Before WESLEY, HALL, and CHIN, Circuit Judges. Cynthia S. Arato (Daniel J. O'Neill, on the brief), Shapiro, Arato & Isserles LLP, NY, New York, for Plaintiff–Appellant. Robert I. Steiner (Sean R. Flanagan, on the brief), Kelley Drye & Warren, LLP, New York, NY, for Defendant–Appellee Laboratory Corporation of America Holdings. Frederick T. Smith, Seyfarth Shaw LLP, Atlanta, GA, for Defendant–Appellee LexisNexis Occupational Health Solutions Inc. (formerly ChoicePoint, Inc.).
In this case, plaintiff-appellant Fred Pasternack, a physician and airplane pilot, was required to submit to a random drug test in accordance with federal regulations governing aviation safety. He contends that defendants-appellees Laboratory Corporation of America Holdings (“LabCorp”) and ChoicePoint, Inc. (“ChoicePoint”), the drug testing companies engaged to administer the test, mishandled it.2 He brought this action below, seeking damages for, inter alia, negligence and fraud. The district court (Gardephe, J.) entered judgment on September 30, 2014, dismissing the action. Pasternack appeals.
Second, whether a plaintiff may establish the reliance element of a fraud claim under New York law by showing that a third party relied on a defendant's false statements resulting in injury to the plaintiff.
Because these unresolved questions implicate significant New York state interests and are determinative of this appeal, we reserve decision and certify the questions to the New York Court of Appeals.
Doctor Fred Pasternack is a physician and part-time pilot for Northeastern Aviation Corporation (“Northeastern”) and an aerial advertising business. Between 1978 and 2008, he was designated a Senior Aviation Medical Examiner (“AME”) for the FAA, giving him the authority to conduct FAA-mandated medical examinations for pilots. He has a private medical practice in New York City, which includes performing AME certification examinations of other pilots. He holds a number of certificates issued by the FAA.
The FAA has issued regulations requiring all aviation employees to submit to random drug testing, as part of its mandate to ensure “safety in air commerce and national security.” 49 U.S.C. § 44701(a)(5) (procedures for transportation workplace drug and alcohol testing programs); see also 49 C.F.R. pt. 40. On June 1, 2007, Pasternack was notified by Northeastern that he had been selected for random drug testing. At that time, ChoicePoint was responsible for administering Northeastern's drug testing program, and LabCorp was responsible for performing specimen collection and testing.
On June 5, 2007, at approximately 1:10 p.m., Pasternack arrived at LabCorp's testing site in Manhattan, with a chain-of-custody form (“CCF”). He provided a urine sample, but Theresa Montalvo, a LabCorp worker, informed him that the sample contained an insufficient amount of urine for testing. Montalvo told Pasternack to wait in the waiting area. Pasternack did so, but because he had a 2:30 p.m. appointment to see a patient, he believed that he would not be able to produce enough urine before he had to leave for the appointment. Consequently, he advised Montalvo that he would have to leave and that he would return later to provide the sample. Montalvo asked him when he was planning to return, and she told him that she would have to advise his employer that he was leaving the collection site. Pasternack told her she was free to tell his employer, and that he would come back the next morning. Montalvo did not tell Pasternack that if he left the collection site he would be designated a “refusal to test,” and he claims that he did not know that leaving the test site could constitute a “refusal” to test. Pasternack contends that he would have waited at the site if Montalvo had told him this.
Pasternack left the testing site to meet his patient. Approximately three hours later, around 4:00 p.m., he returned. Montalvo told him that she would have to call his employer. She did so, calling the General Manager for Northeastern, who told her that LabCorp could take a second urine sample from Pasternack. She noted on Pasternack's CCF that he had left and returned, and that Northeastern had approved the second collection. Pasternack provided another urine sample; this time there was a sufficient quantity of urine. His specimen tested negative.
Pasternack's CCF was later reviewed by a Medical Review Officer (the “MRO”) at ChoicePoint. Based on the notation on the CCF that Pasternack had left the testing site, the MRO determined that Pasternack had left the collection site before the test was completed. ChoicePoint then notifed the FAA that Pasternack had refused a drug test. The MRO designated Pasternack as a “refusal to test” even though LabCorp had not checked the “no specimen provided” box on the CCF, and even though Northeastern had authorized Montalvo by phone to collect the second sample when Pasternack returned to the site later that day.
On June 15, 2007, Northeastern learned that Pasternack's June 5, 2007 drug test had been designated by ChoicePoint as a “refusal to test.” Thereafter, the FAA conducted an investigation into Pasternack's purported refusal to test, during which Montalvo purportedly made false representations to the investigators about Pasternack's conduct. On November 20, 2007, in reliance on the misrepresentations, the FAA revoked all of Pasternack's airman certificates. By letter dated February 21, 2008, the FAA terminated his AME designation due to his “unacceptable lack of regard for the importance of” FAA regulations and for his “refusal to take a random drug test.” J.A. at 56. As a consequence, Pasternack was unable to pilot any flights or perform pilot medical examinations or otherwise function as an AME.
Pasternack appealed the termination of his AME designation to the FAA, and the appeal was denied. He also appealed the FAA's revocation of his pilot certificates to an Administrative Law Judge (“ALJ”) of the National Transportation Safety Board (the “NTSB”). The ALJ upheld the revocation. He then appealed to the NTSB, which also upheld the revocation.
Pasternack appealed the NTSB's decision to the D.C. Circuit Court of Appeals. On February 26, 2010, the D.C. Circuit remanded the matter to the NTSB, holding that the NTSB's finding that Pasternack had “refused” to test was not supported by substantial evidence. Pasternack v. NTSB, 596 F.3d 836, 838 (D.C.Cir.2010). While it was undisputed that Montalvo did not advise Pasternack that he would be deemed a “refusal to test” if he left, the NTSB argued that Montalvo did not have an “opportunity” to explain the policy because of Pasternack's behavior at and hurried departure from the collection site. Id. at 837–40. The D.C. Circuit found, however, that it was “utterly implausible” that Montalvo did not have time to tell Pasternack that if he left it would be deemed a “refusal.” Id. at 839.
On remand, the ALJ again held that Pasternack had refused to test. The NTSB again affirmed, and Pasternack again appealed to the D.C. Circuit. On March 22, 2013, the D.C. Circuit ruled in favor of Pasternack again, holding that “substantial evidence does not support the NTSB's determination that the collector did not impliedly give Dr. Pasternack permission to leave,” and reversing the NTSB. Pasternack v. Huerta, 513 F. App'x 1, 2 (D.C.Cir.2013). The FAA thereafter reinstated Pasternack's airman certificates and AME designation and expunged his record of any reference to a drug test refusal.
On June 3, 2010, Pasternack commenced this action against LabCorp and ChoicePoint, seeking to recover damages for defendants' alleged tortious and fraudulent conduct in administering the random drug test.4 Specifically, Pasternack alleged that he suffered damages as a result of the loss of his AME certification and airman certificates.
On August 1, 2011, the district court granted ChoicePoint's motion to dismiss. Pasternack v. Lab. Corp. of Am., No. 10 Civ. 4426, 2011 WL 3478732, at *15 (S.D.N.Y. Aug. 1, 2011) (“Pasternack I ”). On September 6, 2012, the district court granted Pasternack's motion for leave to file a second amended complaint as to LabCorp, but denied Pasternack's motion for leave to amend his complaint as to ChoicePoint, concluding that it would be futile. Pasternack v. Lab. Corp. of Am., 892 F.Supp.2d 540 (Sept. 6, 2012) (“Pasternack II ”). On September 12, 2012, Pasternack filed a second amended complaint, asserting claims for negligence, gross negligence, negligent misrepresentation, fraud, and injurious falsehood against LabCorp. On September 29, 2014, the district court granted LabCorp's motion to dismiss. Pasternack v. Lab. Corp. of Am., No. 10 Civ. 4426, 2014 WL 4832299, at *21 (S.D.N.Y. Sept. 29, 2014) (“Pasternack III ”). On September 30, 2014, the district court entered judgment against Pasternack and closed the case.
We review de novo the dismissal of a complaint under Federal Rule of Civil Procedure 12(b)(6), accepting as true all allegations in the complaint and drawing all reasonable inferences in favor of the non-moving party. Starr Int'l Co. v. Fed. Reserve Bank of N.Y., 742 F.3d 37, 40 (2d Cir.2014).
Osterweil v. Bartlett, 706 F.3d 139, 142 (2d Cir.2013) (quoting Barenboim v. Starbucks Corp., 698 F.3d 104, 109 (2d Cir .2012)).
This appeal presents two issues: (a) whether under New York negligence law a drug testing company owes a duty of care to the subject of a drug test based on federal regulations governing drug testing, and (b) whether under New York law a fraud claim can be based on false representations made by a defendant to a third party whose reliance on the representations results in injury to the plaintiff.
The elements of a negligence claim under New York law are: “(i) a duty owed to the plaintiff by the defendant; (ii) breach of that duty; and (iii) injury substantially caused by that breach.” Lombard v. Booz–Allen & Hamilton, Inc., 280 F.3d 209, 215 (2d Cir.2002) (citing Merino v. New York City Transit Auth., 218 A.D.2d 451, 639 N.Y.S.2d 784 (1st Dep't 1996)). If the defendant owes no duty to the plaintiff, the action must fail. “Although juries determine whether and to what extent a particular duty was breached, it is for the courts first to determine whether any duty exists.” Darby v. Compagnie Nat'l Air France, 96 N.Y.2d 343, 347, 728 N.Y.S.2d 731, 753 N.E.2d 160 (2001). “[T]he definition of the existence and scope of an alleged tortfeasor's duty is usually a legal, policy-laden declaration reserved for Judges to make prior to submitting anything to fact-finding or jury consideration.” Palka v. Servicemaster Mgmt. Servs. Corp., 83 N.Y.2d 579, 585, 611 N.Y.S.2d 817, 634 N.E.2d 189 (1994).
Pursuant to [the power granted by the Federal Aviation Act] ․ the FAA promulgated regulations mandating that all aviation-industry employees who perform safety-sensitive functions be subjected to random drugtesting․ The FAA regulations incorporate by reference DOT regulations that set out detailed protocols to be followed by drug-testing laboratories. The DOT regulations provide, among other things, that laboratories must use chain-of-custody procedures to document each time a urine specimen is handled or transferred, that an employer's designated MRO must review and certify test results before the laboratory reports them to the employer, and that laboratories must report test results to an MRO in writing.
Id. at 56–57 (citations omitted). Though the DOT regulations set out rules for the conduct of drug tests, they “do not specifically address negligence on the part of drug-testing laboratories or otherwise establish the minimum standard of care to be exercised by laboratory personnel.” Id. at 57.
“The procedures for collection of urine under [49 C.F.R. pt. 40] are very specific and must be followed whenever a DOT-required urine specimen collection is performed.” DOT, Urine Specimen Collection Guidelines at 3 (Dec.2006) (“2006 Urine Specimen Collection Guidelines ”).5 Collectors “must be knowledgeable” about the regulations and procedures. 49 C.F.R. § 40.33(a). Under the regulations, an employee is deemed to “have refused to take a drug test” when he “[f]ail[s] to remain at the testing site until the testing process is complete.” 49 C.F.R. § 40.191(a)(2).
Section 40.193 sets forth a “shy bladder” protocol-the procedures that apply when an employee does not provide a sufficient amount of urine for a drug test. In that circumstance, the collector “must ․ [u]rge the employee to drink up to 40 ounces of fluid, distributed reasonably through a period of up to three hours,” unless the person provides a sufficient urine specimen before the three-hour period has elapsed. 49 C.F.R. § 40.193(b)(2). If an employee “refuses to make the attempt to provide a new urine specimen or leaves the collection site before the collection process is complete,” the collector is instructed to discontinue the collection and note that fact on the CCF. 49 C.F.R. § 40.193(b)(3). These actions are deemed “a refusal to test.” Id. See also 2006 Urine Specimen Collection Guidelines § 7(3)-(4).
The DOT regulations likewise impose obligations on MROs with respect to drug testing procedures. In general, an MRO “must act to investigate and correct problems where possible and notify appropriate parties (e.g., [U.S. Department of Health and Human Services], DOT, employers, service agents) where assistance is needed, (e.g., cancelled or problematic tests, incorrect results, problems with blind specimens).” 49 C.F.R. § 40.123(e). Of particular relevance is § 40.355, which provides that an MRO “must not make a determination that an employee has refused a drug or alcohol test. This is a non-delegable duty of the actual employer.” 49 C.F.R. § 40.355(i). An MRO, however, may “provide advice and information to employers regarding refusal-to-test issues.” Id.
In his claims against ChoicePoint, Pasternack alleges that the MRO wrongfully determined that his leaving the testing site constituted a “refusal to test” and wrongfully communicated that determination to Northeastern. Pasternack premised his motion for leave to amend his Amended Complaint as to ChoicePoint on the theory that the MRO violated two DOT regulations in particular.
First, Pasternack relies on 49 C.F.R. § 40.123(e), which provides that the MRO “must act to investigate and correct problems where possible and notify appropriate parties ․ where assistance is needed․” The district court held that “as a matter of law ․ any obligation imposed by this regulation is—in the context of this case—too vague to serve as the basis for a negligence action.” Pasternack II, 892 F.Supp.2d at 554.
The district court rejected this argument. First, the district court held that if ChoicePoint's violation of § 40.355(i) were sufficient to establish a claim, that would essentially grant test subjects a private right of action for violation of FAA and DOT regulations, a concept which this Court has rejected. Pasternack II, 892 F.Supp.2d at 555 n. 7 (citing Drake II, 458 F.3d at 64) (Federal Aviation Act “does not provide a private right of action for violations of FAA drug-testing regulations”)). Second, the district court held that Pasternack would therefore have to identify a state law negligence claim to proceed, and “no case suggest[s] that a violation of 49 C.F.R. § 40.355(i) provides a basis for a negligence action under New York law.” Id. at 555. Thus, the district court denied Pasternack's motion for leave to amend as to ChoicePoint. Id. at 556–57.
In his Second Amended Complaint, Pasternack alleges that LabCorp breached a duty to him by failing to comply with the DOT Regulations and Guidelines. Specifically, Pasternack alleges that LabCorp breached its duty by failing to (i) explain the “shy bladder” procedure to him, (ii) urge him to wait and drink fluid, and (iii) inform him that he was required to remain at the testing site and that leaving could result in a “refusal to test.” The Guidelines and the Regulations, both of which are non-binding, call for such explanations and warnings. See 49 C.F.R. §§ 40.191, 40.193, 40.33; 2006 Urine Specimen Collection Guidelines § 7(3)-(4).
LabCorp moved to dismiss, and the district court granted the motion. Pasternack III, 2014 WL 4832299, at *1. The district court found that Pasternack's negligence claims against LabCorp were “premised solely on violations of the DOT Regulations and Guidelines,” and “Pasternack has cited no case suggesting that a violation of the DOT Regulations or Guidelines that he relies on gives rise to a negligence claim under New York law․ Pasternack has likewise cited no case suggesting that the omissions alleged here ․ give rise to a cognizable breach of the duty of care under New York law.” Id. at *13.
In dismissing the negligence claims against LabCorp and ChoicePoint, the district court distinguished this case from three cases in which a drug testing laboratory or MRO had a contractual relationship with its test subjects by virtue of the test subjects' employment with the lab or MRO. In each of these cases, the laboratory or MRO directly mishandled the urine specimen. See, e.g., Drake v. Lab. Corp. of Am., No. 02–CV–1924, 2007 WL 776818, at *2–3 (E.D.N.Y. Mar. 13, 2007) (“Drake III ”), on remand from 458 F.3d 48 (2d Cir.2006) (MRO allegedly sent someone else's sample to toxicology laboratory, but claimed sample belonged to plaintiff); Coleman v. Town of Hempstead, 30 F.Supp.2d 356, 365 (E.D.N.Y.1999) (laboratory allegedly failed to maintain seal on plaintiff's urine sample); Santiago v. Greyhound Lines, Inc., 956 F.Supp. 144, 153 (N.D.N.Y.1997) (plaintiff's urine sample tested positive for cocaine while contained in bottle on which plaintiff's signature had been forged). Here, Pasternack neither had a contractual relationship with LabCorp or ChoicePoint, nor did these defendants directly mishandle his urine sample.
Pasternack relies heavily on the recent decision of the New York Court of Appeals in Landon v. Kroll Lab. Specialists, Inc., 22 N.Y.3d 1, 977 N.Y.S.2d 676, 999 N.E.2d 1121 (2013), where the Court of Appeals affirmed the denial of a motion to dismiss a claim brought by a probationer against a drug testing laboratory for purportedly failing to use reasonable care in “the testing of [his] biological sample,” which caused a false positive test result. Id. at 6, 977 N.Y.S.2d 676, 999 N.E.2d 1121. Pasternack argues that Landon controls here. In contrast, defendants argue that, in light of our holding in Drake II that there is no private right of action for violations of federal testing regulations, a test administrator does not owe a duty of reasonable care based on federal governmental regulations and guidelines.
First, we note that the New York Court of Appeals has not addressed the issue before us, for Landon did not address the question of whether the federal regulatory scheme creates a duty of care for drug testing companies. Decisions of other New York courts do not permit us to confidently predict how the Court of Appeals would rule. Second, the issue implicates important matters of state law—the duty of care applicable to drug testing companies. The DOT regulations apply not just to the airline industry, but to other transportation industries as well, and questions of public safety are implicated. Third, the certified question is determinative of Pasternack's negligence claims; if the federal regulations and guidelines do not create a duty of care, the claims fail. Accordingly, we certify the question to the New York Court of Appeals.
Under New York law, the elements of a fraud claim are “a representation of material fact, falsity, scienter, reliance and injury.” Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 57, 698 N.Y.S.2d 615, 720 N.E.2d 892 (1999). The parties in this case principally disagree over whether, for purposes of establishing the elements of a fraud claim under New York law, “reliance” can be a third party's rather than the plaintiff's.
Pasternack contends that the investigators—third parties rather than Pasternack himself—relied on LabCorp's false statements, to his detriment. He alleges that LabCorp's employee, Montalvo, made false statements to the FAA investigators, which induced the investigators to conclude that Pasternack had prevented Montalvo from giving him the warnings required by the regulations. The district court dismissed the fraud claims, holding that under New York law a fraud claim cannot be based on a false representation made to and relied upon by a third party whose reliance causes injury to the plaintiff. The district court relied on a strand of Second Circuit cases holding that New York fraud law does not contemplate third-party reliance. See Cement & Concrete Workers Dist. Council Welfare Fund v. Lollo, 148 F.3d 194, 196 (2d Cir.1998) (“[A] plaintiff does not establish the reliance element of fraud for purposes of ․ New York law by showing only that a third party relied on a defendant's false statements.”); City of New York v. Smokes–Spirits.com, Inc., 541 F.3d 425, 454 (2d Cir.2008) (“[A]llegations of third-party reliance ․ are insufficient to make out a common law fraud claim under New York law .”), rev'd on other grounds sub nom. Hemi Group, LLC v. City of New York, 559 U.S. 1, 130 S.Ct. 983, 175 L.Ed.2d 943 (2010). Instead, these decisions hold that a plaintiff asserting a fraud claim must “plead ‘reasonable reliance on the part of the plaintiff.’ “ Smokes–Spirits.com, Inc., 541 F.3d at 454 (quoting Crigger v. Fahnestock & Co., 443 F.3d 230, 234 (2d Cir.2006)).
Despite the holdings in Lollo and Smokes–Spirits, Appellate Division courts as well as the federal district courts are divided on the issue. See Pasternack III, 2014 WL 4832299, at *15–16 (collecting cases); compare, e.g., Briarpatch Ltd., L.P. v. Frankfurt Garbus Klein & Selz, P.C., 13 A.D.3d 296, 297, 787 N.Y.S.2d 267 (1st Dep't 2004) (holding that fraud claims were properly dismissed where “[t]he only alleged misrepresentation concerned a letter from defendant ․ to a third party, on which plaintiffs [could not] and [did] not claim reliance”), with Buxton Mfg. Co. v. Valiant Moving & Storage, Inc., 239 A.D.2d 452, 453–54, 657 N.Y.S.2d 450 (2d Dep't 1997) (holding that defendant could be liable for fraud for false statements made to and relied on by Department of Agriculture, resulting in injury to plaintiff).
The New York Court of Appeals has not directly addressed the question, but the Appellate Division cases that have endorsed third-party reliance have generally done so by relying on a line of cases originating with three New York Court of Appeals cases from the 1800s. See Eaton, Cole & Burnham Co. v. Avery, 83 N.Y. 31 (1880); Rice v. Manley, 66 N.Y. 82 (1876); Bruff v. Mali, 36 N.Y. 200 (1867). As the district court notes, however, the three cases are distinguishable. In Eaton and Bruff, the third parties acted as conduits to relay the false statements to the plaintiffs, who then relied on the false statements to their detriment. Eaton, 83 N.Y. at 33, 35; Bruff, 36 N.Y. at 200–02, 206. Rice expressly declined to resolve the issue, noting in dicta that “it matters not whether false representations be made to the party injured or to a third party.” Rice, 66 N.Y. at 87. Eaton, Bruff, and Rice thus do not answer the question before us.
Certification is appropriate in this case because (1) the New York Court of Appeals has not directly addressed the issue of third-party reliance in a fraud case and the decisions of other New York courts do not permit us to predict how the Court of Appeals would resolve the issue; (2) the question is important to the state and implicates issues of policy; and (3) the question is “determinative of a claim before us.” In re Thelen LLP, 736 F.3d 213, 224 (2d Cir.2013) (internal quotation marks omitted).
The Court of Appeals is not limited to the particular questions stated. Rather, the Court of Appeals may modify the certified questions, and may direct the parties to address any other issues that may pertain to the circumstances presented in this appeal.
This panel retains jurisdiction and will consider any issues that remain on appeal once the New York Court of Appeals has ruled.
It is therefore ORDERED that the Clerk of this Court transmit to the Clerk of the Court of Appeals of the State of New York a Certificate, as set forth below, together with complete sets of briefs and appendices, and the records filed in this Court by the parties.
The foregoing is hereby certified to the Court of Appeals of the State of New York pursuant to Second Circuit Local Rule 27.2 and New York Codes, Rules, and Regulations Title 22, § 500.27(a), as ordered by the United States Court of Appeals for the Second Circuit.


In a rare moment of clarity in the benighted history of the Waters of the United States or WOTUS rule, a unanimous Supreme Court declared that jurisdiction to review the WOTUS rule lies in the District Courts and not the Courts of Appeal. The immediate effect of the January 22 ruling in National Assn. of Manufacturers v. Dept. of Defense is to lift the nationwide stay of the rule imposed by the Sixth Circuit—which held that the appellate courts have original jurisdiction over the rule—thus reigniting a lot of dormant trial court challenges.
The Clean Water Act applies to “navigable” waters, which is defined simply as “waters of the United States, including the territorial seas.” EPA and the Army Corps of Engineers administer the CWA, and have tried without much success to refine this vague definition. The latest attempt is the WOTUS rule, adopted by the Obama EPA in 2015. The issue in National Assn. of Manufacturers is not whether that attempt hits the mark, but in which court should challenges be heard.
As noted in Bob Brubaker’s take on this case, the Court looked to the plain language of the statute, and to context when further explanation is needed. The CWA extends original jurisdiction to the Circuits for EPA “approving or promulgating any effluent limitation or other limitation.” The government argued that the WOTUS rule falls within “any . . . other limitation.” The Supreme Court rejected that argument, holding that such other limitations must be related to effluent limitations, and the WOTUS rule just establishes a definition that would apply generally to the scope of CWA. The Court also rejected applicability of another CWA basis for Circuit Court jurisdiction advanced by the government, “issuing or denying any [NPDES] permit,” concluding simply that the WOTUS rule is not the same as permit issuance.
So what difference does it make if a trial judge or an appellate judge makes the initial decision on WOTUS? WOTUS has drawn a multitude of challenges in both the District Courts and Courts of Appeals, including some in which plaintiffs filed in both courts to be on the safe side. The case will end up at the Supreme Court anyway, right?
True, but consider that the Sixth Circuit consolidated all the challenges in other Circuits and issued a decision that applied across the country. The district court litigation has not been consolidated, and some cases have come to different conclusions, with many remaining to be litigated. So, we can expect years of litigation in many different courts, followed by years of appeals heard by the Circuits, and finally to the Supreme Court . . . again.
But wait, Scott Pruitt’s EPA has initiated a rulemaking process to rescind and replace the WOTUS rule, so wouldn’t that moot the pending challenges to the rule? It would not. EPA has announced it is delaying the effective date of the 2015 rule for two more years to allow the Agency to develop its replacement. But, in the meantime, the 2015 WOTUS rule remains in place.
The practical result is that the current round of cases in the District Courts will continue, followed -- if not accompanied -- by a new round of litigation challenging the proposed change of effective date, and the proposed rescission and replacement rules. Safe to say there will be no certainty on the definition of WOTUS and the scope of Clean Water Act jurisdiction for many years to come.
With a flourish of his pen, on February 28, President Trump signed an Executive Order aimed at dismantling the ill-fated Waters of the United States (WOTUS) rule. The rule was the latest attempt by EPA and the Army Corps of Engineers to bring some clarity to the limits of federal authority under the Clean Water Act. Clarity in this area has been elusive, and though many were unhappy with the rule, no one benefits from the current state of confusion.
The uncertainty begins with the Clean Water Act, which Congress said applies to “navigable” waters and then helpfully defined navigable to mean “waters of the United States.” The agencies and the courts have struggled ever since to figure out when wetlands are jurisdictional. The courts have not helped. In Rapanos v. U.S., a 5-4 majority of the Supreme Court found the Government had overreached, but could not agree as to why. Justice Scalia, writing for a plurality of the Court, would limit jurisdiction to “relatively permanent, standing or continuously flowing bodies of water,” excluding intermittent or ephemeral channels and most drainage ditches. In a concurring opinion, Justice Kennedy invoked a “significant nexus” test whereby jurisdiction should apply if a hydrologic connection between a wetland and a navigable water could be demonstrated. Later courts have tried to follow both tests, with mixed results.
In the meantime, property owners still would like to develop their property, and the Government still has to apply the law. The Trump Executive Order gives direction that a new WOTUS rule should follow the Scalia test, but that doesn’t reflect the way jurisdictional determinations are made today. Suffice to say that the Kennedy significant nexus test will still be in play for the near to intermediate term, and a prudent developer will include a wetlands determination as a key part of the due diligence for the project.
Section 101(f) of the Clean Water Act (CWA) creates a “national policy” that “to the maximum extent possible” the Act “shall” be implemented in a manner that “prevent[s] needless duplication and unnecessary delays at all levels of government.” (33 U.S.C. § 1251(f)) Although this and the other overarching goals in § 101 of the Act were “no exercise in boilerplate rhetoric,” (William Harsha, Jr. (Ohio), Congressional Record 16520 (Jun. 3, 1976)) they are typically ignored. Instead of ignoring § 101 of the CWA, however, a strong argument can be made that courts should remand or even vacate an agency’s action if it can be shown that such an action needlessly duplicates or unnecessarily delays efforts to “restore and maintain the chemical, physical, [or] biological integrity of the Nation’s waters. (33 U.S.C. § 1251(a)) This would further Congress’s intent as codified in §§ 101(a) & (f) of the CWA.
Consider the ongoing controversy about the recent “Waters of the United States” rule (Rule). (80 Fed. Reg. 37,054 (Jun. 29, 2015)) Many have said much about this Rule, focusing on lofty constitutional arguments, erudite discussions of which and when Supreme Court opinions control, and the finer points of APA jurisprudence. But few have argued that the automatic implementation of its increased jurisdictional scope would contravene § 101(f). Because the Rule seeks to increase the federal government’s jurisdiction under the CWA, without more, coverage of the Act’s regulatory requirements would immediately attach to previously non-jurisdictional waters. This inextricable link of new jurisdiction and implementation could lead to disruptive delays and associated problems.
The shift of focus from traditional waters of the United States to stormwater conveyances could divert and dilute scarce local government resources. This could delay meaningful water quality improvements for the lakes and rivers people actually use to swim and fish, and use for potable water could become more difficult to attain and then sustain. Such delays would serve no environmental benefit and would be especially unjustified where local governments only use those stormwater conveyances for stormwater management or for treating discharges from them into traditional waters of the United States. Indeed, until promulgation of the Waters of the United States Rule, stormwater conveyances have historically been excluded from the CWA’s jurisdictional reach.
William H. Green thanks Mohammad O. Jazil for his contributions to this post.
In June 2015, the Environmental Protection Agency and the Army Corps of Engineers released a rule to define “waters of the United States,” affectionately referred to as WOTUS. This definition goes to the scope of federal jurisdiction over wetlands and other waters that are not obviously free flowing and navigable. An in-depth analysis of the rule can be found here.
The rule hasn’t exactly played to rave reviews. It attracted over one million comments. Many complained the rule represents gross government overreach. Others criticize the rule for not being protective enough. The rule is also the subject of multiple challenges around the country, some filed before the rule was officially released. The lead case is now pending before the United States Court of Appeals for the Sixth Circuit. The Court of Appeals accepted original jurisdiction over a challenge to the rule based, in part, on the failure of the rule’s “distance limitations” to comport with good science, and on the inconsistency of the final rule with the proposed rule. The Court of Appeals thought enough of petitioners’ arguments that it stayed implementation of the new rule.
On this first anniversary of the rule, we thought a brief summary of the controversies surrounding the rule and current status might be helpful. The attached article, newly published in The Water Report, attempts to do just that. Many thanks to Diego Atencio, a third year law student at the University of Oregon and a summer associate at DWT, for his assistance in writing the article.
Anyone who reads this blog must have seen the explosion of reports in the trade press that EPA ignored significant criticism from the Army Corps of Engineers in promulgating its Waters of the United States rule. (For a useful summary of the rule and an analysis of some of the legal issues that might be raised in potential litigation, see Susan Cooke’s post from earlier this month.) I have not seen the memoranda, but, based on the press reports, it appears that EPA ignored criticism both that it was too stringent in some areas and that it was not sufficiently stringent in others. If EPA’s purpose wasn’t simply to make the rule more – or less – stringent, why did it ignore the Corps and try to bury the disagreement?
I noted earlier this year and as far back as 2010, EPA’s tendency towards self-righteousness. I also pointed out how counterproductive that self-righteousness is; it makes it more difficult for EPA to achieve its goals. While I still think that EPA is self-righteous, hubris seems the apt description today.
Caligula was the cruelest and craziest of a string of deranged Roman emperors. Among his meanest and most irrational acts was to have edicts carved at the top of tall columns and then punish unsuspecting violators, who had no way to decipher the obscure laws etched far over their heads. For this and other cruel acts, he was killed by his own Praetorian Guards.
For all its virtues, American environmental law has traces of this same sort of lunacy and unfair lack of certainty and notice to its regulated citizens. Examples include the chronic uncertainty, after over three decades, about what constitutes a “solid” or “hazardous waste” under RCRA, our basic waste management law, and what constitutes a “major modification” that triggers the onerous PSD Program of the Clean Air Act.
Nowhere is this uncertainty more glaring than in the Clean Water Act (CWA). More than 40 years after its passage, what constitutes a vaguely-defined “water of the U.S.” regulated under the Act is now murkier than ever. At this juncture, however, EPA and the Army Corps of Engineers have a unique opportunity to provide clarity, certainty, and consistency to this key concept by taking three critical actions that would (1) properly clarify by rule the nature and scope of CWA-regulated waters; (2) clearly describe the process for making and also tracking “jurisdictional determinations” made under such rule; and (3) provide affected parties the right to seek prompt judicial review of any final approved determination.
EPA and the Corps have undertaken the first key task by an ongoing rulemaking set to be completed in 2015. While aspects of the agencies’ initial proposed rule were problematic, calls by some quarters to ban or “ditch the rule” altogether are misguided. EPA and the Corps already have on the books vague rules defining regulated waters that are inconsistent with the Supreme Court‘s 2006 Rapanos decision and subsequent case law, and it is in no one’s interest simply to maintain the current status quo of uncertainty and inconsistency. As Chief Justice Roberts emphasized in Rapanos, if the agencies had adopted reasonable rules clarifying the scope of regulated waters a decade ago, as originally planned, the confusing result in Rapanos would likely have been avoided.
In finalizing such rule, however, the agencies should recall that their role and legal duty is to identify and implement the intent of Congress under the 1972 Act, not embark on a policy making exercise about what additional areas should be regulated as a matter of public policy. They should also strive to increase, not decrease, the clarity and certainty of what constitutes regulated wetlands and other waters. For example, aspects of the proposed rule properly and helpfully exclude groundwater and minor ephemeral drainages but then elsewhere create confusion and inconsistency by suggesting that subsurface hydrologic connections and overly broadly defined tributaries can still make an area jurisdictional. Overly expansive proposed approaches to determining “adjacency” and aggregating numerous small areas for their cumulative nexus to downstream navigable waters similarly increase, rather than lessen, the current regulatory confusion and uncertainty. Whether the pending rulemaking is a helpful clarification, or just yet another Caligula’s column, depends on how the agencies resolve those and other problematic provisions in the final rule.
The agencies should also use this occasion to develop a specific process and procedures for making approved “jurisdictional determinations (JDs)” under the final rule. That process should include improved procedures for regulated entities to present evidence that an area is not a “jurisdictional water” under the Act, and for the agencies to track and publically post all final approved JDs as they are made, so they can be used to ensure consistency and inform the public about past determinations in an area.
The third critical fix to make this JD process fair and transparent is to provide that final agency jurisdictional determinations are subject to judicial review. The Corps’ rules already provide for an administrative appeal of approved JDs, as well as proffered or denied 404 permits. 33 CFR Part 331. Inconsistent with that appeal process, however, the Corps and EPA have taken the position that their final decisions on JDs, unlike permitting decisions, are not judicially reviewable “final agency actions” under the Administrative Procedure Act (APA). The 5th Circuit agreed with that position in July 2014 in Belle Company, LLC v. U.S. Army Corps of Engineers, which is subject to a pending Petition for Certiorari to the U.S. Supreme Court. In a pending appeal of this issue before the 8th Circuit in Hawkes Co. v. U.S. Army Corps of Engineers, two judges during oral argument on December 11, 2014 indicated disagreement with Belle, suggested the agencies’ position is inconsistent with the Corps’ administrative appeal rules, and described this claimed exemption from judicial review as “government by regulatory tyranny.” An eventual adverse ruling by the 8th Circuit would greatly increase the odds of the Supreme Court granting certiorari in the Belle case or later in the Hawkes case. The agencies could avoid that uncertainty and the cost, effort, and risk of litigating this issue before the Supreme Court by simply confirming by rule that final approved JDs are final agency actions subject to judicial review under the APA. That confirmation would be consistent with the Corps’ administrative appeal rules and the Supreme Court’s 2012 ruling in Sackett v. EPA, which held that EPA compliance orders (that have a parallel practical effect) are subject to judicial review.
EPA and the Corps are at a crossroads. They can decide to make the definition and identification of jurisdictional “waters of the U.S.” subject to the Clean Water Act clear, consistent, based on Congress’ original intent in 1972, and subject to prompt, objective judicial review. Or, they can decide to keep that process complex and ambiguous, expanded beyond Congress’ original intent, determined case-by-case in the varying judgment of agency personnel, and unreviewable by any court – in effect etched on a proverbial Caligula’s column. The choice should be clear. It’s time to knock that column down.


text:
Dr. Zarins’ motion is a close facsimile to a motion already denied by this Court filed last year by the New England Patriots (“Patriots”) (who settled with Plaintiff sometime after the Court’s ruling). Dr. Zarins’ motion fails for the same reasons the Patriots’ motion failed, as set forth below.
Additionally, Dr. Zarins motion also fails because he is not an employee of New England Patriots and cannot seek refuge in the arbitration provisions of the NFL Collective Bargaining Agreement.
Dr. Zarins’ motion is deliberately obtuse with respect to defining his relationship to the team, arguing that because he is the “Team Physician” any claim against him is governed by the CBA. But he is not an employee of the team entitled to the protection of the CBA.
Dr. Zarins is the Chief of the Massachusetts General Hospital Sports Medicine Service as well as a Professor at Harvard Medical School, not an employee of the Patriots’ organization.Dr. Zarins cites Sherwin v. Indianapolis Colts, 752 F. Supp. 1172 (N.Y.D.C 1990), as persuasive authority to the instant case.
In Sherwin, the court was faced with the question of whether physicians that were team employees were subject to the arbitration provisions of the NFL Collective Bargaining Agreement. In finding for the defendant, the court distinguished those cases where the physicians were independent contractors. Id. at 1181.
The Sherwin court made this necessary distinction because there are no provisions in the CBA that subject independent contractors to the arbitration provisions of the CBA. Dr. Zarins points to the fact that the team is required to compensate the medical doctors that provide care for football-related injuries.
However, Dr. Zarins cannot argue he is a Patriots’ employee subject to the CBA simply because he was compensated by the Patriots for his services to Mr. Meggett and other football players on the team. Moreover, Plaintiff’s claim does not depend in any way on his status as a member of the NFL Players Association. The identical claim could be asserted by anyone Dr. Zarins treated.
There is no language in the CBA that governs claims against independent contractors hired by the Patriots and no support in any language in the CBA that even suggests that independent contractors who provide medical care are “third party beneficiaries” under the CBA.
Even assuming, arguendo, that Dr. Zarins had a right to arbitrate, he gave up that right by failing to assert it for almost four years, while actively participating in the discovery process. The right to arbitration "may be lost, as any contractual right which exists in favor of a party may be lost through a failure properly and timely to assert the right." Home Gas Corp. of Massachusetts, Inc. v. Walter's of Hadley, Inc., 403 Mass. 772, 775 (1989).
The essential question is whether, under the totality of the circumstances, the defaulting party acted inconsistently with the arbitration right. Martin v. Norwood, 395 Mass. 159, 162, 478 N.E.2d 955 (1985). A party has waived his or her right to arbitration if: (1) the party has actually participated in the lawsuit or has taken other action inconsistent with his right, (2) the litigation machinery has been substantially invoked and the parties are well into preparation of a lawsuit, or (3) there has been a long delay in seeking the stay or (4) the party raised enforcement of the arbitration right when trial was near at hand. Id.
A party is also deemed to have waived arbitration where that party has taken advantage of judicial discovery procedures not available in arbitration. Home Gas Corp., 403 Mass. at 775-76, quoting Reid Burton Constr. Inc. v. Carpenters Dist. Council, 614 F.2d 698, 702 (10th Cir.), cert. denied, 449 U.S. 824, 66 L. Ed. 2d 27, 101 S. Ct. 85 (1980).
In this case, it is clear that Dr. Zarins has waived any right to arbitration. Dr. Zarins did not “proceed with dispatch” in seeking arbitration, waiting almost four years to file this motion. In fact, Dr. Zarins stood idly by as the Patriots filed an identical motion, appearing at the hearing on the Patriots’ motion without taking a position. Dr. Zarins has substantially invoked the “litigation machinery."
By actively participating in the case since November 2000, conducting written discovery and taking numerous depositions, discovery mechanisms that would not have been available in arbitration. Dr. Zarins is now seeking to enforce an alleged arbitration right after a discovery period that has spanned almost four years. Because Dr. Zarins has acted completely inconsistent with that right, he has, under Massachusetts law, waived any right to arbitrate.
In November 2002, the Patriots sought to remove this action to federal court, asserting that the CBA covered Plaintiff’s claims against these Defendants and therefore the federal court must assert jurisdiction to determine the applicability of the CBA. The District Court rejected Defendant’s assertion, ruling that Plaintiff’s claim of vicarious liability against the Patriots for Dr. Bertram Zarins’ medical malpractice and the malpractice claim against Ronald O’Neil do not arise out of and are otherwise not related to the CBA. The Court’s ruling was clear and unambiguous, noting that the Defendants’ request for removal failed because their claim did not require interpretation of the collective bargaining agreement. See Order on Motion for Reconsideration, attached as Exhibit 1. Naturally, this means that the grievance arbitration provisions of the CBA are not implicated, yet this is the basis upon which Dr. Zarins offers his arbitration argument.
Under the doctrine of law of the case, where, as here, a court has decided upon a rule of law, that decision governs the same issues in subsequent stages in the same case. DiLaura v. Power Auth., 982 F.2d 73, 76 (2d Cir. 1992); Peterson v. Hopson, 306 Mass 597, 599 (1940). Efficient disposition of the case demands that each stage of the litigation build upon the last, and not afford litigants an opportunity to reargue every previous ruling. Conservation Comm'n of Falmouth v. Pacheco, 49 Mass. App. Ct. 737, 742 (2000) 306 Mass. 597, 599(1940).
The doctrine has even greater force when a case is transferred from one judge to another. "A judge should hesitate to undo his own work. Still more should he hesitate to undo the work of another judge." Peterson v. Hopson, 306 Mass. 597, 603 (1940). This principle should especially apply when a federal court judge has ruled on a question of federal law.
Yet almost four years after the District Court's ruling, Dr. Zarins asks this court to explicitly overrule Judge Lindsay's ruling and find that the CBA is implicated in this medical malpractice case.
Dr. Zarins argues that this dispute is governed by mandatory arbitration. Dr. Zarins manufactured this argument on the foundation of the CBA. Dr. Zarins' untimely argument is essentially a syllogism: Because certain terms of the CBA purportedly govern this dispute, and because the CBA includes an arbitration process for certain disputes, this dispute is necessarily subject to arbitration.
The syllogism fails because the first assumption is patently false, as Judge Lindsay found four years ago. Dr. Zarins offers no reason in the law or in logic why this Court should buy into the faulty syllogism, and more to the point, no reason whatsoever why this Court should take the extraordinary step of overruling Judge Lindsay's findings. There is, of course, every reason not to do so. This is what the doctrine of law of the case is all about.
Even if the Court were presented with the issue in the first instance, which it is not, there is no reason it should decide differently from the federal court. Dr. Zarins argues that this malpractice action implicates the CBA.
Nowhere does the CBA address the medical malpractice of the Patriots’ team physician who is an independent contractor. Dr. Zarins relies on a CBA section entitled “Players Rights to Medical Care and Protection,” stating the player’s team is obligated to advise him of any detected “physical condition which adversely affects the player’s performance or health.” But an obligation under this provision exists only if the club physician “advises a coach or other Club representative of the player’s physical condition.” An obligation to notify a player of a detected injury if notification is also given to a team representative is light years from the medical malpractice allegations in this case and the language lends no support to Dr. Zarins’ argument that he is a third party beneficiary to the collective bargaining agreement.
Dr. Zarins cites Sherwin v. Indianapolis Colts, 752 F. Supp. 1172 (N.Y.D.C 1990), as controlling authority in this case. But the facts of this case are expressly distinguishable by the court in Sherwin. The Plaintiffs in Sherwin cite two arbitration decisions involving NFL players for the proposition that tort claims by NFL players are not properly the subject to the CBA, citing language in one that “the misdiagnosis or malpractice by a team physician ‘is not properly addressed in the forum of this Collective Bargaining Agreement.’” Id. at 1179. The court distinguished these cases because, unlike Sherwin, they did not involve independent claims against the team for their own negligence but involved claims against independent contractors.
WHEREFORE, Plaintiff respectfully requests that this Court deny Defendant Bertram Zarins’, M.D., Motion to Dismiss.

matches: v. v. v. v. v. v. v. v. v.


Supreme Court of California,In Bank.
APPLIED EQUIPMENT CORPORATION, Plaintiff and Respondent, v. LITTON SAUDI ARABIA LIMITED et al., Defendants and Appellants.
Arthur W. Homan, Bronson, Bronson & McKinnon, Robert J. Stumpf, Jr. and David Eiseman, San Francisco, for defendants and appellants. Jennie M. Crowley, Beverly Hills, Victoria Thomas McGhee, San Francisco, John W. Patton, Jr., Los Angeles, Dilworth, Paxson, Kalish & Kauffman, Cutler & Cutler, Felice R. Cutler and Robert A. Philipson, Los Angeles, as amici curiae, on behalf of defendants and appellants. Hillel Chodos Los Angeles, and Michael A. Chodos, Santa Monica, for plaintiff and respondent.
Can a contracting party be held liable in tort for conspiracy to interfere with its own contract? Following a line of appellate cases, the Court of Appeal answered this question in the affirmative. Our study of applicable precedent and policy yields a contrary answer. We will therefore reverse the judgment of the Court of Appeal.
Plaintiff Applied Equipment Corporation (Applied) entered into a subcontract with defendant Litton Saudi Arabia Limited (Litton) calling for Applied to procure and supply to Litton spare parts that Litton needed to perform Litton's general contract to provide a military defense communication and control system to the Kingdom of Saudi Arabia. Applied was to be compensated under the subcontract on a commission basis—it was entitled to receive a 26 percent markup on the price of items purchased for Litton.
As part of its performance of the subcontract, Applied agreed to procure VA–145E electron tubes—custom-made products manufactured only by defendant Varian Associates Inc. (Varian). With Litton's approval, Applied ordered from Varian 11 VA–145E tubes at a price of $67,500 per unit. Applied issued a purchase order to Varian; Varian accepted and acknowledged the order.
Litton subsequently contacted Varian directly and renegotiated the Applied/Varian purchase order, eventually obtaining Varian's agreement to sell 12 tubes (rather than 11) at $62,500 each. Six tubes were sold to Applied (subject to the markup in the subcontract); the remaining six were sold directly to Litton (without the markup). The renegotiated purchase order, which resulted in a reduction in Applied's commission, was presented to Applied by Varian as a fait accompli.
After a three-week trial and several days of deliberations, the jury returned a complex verdict. The trial court ultimately entered judgment in favor of Applied and against Varian and Litton for contract damages of $112,531.25 ($81,250 plus prejudgment interest) and tort damages of $2.5 million for conspiracy to interfere with contract. Litton was also assessed $12.5 million in punitive damages.
Our review leads us to reject the rule of Wise because: (1) it illogically expands the doctrine of civil conspiracy by imposing tort liability for an alleged wrong—interference with a contract—that the purported tortfeasor is legally incapable of committing; and (2) it obliterates vital and established distinctions between contract and tort theories of liability by effectively allowing the recovery of tort damages for an ordinary breach of contract. As explained more fully below, our conclusions in this regard are shared by the better-reasoned cases in other jurisdictions and supported by applicable policy considerations.
Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration. (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 784, 157 Cal.Rptr. 392, 598 P.2d 45.) By participation in a civil conspiracy, a coconspirator effectively adopts as his or her own the torts of other coconspirators within the ambit of the conspiracy. (Ibid.) In this way, a coconspirator incurs tort liability co-equal with the immediate tortfeasors.
By its nature, tort liability arising from conspiracy presupposes that the coconspirator is legally capable of committing the tort, i.e., that he or she owes a duty to plaintiff recognized by law and is potentially subject to liability for breach of that duty. This follows from two distinct lines of conspiracy cases.
In a second line of cases, our courts have employed similar reasoning in refusing to impose conspiracy liability on defendants who were legally incapable of committing the actual tort because of a statutorily created immunity from suit. In Hardy v. Vial (1957) 48 Cal.2d 577, 311 P.2d 494, plaintiff was discharged from his position as a professor at Long Beach State College. After obtaining reinstatement following proceedings before the State Personnel Board, plaintiff sued two groups of defendants for malicious prosecution: (1) the “school defendants,” who were agents of the college or the State Department of Education; and (2) the “non-school defendants,” who were not affiliated with those government entities.
Applied's conspiracy theory is fundamentally irreconcilable with the law of conspiracy and the tort of interference with contract as just discussed. One contracting party owes no general tort duty to another not to interfere with performance of the contract; its duty is simply to perform the contract according to its terms. The tort duty not to interfere with the contract falls only on strangers—interlopers who have no legitimate interest in the scope or course of the contract's performance.
The invocation of conspiracy does not alter this fundamental allocation of duty. Conspiracy is not an independent tort; it cannot create a duty or abrogate an immunity. It allows tort recovery only against a party who already owes the duty and is not immune from liability based on applicable substantive tort law principles. (Doctor's Co., supra, 49 Cal.3d 39, 260 Cal.Rptr. 183, 775 P.2d 508; Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032; Hardy v. Vial, supra, 48 Cal.2d 577, 311 P.2d 494.) Because a party to a contract owes no tort duty to refrain from interference with its performance, he or she cannot be bootstrapped into tort liability by the pejorative plea of conspiracy.
Contract damages are generally limited to those within the contemplation of the parties when the contract was entered into or at least reasonably foreseeable by them at that time; consequential damages beyond the expectations of the parties are not recoverable. (Civ.Code, § 3300; Mitchell v. Clarke (1886) 71 Cal. 163, 11 P. 882; Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442, 455–456, 277 Cal.Rptr. 40; Mendoyoma, Inc. v. County of Mendocino (1970) 8 Cal.App.3d 873, 879, 87 Cal.Rptr. 740 [applying the rule of Hadley v. Baxendale (1884 Ex.) 156 Eng.Rep. 145 to contract damages recoverable under Civ.Code, § 3300]; see also Note, supra, 8 Loyola L.A.L.Rev. at p. 323–328.) This limitation on available damages serves to encourage contractual relations and commercial activity by enabling parties to estimate in advance the financial risks of their enterprise.
The fundamental differences between contract and tort are obscured by the imposition of tort liability on a contracting party for conspiracy to interfere with contract. Whether or not a stranger to the contract induces its breach, the essential character of a contracting party's conduct remains thesame—an unjustified failure or refusal to perform. In economic terms, the impact is identical—plaintiff has lost the benefit of a bargain and is entitled to recover compensation in the form of contract damages. In ethical terms, the mere entry of a stranger onto the scene does not render the contracting party's breach more socially or morally reprehensible. A party may breach a contract without any third party inducement because of personal, racial, or ethnic animus, or for other nefarious or unethical reasons. In contrast, a breach may be the product of naive or innocent misunderstanding or misperception created by the aggressive solicitation of an outsider. In any case, motivation is irrelevant. Regardless of the presence or absence of third party involvement, the contracting party has done nothing more socially opprobrious than to fall short in meeting a contractual commitment. Only contract damages are due.
We agree with Applied's summary of contract law. In its contract with Applied, Varian assumed only the obligation to perform the contract or pay damages for breach. It did not assume the independent tort obligation not to interfere with the performance of its own contract. Accordingly, Varian is legally responsible only in contract, not in tort.
The Wise court noted a division in the non-California cases dealing with the issue now before us. (223 Cal.App.2d at pp. 71–72, 35 Cal.Rptr. 652.) The cases cited by the parties, as well as those disclosed by our own research, reveal continuing disagreement without either a clear majority rule or a discernible trend. Over half the state appellate courts have not squarely considered and decided the issue; of the remainder, few have supplied any legal reasoning or analysis in support of their conclusions.
Like the New York courts, we decline to allow a conspiracy theory to accomplish an “end run” around the statutory rule that punitive damages are per se not recoverable in ordinary actions for breach of contract.
Applied advances several additional arguments in defense of Wise. It first contends that tort liability in this context is consistent with the general rule of conspiracy that “all who are involved in the common scheme are jointly and severally responsible for the ensuing wrong.” (Wise, supra, 223 Cal.App.2d at pp. 71–72, 35 Cal.Rptr. 652.) According to Applied's argument, this is a case in which “the third party's interference violates duties owed to the plaintiff entirely unrelated to the contract.” As we have observed in part 1, ante, however, the doctrine of conspiracy does not impose liability on persons who owe no duty to a plaintiff or who are otherwise immune from liability. A party to a contract owes no tort duty to a coparty not to interfere with the contract. Conspiracy cannot create such a duty.
Applied also maintains that the imposition of tort liability on contracting parties promotes essential stability in contractual relationships. We disagree. As a practical matter, it is difficult, if not impossible, for a third party to induce a breach of contract without communicating with the contracting party. Therefore, any and every induced breach creates a potentially triable conspiracy case against the contracting party. In this way, the potential consequences of any breach of contract—efficient or inefficient, socially desirable or undesirable—become uncertain and unpredictable. Tort liability may or may not follow, depending upon a myriad of imponderable factors. As a result, a business fearful of unfathomable tort exposure might lose the ability to respond flexibly to changing economic conditions or hesitate to enter into contracts at all in fast-moving aspects of commercial enterprise. (Cf. Foley v. Interactive Data Corp., supra, 47 Cal.3d at pp. 696–697 & fn. 33, 254 Cal.Rptr. 211, 765 P.2d 373.) Another business, reasonably viewing the prospect of significant tort liability as remote, might not react at all. Tort liability in this context would more likely produce uncertainty, not stability, in commercial dealings.
The judgment of the Court of Appeal is reversed. The case is remanded with instructions to direct further proceedings in the trial court in a manner consistent with this opinion.
Justice Sullivan, later on this court, wrote for the Court of Appeal in Wise v. Southern Pacific Co. (1963) 223 Cal.App.2d 50, 74, 35 Cal.Rptr. 652, that a cause of action for civil conspiracy requires three allegations: (1) the formation and operation of the conspiracy, (2) the wrongful act or acts done pursuant thereto and (3) the resulting damage. Nowhere in those three requirements is there a limitation on or any grant of immunity from liability for anyone participating in a conspiracy.
A number of early cases have held a party to a contract liable for entering into a conspiracy with others to thwart the purposes of the contract. That one of the conspirators had obligations to perform as a contracting party would seem to enhance rather than diminish his culpability.
It would appear that until today the law was well settled in California on the liability of all parties to a conspiracy. No immunities have been recognized. No free conspiracies have been tolerated.
Shapoff v. Scull (1990) 222 Cal.App.3d 1457, 1465, 272 Cal.Rptr. 480, “․ a party to a contract may under some circumstances be held liable in tort for inducing a breach ․ when a party to a contract has conspired with a third party to breach a contract, the contracting party may be held liable in tort as a coconspirator.” Petition for review denied November 15, 1990.
Manor Investment Co. v. F.W. Woolworth Co. (1984) 159 Cal.App.3d 586, 594, 206 Cal.Rptr. 37, “․ a contracting party may be held liable for conspiring with third parties to interfere with his own contractual relation.” (Italics in original.) Petition for review denied October 31, 1984.
Rosenfeld, Meyer & Susman v. Cohen (1983) 146 Cal.App.3d 200, 225, 194 Cal.Rptr. 180, “․ while a party to a contract may not be held liable in tort for interfering with his own contract by breaking it, he may be held liable in tort for interference with his own contract if he conspires with a third party to breach it.” (Italics in original.) Petition for hearing denied November 9, 1983.
Owens v. Palos Verdes Monaco (1983) 142 Cal.App.3d 855, 872, 191 Cal.Rptr. 381 [citing with approval Olivet v. Frischling (1980) 104 Cal.App.3d 831, 838, 164 Cal.Rptr. 87], “․ it is accepted, at least in California, that an action for conspiracy to induce a breach of contract will in fact lie against a party to the agreement․” Petition for hearing denied October 10, 1983.
Owens v. Foundation for Ocean Research (1980) 107 Cal.App.3d 179, 185, 165 Cal.Rptr. 571, “An action for civil conspiracy to induce breach of contract will lie against a party to the contract․” Petition for hearing denied August 27, 1980.
In none of the foregoing cases was a single justice's vote cast for granting a hearing or review except my lone vote to grant in Owens v. Palos Verdes Monaco, supra. I find it difficult to justify permitting Courts of Appeal to prescribe the law on this subject for more than a decade and now to abruptly change the law merely to insulate some conspirators—here a contracting party—from liability.
I would affirm the judgment of the Court of Appeal.
1. We intimate no view as to the legal sufficiency of Applied's claim for lost profits.
2. Contrary to Applied's suggestion of procedural irregularity, Varian is not barred from raising the conspiracy issue in this court. Without objection by Applied, the issue was fully briefed, argued by the parties, and decided on its merits in the Court of Appeal. Accordingly, Applied has waived any purported procedural barriers to its presentation here. (See Schroeder v. Auto Driveway Co. (1974) 11 Cal.3d 908, 918, fn. 7, 114 Cal.Rptr. 622, 523 P.2d 662.) Moreover, as Applied itself concedes, Varian's objection to submission of a conspiracy theory was preserved in accordance with section 647 of the Code of Civil Procedure, which provides for automatic exceptions to jury verdicts and instructions.
3. Litton did not petition for review; the judgment of the Court of Appeal is now final as to Litton. Although we have granted Litton leave to file a brief in this court as amicus curiae, we intimate no view regarding the effect of Litton's failure to petition for review on its status in further proceedings in this case, e.g., in light of the doctrines of res judicata and law of the case.
4. The agent's immunity rule emanates from a further holding in Wise that: “Agents and employees of a corporation cannot conspire with their corporate principal or employer where they act in their official capacities on behalf of the corporation and not as individuals for their individual advantage.” (Wise, supra, 223 Cal.App.2d at p. 72, 35 Cal.Rptr. 652.) The rule “derives from the principle that ordinarily corporate agents and employees acting for or on behalf of the corporation cannot be held liable for inducing a breach of the corporation's contract since being in a confidential relationship to the corporation their action in this respect is privileged.” (Id. at pp. 72–73, 35 Cal.Rptr. 652.) We have endorsed and applied the agent's immunity rule as expressed in Wise (e.g., Shoemaker v. Myers (1990) 52 Cal.3d 1, 24–25, 276 Cal.Rptr. 303, 801 P.2d 1054; Gruenberg, supra, 9 Cal.3d at p. 576, 108 Cal.Rptr. 480, 510 P.2d 1032; Doctor's Co., supra, 49 Cal.3d at p. 45, 260 Cal.Rptr. 183, 775 P.2d 508). Nothing in this decision is intended to abrogate or impair the agent's immunity rule.
6. See, for example, White v. Land Clearance for Redevelopment Authority (Mo.Ct.App.1992) 841 S.W.2d 691, 695 (“A party to the contract cannot be held responsible for inducing himself to commit a breach or for conspiring to breach it. To hold otherwise would be tantamount to permitting recovery of punitive damages in a contract action․”); Schell v. Kaiser–Frazer Sales Corp. (1971) 28 Ohio App.2d 16, 57 O.O.2d 9, 274 N.E.2d 315, 319; Koehler v. Cummings (M.D.Tenn.1971) 380 F.Supp. 1294, 1313–1314 (“If a party cannot be liable for inducing the breach of his own contract, it is similarly difficult to understand how he might be liable for participating in a conspiracy to induce the breach of his own contract”; applying Tennessee law); Mason v. Funderburk (1969) 247 Ark. 521, 446 S.W.2d 543, 550; Harris v. Equitable Life Assurance Society (S.D.Iowa 1957) 147 F.Supp. 478 (“ ‘․ Charges that a party colluded or conspired with others in connection with its breach will not serve to convert what is essentially a separable cause of action for a breach of contract into a joint cause of action for tort.”); Barber v. Stephenson (1953) 260 Ala. 151, 69 So.2d 251, 255 (“[I]t is generally held that an action for conspiring with another to induce the latter to break his contract cannot be maintained, the remedy being to sue on it.”).
7. See, for example, Fox v. Deese (1987) 234 Va. 412, 362 S.E.2d 699, 708; Boyles v. Thompson (Tex.Civ.App.1979) 585 S.W.2d 821, 836; National Linen v. Clower (1934) 179 Ga. 136, 175 S.E. 460, 466; Beverly v. McCullick (1973) 211 Kan. 87, 505 P.2d 624; Sorenson v. Chevrolet Motor Co. (1952) 171 Minn. 260, 214 N.W. 754, 764–765.
8. The tort of interference with contract—which cannot be committed by a contracting party—is different in this respect from other kinds of business torts. Liability for deceit, for example, may be imposed on contracting parties as well as others: “One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers.” (Civ.Code, § 1709.) We do not suggest that the doctrine of conspiracy cannot impose tort liability on a contracting party for fraud or other torts for which that party could, in the absence of a conspiracy, be held liable to a plaintiff.
9. The elimination or confinement of conspiracy theories in cases like this one may also have the salutary effect of simplifying complex trials. The complicated character of the special verdict forms in this case, resulting in part from the overlapping conspiracy theories, undoubtedly contributed to jury confusion and verdict inconsistency, mandating an expensive and difficult retrial.
10. We disapprove all prior cases to the extent they hold that a party to a contract can be held liable in tort based on a conspiracy to interfere with its own contract, including each of the following: F.W. Shapoff v. Scull, supra, 222 Cal.App.3d 1457, 272 Cal.Rptr. 480; Manor Investment Co. v. Woolworth Co., supra, 159 Cal.App.3d 586, 206 Cal.Rptr. 37; Rosenfeld, Meyer & Susman v. Cohen, supra, 146 Cal.App.3d 200, 194 Cal.Rptr. 180; Owens v. Palos Verdes Monaco, supra, 142 Cal.App.3d 855, 191 Cal.Rptr. 381; Owens v. Foundation for Ocean Research, supra, 107 Cal.App.3d 179, 165 Cal.Rptr. 571; Olivet v. Frischling, supra, 104 Cal.App.3d 831, 164 Cal.Rptr. 87; Mayes v. Sturdy Northern Sales, Inc., supra, 91 Cal.App.3d 69, 154 Cal.Rptr. 43; Wetherton v. Growers Farm Labor Assn., supra, 275 Cal.App.2d 168, 79 Cal.Rptr. 543; Wise v. Southern Pacific Co., supra, 223 Cal.App.2d 50, 35 Cal.Rptr. 652.
1. There are other cases reaching the same conclusion, with no petition being made to this court, e.g., California Auto Court Assn. v. Cohn (1950) 98 Cal.App.2d 145, 156, 219 P.2d 511: “․ it is apparent that the plaintiff is not confined to an action ex contractu against the party with whom he contracted.” Also James v. Herbert (1957) 149 Cal.App.2d 741, 309 P.2d 91.
KENNARD, ARABIAN, BAXTER and GEORGE, JJ., and RAMIREZ, J. Pro Tem.*, concur.


§63.14 Statute of Repose | Nashville Injury Lawyers The Law Offices of John Day, P.C.
The Case: Penley v. Honda Motor Co., 31 S.W.3d 181 (Tenn. 2000).
The Basic Facts: Plaintiff was the rider of an all-terrain vehicle (ATV) that flipped over when Plaintiff was riding it on a trail. Plaintiff was severely injured and brought a products liability action against Defendant manufacturer.
"[Tenn. Code Ann. § 29-28-103]. Limitation of actions - Exceptions.
(a) Any action against a manufacturer or seller of a product for injury to person or property caused by its defective or unreasonably dangerous condition must be brought within the period fixed by [sections] 28‑3‑104, 28‑3‑105, 28‑3‑202 and 47‑2‑725, but notwithstanding any exceptions to these provisions it must be brought within six (6) years of the date of injury, in any event, the action must be brought within ten (10) years from the date on which the product was first purchased for use or consumption, or within one (1) year after the expiration of the anticipated life of the product, whichever is the shorter, except in the case of injury to minors whose action must be brought within a period of one (1) year after attaining the age of majority, whichever occurs sooner.
(b) The foregoing limitation of actions shall not apply to any action resulting from exposure to asbestos or to the human implantation of silicone gel breast implants.
(c)(1) Any action against a manufacturer or seller for injury to a person caused by a silicone gel breast implant must be brought within a period not to exceed twenty‑five (25) years from the date such product was implanted; provided, that such action must be brought within four (4) years from the date the plaintiff knew or should have known of the injury.
Tenn. Code Ann. § 29‑28‑103(a)-(c)(1) (1980 & Supp. 1999) (emphasis added)." 31 S.W.3d at 184.
"Statutes of repose operate differently than statutes of limitation, primarily because statutes of repose typically begin to run with the happening of some event unrelated to the traditional accrual of the plaintiff's cause of action." Id.
If the person entitled to commence an action is, at the time the cause of action accrued, either within the age of eighteen (18) years, or of unsound mind, such person, or his representatives and privies, as the case may be, may commence the action, after the removal of such disability, within the time of limitation for the particular cause of action, unless it exceed three (3) years, and in that case within three (3) years from the removal of such disability."
"We hold that the ten-year statute of repose in Tennessee Code Annotated section 29-28-103(a) is not tolled during any period of the plaintiff's mental incompetency. The language of section 29-28-103(a) admits of no exception other than those expressly listed, the policies underlying the products liability statute of repose are not furthered by an implied exception for mental incompetency, and the legal disability statute does not operate to toll an otherwise applicable statute of repose." Id. at 189.
Other Sources of Note: Calaway ex rel. Calaway v. Schucker, 193 S.W.3d 509 (Tenn. 2005) (holding that the three-year statute of repose under TCA § 29-26-116 for medical malpractice actions is not tolled during a plaintiff's minority).
Recent Cases: Maino v. Southern Co., Inc. , 253 S.W.3d 646 (Tenn. Ct. App. 2007) (holding that the savings statute applies to save a products liability action where the statute of repose expired during one-year savings period after a non-suit).


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Posted on June 10, 2018	by Richard J. Reibstein, Esq.
The past two months were momentous for many companies that engage independent contractors in California to supplement their workforce or to interact with their customers. This applies not only to businesses based in California but also to those based in other states with ICs across the U.S., including in the Golden State. The most important legal development, however, arose in a legal context that does not involve ICs – the U.S. Supreme Court’s decision addressing the legality of employer requirements that their employees to enter into mandatory arbitration agreements with class and collective action waivers.
The U.S. Supreme Court’s decision, by a narrow 5-4 majority, held that employers may lawfully require employees to sign mandatory arbitration agreements with class and collective action waivers. This decision undoubtedly will spur employers to double down on the use of such arbitration agreements, but it is also likely to prompt many businesses to incorporate such arrangements in their IC agreements. While some companies may mistakenly regard the Supreme Court decision as protection from liability under the federal wage and hour laws, the Supreme Court’s decision only limits a litigant’s use of a class and collective action and does not protect companies from individual claims or from audits, investigations, or enforcement proceedings by administrative or regulatory agencies. The best way for companies using ICs to minimize IC misclassification liability is to follow one of the types of alternatives described in our White Paper: restructuring, re-documenting, and re-implementing; reclassifying; or redistributing. In addition, there are compelling reasons for companies to use “opt-outs” in the arbitration provisions of their IC agreements, separate from those reasons discussed in our blog post published last fall on the eve of the Supreme Court’s oral argument on the issue.
FLOOD OF NEW IC MISCLASSIFICATION LAWSUITS HAS BEGUN AFTER THE CALIFORNIA SUPREME COURT CHANGED ITS TEST FOR IC STATUS. On April 30, 2018, the California Supreme Court, in the Dynamex case, curtailed the lawful use of independent contractors by making the test for IC status under several California laws far more “employee-friendly.” As more fully discussed in our blog post that day, the Court in its Dynamex decision abandoned its long-standing common law test for determining worker status under various sections of the California Labor Code. Instead, it adopted a much stricter test that makes IC status far more challenging for businesses to maintain.
In its 82-page decision, the California Supreme Court rejected the continued use of the multi-factor test as set forth by the Court in its 1989 decision in S.G. Borello & Sons, Inc. v. Dep’t of Industrial Relations. Rather, it created a three-pronged so-called “ABC” test, each of which prongs a business must meet in order to establish a lawful IC relationship under various provisions of the California Labor Code. As the Court stated: “The [new] ABC test presumptively considers all workers to be employees, and permits workers to be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions: (a) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (b) that the worker performs work that is outside the usual course of the hiring entity’s business; and (c) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.” Dynamex Operations West Inc. v. Superior Court of Los Angeles County, case no. S222732 (Sup. Ct. Cal. Apr. 30, 2018).
In its wake, the Dynamex decision leaves many questions unanswered. Does the new ABC test apply to expense reimbursement claims or claims brought under the California Private Attorneys General Act? Will the new ABC test apply to matters under the jurisdiction of the California Employment Development Division (EDD) or to workers’ compensation matters? Should Dynamex be applied prospectively, retroactively or otherwise? As observed in our May 10 blog post, these and other questions may take years for the courts to decide.
The California Supreme Court said one of the reasons for this dramatic change in the law was simply to clarify the test and thus to reduce the number of IC misclassification lawsuits. However, as we noted in our May 10 blog post, “what is most likely to follow in the wake of the Dynamex decision is a period of great uncertainty accompanied by a flood of class actions.” And that is precisely what has occurred.
The first two lawsuits were filed only eight days after the Dynamex decision was issued. They were brought against companies that have previously defended themselves against IC misclassification lawsuits: Postmates and Lyft. Both complaints assert claims by drivers / couriers for failure to pay business expenses, failure to pay minimum wage, and failure to pay overtime compensation. The lawsuits expressly rely on the Dynamex ABC test, alleging that neither company can establish that the drivers / couriers perform services outside each company’s usual course of business – the “B” prong of the ABC test. Lee v. Postmates Inc., No: CGC-18-566394 (Super. Ct. San Francisco County May 8, 2018); Talbot v. Lyft, Inc., No. CGC-18-566392 (Super. Ct. San Francisco County May 8, 2018).
U.S. SUPREME COURT UPHOLDS THE USE OF MANDATORY ARBITRATION AGREEMENTS WITH CLASS AND COLLECTIVE ACTION WAIVERS. Although the trio of cases decided May 21, 2018 by the U.S. Supreme Court regarding the legality of mandatory arbitration agreements containing class and collective action waivers did not arise in the context of an IC misclassification case, the decision by the Supreme Court is equally applicable to that type of case as well. Just as many employers in recent years have included such clauses in their employment agreements, many businesses have included such clauses in their IC agreements. In a closely-watched 5-4 decision, Justice Neil Gorsuch delivered the majority opinion that class and collective action waivers that are part of arbitration agreements are governed by the Federal Arbitration Act and are not rendered illegal by the National Labor Relations Act. Epic Systems Corp. v. Lewis, No. 16-285; Ernst & Young LLP, et al. v. Morris, et al., No. 16-300, National Labor Relations Board v. Murphy Oil USA. Inc. et al., No. 16-307 (U.S. Sup. Ct. May 21, 2018).
RIDE-SHARING GIANT PREVAILS IN IC MISCLASSIFICATION CLAIM BY DRIVERS UNDER FEDERAL AND PENNSYLVANIA LAW. On April 11, 2018, a Pennsylvania federal district court judge granted summary judgment in favor of Uber Technologies and against UberBLACK limousine drivers, concluding that, as a matter of law, the drivers are not employees covered by the federal minimum wage and overtime laws or by Pennsylvania’s minimum wage and wage payment laws. In reaching his decision that the drivers were ICs, Judge Michael Baylson considered six factors. He found that four favored IC status (right to control, opportunity for profit and loss, investment, and permanence of relationship) and two that favored employee status, although the court stated that one of the two factors (the absence of special skills) did not carry much weight and the other (integration of the services with the company’s business) only slightly favored employee status. Razak v. Uber Technologies, Inc., No. 16-cv-573 (E.D. Pa. Apr. 11, 2018). As noted in our blog post of April 12, this decision, if upheld on appeal, could become a seminal determination allowing Uber and other ride-sharing companies to rest comfortably knowing that their IC business models satisfy the federal Fair Labor Standards Act (FLSA) and similar state IC tests.
ON-DEMAND APP-BASED FOOD DELIVERY SERVICE SUCCEEDS IN COMPELLING ARBITRATION OF IC MISCLASSIFICATION CLAIMS. The United States Court of Appeals for the Fifth Circuit has affirmed a lower court’s decision granting DoorDash’s motion to compel arbitration of the claims of dashers (drivers who make deliveries from certain restaurants to customers of DoorDash), without addressing their class certification motion. This suit was filed by a dasher against DoorDash alleging violations of the FLSA due to their alleged misclassification as ICs. Additionally, the dasher moved for collective certification of a nationwide class of similarly situated individuals. The district granted the motion to compel without first deciding the collective certification issue. On appeal, the Fifth Circuit affirmed, stating: “We continue to hold that arbitrability is a ‘threshold question’ to be determined ‘at the outset,’ a holding consistent with the ‘national policy favoring arbitration.’” The appellate court found there was a valid agreement to arbitrate , rejecting the dasher’s arguments that the contract was illusory because DoorDash never signed the agreement, never delivered it, and retained the ability to unilaterally modify it. Edwards v. DoorDash, Inc., No. 17-20082 (5th Cir. Apr. 25, 2018).
MASSACHUSETTS RIGID IC MISCLASSIFICATION STATUTE DOES NOT APPLY TO WORKERS’ COMPENSATION CLAIMS. The Massachusetts Supreme Judicial Court held that the proper test for determining independent contractor / employee status for purposes of determining eligibility under the state’s workers’ compensation law is the 12-factor MacTavish-Whitman test and not the more restrictive three-factor “ABC” test under the Massachusetts Independent Contractor Statute. The workers’ compensation claimant was a newspaper delivery agent for Publishers Circulation Fulfillment, Inc., a company that provides home delivery services for newspaper publishers and pays agents to deliver newspapers to subscribers. While providing services to the company, the claimant suffered injuries and filed a claim for workers’ compensation benefits.
The Massachusetts high court stated that although the Independent Contractor Statute contains a cross-reference to the workers’ compensation statute, “the language does not supplant the MacTavish-Whitman analysis, but merely notes that when the facts of a given case demonstrate a misclassification of a worker as an independent contractor under [the Independent Contractor Statute], the penalties of the [workers’ compensation law] are applicable.” The Court continued: “[The Independent Contractor Statute does not apply to a determination whether an individual is eligible for workers’ compensation benefits.” In affirming the reviewing board’s substantive decision that the claimant was an independent contractor, the court agreed that “[i]n working for [the company], the claimant was allowed to expand her business to deliver newspapers and other items for other companies; supplied all necessary instruments to complete her job at [the company], including using her own vehicle to make deliveries; hired substitutes to complete the job; purchased her own independent contractor work insurance; and filed taxes as an independent contractor.” Camargo’s Case, No. 12368, 479 Mass. 492 (Sup. Jud. Ct. May 10, 2018).
NLRB TO DECIDE IF IC MISCLASSIFICATION IS AN UNFAIR LABOR PRACTICE. The NLRB has received numerous Amici Curiae (Friends of the Court) briefs regarding under what circumstances, if any, the Board deem an employer’s act of misclassifying employees as independent contractors to be a violation of Section 8(a)(1) of the National Labor Relations Act (NLRA). As we noted in our September monthly news update, the Administrative Law Judge (ALJ) in Velox Express, Inc., 15-CA-184006 (Sept. 25, 2017), decided that misclassification alone can constitute an unfair labor practice under the NLRA. In Velox, an unfair labor practice charge was filed by a courier / driver against Velox, a medical courier service, alleging IC misclassification. The ALJ determined that the drivers were employees and not independent contractors because Velox controlled how its drivers carried specimens, directed how they should ensure that pickups were complete and prompt, and prevented drivers from finding their own substitutes. The ALJ also concluded that Velox committed an unfair labor practice in violation of Section 8(a)(1) due to the misclassification of the workers as ICs, and restrained and interfered with their ability to engage in protected activity under Section 7 of the NLRA.
A joint Amicus Curiae brief was also filed by the Coalition for a Democratic Workplace and U.S. Chamber of Commerce, taking the position that the Board should decline to revisit or revise the existing standard – that both misclassification and some additional unfair labor practice are required before finding a violation of the Act – and it should reject the “novel theory” that IC misclassification alone is enough. They also argued that “the concept of an unfair labor practice requires that an employer take some additional steps beyond simply taking a legal position regarding the classification of a worker in order for liability to attach under the Act.” They further noted that in December 2017, current NLRB General Counsel Peter Robb formally rescinded a previously-issued guidance in support of a “misclassification-as-violation” theory. Velox Express, Inc., 15-CA-184006 (Sept. 25, 2017).
In our August 30, 2016 blog post entitled NLRB General Counsel Creates a “Misclassification-Plus” Unfair Labor Practice, we commented that the NLRB’s General Counsel not only was seeking to expand the law by alleging that IC misclassification alone would violate the NLRA, but in the process seemed to be overlooking Section 8(c) of the NLRA. That time-honored “free speech” section provides: “The expressing of any views, argument, or opinion, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice under any of the provisions of this Act, if such expression contains no threat of reprisal or force or promise of benefit.” It is likely, given the current composition of the NLRB, that the Board will rule that the mere misclassification of an individual as an IC is not an unfair labor practice.
TWO INDUSTRIES – OIL AND GAS, INSURANCE – HAVE BECOME PRIME TARGETS FOR INDEPENDENT CONTRACTOR MISCLASSIFICATION CLASS ACTION LAWSUITS.
In our blog post of May 4, 2018, we highlighted four recent cases within the oil and gas industry: a Colorado rig welder brought a class action for IC misclassification against a modest-sized oil exploration and production company, Whiting Petroleum; California well site drilling managers sued a large energy company, Chevron Corp., for misclassifying them as ICs; oil field workers monitoring wells settled their IC misclassification case against J&A Services LLC, an Oklahoma oil patch company, for $2 million; and Texas welders for a Chinese oil rig company, Honghua America LLC, sued the company for IC misclassification in violation of the Fair Labor Standards Act and settled for an undisclosed amount.
In our blog post of April 11, 2018, we noted that class action lawyers have also been targeting insurance companies. In one case, a Texas judge denied a motion to dismiss an independent contractor misclassification class action brought against Texas Farm Bureau Casualty Insurance Company and other insurers by insurance agents claiming unpaid overtime compensation under the FLSA. In another case, which is currently on expedited appeal to the U.S. Court of Appeals for the Sixth Circuit, the district court decided in favor of an insurance sales agent’s class action seeking pension and other employee benefits. The decision being appealed held that insurance sales agents of American Family Insurance Company (AFIC) are employees and not independent contractors for purposes of ERISA.