Defining A Win In Litigation

Drew York | Gray Reed & McGraw | October 31, 2019

Does a “win” in litigation require a final judgment in your favor? Not necessarily. Litigation “wins” are defined by the circumstances facing a party at the outset of litigation, and how those circumstances change as litigation progresses. Over the next few months we will dive deeper into this topic, and talk about issues such as:

  • Taking the emotion out of litigation: why being cool, calm and objective reduces the cost and strain of disputes;
  • Why it is important to have clear, comprehensive communication and buy-in between the client and attorney concerning the client’s goals in the litigation, and the game plan the attorney and client intend to follow during the case;
  • Good navigators: why constantly re-evaluating litigation is crucial to meeting your goals;
  • Why the distraction of litigation is a “hidden” additional costs to your company;
  • The benefits of resolving a dispute prior to litigation;
  • Mitigating the plaintiff’s damage recovery at trial can be just as good of a win;
  • Reputation matters: how your stance in litigation conveys a message to your vendors, competitors, and even your employees; and
  • The big picture: how will the outcome of this litigation affect my business relationships going forward?

Tilting the Scales in Your Favor

Do not necessarily assume that you must get a final judgment in your favor to “win” the outcome of a particular piece of litigation. There are many ways in which your company can win a dispute short of a judgment. Those that understand all of these interconnected avenues are best equipped to handle the “ups” and “downs” that come with protracted litigation.

The Concrete (Legal) Jungle

Victor Metsch | Smith Gambrell & Russell | November 21, 2019

Serge Somrov purchased apartment 7A at the Bay Parkway Terrace  Condominium. After moving in Somrov replaced the floor of the terrace with Board approval.

Ten years later, Somrov was told that a leak on his terrace was causing water damage to the apartment below. Pursuant to the By-Laws Somrov was required to remove the tiles he installed as well as the cement underneath. And Bay Parkway was obligated to install waterproofing  after which Somrov could re-install the tiles. Somrov  removed the tiles but did not remove the cement. Bay Parkway refused to install the waterproofing until the cement was removed.

Somrov sought a preliminary injunction that required Bay Parkway to remove the cement and install the waterproofing.

To obtain a preliminary injunction, Somrov was required to demonstrate: a likelihood of success on the merits; an irreparable injury absent the injunction; and a balancing of the equities in his favor. The for the injunction was the allegations that Bay Parkway refused to install the waterproofing without a valid justification. Thus, Somrov argued that Bay Parkway Terrace was insisting that he “remove not only my tiles and adhesive, but the original concrete floor down to the existing layer of waterproofing material. The original concrete and the existing layer of waterproofing was not affected by either the installation of my original tiles, nor their removal.”

Bay Parkway’s By-Laws stated, concerning the terrace, that the owner of the unit must install “protective decking” and was responsible for the maintenance of any decking installed as well as the “repair or replacement of surface material where damaged”. The  By-Laws  also stated that Bay Parkway was responsible for “structural elements, such as rafters, bulkheads, etc.”

Somrov was clearly required  to remove the tiles and the surface material of the terrace. Bay Parkway argued that  the concrete was a  surface material which was the responsibility of Somrov.

The Court found that was a question of whether or not the concrete should be considered sub-surface material, a distinct category. There were further questions whether Somrov removed all the tiles and glue which he was obligated to do. Thus, while it was true that a preliminary injunction could be granted where some facts are in disputes, some evidence of likelihood of success must be presented. Therefore, when “key facts” are in dispute and the basis for the injunction rests upon “speculation and conjecture” the injunction must be denied.

In this case the entire basis for Somrov’s request was subject to factual and legal questions, namely which party was responsible to remove the sub-surface concrete. While Somrov insisted it was the responsibility of Bay Parkway  considering the nature of the material, there remained questions whether the responsibility rested with Bay Parkway  Since Somrov did not demonstrate a likelihood of success on the merits, the motion seeking a preliminary injunction was denied.

In This Case, The “Crux Of The Biscuit” Was The Missing Apostrophe

Keith Bishop | Allen Matkins | November 8, 2019

Consider the following provision of in a contract between a general contractor and a subcontractor:

“Ten percent (10%) of Subcontractor’s contract amount shall be withheld and will be released 35 days after completion of subcontractors work.”

After the subcontractor abandons the job, the general contractor refused to pay the 10% retention even after the job is completed by another subcontractor.  The subcontractor argued that the reference to “subcontractors” (no apostrophe) must mean any subcontractor, not just itself.  Thus, it was entitled to payment of the retention when the replacement subcontractor finished the job.  The general contractor took the position that “subcontractors” refers to the first sub-contractor and since it did not finish the job, it is owed nothing more.  Who won?

The trial court found for the general contractor and the Court of Appeal affirmed based on a literal interpretation. Regency Midland Constr. v. Legendary Structures, 2019 Cal. App. LEXIS 1110.  The Court of Appeal supported its holding by referring to the purpose of the retention clause – to ensure proper performance.

“He said: “IT DOESN’T, ‘n YOU CAN’T!”

Why we use an apostrophe to denote possession is somewhat mysterious.  The word is derived from two Greek words, ἀπό (meaning away from) and στρέφειν (meaning to turn away).  Thus, an apostrophe is used to denote an elision.  In can’t, for example, the apostrophe denotes the elision of no.  But what does elision have to do with possession.  In Old English, singular possessives were often formed by adding es to a word.  For example, the singular possessive of the Old English word for ship, sċip, is sċipes.  The theory is that the apostrophe was used to denote the elision of the e.

Is This a Forum Selection Clause, or Not?

Stanley A. Martin | Commonsense Construction Law | November 6, 2019

Forum selection clauses have become commonplace in construction contracts. Most general contractors take steps to ensure that they can bring their subs into the same forum as the owner, should there be an owner dispute that involves the sub’s work. One contractor has just been reminded that its subcontract has a joinder clause, which is not the same as a forum selection clause.

A forum selection clause will read something like this:

Contractor and Subcontractor agree that all disputes arising under this Subcontract shall be decided by litigation brought in the Suffolk Superior Court in Massachusetts or in the federal District Court serving Suffolk County.

Forum selection clauses are routinely enforced, except when a court finds that one party has a compelling interest (usually based on a particular state law) that can only be addressed in another forum.

A federal court in Pennsylvania has just reminded a general contractor, though, that it does not have a forum selection clause in its subcontract. The clause at issue read, in part:

Subcontractor agrees . . . Contractor shall have the exclusive right to join Subcontractor in any dispute resolution procedure (including without limitation ADR procedures, binding arbitration or other judicial or non-judicial proceeding) in which Contractor may be involved arising out of or in connection with the Project.

When the sub filed suit against the general, and the general was later sued by the project owner, the general sought to dismiss the sub’s lawsuit and compel the sub to join in the owner-filed lawsuit. But the court denied the general’s motion. It held that the second joinder clause noted above “does not ‘mandate litigation in any particular forum’ nor dies it ‘restrict [the sub’s] right to bring its own claims’ in any jurisdiction.”

The subcontract clause was not a forum selection clause. The contractor may be able to bring the sub into the owner lawsuit, but will not be able to halt, or shift, the sub’s lawsuit. So the general will be faced with fighting on two fronts, with potential inconsistent outcomes. The case is Madison Constr. Co. v. Turner Constr. Co., 2019 U.S. Dist. LEXIS 191602 (Nov. 5, 2019) (subscription required).

What are the Boundaries of the Attorney/Client Privilege – Can a Public Adjuster Be a Part of Privileged Communications?

Tamara Chen-See | Property Insurance Coverage Law Blog | November 5, 2019

When an insured disputes coverage or the amount of loss under an insurance policy, it frequently finds it necessary to hire a claims professional – a licensed public adjuster or other claim consultant, or an attorney for assistance.

Insurance companies have claim professionals on staff and are equipped as a business practice to resolve disputed issues of coverage or damages, but most insureds are not. For some of the complex or substantial commercial and condominium claims we represent, a lawsuit can be necessary to resolve the dispute and the insured’s claim professional continues to assist with understanding the facts of the claim investigation – what property was damaged, the condition of the property before and after the event triggering coverage, and the measures taken to mitigate the damages, for example. Issues concerning discovery of those communications during the lawsuit can arise. The attorney/client privilege, and the related doctrine of attorney work-product immunity from disclosure, limit discovery of communications with an attorney.

In some states where we practice, such as Colorado, the attorney-client privilege has been codified in a statute, and is generally described in the following terms:

An attorney shall not be examined without the consent of his client as to any communication made by the client to him or his advice given thereon in the course of professional employment; nor shall an attorney’s secretary, paralegal, legal assistant, stenographer, or clerk be examined without the consent of his employer concerning any fact, the knowledge of which he has acquired in such capacity.1

When claims cannot be settled without a lawsuit, attorneys frequently need to obtain factual information to advise the client, and there are many sources of that information – the documents in the underlying claim process reflecting the investigation, the insurance carriers claims notes or log (in a bad faith case, where such internal documents are discoverable), depositions and other information preserved for the legal process.

Attorneys are routinely called on to provide advice to their clients, in confidence, and such communications are protected from intrusion by others outside that privilege. However, if persons that are not related to or employed by the insured client are included in an otherwise confidential communication with the attorney, the privilege may be waived, and the communication becomes discoverable evidence in a lawsuit.2 But often the attorney needs to advise the insured client about facts that are not readily evident from those other materials and may need to include the public adjuster or other claim professional in a communication with the client enabling the attorney to give advice. Since the claim professional may be deemed to be a “third-party” to this communication, can the communication still be protected from discovery as a confidential attorney-client “privileged” communication, immune from discovery?

Many states provide protection for such communications in recognition of the practical necessity of including knowledgeable “third-parties” in the conference. Where an insured has hired an independent contractor or an agent or other representative to investigate or control some activity important to the insured, an “organizational privilege” may arise. This formulation of the privilege is commonly attributed to the United States Supreme Court in Upjohn Co. v. United States,3 where the Court analyzed the scope of the attorney-client privilege in the corporate context. The Court rejected what had previously been known as the “control group” test where only senior management responsible for making a decision on the issue the privileged communications involved, and instead concluded:

(1) that the information, not available from higher management, was needed to supply a basis for legal advice; (2) that the communications concerned matters within the scope of the employees’ corporate duties; (3) that the employees were aware that they were being questioned so that the corporation could obtain legal advice; and (4) that the communications were considered “highly confidential” when made and were kept confidential by the company.

The highest court in the country has recognized that entities like corporations necessarily must act through their employees and representatives. And many times, those are the people who were actually involved in the underlying events on which advice is needed, rather than management of the company. It is a short leap to extend these principles to organizations that hire outsiders to perform some function, like a public adjuster or other claim professional might for an organization during a claim investigation. The Chief Justice of the Colorado Supreme Court provided an analysis to apply this “organizational privilege” to the independent contractors or other representatives of an agency in Alliance Construction Solutions, Inc. v. Department of Corrections.4

In Alliance Construction, the Colorado Supreme Court considered:

[W]hether the purposes supporting the attorney-client privilege-including the attorney’s need to gather relevant information in order to provide sound legal advice are supported by applying the privilege to protect communications between governmental counsel and persons who, though not formally employed by the governmental entity, have the kind of significant relationship with the entity that makes it appropriate to consider them functional employees for the purposes of the privilege.”5

The court held:

We find the Bieter court’s analysis persuasive and conclude that there are circumstances when the attorney-client privilege protects communications between a governmental entity’s independent contractor and the entity’s counsel. Moreover, this conclusion comports with our reasoning in Gordon v. Boyles, 9 P.3d 1106 (Colo. 2000) and Nat’l Farmers Union Prop. & Cas. Co. v. Dist. Court, 718 P.2d 1044 (Colo. 1986). Because we have concluded that the attorney-client privilege protects communications made to the attorney in order for him to provide sound legal advice, Gordon, 9 P.3d at 1123; Nat’l Farmers, 718 P.2d at 1049, we agree with the Bieter court that a formal distinction between an employee and an independent contractor conflicts with the purposes supporting the privilege. An independent contractor with a meaningful relationship to the governmental entity may possess important information needed by the attorney to provide effective representation.6

The Colorado Supreme Court held:

[F]or the attorney-client privilege to apply in the context at issue, the information-giver must be an employee, agent, or independent contractor with a significant relationship not only to the governmental entity but also to the transaction that is the subject of the governmental entity’s need for legal services. Thus, the type of relationship between the client and the information-giver must be closely analyzed to determine the application of the privilege.

These standards can apply to a claims professional such as a public adjuster if the necessary relationship – a written agreement between the adjuster and the insured – exists and close relationship with the transaction at issue – investigation of the claim circumstances – all exist.

Care is required to maintain the privilege, so the participants in a communication must follow the rules established to maintain confidentiality of the communications and avoid any waiver. However, given the critical role that outside claims professionals often have in the claim investigation and close evaluation of the damage circumstances, common sense should allow an attorney to join that third-party in confidential conferences with the client to assure that both the client and attorney have the critical facts needed for the attorney to provide legal advice. The courts seem to agree.
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1 Colo. Rev. Stat. §13-90-107(1)(b) (2001).
2 This issue is discussed in this blog in the context of attorney representation of a corporation, partnership, limited liability corporation or other organizational entity, including not-for-profit community associations. The principles discussed should be similarly applicable to circumstances in which an individual retains a claims professional and that “third-party” is asked by legal counsel to assist in providing facts on which to advise the client.
3 Upjohn Co. v. United States, 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981).
4 Alliance Construction Solutions, Inc. v. Department of Corrections, 54 P.3d 861, 867-70 (Colo. 2002).
5 Id. at 867.
6 Id. at 867, relying on In re Bieter Co., 16 F.3d 929 (8th Cir. 1994).