Author: Keogh Cox

Too Much Money and No One to Give it to- The Cy Pres Doctrine

05.08.2017

What happens when someone leaves money in a will to a charity that has closed its doors by the time the will is probated? In this strange circumstance, a court may apply the “cy pres doctrine” to answer this question. Cy pres is a French term which loosely translates to mean “as near as possible.” In modern litigation, cy pres is not only used to distribute charitable donations, but also to distribute millions of dollars left over in class action settlements.

In the example above, a court may use cy pres to transfer the donated money to a charity similar to the one that had shut down. In class actions, there are often funds left over when not enough people register to receive money under a settlement. In this situation, the court will use cy pres to decide where this money goes; but that decision is a tricky one. Courts will sometimes direct these funds to a governmental entity loosely related to what the lawsuit was about. Other times these funds will go to a charity. Whatever the choice, there are usually complaints.

In one case, a nationwide class of AOL customers agreed to a settlement in a class action filed in California. Even though class members lived all over the country, the cy pres funds went to a legal aid office in Los Angeles, where the judge’s husband served as a director. This raised some eyebrows.

In another case, Kellogg’s settled a class action filed because its advertisements claimed that frosted mini-wheats improved kids’ brain power, which -sadly- turned out not to be true. Those cy pres funds initially went to a charity designed to feed the poor. However, the court later ruled that the funds should have gone to a group that protected the public from false advertising.

As more and more cases like these garnered attention, rules were passed as to how to distribute these funds. Generally, these rules require some connection between the issues in the lawsuit and the mission of the group that gets the funds. While the United States Supreme Court has yet to address these issues, Chief Justice Roberts recently indicated that the Court may be ready to put its stamp on cy pres.

We may be “as near as possible” to some clarity in the murky law of cy pres.

Do You Have the “Right to Remain Silent” in Business Dealings?

04.05.2017

As a general rule in Louisiana, a party involved in business dealings may keep silent, but exceptions exist. Sure, where information is volunteered that may influence the other party’s conduct, that information must be truthful, but is there a duty to disclose information harmful to your position? According to one recent decision, the answer may be “yes.”

In Parkcrest Builders, LLC v. Housing Authority of New Orleans, 2017 WL 193500 (E.D. La. 2017), the court highlighted a wrinkle in the general rule of silence. According to the Parkcrest court, a party to a proposed transaction may have a duty to disclose any information that an ethical person would disclose. This duty complicates matters for a party wishing to disclose as little as possible in order to protect its interests in an arms-length negotiation. It also raises a question: can a party be sued in fraud if they don’t divulge enough information to satisfy the other party?

“Fraud” is defined as a misrepresentation or suppression of a material fact, made with the intent to obtain an unjust advantage or to cause a loss or inconvenience to the other party. La. Civil Code article 1953. In order to prove fraud by silence, there must exist a duty to disclose.

Parkcrest involved a public project to construct new affordable housing units where the owner terminated its contract with the contractor and sued the contractor’s bond company. In the suit against the bond company, the owner alleged fraud and claimed that the bond company improperly concealed (1) its intent to rehire the defaulted contractor to complete the project, and (2) the nature of the bond company’s agreement with the contractor. According to Parkcrest, these allegations, if proven, were sufficient to prove fraud by silence.

Given that the law allows recovery of economic losses arising from a party’s reasonable reliance upon information provided by another, businesses need to be careful in what they say, and even in what they don’t say.

When You Can’t Sue – Limits on Contractor Liability

01.25.2017

Louisiana law protects building contractors from liability for past projects that otherwise could extend for an indefinite period of time. La. R.S. 9:2772 prohibits any lawsuit against a contractor for damages arising from a construction project five years after: (1) the date project acceptance was filed into the public records; or, if no acceptance was filed, (2) the date of occupancy. This five-year period is referred to as the “peremptive” period.

This law is broad enough to bar untimely claims of breach of contract and negligence, as well as failure to warn of dangerous conditions. It also covers all conceivable building activities: design, construction, consultation, planning, evaluation, construction administration, and land surveying. It applies both to residential and commercial construction. It also covers claims of property damage, personal injury, and wrongful death brought by any person. The only noted exception is where a contractor’s fraud caused the damages.

The law is meant to establish a specific date to cut off the contractor’s liability. Under the law, nothing can interfere with the running of a peremptive period. After it expires, the claim no longer exists.

Construction litigation in this area often focuses on commencement of the peremptive period. For instance, in Celebration Church, Inc. v. Church Mutual Insurance Company, 16-245 (La.App. 5 Cir. 12/14/16), the owner of a shopping center sued its property insurer for roof damage related to Hurricane Isaac. The insurer prevailed in defending the claim based on defective roof repairs made following Hurricane Katrina. The owner then filed suit against the roofer who made the repairs after Hurricane Katrina. To avoid the peremptive defense, the owner argued that peremption did not begin to run until substantial completion of the entire shopping center. The court rejected this argument and held that the law is specific in defining the date of commencement of the peremptive period. It began to run when the tenants first occupied the space. By the time suit was filed, the owner’s claim no longer existed.

Because construction defects may not surface for years, a claim may be barred before the owner even discovers the problem.

Risky Business : “Foreseeable” Damages in Commercial Transactions

01.19.2017

Intuitively, contracting parties in commercial transactions understand that legal consequences follow a breach of contract: If a party fails to deliver a product as promised, the breaching party can be liable for the cost to correct the breach; but what is that cost?

Say, for example, a business cancels an order to provide parts to a long-time customer because the relationship has gone sour. Legally, the liability for that breach of contract may extend beyond the cost of the order. A breaching party is liable for damages that are a direct consequence of the failure to perform and that were foreseeable at the time the contract was made, which may include lost profit. If the breach was intentional or malicious, the party’s liability may extend even to direct damages that were not foreseeable.

The business that cancelled the order now faces a jury’s decision to identify the direct and foreseeable losses, a decision that, by its nature, is vague. However, the law imposes a limit on the jury’s prerogative to decide the damages. Even for a bad faith breach of contract, liability arises only for the direct, immediate consequences of the breach and there should be no liability for damages determined to be remote, indirect, or that have no necessary relation to the breach.

In a recent case, a jury found that a defendant boat engine manufacturer breached its contract with plaintiff boat manufacturer by cancelling a purchase order for engines, and further, that the engine manufacturer was in bad faith. The jury awarded $1.8 million in foreseeable lost revenues and $1.3 million in unforeseeable lost profits. The trial court threw out the “unforeseen” portion of the award because it was not a direct damage, and emphasized that a breaching party does not “become the insurer for all misfortunes that may arise from the breach.”

The boat manufacturer had argued that the cash flow expected from the sale of the boats rendered engine-less by the breach would have been invested in more personnel and capital to grow its northwest division. But, because of depleted cash flow from lost sales, that opportunity was lost. The court found, as a matter of law, that this loss was not a direct consequence of the breach, and thus, regardless of the bad faith, was not a recoverable contract damage. Simply, loss of cash flow in one part of the business that had a ripple effect in a separate division was too indirect to be a recoverable damage. See Marine Power Holding, LLC v. Malibu Boats, LLC, 2016 WL 7241560 (E.D. La. 12/15/2016).

By contrast, courts have found that loss of cash flow is recoverable where directly related to the damages suffered, such as where breach of a contract to deliver chickens to a chicken farmer caused the forced sale of the chicken farm. See Volentine v. Raeford Farms of La., 50-698 (La.App. 2 Cir. 8/15/16), 201 So.3d 325.

Failure to perform on a contract exposes a business to more than it may realize. Understanding this risk allows for smarter decisions before the breach.

One More Reason: Louisiana’s “Drunk Driving” Immunity

11.11.2016

A conviction for DWI brings the consequences you might expect, such as the loss of driving privileges, expensive attorneys’ fees, and public embarrassment. However, there is one additional, less-obvious consequence of which many are unaware; Louisiana provides immunity from claims brought by a drunk driver who was at least 25% at fault in the accident which caused his injuries, no matter how severe the injuries.

Generally stated, if you are driving drunk and are in an accident that is mostly someone else’s fault, you will not be able to recover for the injuries you sustain. Similarly, if your fault injures a drunk driver, the statute may shield you from liability. The “drunk driving” immunity is found in La. R.S. 9:2798.4. The statute provides immunity against the claims of a driver with a blood alcohol level of .08 or higher.

The immunity may even apply to defendants who were not directly involved in the accident. In Stewart v. Daiquiri Affair, Inc., 20 So.3d 1041 (La. App. 1^st Cir. 2009), writ denied, 19 So.3d 477 (La. 2009), the immunity was found to apply to claims brought by an 18-year-old employee who consumed alcohol on the premises and was subsequently injured in a motor vehicle accident. Rejecting the argument that immunity should not apply when the employer arguably contributed to the under-age plaintiff’s consumption of alcohol, the appellate court in Stewart concluded that the statute’s language required immunity because the employee was more than 25% at fault and her blood alcohol content was over the legal limit.

Because the “drunk driving” immunity statute is supported by the legislature’s strong and long-standing interest in protecting citizens against drunk driving, it has been upheld and applied in many instances. Although you should not need another reason to not drive drunk, you now have one.

Legal Malpractice: An Ounce of Prevention Can Save You Benjamins

06.02.2016

Benjamin Franklin is famous for many things including his musing that “an ounce of prevention” is worth a “pound of cure.” While that truism applies to many aspects of life, it represents real-world reality when it comes to avoiding legal malpractice. When a few simple steps can avoid disaster, attorneys may want to spend a few “pennies” of their time and consider these steps.

Disciplinary Complaint

05.25.2016

“Whether you want to admit it or not, the process has begun and the clock is already ticking.”

You’ve Got Mail (Just Not the Good Kind)

You open your mail box. Flipping through the daily mail, you hope for a check and expect a few bills, but behind a glossy mailer and an annoying letter from opposing counsel, you find a certified letter–and it’s from Office of Disciplinary Counsel. The letter advises that an ethics complaint has been filed against you. Whether you want to admit it or not, the process has begun and the clock is already ticking. This post explores what happens next.

Mediation: A Little History

05.12.2016

You didn’t expect to be here, but yet here you are — stuck in a lawsuit over which you seem to possess little control. Now, your lawyer says he wants to “mediate” your case and wants a response from you soon. Unfamiliar with the process, you wonder if you should say “yes.” Maybe a little history will help you to make your choice.

What Mrs. O’Leary’s Cow Has to Do With Spoliation

04.29.2016

For more than a century, the debate has raged over whether Mrs. O’Leary and her famous cow truly started The Great Chicago Fire of 1871. Were the tragic events of that conflagration to happen today, someone would ask Mrs. O’Leary to produce the “RFID” chip in her bovine. (You know they would). They would contend that this key evidence could show the whereabouts and movement of the cow at the time the fire began. When she could not produce it, they would claim not only that she started the fire that destroyed a swath of Chicago, but that she also destroyed the evidence of her guilt. They would cry “spoliation.”

Discovery in a Digital World

04.18.2016

The image of a law firm stuffed with banker boxes floor-to-ceiling is shifting to the view of a computer server filled with gigabytes of information. This is increasingly a digital world and the documents, photographs, charts, memos, and emails that are the “stuff” cases are built upon now often come in digital form. As a result, great emphasis is placed upon “electronic discovery.”

Fourth Circuit Brings Clarity to Peremption Statute in Suit Against Design Professional

02.15.2016

The question addressed in MR Pittman Group, LLC versus Plaquemines Parish Government, 2015-0396 (La.App. 4 Cir. 12/2/15) was whether the five-year peremptive period set by La. R.S. 9:5607 displaces Louisiana’s general one-year prescriptive period set by La. C.C. art. 3492, when applied to tort claims against design professionals. Finding a contractor’s claim against the project engineers prescribed, the MR Pittman court held that the one-year prescriptive period governs tort claims against design professionals.

The Supreme Court “Cleans Up” the Liability of Merchants for Slip-and-Falls Caused by Independent Contractors

11.23.2015

In Thompson v. Winn-Dixie Montogomery, Inc., et al., 2015-C-0477, – So.3d —, the Louisiana Supreme Court recently held that a merchant is not solidarily liable for “slip and fall” damages caused by the actions of an independent contractor, a janitorial services company. Additionally, the Thompson Court addressed the best practices for an appeals court to raise an issue “sua sponte,” i.e, on its own.