of Workforce Development code in determining that the action of putting on white shirts and pants, hard hats and hearing protection, and hand-washing qualifies as “physical or mental exertion.” The Workforce code provides that an employee must be paid for all time spent “in physical or mental exertion . . . controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer’s business.”

Back in the 1980s, Hormel paid its employees an extra 12 minutes per day for the “donning and doffing” under a then-existing union collective bargaining agreement (“CBA”). Eventually, however, that compensation was “bargained away.”

Not a De Minimis Trifle

Abrahamson’s lead opinion did not affirm the lower court’s determination that employees should be paid for donning and doffing even if they leave for lunch breaks. Abrahamson noted the parties agreed on that issue and therefore rendered no opinion on it. Chief Justice Roggensack dissented with this decision, concluding that compensation is not required when employees change clothes for lunch.

“Leaving during the lunch break serves no interest of Hormel, is not ‘an integral part of a principal activity’ of the employer within the meaning of the administrative code, and serves only employees’ interests,” Chief Justice Roggensack wrote.

Hormel argued the doctrine of de minimis non curat lex, which means “the law does not concern itself with trifles,” to bar compensation for only 5.7 minutes of its employees’ time. Justice Abrahamson disagreed, stating, “Viewed in the light of the employees’ hourly rate of $22 per hour, the unpaid period in question may amount to over $500 per year for each employee and substantial sums for Hormel. In the instant case this time is not a ‘trifle.’”

The U.S. Supreme Court weighed in on the “donning and doffing” question in 2014 in Sandifer v. United States Steel Corp. The high court disqualified most clothing as fitting under the Fair Labor Standards Act (“FLSA”), ruling that the vast majority of the time employees spent dressing was not compensable under the federal act.

The case is United Food & Commercial Workers Union, Local 1473 v. Hormel Foods Corporation, 2016 WI 13 (March 1, 2016).

How Scalia’s Death May Impact Pending Supreme Court Cases

 

Antonin ScaliaThe death of Antonin Scalia — the Reagan-appointed, outspoken and rigidly conservative Supreme Court justice — left the outcome of several major pending SCOTUS cases entirely up in the air.

Gone are Scalia’s scathing dissents and his “originalist” judicial philosophy. Scalia believed jurists should interpret the U.S. Constitution according to the Framers’ original intent, regardless of the current reality.

Major Cases Now Pending

Dow Chemical Co.’s agreement to pay $835 million to settle a price-fixing dispute is just one example that Justice Scalia’s death is a serious blow to businesses that have previously been successful in challenging class action cases at the U.S. Supreme Court level. In the process of merging with Dupont, Dow opted to settle the decade-long case rather than risk a decision by an eight-justice court missing Scalia, who was a reliable vote in support of companies in class action cases.

Dow said in a statement that Scalia’s death and the raging political fight over naming his successor meant an “increased likelihood for unfavorable outcomes for business involved in class action suits.”

Multi-million dollar class actions suits involving Tyson Foods Inc. and Walmart Stores Inc. were also argued last year while Scalia was on the bench. Tyson challenged an almost $5.8 million class action judgment and Walmart seeks to throw out a $187 million class action judgment from Pennsylvania.

Another class action case heard by the Supreme Court this term involved online search company Spokeo Inc. SCOTUS appeared closely divided following the November oral argument, which could result in a 4-4 split. While such a ruling would not set a national precedent, it would be a victory for the affected plaintiffs.

And the Court has already started ruling on several health care cases pending during its current session. According to Josh Blackman, associate professor of law at South Texas College of Law, appellants and appellees banking on Scalia’s vote may receive profoundly different rulings without him on the bench. “If the Court splits 4–4, it gets complicated,” Blackman said. “Usually, a tie vote affirms the lower court, but in some of this term’s cases, lower courts have ruled differently on a single question.”

A split decision effectively upholds the ruling of the lower court (presumably a state supreme court). In the event of such a tie, the court typically issues what’s known as a per curiam decision. The opinion in such a decision is issued under the court’s name, as opposed to consisting of a majority and a minority opinion.

When a 4-4 deadlock does occur, the case is not deemed to have set any sort of precedent.

Scalia even wrote several major opinions in favor of corporations, including Comcast and Walmart. Thus, Scalia’s absence may influence overall what cases the Supreme Court chooses to hear. It’s a firm Supreme Court rule that decisions are not final until they are handed down, so nothing Scalia did or said in pending cases matters to the outcome.

Scalia

Uncertainty in His Absence

The uncertainty surrounding big SCOTUS decisions could last beyond this term depending on whether and for how long the Senate fights Obama’s nomination to replace Scalia. Tom Goldstein of SCOTUSBlog predicts the Republican Senate is unlikely to let President Obama push through his own pick so close to an election.

While it remains possible President Obama could attempt to bypass the Senate and replace Scalia through a recess appointment, that tactic is rarely used and would be certain to draw outrage and an attack from Republicans. One thing is certain regarding the president: the potential for 4-4 decisions creates uncertainty for several upcoming cases this term that will undoubtedly affect President Obama’s legacy.

In the case of a SCOTUS split, whatever the lower court decided is affirmed, and that ruling only applies to the low court’s specific circuit. Naturally, this leaves serious legal conflicts among circuits unresolved. The Court was divided 5-4 along ideological lines only about a quarter of the time; most decisions are actually unanimous. It is, of course, the divided decisions that are often the most culturally and politically controversial.

Scalia already heard – and potentially already cast votes – in several high stakes cases that could decide issues regarding whether universities can continue to use affirmative action to if unions can collect fees from nonmembers to survive. Any Scalia votes already cast in pending cases, however, will be invalidated, sending the Supreme Court back to the drawing board. We can likely expect to see 4-4 splits on key issues, with the remaining four liberals and four conservatives on the bench facing off against each other.

Ninth Circuit Revives Deceptive Cosmetic Labeling Suit

natural cosmeticsThe Ninth Circuit Court of Appeals agreed with cosmetic consumers that a reasonable person could be misled by a manufacturer’s use of the word “natural” and “100% vegetarian” on its packaging and revived a suit against the company.

The lower court dismissed the case under a 12(b)(6) motion. However, the Ninth Circuit believed the plaintiffs had sufficiently pleaded their claims.

Free of synthetics?

The Hain Celestial Group, Inc. alleged its products were free of synthetic ingredients and charged consumers a higher price for its “100 % vegetarian” makeup.

The plaintiffs claimed they would not have paid the premium price as compared to other products if they were aware the products were not as claimed.

The plaintiffs stated a reasonable consumer would believe that Alba Botanica cosmetics were derived from plants because of the “100 % vegetarian” label.

The court ruled that whether a business engaged in deceptive or misleading practices was generally a question of fact.

A manufacturer’s ingredient list or information on its website in itself does not override any misimpressions created by the product labels. Williams v. Gerber Prods Co., 552 F.3d 934, 939 (9th Circ. 2008).

The court concluded that similar to other misleading label claims, the statements that the products were natural or vegetarian, “could be taken as a claim that no synthetic chemicals were in the products.”

The lower court’s dismissal of the plaintiffs claim was reversed and remanded to consider the plaintiffs claims and the precertification discovery.

This case is Alessandra Balser et al. v. The Hain Celestial Group, Inc. Case No 14-55074, U.S. Court of Appeals Ninth Circuit, Pasadena CA.

NLRB Says Whole Foods Can’t Prevent Employees’ Workplace Recordings

Whole Foods

The National Labor Relations Board (NLRB) ruled that Whole Foods, a nationwide upscale grocery store chain, cannot forbid its employees from recording workplace conversations or taking photos at work without management’s permission. The Whole Foods decision follows another 2015 Board decision [Rio All-Suites Hotel and Casino (Aug. 2015)] in which the Board struck down rules prohibiting employees from using any audio visual recording devices at work.

Read the Handbook

At the center of the case were two stipulations in Whole Foods’ “General Information Guide,” an employee manual that provides work rules. The “Guide” prohibited workers from taking photos or recording conversations inside a store “unless prior approval is received” from a manager or executive, or “unless all parties to the conversation give their consent.”

Whole Foods argued it barred recordings of employee conversations in the workplace to promote “open communication, spontaneous and honest dialogue, and an atmosphere of trust.” Whole Foods argued that recording employee “town-hall,” in-store and other meetings would create a lack of employee candor and prevent overall team harmony. Rather than attempting to inhibit employee rights, Whole Foods reasoned, its rules are meant protect Whole Foods employees and promote a cohesive workplace.

“The purpose of this policy is to eliminate a chilling effect on the expression of views that may exist when one person is concerned that his or her conversation with another is being secretly recorded,” the manual states.

Concerted Actitivy

Whole Foods’ “fostering communication” argument did not interest the NLRB in what all boils down to two words: concerted activity. The Board majority found that recordings and broad rules could hinder workers’ ability to gather evidence, “such as photographing picketing, or recording evidence to be presented in administrative or judicial forums in employment-related matters.”

The Board reasoned that the broad language of the grocery giant’s two handbook rules could reasonably prohibit employees’ use of cameras or recording devices in the workplace for various concerted, protected activities.

The National Labor Relations Board protects the rights of employees to engage in “concerted activity,” which is defined as when two or more employees take action for their mutual aid or protection regarding terms and conditions of employment.

“Our case law supports the proposition that photography and audio and video recording at the workplace are protected under certain circumstances,” the Board said. The fact that employees would, overall, see the prohibitions as a ban on their protected, concerted rights under the NLRA, made the Board’s decision that much easier.

The NLRB’s decision means employers should triple check all work rules restricting audio or visual recordings by employees. If employers continue to maintain these rules, they must clearly state the employer’s legitimate objective. Workplace recordings should be banned only to the extent reasonably necessary to accomplish the employer’s objectives for disallowing workplace recordings.

Identifying specific times or places to which the ban applies instead of promulgating an all-around ban is a best practice. It’s likely the NLRB will look more favorably on rules specifying what cannot be photographed or video or audio recorded.

The case is Whole Foods Market Inc. and United Food and Commercial Workers Local, case number 01-CA-096965, before the National Labor Relations Board.

Arizona Adopts Learned Intermediary Doctrine in Drug-Induced Lupus Case

drug induced lupusThe Arizona Supreme Court has reinstated a case brought by a young woman against Medicis Pharmaceutical Corporation for her diagnoses of drug-induced lupus that is allegedly a side effect from the acne medication Solodyn.

The court for the first time recognized the learned intermediary doctrine, which states that a manufacturer satisfies its duty to warn end users by giving appropriate warnings to the prescribing physician.

Amanda Watts completed her first round of treatment as a minor when she was prescribed the medication for 20 weeks. Two years later, Watts was prescribed the medication again for another 20 weeks.

Upon initially receiving Solodyn, Watts did not receive the full prescribing informational materials that indicated the long-term use of the medication had been associated with “drug-induced lupus like syndrome, autoimmune hepatitis, and vasculitis.”

No drug-induced lupus warning

Watts only received a “MediSAVE” card from her medical provider stating the safety of using the medication longer than 12 weeks was unknown.  Watts also received an insert that warned patients should consult a doctor if symptoms did not improve within 12 weeks.

After taking the medication for a second time, she was hospitalized and diagnosed with drug-induced lupus and hepatitis as side effects of Solodyn. Watts has recovered from the hepatitis, but doctors expect her to have lupus for the rest of her life.

Watts sued Medicis for consumer fraud and product liability under the Consumer Fraud Act (CFA) for the misrepresentation and omission of material information on the MediSAVE card.  She also sued Medicis for failure to warn her of the defective and unreasonably dangerous nature of long-term use of the medication.

Learned intermediary doctrine adopted

A trial court granted Medicis’ motion to dismiss.  The court of appeals vacated the dismissal and remanded the case.  The court found that the learned intermediary doctrine (LID) was no longer viable and incompatible with the Uniform Contribution Among Tortfeasors Act (UCATA).

The UCATA allows a tortfeasor to seek contribution from other tortfeasors, specifying how liability is apportioned among the them.  The court of appeals also found that the CFA was applicable to the case.

The Arizona Supreme Court granted review because the legal issues in the case are of “statewide importance and likely to recur.”  The high court had never before addressed the learned intermediary doctrine, but joined the majority of other states in adopting the Third Restatements expression of the LID.

The supreme court found the reasoning of the lower appeals court, that the LID was incompatible with the UCATA, to be flawed. The court wrote that the LID and the UCATA address two distinct issues and are not in conflict with each other.

The LID addresses whether a manufacturer satisfied its duty to warn a product user by properly warning the learned intermediary.  The UCATA specifies comparative liability given a determination that multiple parties are at fault.

Product liability claim revived

The court vacated the trial court’s dismissal of Watt’s product liability claim and remanded for further proceedings, finding that Watt had properly alleged that Medicis breached its duty to warn if it gave inadequate or defective warnings to Watt’s prescribing physician about the use of Solodyn for more than 12 weeks.

The court found that the LID could apply if Medicis can establish that it provided complete and adequate warnings to the prescribing providers.

The high court affirmed the appeals court finding that the CFA was applicable to the case because prescription pharmaceuticals are considered merchandise under the act.

The court also affirmed that Watt’s has an actionable claim because Medicis misrepresented Solodyn on the MediSAVE card by stating the safety of use of the drug for longer than 12 weeks was unknown, even though they were aware that extended use could cause drug-induced lupus.

The case is Amanda Watts v. Medicis Pharmaceutical Corporation, Case number CV-15-0065-PR, in the Supreme Court of the State of Arizona.

 

Eighth Circuit Revives Female Trucker’s Sexual Harassment Claims

Truck Driver

The U.S. Court of Appeals for the Eight Circuit ruled that a female truck driver who claims she was sexually harassed by a male driver during a multiday trip can pursue claims against her former employers under federal and state anti-discrimination laws. The divided Eighth Circuit panel held that the district court failed to consider everything that occurred during a mandatory 34-hour rest period, during which her truck driving partner exposed himself to her, offered to forgive a debt in exchange for sex, and became aggressive when she refused his advances.

“Just get along with him”

The kicker for the Eighth Circuit was that when Tri-National Logistics (TNI) employee Rebecca Nichols reported the harassing conduct to her dispatcher, he told her to just try to get along with the James Paris, the male driver. Instead of taking immediate remedial action, which is critical in the defense of a sexual harassment compalint, the company essentially stranded Nichols. It did not arrange a new driver to connect with Nichols until seven days after her initial report.

Summary judgment was affirmed against Nichols’ retaliation claim because her employer successfully argued that her unsafe driving (which had long been a concern prior to her harassment claims) was the sole basis for her discharge.

According to Nichols, TNI (and RMR Driver Services Inc.) arranged for Nichols and Paris to drive three hours to his home in Pharr, Texas during their 34-hour rest period. Once inside his home, Paris made an unwelcome advance by offering to forget about the $800 Nichols owed him if she would have sex with him. Paris both fully and partially exposed himself to Nichols in their truck before they had even reached Laredo, TX. Paris became “excessively mad” and twice “forcibly took away” her keys to the truck and her mobile phone when she declined his advances, Nichols alleges.

Issues of Poor Performance

Less than two months after Nichols was hired in August 2011, she was fired by TNI for getting her truck stuck in the mud and damaging the trailer door. She was rehired in October of the same year on the condition that she could no longer drive alone. Her first three driving partners consecutively refused to continue driving with her, telling TNI Nichols took her eyes off the road to use her cell phone; ran a stop sign and caused an accident; and otherwise engaged in unsafe driving practices.

Nichols even made a request to dispatch to take the truck to a place where she could stay overnight, away from Paris, which was denied. She told the dispatcher, “I can’t believe you’re telling me that. Didn’t I just tell you maybe an hour ago that the man was trying to control me to no hilt and I couldn’t get away from him?” The dispatcher told her to try to “get along with [Paris] until you guys get back out on the road” and offered to pay half the cost of a motel room, should Nichols venture to pay for one. Nichols even slept in the truck by herself one night, but eventually asked Paris to take her to a nearby motel.

One month later, Nichols drove with a different driver who reported that she drove over the speed limit, ran at least one red light, talked on her cell phone while driving, and kept her tractor brakes on while driving. The field safety supervisor recommended Nichols for termination and the VP of operations fired her.

Employers take note: it is always challenging to deal with employer offenses if there are contrary allegations of poor employee performance. However, there must be a simultaneous understanding that an employee’s errors on the job do not justify inappropriate workplace activity, such as harassment or other illegal behaviors. In complicated situations, the involvement of human resources and prompt remedial action are helpful next steps.

The opinion is available online. The case is Rebecca L. Nichols v. Tri-National Logistics, Inc.; RMR Driver Services, Inc.; James Paris, in his individual capacity; Charles Kye, in his individual and official capacities; Donald Lewis, in his individual and official capacities, Case No. No. 15-1153.