Can Data Breach Victims Sue in Federal Court Without Actually Suffering Identity Theft?

Recently, health insurer CareFirst Inc. filed a petition with the Supreme Court of the United States to resolve a disagreement among federal appellate courts on the issue of whether victims of data breaches may sue in federal court when they do not allege a present injury. This suit, on appeal from the United States Court of Appeals for the District of Columbia Circuit, will largely center on the idea of standing, a threshold requirement for any plaintiff hoping to sue in federal court. More specifically, CareFirst Inc. alleges the D.C. Circuit erred in reasoning that a plaintiff has standing to sue in federal court simply by virtue of the fact and nature of the data that was accessed by hackers. The data included names, birth dates, email addresses, and subscriber identification numbers.

Pursuant to the federal law, standing requires that a plaintiff suffer some sort of injury to sue. Future injuries may be actionable. However, courts will require that there be a substantial risk of injury. For data breach victims that have not seen evidence of identity theft or fraud, the main question is whether theft of private information as a result of a data breach creates a substantial risk of an identity theft to be actionable.

This August, the United States Court of Appeals for the Eighth Circuit, which hears cases from federal courts in Iowa and Nebraska, ruled in Alleruzzo v. SuperValu, Inc. that a district court properly dismissed many plaintiffs from a data breach action. In that case, hackers gained access to customers’ card information from a grocery store network. This included names, card numbers, expiration dates, card verification values codes, and personal identification numbers. Several customers filed suit under a variety of theories, but only alleged that one customer suffered a single fraudulent charge. Due to lack of injury, the case was dismissed by the district court.

On appeal, the plaintiffs argued that theft of their card information created a substantial risk that they will suffer identity theft in the future. The court initially noted that because card information does not contain social security numbers and birth dates, the information cannot plausibly be used to open new accounts, a form of identity theft most harmful to consumers. It also analyzed a 2007 Government Accountability Office report, which concluded that based on available information, most breaches have not resulted in detected incidents of identity theft. Since the plaintiffs presented no facts from which the court could conclude that plaintiffs suffered a substantial risk of future identity theft, they had no standing to sue in federal court.

The Eighth Circuit and the D.C. Circuit are not the only courts to consider the issue. Like the Eighth Circuit, the United States Court of Appeals for the Fourth Circuit, in Beck v. McDonald, concluded that the risk of identity theft was too hypothetical to allow plaintiffs to sue. Meanwhile, the United States Courts of Appeals for the Sixth and Seventh Circuit have stated, in Reijas v. Neiman Marcus and Galaria v. Nationwide Mutual, that data breach victims suffered an imminent risk of identity theft when the breach occurred.

While the Supreme Court has not yet agreed to hear CareFirst’s arguments, this is certainly an issue to keep watching. Should courts continue to state that data breach victims have standing to sue businesses by virtue of the fact that hackers gained access to the data, such litigation can be expected to rise as data breaches continue. 

Davis v. State: State is not required to plead and prove an exception to the State Tort Claims Act, and an exception to the State’s immunity may be raised for the first time on appeal or sua sponte.

On October 6, 2017, in the case of Davis v. State, the Nebraska Supreme Court concluded that its prior cases holding that the State of Nebraska (the “State”) must plead and prove an exception to the State’s immunity from suit under the State Tort Claims Act (the “STCA”) were clearly erroneous. Davis v. State, 297 Neb. 955, 979 (2017).  As a result, the Court overruled its prior cases “to the extent they can be read to hold that a state attorney waives an immunity defense under [the Act] by failing to raise it in a pleading or to a trial court.”  Davis, 297 Neb. at 979.1

Instead, the Court held “that an exception to the State’s waiver of immunity under the STCA is an issue that the State may raise for the first time on appeal and that a court may consider sua sponte [(i.e., on its own motion)]”.  Id.  The Court’s rationale for its holding was that “when a plaintiff’s complaint shows on its face that a claim is barred by one of the exceptions [to the STCA], the State’s inherent immunity from suit is a jurisdictional issue that an appellate court cannot ignore.”  Id.  While not specifically stated, the Court’s holding in Davis will also apply to claims under Nebraska’s Political Subdivisions Tort Claims Act (the “PSTCA”).  See id.

The effect of the Court’s holding in Davis is that a plaintiff bringing a tort claim against the State or against a political subdivision will have to meet somewhat of a heightened pleading standard.  In addition to having to comply with the procedural requirements of the STCA or the PSTCA, plaintiff’s will also have to ensure that their complaint does not show, on its face, that the claim is barred by one of the exceptions to the State’s or political subdivision’s waiver of immunity.  If it is, the trial court, or even an appellate court, has the inherent power to determine whether the plaintiff’s allegations show that the tort claim is facially barred by an exception to the STCA or the PSTCA.  See id. at 980.

The Davis holding also relaxes the pleading standard for the State and political subdivisions.  As indicated above, because the Court considers the exceptions to the State’s and political subdivision’s waiver of immunity under the STCA and PSTCA as jurisdictional issues (i.e., whether the court has the power to hear the case), the failure to raise an exception in a responsive pleading or at trial does not operate as a waiver of the defense, and may be raised by either the State, political subdivision, or the court for the first time on appeal.

1 The cases that were overruled were Maresh v. State, 241 Neb. 496, 489 N.W.2d 298 (1992); Hall v. County of Lancaster, 287 Neb. 969, 846 N.W.2d 107 (2014); Doe v. Board of Regents, 280 Neb. 492, 788 N.W.2d 264 (2010); Reimers-Hild v. State, 274 Neb. 438, 741 N.W.2d 155 (2007); Lawry v. County of Sarpy, 254 Neb. 193, 575 N.W.2d 605 (1998); Sherrod v. State, 251 Neb. 355, 557 N.W.2d 634 (1997); and D.M. v. State, 23 Neb. App. 17, 867 N.W.2d 622 (2015).

Federal Grant Funds Available for Communities to Improve Airfare and Air Service.

          The Department of Transportation (“DoT”) today announced a solicitation of proposals from communities seeking federal grant money to assist with the improvement of the community’s airfare and air service. The DoT is offering a total of $10 million in grants under its Small Community Air Service Development Program (“SCASDP”) to be disbursed to up to 40 communities, consortia of communities, or a combination of either (“Communities”).

           The SCASDP grants are to be used to implement improvements of the Community’s airfare and air service. This year, the DoT has a total of $10 million available in fiscal year 2017 (October 1, 2017 to September 30, 2018) to distribute in the form of grants to up to 40 Communities in order to implement improvements proposed by the applicant. There is no limitation on the amount of the grant awarded, but past awards have ranged from $20,000 to $1.6 million. Of the 36 SCASDP applicants in 2016, only nine grants were awarded to Communities in seven states.

          Those Communities eligible to receive the grant include those with airports that are not larger than a small hub airport, have inadequate air carrier service or high airfares, and have an airport for their Community that exhibits a need for grant assistance. Groups of communities are eligible if they are working jointly to accomplish the same goal and fit into the aforementioned categories.

          Importantly, the grants cannot be used for capital improvements. So runway expansions or resurfacing, construction of new hangars, etc. are not eligible improvements under the SCASDP. While there are several available uses for the grants, one of the more interesting is that grants are available for an underserved airport to carryout measures that are deemed to be useful in improving air service regarding the cost of air service to consumers and the availability of that service. This includes improving marketing and promotion of air services.

          As in 2016, the DoT will give priority to those Communities where: airfares are higher than the average airfares for all communities; a portion of the cost of the activity contemplated by the community is provided from local, non-airport revenue sources; a public-private partnership has been or will be established to facilitate air carrier service to the public; improved service will bring the material benefits of scheduled air transportation to a broad section of the traveling public, including businesses, educational institutions, and other enterprises whose access to the national air transportation system is limited; the funds will be used in a timely manner; and multiple communities cooperate to submit a regional or multistate application to consolidate air service into one regional airport.

          Communities that are currently receiving air service under Essential Air Service (“EAS”) or Alternate Essential Air Service (“AEAS”) are not eligible for SCASDP grants. Grant applications must be submitted no later than December 15, 2017 by 4 p.m. eastern time.

          For more information on SCASDP, EAS, AEAS and other state and federal grant programs relating to aviation, or for assistance with the grant application and determining your Community’s eligibility, please contact Adam B. Kuenning with Erickson | Sederstrom.

Divorce’s Impact on Estate Plans in Nebraska

    On September 3, 2017, Nebraska LB 517 went into effect. The passing of this bill has resulted in the enactment of Nebraska Revised Statute §30-2333, titled “Revocation by divorce or annulment; no revocation by other changes of circumstances.” What exactly does this mean? Well, absent a court order, express terms of a governing instrument, or contract relating to the division of the marital estate, it means a few different things.
   First, a divorce or annulment revokes any revocable transfer or appointment of property made by a divorced individual to his or her former spouse, or to a relative of his or her former spouse. For instance, let's say Spouse 1 is both the owner and insured of a life insurance policy that lists Spouse 2 as the primary beneficiary. In the event Spouse 1 and Spouse 2 legally divorce, Spouse 2 is no longer treated as the primary beneficiary of said policy, assuming the contrary is not specified under the policy, by court order, or by other contractual agreement between the parties.  In this case, the provisions of the life insurance policy are given effect as if Spouse 2 disclaimed all interest in the life insurance policy. The same principle applies to accounts with payable on death designations, last wills, interests in certain trusts, pensions, retirement plans, transfer on death deeds, annuity policies, profit-sharing plans, etc.  
    Also revoked by a divorce or annulment is any revocable provision giving the former spouse, or relative of the former spouse, a general or non-general power of appointment. An individual's estate planning documents often contain such powers of appointment. Also found in estate planning documents are nominations of certain fiduciaries. Any revocable nomination of the former spouse, or relative of the former spouse, as a fiduciary or representative is revoked upon divorce or annulment. Examples of potential nominations include an executor, trustee, guardian or power of attorney.
    Next, a divorce or annulment severs any interest in property held together by former spouses as joint tenants with a right of survivorship at the time of the divorce or annulment. The former spouses then become equal tenants in common.  What does “joint tenants with a right of survivorship” mean? Let’s say you have Spouse 1 and Spouse 2 and they own property together as joint tenants with a right of survivorship. Now if Spouse 1 dies, Spouse 2 automatically obtains the percentage of the property previously held by Spouse 2. Now what about “equal tenants in common”? Now you have Spouse 1 and Spouse 2 and this time they get a divorce. Upon the divorce, Spouse 1 and Spouse 2 both have equal shares in the property, and upon the later death of one spouse, the surviving spouse no longer has a right to the deceased spouse's interest in the property. Again, it is important to note that these are default rules absent express terms of a governing instrument, court order, or other property settlement agreement.  Also, unless there has been a writing declaring the severance and the writing was noted, registered, filed, or recorded in appropriate records, this severance does not affect a purchaser’s interest in the property so long as the purchaser purchased it for value and in good faith relied on the fact that the title was in survivorship in the survivor of the former spouses. 
    Also, it is important to note that a decree of legal separation is not considered a divorce or annulment for purposes of this statute. Moreover, provisions revoked solely by this statue are revived by the divorced individual's remarriage to the former spouse or by nullification of the divorce or annulment.
    How are third parties affected by this statute? A third party is not liable for making payment or transferring property to a beneficiary designated in a governing instrument that is affected by the divorce, annulment, or remarriage, or for taking any other action in good faith reliance on the validity of the governing instrument, before such third party receives notice. If a third party receives written notice of the divorce, annulment, or remarriage, the third party then becomes liable for payments or action taken regarding the property after said notice.  Finally, a former spouse, relative of a former spouse, or other person who received, without giving value in return, a payment, an item of property, or any other benefit to which that person is not entitled under this section is obligated to return the payment, item of property, or benefit, or is personally liable for the amount of the payment or the value of the item of property or benefit, to the person who is entitled to it. 
 

Can’t Tell the Difference? Eighth Circuit distinguishes protected concerted efforts from employee disloyalty and malice

   Whether you employ unionized employees or not, Nebraska employers must be aware of the concept of protected concerted activity under the National Labor Relations Act. Employees who engage in concerted (i.e., joint) efforts with co-workers to address their working conditions or terms of employment, may be engaging in conduct protected by federal law. Terminating or disciplining because of that conduct can give rise to an unfair labor practice charge before the National Labor Relations Board. Recently, the Eighth Circuit Court of Appeals (whose decisions govern Nebraska employers) recognized the difference between protected concerted activity and employee conduct that is disloyal, reckless, or maliciously untrue—and not protected. Read on to better understand the important distinction!
Background
    MikLin Enterprises (“MikLin”) owns and operates ten Jimmy John’s sandwich shops in the Minneapolis-St. Paul area. Michael Mulligan is the owner and co-owner and Robert Mulligan is the vice-president. MikLin workers started an organizing campaign, attempting to gain union representation by the Industrial Workers of the World (“IWW”).   
    As part of the campaign, employees demanded paid sick leave. The MikLin handbook stated that MikLin did not allow people to simply call in sick  ̶  they were required to find their own replacements for any time off. The IWW began posting on community bulletin boards in MikLin stores. These posters contained two identical Jimmy John’s sandwiches next to each other and stated above one sandwich:  “Your sandwich made by a healthy Jimmy John’s worker,” and above the other identical sandwich: “Your sandwich made by a sick Jimmy John’s worker.” Below the sandwich was the question, “Can’t tell the difference?” followed by:  “That’s too bad because Jimmy John’s workers don’t get paid sick days. Shoot we can’t even call in sick.” 
MikLin managers quickly removed the posters from the stores.   IWW dispersed a press release, posters, and a letter to over 100 media contacts.  It discussed “unhealthy company behavior” and concluded by threatening that if Robert and Michael Mulligan would not meet with the IWW supporters to discuss their demands, “dramatic action” would be taken and they would display their posters around the city. Within the letter, there was an assertion that MikLin stores committed health code violations daily. The letter went on to state that because of the sick leave policy, MikLin was jeopardizing the health of their customers.
    Four IWW organizers met with Mulligan, and he stated that MikLin was in the process of amending its policies. The new policy involved a point system for absences. If an employee received four disciplinary points in a twelve-month period, he or she would be terminated.  This new policy stated that employees were not allowed to work until any flu-like symptoms had subsided for a 24-hour period.
    After the implementation of the new policy, the IWW supporters followed through with their threat but this time created posters with Mulligan’s phone number on them, encouraging people to call him. Mulligan and store managers removed these posters and Mulligan fired six employees who organized the campaign and delivered written warnings to three others who aided in the attack.  This gave rise to charges of unfair labor practices.
NLRB Finds an Unfair Labor Practice
    The Administrative Law Judge with the National Labor Relations Board, ruled that MikLin violated Sections 8(a)(1) and 8(a)(3), of the National Labor Relations Act, which protects concerted  activities of employees  ̶   “Section 7 of the NLRA protects employee communications to the public that are part of and related to an ongoing labor dispute.” Employee communications are not protected if they are “disloyal, reckless, or maliciously untrue.” To lose protected status, the employee communications must have been made with a “malicious motive” or have been “made with knowledge of the statements’ falsity or with reckless disregard for their truth or falsity.”
    The ALJ determined that the posters, press release, and letter were all related to the ongoing labor dispute as they dealt with the sick leave issue. Although the posters were not literally true (employees could call in sick; they just had to find coverage for their missed shift), employees were disciplined if they failed to find a replacement.  Therefore, it was a “protected hyperbole,” or somewhat exaggerated truth.
    The ALJ also found that, even though MikLin had only been investigated twice by the Minnesota Department of Health for food borne disease, it was possible that MikLin’s sick leave policy could increase the risk of food borne disease.  Again, that statement was considered to be true or hyperbole.
    The ALJ ruling then went to the NLRB.  A divided NLRB affirmed the ALJ’s conclusions. It determined that the posters were clearly related to the ongoing labor dispute over the sick leave and the statements were not “so disloyal, reckless, or maliciously untrue so as to lose the Act’s protections.”
The Eighth Circuit Declines to Enforce Much of the NLRB’s Ruling
(1)    “Sick Day” Poster Issues

The court noted that an employer commits unfair labor practices if it terminates an employee for engaging in activities that are protected under the NLRA, including  communications to third parties or the public that are utilized to improve their position as employees. But, Section 10(c) of the NLRA allows employers to terminate employees for cause.
    Courts have determined that disloyalty to an employer amounts to “cause” under Section 10 (c).  In determining disloyalty, the central question is “whether employee public communications reasonably targeted the employer’s labor practices, or indefensibly disparaged the quality of the employer’s product or services.” The former is protected and the latter is not. The court also stated that an employee’s disloyal statements can lose protection under section 7 of the NLRA without a showing that the statements were made with actual malice.
    Here the court agreed with the NLRB that the sick day posters, press release, and letter were related to other section 7 protected concerted activity intended “to improve the terms and conditions of their employ by obtaining paid sick leave.” However, the court determined that the posters, press release, and letter were not protected because they were a “sharp, public, disparaging attack upon the quality of the company’s product and its business policies.” This was evidenced here by the fact that the posters, press release, and letter were done to convince customers that they may get sick if they eat a Jimmy John’s sandwich, attacking the product itself.  An allegation that a food industry employer is selling unhealthy food is the “equivalent of a nuclear bomb” in a labor-relations dispute.  The nature of the attack was likely to outlive, and also unnecessary to aid, the labor dispute.
    The court also determined that claims about the sandwiches were “materially false and misleading.” The press release and the letter claimed that MikLin committed health code violations daily, putting customers at risk of getting sick. The court stated that these were not true statements, evidenced by MikLin’s record with the Minnesota Department of Health over ten years and requiring employees to call in sick if they have had any flu-like symptoms in the previous 24 hours.
    In sum, MikLin had cause to terminate and discipline the employees involved.  
(2)     Facebook Postings by MikLin Supervisors  
The Eighth Circuit considered other aspects of the NLRB ruling.  As the IWW began organizing, a MikLin employee created a “Jimmy John’s Anti-Union” Facebook page. On this page, MikLin employees posted disparaging comments about an IWW supporter. The ALJ determined that these posts violated section 8(a)(1) of the NLRA by encouraging harassment of the IWW supporter, which the NLRB affirmed.
    The appeals court determined that the public disparagement and degradation of the union supporter “restrained or coerced MikLin employees in the exercise of their section 7 rights” out of fear they would suffer similar treatment if they chose to support the IWW.  Thus, this aspect of the NLRB ruling was enforced.
(3)    Removal of In-Store Union Literature
After losing the first election, the IWW had filed unfair labor practice charges and objections to the election with the NLRB. MikLin and the IWW settled by stipulating to set aside the election and hold a re-run election.  After this, a MikLin employee posted a notice on a bulletin board to the employees (pursuant to the settlement) of the settlement and what it meant. A union supporter posted next to this notice an IWW “FAQ about the Union Election & Settlement.” The IWW post was taken down repeatedly.  The ALJ had determined that this was a violation of section 8(a)(1) of the NLRA, and the NLRB affirmed.
    The court enforced the NLRB’s order on this issue.  Section 8(a)(1) protects employees’ rights to “bargain collectively through representatives of their own choosing.” Removal of the IWW poster interfered with union supporters’ right to communicate about their organization in violation of section 7 of the NLRA. 
Miklin Enterprises, Inc. v. NRLB, Nos. 14-3099 & 14-3211 (8th Cir. July 3, 2017).
Bottom Line for Employers
    If you face efforts from employees that may deal with their working conditions or terms of their employment but believe they may be acting in a disloyal, reckless, or malicious way, contact your employment and labor attorney to fully discuss the issue.

Bonnie Boryca may be reached at (402) 397-2200 and boryca@eslaw.com.
 

Bankruptcy Creditors Given Leeway to File Proofs of Claim Based Upon Stale Debts

In Midland Funding, LLC v. Johnson, 581 U.S. ___, 137 S.Ct. 1407, 197 L.Ed.2d 790 (2017), the United States Supreme Court held that creditors in Chapter 13 bankruptcy cases do not violate the Fair Debt Collection Practices Act if the creditor files a proof of claim based upon a stale debt in the bankruptcy case.  In other words, even if the statute of limitations set forth by state law has expired as to the creditor’s claim against the debtor, it is not a violation of federal law for the creditor to file a proof of claim in the bankruptcy case.  Once the proof of claim has been filed, the burden is on the debtor, through counsel, to identify the stale nature of the claim and object to the claim.  The Chapter 13 bankruptcy trustee may also object.  If no objection is made, the claim is likely to be allowed in the bankruptcy case.

Midland Funding has led to additional questions, including whether the same rule applies in Chapter 7 bankruptcy cases as well or is limited to Chapter 13.  Although Midland Funding was focused on Chapter 13, we believe the holding regarding stale debts would apply to Chapter 7 consumer bankruptcy cases.  Based on Midland Funding, creditors will in some cases be able to recover at least part of a debt that could not be pursued outside the bankruptcy court forum.  Creditors are now significantly more likely to file such claims in bankruptcy cases. 

Erickson | Sederstrom recommends that creditors planning to file a proof of claim that would be time-barred under state law first consult with counsel to ensure they do not violate the Fair Debt Collection Practices Act.

May an Insurer Depreciate the Cost of Labor in Determining the Actual Cash Value of a Covered Loss?

Recently, the United States District Court for the District of Nebraska certified this question to the Nebraska Supreme Court: “May an insurer, in determining the ‘actual cash value’ of a covered loss, depreciate the cost of labor when the terms ‘actual cash value’ and ‘depreciation’ are not defined in the policy and the policy does not explicitly state that labor costs will be depreciated?”. Today, the Nebraska Supreme Court found in the affirmative. 

Henn v. American Family Mut. Ins. Co. involves a current dispute over the interpretation of a homeowners’ insurance policy. At the crux of the dispute was whether labor costs can be depreciated in determining the actual cash value (replacement cost minus depreciation) of a covered damage under the policy. In its analysis, the Nebraska Supreme Court noted that Nebraska law has always generally allowed for depreciation in defining “actual cash value”. Despite the plaintiff’s argument that depreciating labor is illogical because labor does not depreciate, the court noted that such an argument is in contravention of the court’s prior reasoning that actual cash value must not equal the amount required to complete the repairs. Actual cash value is meant only to start repairs. 

The court also stated that Nebraska courts may still consider material and labor when determining actual cash value. This approach ensures that the insured does “not pay for a hybrid policy of actual cash value for roofing materials and replacement costs for labor” as the property is comprised of both materials and labor. Therefore, an insurer may depreciate labor in determining the actual cash value of a covered loss when not stated otherwise in the policy. 
 

“Reasonable Inference” All That Is Required To Find Sex Discrimination In Promotion Decision

If an employment discrimination case makes it way to a jury, and a jury finds discrimination and damages in favor of an employee, reversing that result on appeal is an uphill battle.  A recent Nebraska Supreme Court case involving Metropolitan Utilities District of Omaha (MUD) and allegations of sex discrimination in the denial of a promotion illustrate this point.  

Background
Plaintiff Kristina Hartley was a long time employee of MUD. She had a bachelor’s degree and began in customer service at MUD in 1984. She was promoted in 1986, 1988, 1991, and in 1994 to senior engineering technician. After sixteen years in that position, she applied to become supervisor of field engineering.  The position was open to current MUD employees via an internal job posting. The position involved planning, directing, and supervising the work of 17 field engineering and utility locator personnel of the plant engineering division.  

The position required two years of college in an area related to engineering and utility locating experience in the last five years, preferably in an ongoing capacity. This posting was the same as a previous posting for the same position in 2003 except that the utility locating experience in the last five years was a new requirement. Stephanie Henn, Senior Plant Engineer, added the new requirement and made the decision of who to promote to supervisor of field engineering. She had been Hartley’s direct supervisor for many years. Shortly before Hartley applied for the supervisor position, Henn was a promoted and a new direct supervisor was put in place over Hartley and others.  Hartley applied to be supervisor of field engineering. Ten other people applied, two of whom were female.

The promotion was awarded to a male colleague, David Stroebele. Hartley’s discrimination claim proceeded to trial and the details of how the promotion was awarded to Stroebele over Hartley and the other two female applicants were put before a jury. The jury found in favor of Hartley, awarding her $61,293 in special damages and $50,000 in general damages. After trial, the court awarded Hartley attorney’s fees of $56,800.
 
On appeal
MUD appealed to the Nebraska Supreme Court, which was tasked with answering whether sufficient evidence supported the jury’s verdict. The familiar McDonnell Douglas standard applied to Hartley’s case. She had to first establish a prima facie case of discrimination in the failure to promote her by demonstrating: (1) she was a member of a protected group, (2) she was qualified for and applied for a promotion to an available position, (3) she was rejected, and (4) a similarly situated employee, not part of the protected group, was promoted instead.  

When an employee establishes these elements, an employer may try to rebut the prima facie case by producing “clear and reasonably specific” admissible evidence that would support finding that unlawful discrimination did not cause the denial of the promotion, i.e., by articulating a legitimate, nondiscriminatory reason for the decision.

Upon providing such a reason, a jury must decide whether the employer acted because of the protected characteristic (here, Hartley’s sex) despite the employer’s proffered reason. In other words, is the employer’s reason a pretext for unlawful discrimination in making the decision not to promote? If so, “[t]he trier of fact can infer that ‘the employer is dissembling to cover up a discriminatory purpose.’”  

The first two steps were met in this case: Hartley established a prima facie case and MUD offered a legitimate, nondiscriminatory reason. Its proffered reason was that Stroebele was the better qualified candidate compared to Hartley. Hartley’s new direct supervisor and her prior supervisor, Henn, had expressed issues with her communication skills on a review just before she applied for the supervisor position. Also, they claimed she lacked the five years of locator experience needed for the position.  The question on appeal was whether there was sufficient evidence for the final step: were MUD’s reasons pretextual?  The evidence was sufficient, according the Nebraska Supreme Court. It recited the following evidence that the jury had before it:

  • Hartley worked at MUD twice as long as Stroebele.
  • She had supervised his work.
  • She had more supervisory experience than him.
  • She had the requisite skills at locating, though not within the past five years.
  • She had no “chargeable hits” in locating, but Stroebele did in recent years (showing her locating skills were more accurate).
  • She had more education than Stroebele.
  • He had previously worked as a laborer and she had inspected his work while at MUD.
  • The only complaints about Hartley were tied to her emotionality rather than competency to perform her job.
  • Other female applicants were also more qualified than Stroebele.
  • Hartley’s only performance appraisal in the past seven months took place just after she applied for the promotion, as did the other applicants’ appraisals.
  • The appraisal was not conducted in month of the applicants’ hiring anniversary, contrary to MUD policy.
  • Hartley’s appraisal showed a dramatic decline compared to her past appraisals.
  • The appraisal was conducted by the new supervisor recently put in place over Hartley but referenced incidents before he was her supervisor, when Henn was her supervisor.
  • Hartley’s supervisors showed hostility towards her after she complained about the timing and content of the appraisal.
  • There was a question of whether the five years’ locating experience requirement was a legitimate and necessary requirement for the position.
  • Supervisors provided inconsistent or shifting explanations about Hartley’s skills at locating in explaining why she was denied the promotion.

In response to this evidence, MUD argued the jury could not have reasonably found pretext because Hartley admitted that certain events happened. It said she did not refute that in 2008 she had a bad interaction with then-supervisor Henn, which Henn thought was unprofessional. It also said she did not refute the truth of complaints about Hartley that she did not like to do utility locating.  

The Court rejected MUD’s argument. It “confuse[d] the falsity of an occurrence cited in support of the employer’s action with the falsity of the employer’s statement that the proffered non-discriminatory reason actually motivated the employer.” Regardless of the truth or falsity of the complaints against Hartley, the evidence could have led a jury to conclude those complaints were not the actual reason for denying Hartley the promotion. Viewing the evidence as a whole and in a light most favorable to Hartley, the Court found that there was sufficient evidence to support a reasonable inference that the employer’s promotional decision was because of Hartley’s gender.  Therefore, the jury’s verdict was upheld, including each amount for damages and attorney’s fees.  Hartley v. Metropolitan Utilities District of Omaha, 294 Neb. 870 (Sep. 30, 2016).

Takeaway for employers
The evidence put before the jury may have led jurors to conclude that policies were not followed with regard to the plaintiff that illegitimate job requirements were placed in the posting to exclude certain applicants, and that supervisors had improper justifications when excluding female applicants.

This case should show employers the importance of conducting job performance appraisal consistently and in conformity with written policies or past practices. Furthermore, job postings are important and should contain only the actual requirements and considerations involved in reviewing applicants for a position.  Bonnie M. Boryca is contributing editor of the Nebraska Employment Law Letter and can be reached at (402) 397-2200.
 

E|S assists client in obtaining a $1.59 million dollar judgment in a breach of contract action in the United States District Court for the Western District of Missouri, St. Joseph Division.

Erickson | Sederstrom’s Richard J. Gilloon and Nicholas F. Sullivan, together with Kevin D. Weakley and Leilani R. Leighton from the Kansas law firm Wallace Saunders Austin Brown & Enochs, obtained a $1.59 million dollar judgment for their client, Hassanin Aly, against Hanzada for Import and Export Company, Ltd. (“Hanzada”).

Connolly Joins Erickson|Sederstrom

Hon. William M. Connolly, who retired after serving twenty-two years on the Nebraska Supreme Court, has joined Erickson|Sederstrom as Of Counsel with a practice in Mediation and Arbitration.  

Judge Connolly will utilize his experience on the Nebraska Supreme Court and 29 years of prior experience as a trial lawyer to help parties reach just resolutions through the mediation and arbitration processes.  Judge Connolly will also offer appellate consulting services to firms and attorneys seeking assistance to develop appellate strategies, review and edit briefs, and prepare for oral argument.  

In Nebraska, Lenders Have Five Years to Pursue Deficiency Lawsuits after Judicial Foreclosures

In First National Bank of Omaha v. Scott L. Davey and Deborah Davey, the Nebraska Supreme Court held that a creditor has five years to pursue a deficiency action in situations where a piece of real estate has been foreclosed through judicial proceedings.

Nebraska law provides that, when real estate lending is secured by a deed of trust, the deed of trust can be foreclosed either through a non-judicial trustee sale of the property or a judicial foreclosure proceeding.  If the foreclosure, through either process, does not generate enough proceeds to pay off the underlying loan, the lender will be entitled to pursue the defaulted party for the remaining unpaid balance (the “deficiency”).  The Nebraska Deed of Trust Act, however, states that any legal action to secure a deficiency judgment must be brought within three months after “any sale of property under a trust deed…”

In Davey, a deed of trust had been foreclosed through use of judicial foreclosure proceedings which culminated with a sheriff’s sale of the property.  A deficiency resulted, but the lender did not file a deficiency lawsuit within the three month time frame.  The Douglas County District Court held that the lender filed its deficiency action too late and the action was dismissed.  The Nebraska Supreme Court reversed that decision, finding that the general five year statute of limitations for written contract matters applied instead.  The Court found that, notwithstanding the statutory language, applying the shorter three month time frame to filing of deficiency actions after a judicial foreclosure sale could produce absurd results in some cases and that it was more appropriate, given the overall statutory intent, to apply the five year limit instead.  Accordingly, lenders using the judicial foreclosure process have a considerable length of time to determine whether they wish to seek a deficiency judgment when the foreclosure did not produce enough funds to pay off the underlying loan.  
Davey reflects that, in Nebraska, despite the expedient procedure for foreclosure provided in the Deed of Trust Act, many situations can exist in which judicial foreclosure is more appropriate.  While the judicial process will take much longer, it is appropriate for use in situations in which competing liens need to be resolved, and can also be appropriate when the lender will need more time to evaluate its options.  

Erickson|Sederstrom attorneys are available to aggressively pursue both judicial and non-judicial foreclosure actions and any resulting deficiency suits.  Erickson|Sederstrom attorneys also provide a wide variety of additional real estate litigation services, including quiet title actions and landlord/tenant dispute litigation.

 

Differences Between Application of General Negligence and Professional Negligence Statutes of Limitation Clarified

In Churchill v. Columbus Community Hospital, Inc., the Nebraska Supreme Court attempted to provide clarification, in the context of services provided by a physical therapist, about how to determine when the two year professional negligence statute of limitation applies and when the four year general negligence statute of limitation applies.
In Churchill, a patient participating in aquatic therapy was injured after she slipped on a puddle of water while descending steps to leave a pool area located within a physical therapy clinic. The clinic’s policy was not to assist patients leaving the pool unless an initial evaluation indicated the patient had trouble walking. Churchill’s evaluation did not reveal any such trouble. On November 1, 2011, one day before the four year anniversary of her fall, Churchill filed an action in Platte County District Court against the clinic’s owner, claiming negligence in failing to clean the floor and failing to warn of the water hazard. The district court granted summary judgment in favor of the defendant, determining that the action was one for professional negligence, which Nebraska Revised Statute §25-222 states must be filed within two years after the act or omission occurred.
Churchill appealed the grant of summary judgment against her on the grounds that her claim was for premises liability, which is subject to a four year statute of limitation under Neb. Rev. Stat. §25-207. Addressing an issue it had not previously specifically determined, the Court concluded that physical therapists are considered professionals, taking into account that physical therapists are licensed by the state, are required to have a college degree, are subject to professional disciplinary authority, and are required to maintain certain educational requirements. The Court then stated that the alleged negligent act, directing Churchill to leave the pool without assistance, occurred within the scope of a professional relationship between patient and therapist. The Court reasoned that performing aquatic exercises was part of Churchill’s therapy, and her therapist evaluated her ability to walk. When the therapist directed Churchill to leave the pool without assistance, he was providing professional services. Thus, Churchill’s action was not allowed to proceed, as it was governed by the two year statute of limitation for professional negligence. 
Churchill thus clarified the analysis by which Nebraska courts evaluate whether a claim must be filed within two years as professional negligence, or within four years as required for other causes of action. The act or omission alleged must be essential and an integral part of the professional service rendered. Also, the profession addressed must exhibit factors similar to the factors set forth in Churchill.   This rule of law has been upheld in subsequent cases.
Churchill gives plaintiffs an incentive to file suit early if they have any question as to whether their claim is subject to the professional negligence statute of limitation.  Those defending against claims may argue for a broader application of the definition of “professional negligence”, as Churchill may broaden that definition in some situations.

 

Late Paycheck or Unpaid or Withheld Wages? Nebraska Laws Might Be on Your Side

Nebraska Revised Statute §§ 48-1228 to 48-1234 constitute the Nebraska Wage Payment and Collection Act. The Act applies to employees and a broad range of employers, including the state or any individual or entity that employs anyone in Nebraska as an employee. It defines wages as compensation for labor or services, including fringe benefits, when previously agreed to and conditions stipulated have been met by the employee, whether such wages are on a time, task, fee, commission, or other basis. Wages include earned but unused vacation leave. And wages include commissions on all orders delivered or on file with the employer at the time of an employee’s separation, unless the employer and employee agreed otherwise in an employment contract.

Fringe benefits include sick and vacation leave plans, disability income protection plans, retirement, pension or profit-sharing plans, health and accident benefit plans, and any other employee benefit plans or benefit programs regardless of whether the employee participates in such plans or programs.

The substance of the Act is its requirement that an employer designate and timely pay employees on regular paydays, and that an employer must pay a terminated employee all unpaid wages on the next regular payday or within two weeks of termination, whichever is sooner. See § 48-1230. If the wages consist of commissions, the employer must pay the employee any earned commissions on the next regular payday following receipt of payment for the goods or services on which the commissions were based. See § 48-1230.01.

The enforcement mechanism in the Act is it authorization of employee lawsuits for unpaid wages in § 48-1231. As an incentive to bring wage claims, which may consist of only a couple of week’s wages in some instances, the Nebraska Legislature has authorized awards of attorney’s fees to employees who prevail in court. If the employee prevails and he or she has employed an attorney to do so, the must award attorney’s fees in an amount not less than 25% of the unpaid wages. Courts can award more if they determine a higher fee is justified; 25% is the minimum required by the statute. In addition, if the case is appealed, and the employee wins on appeal, the employee can recover a 25% attorney’s fee for the appeal, as well. An employee cannot recover fees if the employer had tendered the unpaid wages within thirty days of the regular payday when they were due. 

If the employee prevails in the lawsuit, damages are equal to the wages owed. If nonpayment of wages is found to have been willful, then an employer may be held liable for twice the amount of unpaid wages (though the employee only recovers the amount of wages and the "doubled" amount is remitted to the Nebraska State Treasurer because it amounts to punitive damages, which may not be retained by private parties under the Nebraska constitution). 

The potential for the "double" damages and attorney’s fees can transform a wage claim seeking a couple weeks of unpaid wages into a much larger liability for employers who do not tread carefully. 

Whether you are an employee who is owed wages by his or her employer, or an employer dealing with wage issues, attorneys at Erickson | Sederstrom can assist you. Attorneys Bonnie Boryca or Paul Heimann can be reached (402) 397-2200.

Jury Confusion: What Happens When the Jury Makes a Mistake?

The Iowa Court of Appeals recently affirmed a district court’s denial of a motion for new trial based on juror misconduct. In Resetich v. State Farm, the Leanna Resetich was involved in a car accident in which she sustained injuries. Her and her husband eventually sued State Farm for underinsured motorist coverage and loss of consortium. The jury returned a verdict for $48,000, and assessed Ms. Resetich’s fault at 45%. Consequently, the judge reduced the plaintiff’s judgment to $26,500. 

The plaintiffs then filed a motion for a new trial alleging, among other things, juror misconduct. In support of the assertions, they produced a juror’s sworn statement attesting that the jurors had already considered Ms. Resetich’s fault in calculating the $48,000 verdict, an action prohibited by the jury instructions. The district court refused to admit the affidavit and denied the motion for new trial. Plaintiffs appealed. 

On appeal, the court noted that I.C.A. § 5.606(b) prohibits the use of juror testimony unless it refers to extraneous prejudicial information or outside influences that improperly affected jurors. In order to protect the sanctity of the juror room, any thoughts, emotions, or internal matters are not admissible. The court reasoned that jurors’ understanding or lack thereof represented the internal workings of the jury, which was barred by the evidence statute. Thus, the district court properly excluded the juror’s affidavit and denied the motion for new trial on the grounds of juror misconduct.

For any litigant, this result is upsetting. I.C.A. §5.606(b) is a statute used in different forms across the country to protect jurors. To avoid a confused jury, it is important to have an attorney that fights for clearly worded jury instructions and protects an appellate record in case unfair instructions are sent to the jury room. 

If you are considering suit or facing a complaint, attorneys at Erickson | Sederstrom may be able to assist you on a variety of legal topics. Attorney MaKenna Dopheide may be reached at (402) 397-2200.

Federal Appellate Court Rules that Obesity is Not a Disability (Most of the Time)

In a case of first impression for the United States Court of Appeals for the Eighth Circuit, the court ruled that, in most cases, the Americans with Disabilities Act (ADA) does not cover obesity alone. In Morriss v. BSNF Railway Company, Mr. Morriss sued the railroad when his offer of employment was revoked after a physical. The would-be employee failed a physical when his Body Mass Index (BMI) was found to violate company policy, even though he did not have any current health concerns or work restrictions. The company, concerned about health and safety risks to which an employee with a high BMI may be susceptible, had instituted a policy refusing to hire candidates with a high BMI for safety-sensitive positions. Mr. Morriss sued, arguing the company discriminated against him in violation of the ADA. The company was granted summary judgment, and Mr. Morriss appealed.
 
The ADA prohibits a covered employer from discriminating against any “qualified individual on the basis of disability”. Of the several definitions of “disability”, the Eighth Circuit focused on whether Mr. Morriss had an actual or perceived physical impairment. A physical impairment, as defined by the EEOC, means a physiological disorder affecting one or more body systems. As a result, the court concluded that an individual’s weight is considered covered when it falls outside the normal range and occurs as a result of a physiological disorder. Because Mr. Morriss had no evidence that his weight was the result of a physiological disorder, the court affirmed the district court’s decision. While this decision does not mean that ADA coverage is out of reach for claimants with obesity, it certainly excludes a substantial amount of claims. When conducting physicals, Iowa and Nebraska employers with similar policies should take care that the candidate does not have any underlying disorder causing obesity or a covered disability arising from obesity to avoid liability under the ADA.

Iowa Court of Appeals Issues New Decision on the Coming and Going Rule

The Iowa Court of Appeals recently reviewed several exceptions to the going and coming rule. In Seaman vs. Burgess Health Center, Mrs. Seaman died tragically on her way to work. The agency determined that she was not injured while in the course of her duties. Therefore, it barred her widower’s action for death benefits and funeral expenses. 

On appeal, the widower argued that there was a causal injury between her death and her work with Burgess Health Center. According to the going and coming rule, injuries occurring off the employer’s premises while the employee is on the way to or from work are not compensable. However, the court does make several exceptions. Of those, the widower argued that the special errand exception, dual purpose exception, and second business situs exception applied. 

The special errand exception applies when an employee is injured away from the employer’s premises during a special errand or mission for their employer. The dual purpose exception applies when an employee is injured off the premises while making a trip that serves both personal and business purposes. To apply this exception, the employee would have had to make the trip even if it did not coincide with the business purpose. The widower argued that both exceptions applied because his wife was on her way to work to deliver completed patient reports. He argued that the reports were time sensitive and she would be reprimanded if she did not deliver them. However, the court found no facts that would make the agency’s finding that she did not have to provide the reports that day illogical or unjustified. Therefore, neither the special errand exception nor the dual purpose exception applied. 

Finally, the widower argued that the business situs exception applied. The business situs exception applies when the employee’s home serves as a secondary office. While the Iowa Supreme Court has not officially adopted this exception, other courts state that it applies when it finds a large amount of work performed at home, continuing presence of work equipment at home, or special circumstances of the particular employment that make it necessary and not personally convenient to work from home. A great example of this occurs when a woman must work from home due to pregnancy. Although Mrs. Seaman did some work at home in the evenings to complete reports, she never saw clients at home, Burgess Heath Center never required her to work from home or paid for mileage to and from work. Mrs. Seaman did not have equipment at home. Based on these facts, the court could not find the agency’s finding that the exception did not apply wholly irrational. Therefore, the Iowa Court of Appeals affirmed the decision that Mrs. Seaman’s estate was barred from workers’ compensation benefits.

This case serves as a great review for employers in determining which tasks will invoke the exceptions to the going and coming rule. More importantly, while the court did analyze the case under the business situs exception, it still did not adopt it. As such, Iowa remains one of the twenty-eight states that still have not adopted that specific exception. 

The Search for “Bigfoot” Continues—The Iowa Court of Appeals Yet Again Finds Insufficient Evidence to Meet the Seemingly Unattainable Standard for Reversing for Workers’ Compensation Decisions

The search for the “Bigfoot” of the legal community continues, specifically the search for a case reversing final agency action on the ground that the agency’s action is unsupported by substantial evidence or is irrational, illogical, or wholly unjustifiable. In McComas-Lacina Construction v. Drake, McComas-Lacina, Mr. Drake’s employer, appealed the district court’s decision to affirm a workers’ compensation award in favor of Mr. Drake.  The employer argued that the determinations regarding Mr. Drake’s permanent total disability and date of last injury was “an abuse of discretion, irrational, illogical, unreasonable, unjustifiable, arbitrary and capricious, and error of law, and not supported by substantial evidence.”
 
In reviewing the case, the Iowa Court of Appeals recognized that the legislature granted the workers’ compensation commissioner the discretion to make factual determinations. Thus, district and appellate courts must affirm these factual determinations if they are supported by “substantial evidence in the record before the court when the record is viewed as a whole.” Substantial evidence is evidence of the quantity and quality that would be deemed sufficient by a neutral, detached, reasonable person to establish the fact at issue when the consequences of establishing that fact are of great importance. Iowa Code §17A.19(10)(f)(1). The court of appeals clarified that it would affirm a decision as having met the substantial evidence burden, even if the court would have come to a different conclusion as to the factual determinations. Because establishing the date injuries and deciding whether an employee is permanently and totally disabled are factual determinations, the Iowa Court of Appeals affirmed the lower court’s decision, concluding that there was little it could add the workers’ compensation court’s reasoning that supported these factual determinations.
 
As noted by the appellate court and evidenced through McComas, nearly all cases are won or lost in the workers’ compensation court. The Iowa Court of Appeals reinforced the widespread belief that a case reversing a final agency action on the ground that the determination was unsupportable by substantial evidence “is the Bigfoot of the legal community—an urban legend, rumored to exist but never confirmed.” Therefore, the search for "Bigfoot” continues.