Court Awards $1.6 Million in Landmark California Case Protecting NFT Creators from Counterfeit Sellers

On October 25, 2023, the United States District Court for the Central District of California awarded NFT creator Yuga Labs, Inc. (“Yuga”) $1.6 Million after counterfeits of its nonfungible tokens (NFTs) were sold online. Yuga owns the Bored Ape Yacht Club ("BAYC") collection of NFTs that feature cartoon monkeys that have sold for upwards of $3 million each at auction. The case arose from Defendants Ryder Ripps and Jeremy Cahen selling knockoff BAYC NFTs branded as "Ryder Ripps BAYC" or “RR BAYC.” Defendants sold exact copies of the BAYC NFT images with their own unique blockchain IDs purportedly as a form of satirical commentary. However, the court did not agree that the Defendants’ conduct was an act of free speech. This case highlights the complexity of free speech as it applies to the ever-changing digital landscape.

NFTs are digital assets that come in many forms, including art, music, videos, memes, gaming content, and more. NFTs are frequently traded in exchange for cryptocurrency and stored on the blockchain. While NFT values have since plummeted, the market for NFTs was valued at $40 Billion in 2021 according to Bloomberg. NFT Market Surpassed $40 Billion in 2021, New Estimate Shows - Bloomberg.

               In this California case, Defendants argued that RR BAYC was “satirical conceptual art” – an expressive work protected under the First Amendment. They claimed the art was aimed at bringing attention to what they believed to be racist imagery and “dog whistles” in Yuga’s art. Yuga Labs, Inc. v. Ripps, 2023 U.S. Dist. LEXIS 192487, *8, 2023 WL 7089922. The court remarked that the bar for satirical art using copyright marks is fairly low, but not infinitely low. In the court’s view, “Defendants’ sale of RR/BAYC NFTs is no more artistic than the sale of a counterfeit handbag.”

Unpersuaded by the free speech arguments, the court found the Defendants’ conduct was not an expressive work because it was exactly the same product as what it purportedly sought to critique. The absurdity of the Defendants’ position was expressed succinctly by Yuga’s president, Greg Solano, during cross-examination at trial, who remarked, “it can’t be a parody of itself.” The court found Defendants had intentionally used the BAYC trademarks in an effort to profit off of Yuga's intellectual property.

Accordingly, the court found Yuga was entitled to disgorgement of Defendants’ profits (about $1.4 million), $200,000 for cyber-squatting, and a permanent injunction against Defendants to prevent them from using the BAYC marks. After finding this to be an exceptional case because the Defendants acted in bad faith and were obstructive and evasive throughout litigation, the court also awarded attorney’s fees. In total, the damages owed to Yuga amounted to over $1.6 million. This decision strongly discourages knockoff NFT trading by maintaining robust protections for intellectual property rights in digital markets.

Nebraska Supreme Court's Ruling on Insurance Policy Limitation Periods: Key Takeaways.

On October 6, 2023, the Nebraska Supreme Court issued an opinion further supporting freedom to contract and held that a choice of law provision in an insurance policy controlled resulting in the application of a two-year contract limitation period.

Teresa Rose of Carter Lake, Iowa, was injured when the vehicle she was driving was struck by an under-insured motorist on February 3, 2018. The car Rose was driving belonged to her boyfriend, Christopher Stark, a Nebraska resident. Rose was insured under her sister’s American Family auto policy at the time of the accident. Following the accident, Rose settled with the at-fault motorist’s insurer and Stark’s insurer. Rose then attempted to claim underinsured benefits under the American Family Policy but was denied.

Rose attempted to sue American Family following the denial of benefits; however, the insurance contract stated, “any suit against [American Family] will be barred unless commenced within two years from the date of the accident.” In addition to the two-year limitation, the Policy contained a choice of law provision that stated any disputes would be governed by the laws of the state shown in the declaration of residence, which in this case, was Carter Lake, Iowa.

The district court for Douglas County determined that Iowa courts have expressed a strong public policy in favor of freedom to contract, including enforcing an underinsured motorist policy that contained a two-year limitation on actions, and thus, determined Rose’s claim time-barred. Rose appealed.

The Supreme Court analyzed the district court’s finding, stating that Rose’s claim, although based on the car accident which is a tort, actually arose out of the insurance policy, which is a contract. Because of this, contract law was applied, along with it the public policy encouraging freedom to contract which supports adherence to the black-letter terms of the policy. As the Policy terms stated, Iowa law was to be applied, and as Iowa law has historically supported a two-year limitation period for an uninsured motorist claim, that is the rule of law that the Nebraska court applied. Further, although Nebraska law has a five-year statute of limitations for contracts, Nebraska’s limitation was not found to prohibit contractual limitation periods arising from policies issued in other states, just those policies issued in Nebraska. Ultimately, the Nebraska Supreme Court affirmed the order of the district court.

Rose v. American Family Insurance Co. provides important insight not only into how far one’s freedom to contract extends but also what to keep in mind when working with insurance policies that may reach over state lines.

See Rose v. American Family Ins. Co., 315 Neb. 302 (2023).

Piercing the Corporate Veil - Can you collect from the individuals that own the company that owes you money?

If you obtain a judgment against a company, you can collect that judgment from the company's owners under certain circumstances. This is a legal concept called piercing the corporate veil. It comes up with corporations, LLCs, and other types of limited liability companies (businesses formed to protect owners from liability for business debts). However, it is the exception to the general rule that owners of a limited liability business are not liable for the business’s debts. Specific facts must be proven to pierce the corporate veil. The Nebraska Supreme Court recently reviewed these in the case of 407 N 117 Street, LLC v. Harper et al.

A Nebraska court may pierce the corporate veil to hold owners liable “only where the corporation has been used to commit fraud, violate a legal duty, or perpetrate a dishonest or unjust act in contravention of the rights of another.” 407 N 117 Street, 314 Neb. 843, 849 (2023)(citation omitted). Often, fraud is alleged as the grounds for piercing. Nebraska courts will consider the following factors to determine whether to disregard the corporate entity based on fraud:

1. Was there grossly inadequate capitalization of the company?

2. Was the company insolvent at the time the debt was incurred?

3. Did a shareholder/owner divert company funds or assets for their own use or other improper use?

4. Was the company a mere façade for the personal dealings of the shareholder/owner, and were company operations conducted by the shareholder disregarding the corporate entity?

Because this is the exception to the general rule of limited liability, the party seeking to collect against the shareholders/owners must prove these facts. While possible, it can be challenging to establish absent clear, strong evidence of the above, as the recent case described here shows. The court entered summary judgment in favor of the individual owners and did not pierce the corporate veil. The result in cases like this can be that the creditor does not recover any of its judgment at all, where a company has little or no assets remaining to collect. Early strategies in litigation and collection efforts can be developed in many cases to ensure against this kind of result. On the other hand, legal advice from an experienced attorney in this field can help business owners be sure they will not become subject to claims to pierce the corporate veil of their business and hold them individually liable for company obligations.

You Are Responsible For Deciding What Your Home’s “Replacement Cost” is in Nebraska.

Mark and Michelle Callahan sued their insurance company (Shelter Mutual Insurance Company) and insurance producer (Mr. Brant) after their home was completely lost to an electrical fire in 2019. Previously, in 2011, the Callahans purchased a “replacement cost” insurance policy from Mr. Brant, a Shelter agent. This insurance policy was paid in full; however, the Callahans sued because they learned that the cost of rebuilding their home would be greater than the payout they received from the home insurance policy.

The Callahans maintain that their home was underinsured and that they were harmed by:

(1)   The negligence of their producer, Mr. Brant, who they allege inadequately calculated the replacement cost of their home and

(2)   Mr. Brant verbally reassured both Mark and Michelle that they did not need to increase the amount of the policy to pay for total replacement. The Callahans claim they would have paid a higher monthly premium to insure their home for more money.

The Nebraska Supreme Court confirmed the lower court’s ruling, citing Nebraska’s valued policy statute, and held in favor of Mr. Brant and Shelter. The Court held that the public policy behind Nebraska’s valued policy statute barred the Callahans from presenting evidence that their home was undervalued. As such, the Callahans’ claims of negligence and negligent misrepresentation against Mr. Brant and Shelter described above were foreclosed as a matter of law.

By finding for Mr. Brant and Shelter, the Nebraska Supreme Court solidifies that when insuring real property, the dollar value set by the parties to the insurance contract controls in both directions. Further, that dollar amount effectively forecloses some tort claims (here, negligence and negligent misrepresentation) that might arise after the contract. In his dissent, Chief Justice Heavican identifies this outcome as unparalleled when compared to other states and atypical of tort law which often permits claims arising out of contract. Callahan, 314 Neb. at 247-49. Essentially, both parties to the insurance contract (the insured and insurer) are responsible for declaring and/or demanding their desired amount of coverage.

Depending on whether you side with the majority or dissent, Callahan v. Brant is either a renewed reminder for or an additional burden on the homeowner. The homeowner is responsible for knowing the cost of rebuilding their home and purchasing the precise dollar amount of insurance coverage they wish to receive in the event they suffer a total loss. This case solidifies that the remedies available to a homeowner (or other real property owner) after your home is completely lost to fire, tornado, windstorm, lightning, or explosion is limited, even if your policy presents as a “replacement cost” policy. Future allegations against an insurance producer alleging that the producer (1) suggested too low a dollar amount to cover the replacement cost of your home and/or (2) offered you reassurance that the “replacement cost” policy was adequate may not stand after your home is destroyed.

Here, the Callahans did not lose on the merits of their claims against Mr. Brant. It makes no difference to the Court whether Mr. Brant and/or Shelter Insurance failed to act reasonably when calculating the value of the Callahans’ home or whether Mr. Brant may have reassured the Callahans that their policy adequately covered their home. Instead, the Court found the Callahans’ claims inadequate as a matter of law under Nebraska’s valued policy statute.

The takeaway for homeowners in Nebraska: even when your home insurance policy identifies as a “replacement cost” plan, you are responsible for insuring your home to the amount of its replacement cost. Or at least to the amount you seek to be repaid in the event of a total loss. If your home would cost more to replace than your home insurance policy insures, you are “underinsured.” Under Nebraska’s valued policy statute and Callahan, the homeowner effectively self-insures the difference as a matter of law.

Special thanks go to Erickson|Sederstrom senior law clerk Steve Lydick for his assistance with this article.

Callahan v. Brant, 314 Neb. 219, 990 N.W.2d 1 (2023)

Legally Entitled to Recover? The case of Geerdes v. West Bend Mutual Insurance Company

The case Geerdes v. West Bend Mutual Insurance Company was decided by the United States Court of Appeals for the Eighth Circuit on June 20, 2023. The decision helps interpret the phrase "legally entitled to recover" under Iowa insurance law. In 2018, Iowa residents Gregg Geerdes and Mary Murphy (“Plaintiffs”) purchased home and automobile insurance from West Bend. The policy covered Plaintiffs as well as their son. The following year, Plaintiff’s son tragically died from injuries he sustained while a passenger on a charter bus that crashed in British Columbia, Canada. The charter bus’s insurance paid all the no-fault motorist insurance benefits that it was legally obligated to pay under the policy. Plaintiffs did not sue the bus company as personal jurisdiction for any such action would be in British Columbia. Plaintiffs did however sue West Bend seeking uninsured/underinsured benefits and additional umbrella coverage they believed they were entitled to under their policy. The West Bend Policy states policyholders are entitled to uninsured/underinsured coverage for payment of compensatory damages for bodily injury caused by an accident that an insured is “legally entitled to recover from the owner or operator.” However, Iowa case law states the benefits plaintiffs are entitled to recover from uninsured/underinsured umbrella policies are limited to the amount they would be able to recover in a tort action against the tortfeasor where the accident occurred or in the tortfeasors’ home state. Applying this law, the District Court dismissed the case via summary judgment because Plaintiffs are not “legally entitled to recover” under British Columbia law as it does not permit recovery of non-economic damages.

On appeal, Plaintiffs contended that Iowa law requires the court to interpret the phrase “legally entitled to recover” liberally, not literally. Plaintiffs introduced cases where Iowa courts have found plaintiffs were “legally entitled to recover” damages from the tortfeasor even when they may not have been able to in the tortfeasor’s home state or in the state the injury occurred. The Eighth Circuit explained that these circumstances occurred when plaintiffs were being precluded from recovery based on procedural law, not substantive law.

British Columbia’s substantive law does not permit recovery for non-economic damages. Thus, the Eighth Circuit Court affirmed the District Court's judgment, concluding that Plaintiffs were not “legally entitled to recover” and therefore the policy did not award coverage.

The Eighth Circuit’s opinion should catch the eye of Iowa insurers when it comes to how “legally entitled to recover” is interpreted and applied.

Erickson|Sederstrom Law Clerk Emily Todd assisted with drafting this article and her help is greatly appreciated.

A Win for Homeowners: Nebraska Legislature Ends “Home Equity Theft”

Geraldine Tyler, a 94-year-old widow and homeowner in Minnesota, successfully challenged the Constitutionality of a Minnesota law that permitted her county government to seize the entire value of her property because of a much smaller outstanding property tax debt. The United States Supreme Court held that the state law practice violated the Takings Clause of the Fifth Amendment of the United States Constitution, which prohibits the government from taking private property for public use without paying just compensation to the owner.

Mrs. Tyler owed $2,300 in property tax and $13,000 in interest and penalties. Acting under Minnesota’s forfeiture procedures, the County seized her home, sold it, and kept the entire $40,000 from the sale. This sale amount more than doubled Mrs. Tyler’s debt on the property but the County returned nothing to the homeowner in consideration of the equity she had built up in the home. On May 25, 2023, the Supreme Court unanimously ruled that the State “may not extinguish a property interest that it recognizes everywhere else to avoid paying just compensation when it is the one doing the taking.” Tyler v. Hennepin Cnty., 215 L. Ed. 2d 564, 575, 2023 U.S. LEXIS 2201, *19, 143 S. Ct. 1369, 29 Fla. L. Weekly Fed. S 851.

The Tyler case has important implications beyond Minnesota. More than ten other states, including Nebraska until recently, have some form of property forfeiture law similar to Minnesota’s that has been characterized as “home equity theft.” Illinois, Minnesota, and New York have led the nation in the number of these property takings. Now on notice of the unconstitutionality of these forfeiture laws, states must change these laws to comply with the Supreme Court ruling.

During the 2023 legislative session, as part of a $6.4 billion tax relief package, the Nebraska Legislature passed LB 727, which abolished “home equity theft” in Nebraska. The bill requires property tax foreclosures to go through judicial proceedings that protect the owner’s equity.

As property values rise, so have incentives for government entities to seize properties due to tax debts. For those affected by this issue in Nebraska, the Tyler case and Nebraska’s new tax bill set forth strong protections for Nebraska homeowners. Individuals who have lost property under the former Nebraska approach that was invalidated by Tyler should consider speaking with an attorney regarding any potential recourse.

Erickson|Sederstrom Law Clerk Elise Siffring assisted with drafting this article and her help is greatly appreciated.

ES Recognized For 2022 Courtroom Victories by Harmonie Group

Our experienced trial attorneys have a history of success where it really counts - the courtroom. Read about some of our top cases of 2022, as recognized by The Harmonie Group.

37 MOTOR VEHICLE ACCIDENT INVOLVING SCHOOL VAN AND UNBELTED PASSENGERS 

Matt Reilly, Counsel

School Not Liable for Passenger’s Failure to Wear an Available Seatbelt Defense represented a school district in a claim by a high school student who was injured as a passenger in an automobile collision involving a school van during a summer activity. There was no dispute that the school van driver was not at fault for the accident, as another driver crossed the centerline on the highway and was impossible to avoid. The passenger—himself, a licensed driver aware of the rules of the road—sued the school, claiming that the van driver failed to ensure that the passenger secured his own seatbelt. Plaintiffs refused to consider any settlement offers below policy limits. After almost ten years of litigation—including a two-week trial, two directed verdicts in favor of the school district, and two different appeals— ruled in favor of the school district, holding that Nebraska statutes do not provide a passenger with a negligence claim against a driver when the sole basis of the claim is a failure to ensure the usage of a seatbelt.

■ RESULT: Defense Verdict Upheld on Appeal.

TRIP AND FALL IN A PUBLIC PARK 

Matt Reilly, Counsel

Political Subdivision Immune in Fall in Public Park Defense represented a sanitary improvement district against a claim by two parents that their son was injured when he stepped into a hole on the grounds of the playground within the district’s boundaries. Defense asserted immunity on behalf of the district against the significant damage claims in reliance upon statutes that provide that a political subdivision cannot be sued for claims arising out of “recreational activities.” The lower court ruled in favor of the district on the asserted grounds and dismissed the parents’ claims against the district. 

■ RESULT: Summary Judgment Granted.

LLC DISSOLUTION 

Bonnie Boryca, Counsel

Business Partner Accusing of Withdrawing From LLC A bifurcated jury trial was held on the issue of whether one of four business partners in a real estate development LLC had withdrawn as a member of the LLC. If it had, then any liability and value of its percentage ownership of the LLC was capped as of the date of withdrawal. All business partners testified, as well as non-party witnesses. The jury returned a unanimous verdict in favor of the business partner accused of withdrawing, finding that there was no withdrawal or dissociation. 

■ RESULT: Jury Verdict and Court Ruling That Partner Had Not Withdrawn From LLC.

GAS EXPLOSION, INSURANCE SUBROGATION ACTION 

Matt Reilly, Counsel

Gas Explosion in Historic Downtown Building Counsel represented a subrogation carrier with a $2.6MM claim arising out of a fire in Omaha’s downtown Old Market area. The fire occurred when an underground gas line was struck in the course of a contractor performing directional boring work. The one remaining defendant at trial was the gas utility operator, Metropolitan Utilities District (MUD). MUD denied all liability and claimed that it properly marked its buried gas line. After a 2-week trial, the court ruled in favor of the subrogated carrier and found that MUD was 50% at fault (the remaining 50% was assigned to a settled party.) 

■ RESULT: Subrogation Win $2.6MM.

Quandt and Reilly recognized by Best Lawyers® in America 2023

Matthew Quandt and Matt Reilly of Erickson | Sederstrom

Erickson | Sederstrom is proud to announce Matt Quandt and Matt Reilly were recognized by Best Lawyers® in America 2023. They were both selected by their peers and included in the Best Lawyers: Ones to Watch in America™ 2023. These awards are recognitions given to attorneys who are earlier in their careers for outstanding professional excellence in private practice in America. Matt Quandt was selected for his work in Personal Injury Litigation - Defendants. His practice concentrates on trucking accidents, including wrongful death and personal injury; he represents some of the biggest motor carriers and insurers in the nation. Matt Reilly was selected for his work in Personal Injury Litigation – Defendants and Construction. The two main focuses of Mr. Reilly’s practice are in representing contractors across Iowa and Nebraska in construction disputes and in defending complex and severe personal injury claims.

Is an Order to Mediate a Final Order? Nebraska Supreme Court Re-Visits Final Orders Yet Again

In June of 2022, the Nebraska Supreme Court found it was without jurisdiction over an appeal because a district court’s order for mediation and further determination is not considered a final judgment. Tegra Corp. v. Boeshart, 311 Neb. 783 (2022). The decision stemmed from a dispute over what authority a committee has under Neb. Rev. Stat. § 21-168, which governs special litigation committees for corporations, and whether that authority was analyzed with regard to Neb. Rev. Stat. § 25-1902, which defines a final order.

 Patrick Boeshart is the president and sole manager of Lite-Form Technologies, LLC, based in Sioux City, Nebraska. Tegra, 311 Neb. 783 at 787.  His wife, Sandra, is the office manager and bookkeeper. Id. Boeshart Management Company is an Iowa LLC owned by Patrick and Sandra. Id.  Pat Boeshart Construction is an Iowa LLC that is wholly owned by Patrick. Id. Tegra Corporation is an Iowa corporation in Sioux City, Iowa, and is a minority shareholder of Lite-Form. Id.

            Tegra, individually and on-behalf of Lite-Form, filed a complaint against the Boeshart’s alleging breach of fiduciary duty, misappropriation and waste of corporate assets, unjust enrichment, and conversion. Id at 788. Based on Tegra’s claims and pursuant to Neb. Rev. Stat. § 21-168, the manager-defendants appointed Cody Carse to the special litigation committee for the corporation. Tegra, 311 Neb. 783 at 788. Carse determined that it was in Lite-Form’s best interests to settle. A term of settlement included disclosing certain issues to the LLC members and conducting a majority vote on how the issues should be resolved. Id at 792.

            When the District Court reviewed the committee’s report, it found the committee acted with enough disinterested independence and good faith, but that its recommendations went beyond the authority of a committee under Neb. Rev. Stat. § 21-168. Tegra, 311 Neb. 783 at 794. The District Court ordered the parties to attempt mediation and report back. Id. Tegra appealed the order and the defendants cross-appealed. Id.

            The Supreme Court selected this case to address the scope of final judgments under Neb. Rev. Stat. § 25-1911 and how they apply to the Court’s jurisdiction. First, the Court determined that to be appealable, the order in question must satisfy the requirements of Neb. Rev. Stat. § 25-1902 and when applicable, Neb. Rev. Stat. § 25-1315(1).  Id at 796. Under § 25-1315, an express determination by the court about lack of reason for delay in making a final judgment must exist which would be “fatal to [the Court’s] jurisdiction over the appeal.” Id at 798. The Court found there was no express determination here. Further, the Court found the order was not final under § 25-1902. Id.

            To determine if the order to mediate was final under § 25-1902, the Court analyzed whether a derivative action is a “special proceeding” that “affected a substantial right.” Id. A special proceeding includes every special statutory remedy that is not in itself an action. While the plea may be connected with an action through application of the proceeding, it is not the integral part of an action.  Id at 799. Prior to Tegra, the Court had not addressed if a derivative action was a special proceeding. The Court stated they “will no longer reason that a proceeding is special by the sole virtue of being governed by statutes outside of chapter 25.” Id at 802.

            Ultimately, the Court concluded derivative actions are not special proceedings, but an equitable proceeding a member asserts on behalf of the LLC. Id at 802. While a derivative action requires the extra steps of making a demand of other members to enforce the right and requires the complaint to state a demand or state the action is futile, the derivative action is an action nonetheless. Id. The derivative action is a proceeding in a court by which one party prosecutes another for enforcement. It is still possible that orders under § 21-168 are made during a special proceeding, but this is because a special proceeding may be “connected with” an action; not because it, in itself, is an action. Id at 803. Whether a special proceeding is connected with an action or is an action depends on whether the proceedings under § 21-168 are an integral part of the main derivative action or just one of the many steps taken to commence the action. Id.

            The four options available to a committee under § 21-168 are: (1) the action continue under the control of the minority-member plaintiff who brought it, (2) the action continue under the control of the committee, (3) the action be settled on terms approved by the committee, and (4) the action be dismissed. Id at 806. After analyzing the four options, the Court determined any proceedings under § 21-168 are just a step in the underlying derivative action and not itself an action. Therefore, orders made pursuant to § 21-168 are not made during a special proceeding. Id at 807.

The Court also held an order under § 21-168 does not impact a substantial right. Id. A substantial right is “an essential legal right...[that is] affected if an order affects the subject matter of the litigation, such as by diminishing a claim or defense that was available to an appellant before the order from which an appeal is taken.” Id at 807. Determining whether an order is substantial depends on if it affects, with finality, the rights of the parties in the subject matter. Id at 810. The Court held that enforcing special litigation committee determinations lead to final judgments, but their effect as independent orders is limited in duration and any delay in their enforcement does not affect any substantial right. Id. 

Both parties in this suit attempted to argue the Court’s order of mediation exceeded its authority, but the Supreme Court found it did not affect a substantial right because any alternative dispute resolution is voluntarily entered into. Id at 811.

Ultimately, the Court found the order of the lower court was not a final order because there was not a “special proceeding” that “affected a substantial right.” This means reviewing courts’ rulings issued about a corporate committee decision under § 21-168 are not part of special proceedings for purposes of the final order doctrine. Id at 812.

The Nebraska Supreme Court continues to clarify and update its stance on final orders for purposes of appeals. Erickson | Sederstrom’s litigation attorneys are well-versed in this law and happy to review any appeal issues for clients in the region as lead counsel, for out-of-state attorneys as local counsel, or for Nebraska attorneys needing expert appellate co-counsel for their clients’ matters.

** This article was researched and primarily written by E|S law clerk Amelia Rens. Amelia is starting her third year at Creighton University School of Law and will join E|S as an associate attorney in the fall of 2023 after becoming licensed. We look forward to it! **

Conduct, and Not Added Prejudice, is Sufficient to Show Waiver of an Arbitration Clause.

In May 2022, the Supreme Court of the United States (“SCOTUS”) unanimously held that an arbitration contract is to be treated “just as the court would any other [contract].” Morgan v. Sundance, Inc., 596 U.S. ___ at 6 (2022). The decision resolves a circuit split among appellate courts and vacates an Eight Circuit holding that the treatment of arbitration clauses require a bespoke procedural rule not present in the review of other contracts.

Robyn Morgan previously worked for Sundance, Inc. at a Taco Bell franchise in Osceola, Iowa. As a part of Sundance’s application for employment, Morgan submitted to an arbitration clause that would shift a dispute from the courtroom to confidential binding arbitration. Id. at 2.

Morgan sued Sundance in federal court for violating the Fair Labor Standards Act, including nonpayment of overtime wages. Id. She asserted that Sundance would take hours worked from one week and shift them to a different week to avoid paying overtime wages. Id.  In response, Sundance did not assert its right to arbitration initially, and proceeded “as if no arbitration agreement existed.” Id. Sundance pursued dismissal of Morgan’s complaint and was denied. Sundance then filed an answer to Morgan’s complaint. In its answer, Sundance asserted many affirmative defenses (fourteen, to be exact), but arbitration was absent from the list. Morgan and Sundance eventually met for mediation and were unable to come to an agreement. Id.

Approximately eight months after Morgan filed suit (and only after an unsuccessful mediation), Sundance requested to compel arbitration as agreed to in Morgan’s original application for employment. Morgan opposed, suggesting Sundance waived its right to arbitration by proceeding with the litigation in the manner and for the length of time it did. Id.

Lower courts applied Eight Circuit precedent that a party waives a contractual right to arbitration if it knew of the right, acted inconsistently with the right, and the inconsistency prejudiced the other party. Erdman Co. v. Phoenix Land & Acquisition, LLC, 650 F.3d 1115, 1117 (CA8 2011). The District Court found prejudice against Morgan before the Court of Appeals disagreed and reversed, landing Morgan in arbitration. Morgan, 596 U.S. ___ at 3.

SCOTUS granted certiorari specifically to address a circuit split and reject the requirement that waiver of an arbitration clause requires a showing of prejudice. Id. at 4. Noting that outside of arbitration, when a federal court discusses the presence or absence of waiver, there is no requirement that the waiver cause prejudice to the other party. Id. at 5. The Court discussed the history and introduction of the requirement, originally by the Second Circuit in 1968, and suggested federal policy favors arbitration. Further, if the opposing party is not prejudiced, courts should permit the reintroduction of arbitration. Id. at 6.

SCOTUS took issue with the added requirement to show prejudice and likened the requirement to an additional procedural rule, not present in other contracts. Id. Further, the Court read the Federal Arbitration Act as clearly stating no additional or custom procedural rules should be created to either favor or disfavor arbitration as a method of resolution. Id. at 7. For this reason, the requirement to show prejudice when assessing if arbitration has been waived should not be necessary.

With the rejection and vacating of the Eight Circuit’s judgment, SCOTUS sent the case back for review of Sundance’s conduct and whether the conduct is a waiver of the arbitration clause. Id.

The holding impacts simple strategic sequencing principles of pretrial procedure. Specifically, to lean on a valid and binding arbitration agreement as a type of fallback or “wait-and-see” option while exploring alternative procedural remedies now comes with increased risk. Arbitration as an option should likely be acknowledged as present, even acted upon, if a party wishes to not risk their conduct presenting as a waiver of an existing contractual right to arbitration.

Steve Lydick, E|S law clerk, assisted in preparing this article.

If you have questions about arbitration clauses in employment contracts, contact Heather Veik or any of the E|S employment attorneys at 402-397-2200.

Nebraska Contract and Judgment Interest Explained

In Becher v. Becher, a recent Nebraska Supreme Court opinion, the Court outlined the general rule for judgment interest and explained when courts may award judgment interest.  311 Neb. 1 (2022).  In sum, courts hearing equitable claims—which are claims seeking something other than money damages—may award or withhold interest as the court deems reasonable and just, except where a party is entitled to interest “as a matter of right.”  Id. at 16.  This raises the question: when is interest recoverable “as a matter of right,” and at what rate?   

Under Nebraska law, interest is generally recoverable “as a matter of right” in loan default and breach of contract claims. 

Loan default claims:  recoverable interest is usually outlined in the loan agreement.  A party may contract to borrow or loan money at any rate of interest not exceeding 16% per year.  Neb. Rev. Stat. § 45-101.03.  This limitation does not apply to loans to a corporation, partnership, LLC, or trust (or to a person or entity guaranteeing a loan to the same), or loans in excess of $25,000 payable to a single creditor.  A “fallback” interest rate of 6% per year applies where no interest rate is mentioned in the loan or contract.  § 45-102.

 Breach of contract claims: interest is divided into two categories: Pre-judgment interest and post-judgment interest.   

Pre-judgment interest accrues from the time a party breaches the contract until the date judgment is entered.  There are “three ways to recover pre-judgment interest, and none is preferred.”  Pre-judgment interest may be recovered on (a) liquidated claims, (b) unliquidated claims, and (c) liquidated or unliquidated breach of contract or quasi-contract claims.  Weyh v. Gottsch, 303 Neb. 280, 314 (2019). 

Liquidated claims—where there is no dispute as to the amount owed—interest is recoverable at the post-judgment interest rate set forth in § 45-103 (explained below).  § 45-103.02(2).  

Unliquidated claims—interest is recoverable if four conditions are met:  (1) a written offer must be made and mailed to defendant to allow judgment on the terms stated in the offer; (2) the offer must be made no less than ten (10) days prior to trial; (3) a copy of the offer and return receipt must be filed with the clerk of court where the action is pending; and (4) the offer is not accepted prior to trial or within thirty (30) days of the date the offer was made, whichever occurs first.  Neb. Rev. Stat. § 45-014.  When all four conditions are met, pre-judgment interest may be recovered at the post-judgment interest rate outlined in § 45-103 (explained below).  

Here’s the real kicker: Interest on liquidated or unliquidated breach of contract or quasi-contract claims is recoverable at a rate of 12% per year if the claim is (1) a claim on any instrument in writing (like a contract); (2) to settle an account from the date the balance is undisputed (when the breaching party agrees they owe the amount); (3) on unjust enrichment claims; or (4) on money owed and unreasonably withheld.  § 45-014. 

Post-judgment interest: Effective January 20, 2022, the statutory judgment interest rate in Nebraska is 2.223% per annum. As the name implies, post-judgment interest begins to accrue from the date judgment is entered and continues until the judgment amount, plus accrued interest, is paid in full. This rate is adjusted regularly by the Nebraska State Court Administrator to be “two percentage points above the bond investment yield” for 26-week United States Treasury Bills. § 45-103.

ADA Claimant Must Connect Reasonable Accommodation to Medical Condition

The Eighth Circuit Court of Appeals recently held there was no failure to accommodate when an employee did not state that a requested change was connected to a medical condition.   In Powley v. Rail Crew Xpress, LLC, 25 F.4th 610 (8th Cir. 2022), the plaintiff, Leah Powley (“Powley”), was hired in July 2015 as a driver for the defendant, Rail Crew Xpress, LLC (“RCX”), a transportation company that contracts with railroads to transport their crews.  Within three years of her hiring, Powley requested six accommodations for various medical and familial reasons.  With each request, she submitted a doctor’s note identifying potential disabilities, including headaches and back pain, along with doctor-recommended restrictions.  RCX granted each requested accommodation.  During this time, RCX even promoted Powley to the position of part-time dispatcher, referred to within the company as a “starter.” In this position Powley scheduled and coordinated drivers to move crews from one location to another.    

After holding the position of starter for approximately 3 months, during which time RCX granted Powley multiple accommodations per doctor’s notes, Powley asked to return to her driver position informing one of her supervisors that the noise level in the office was interfering with her ability to perform her duties.  She informed another supervisor that the noise gave her a headache.  She also submitted a doctor’s note that stated only, “Patient may work 12 ½ hours per day.  Must have 11 hrs between shifts.”  25 F.4th at 612.  The company rejected the request, citing a policy that once an employee is promoted to a starter they cannot return to a driver position.

Thereafter, Powley reported to work and was upset that a dry-erase board tracking drivers and vehicles had been moved to a location that made it difficult for her to write on.  She asked the other dispatchers to rearrange the space and when they told her to talk to a superior, she announced “I’m done. I have to leave.”  25 F.4th 612.  The next day she emailed RCX stating she was unable to work as a starter because the office noise interfered with her ability to perform her duties.  She also reiterated her frustration with the dry-erase board placement and again asked to return as a driver. Significantly, she did not mention back pain or headaches in the e-mail. RCX treated this as a resignation.

Powley sued RCX alleging that it failed to accommodate her disabilities and retaliated against her for requesting an accommodation in violation of the Americans with Disabilities Act (“ADA”) and Nebraska Fair Employment Practices Act.  RCX moved for summary judgment (dismissal without a trial) and the trial court granted that motion, dismissing Powley’s claims.  She appealed the ruling to the Eighth Circuit. The Eighth Circuit affirmed the dismissal, holding that Powley had not actually sought a reasonable accommodation for an alleged disability under the ADA.

The Eighth Circuit observed that under the ADA the initial burden to request an accommodation is on the employee.  While the request does not need to be in writing and there are no necessary “magic words,” the employee must make it clear that he/she wants assistance for a disability.  The Eighth Circuit stated, “where there is no conceivable request for an accommodation, there is no failure to accommodate.”  613 F.4th at 613.  The Eighth Circuit found that Powley did not satisfy the burden for a failure to accommodate claim.  In its opinion, the Eighth Circuit noted that Powley sought and received numerous reasonable accommodations for her back pain, observing that each of those requests were accompanied by a doctor’s note or some indication that the request was due to back pain.  Her last request, however, neither attached a doctor’s note nor connected her request with back pain.  Therefore, she did not show that request was based on an alleged disability. 

This case illustrates the importance of the rationale an employee provides for a requested accommodation and documentation supporting such request. When the employee was able to provide a doctor’s note with the request for accommodation, the employer granted the accommodation. When she did not provide a doctor’s note or connect the request for accommodation to a medical condition that potentially qualified as a disability, the employer had no duty to provide an accommodation. Although it did not directly impact the decision, the employer’s history of providing accommodations when properly connected to potential disabilities likely helped the employer’s position on the disputed issue. Therefore, employers should carefully review requests to ensure they are for disabilities or alleged disabilities and treat such requests accordingly. If you have questions about when an employee must be accommodated for a condition, Heather Veik and E|S employment attorneys can be reached at 402-397-2200.

Bankruptcy Courts Grapple with Nonconsensual Third-Party Releases

The recent decision by the United States District Court for the Southern District of New York in In re Purdue Pharma LP, 635 B.R. 26 (S.D.N.Y. 2021) highlighted a significant unsettled issue in bankruptcy law that will receive much more attention in the coming months and years.  Purdue Pharma highlighted the question of whether a confirmed bankruptcy plan can release non-debtor third parties from liability related to the subject of the bankruptcy case.  Ultimate resolution of this issue will have far-reaching consequences for creditors and for parties related to bankruptcy debtors, such as corporate officers or owners.

In Purdue Pharma, the debtor pursued bankruptcy due to substantial litigation regarding its product, OxyContin.  Purdue Pharma proposed a bankruptcy plan that included a release from liability in existing and future opioid lawsuits for members of the Sackler family, who founded and managed the debtor.  The proposed release would have been binding against future opioid lawsuit plaintiffs who were not involved in the bankruptcy, and against state attorneys general who opposed confirmation of the Purdue Pharma plan.  The court concluded that the bankruptcy code did not authorize courts to confirm bankruptcy plans that include nonconsensual releases of third-parties.  The court found that Congress expressly granted bankruptcy courts the authority to approve plans with nonconsensual third-party releases only in asbestos cases.

The third-party release issue highlighted in Purdue Pharma poses a significant challenge for large bankruptcy cases, typically under Chapter 11.  Chapter 11 plans are custom-tailored to specific cases and are intended to allow the debtor to reorganize and emerge from bankruptcy and continue operating.  Chapter 11 plans often include creative provisions, including contributions by non-debtor third parties in exchange for release and indemnification of these third parties. 

Currently, federal courts across the country have split on whether the type of release at issue in Purdue Pharma is permitted by federal law.  The issue is expected to eventually be addressed by the United States Supreme Court.

Because bankruptcy law regarding nonconsensual third-party releases is rapidly evolving, the rights of creditors and parties closely related to debtors may change significantly in the coming months and years.If you have questions regarding how a bankruptcy has affected your rights, Erickson|Sederstrom recommends consulting with counsel.Erickson|Sederstrom’s experienced litigation and bankruptcy attorneys can help work through these and other bankruptcy-related issues, including pursuit of creditor claims and defense of preference actions.

Can Criminal Intent Be Proven By Expert Opinion?

What is the difference between “possession” of drugs and “possession with intent to deliver” drugs?  In Nebraska, it’s having one ounce of cocaine and “expert testimony” that one ounce is too much for personal use. Expert opinion of possession with intent to deliver can make a difference in punishment. Mere possession of cocaine in Nebraska is a Class IV felony, punishable by up to two years in prison and a $10,000 fine.  Possession with intent to deliver carries a minimum penalty of three years imprisonment.

On April 1, 2022, the Nebraska Supreme Court affirmed the conviction of a western Nebraska attorney of one count of possession of a controlled substance, cocaine, with intent to distribute. Defendant was the Box Butte County Public Defender at the time of the offense, January 7, 2020. The court sentenced Defendant to the mandatory minimum sentence of three years imprisonment.

There was no evidence he had ever delivered or attempted to deliver a controlled substance to anyone in Scotts Bluff or anywhere else, according to his defense attorney at the time of sentencing. (Alliance Times-Herald, March 31, 2021).   However, the charge of “possession with intent” does not require proof of delivery, but simply proof of intent. In this case proof of intent was largely based on circumstantial evidence including “expert testimony” by a Scotts Bluff police department investigator.

The Nebraska Supreme Court made it clear that “evidence of the quantity of a controlled substance possessed, combined with expert testimony that such quantity indicates an intent to deliver, can be sufficient for a jury to infer an intent to deliver.” State vs. Worthman, 311 Neb. 284, at 291 (2022). The lesson for potential defendants is this:  There need not be proof that any amount of cocaine (and many other drugs) was ever distributed, delivered or sold. Circumstantial evidence that “a lot of cocaine” was possessed, “expert testimony” that such amount was more than enough for one user, can convict a defendant of possession with intent to deliver.

Nebraska Supreme Court Clarifies Political Subdivision Appellate Rights

Under Nebraska law, political subdivisions may not be sued without an express grant of power because they maintain sovereign immunity. The Nebraska Political Subdivisions Tort Claims Act (“PSTCA”) provides a limited waiver of sovereign immunity with respect to some types of tort claims against political subdivisions. Neb. Rev. Stat. § 13-901 et seq. One of the newest features of the PSTCA is that political subdivisions enjoy an immediate right to appeal when a request for immunity is denied by a trial court on summary judgment. The Nebraska Supreme Court was recently presented with an issue of first impression as to the limitations of that right to immediate appeal.  

In Clark v. Sargent Irrigation Dist., 311 Neb. 123 (2022), the Nebraska Supreme Court analyzed whether a district court’s denial of a political subdivision’s pretrial motion was a final order under Neb. Rev. Stat. § 25-1902(1)(d). In Clark, an irrigation district employee prepared a mixture of herbicides and sprayed the mix on several trees along a canal, which damaged the crops of nearby landowners. The landowners filed suit in the District Court for Custer County, alleging that the district’s employee was negligent in preparing the herbicide. The irrigation district moved the district court for summary judgment, arguing that the employee’s actions of preparing the herbicide fell within the discretionary function exemption of the PSTCA. The exemption states that the performance or nonperformance of a discretionary function cannot be the basis of tort liability of the political subdivision under the PSTCA.

The district court denied the irrigation district’s motion, reasoning that the discretionary function exemption does not apply when a statute, regulation, or policy specifically describes a course of action. The irrigation district sought an interlocutory appeal on the district court’s Order denying its motion for summary judgment.

The Nebraska Supreme Court concluded that it had appellate jurisdiction to review the irrigation district’s assignment of error under § 25-1902(1)(d) because the motion at issue was based on the assertion of the district’s sovereign immunity, the denial of which does constitute an appealable order. Clark v. Sargent Irrigation Dist. stands for the proposition that a district court’s denial of a political subdivision’s motion for summary judgment asserting the PSTCA’s discretionary function exemption was a final appealable order under § 25-1902(1)(d).

E|S attorneys have vast experience and a deep understanding of the Nebraska Political Subdivision Torts Claim Act. Matt Reilly and E|S litigators can be reached at 402-397-2200. 

Back to the Basics - No retaliation claim if no protected activity

Retaliation claims are among the most numerous types of employee claims processed through the Equal Employment Opportunity Commission and state EEO agencies. Central to these claims are whether an employee engaged in protected activity and how the employer responded to it. A recent Eighth Circuit case involving Nebraska law on retaliation is exemplary. 

In Walker v. First Care Mgmt. Grp., LLC, the United States Court of Appeals for the Eighth Circuit held that employees’ conduct in response to a facility resident’s abuse upon another facility resident did not constitute protected conduct to support a retaliation claim under Nebraska law.  27 F.4th 600 (8th Cir. 2022). 

Two caregivers employed by a retirement community witnessed a resident sexually assaulting other residents several times.  Per company policy, employees had to report resident abuse immediately, by reporting any incident to a supervisor, completing an incident report, and making a note in the resident’s chart.  The two employees claimed they reported observing the abuse, but on at least one occasion, they waited to make their report until day after the incident. 

The Nebraska Department of Health and Human Services (“DHHS”) responded to an anonymous complaint about the resident’s abuse and made an unannounced site visit of the facility.  Shortly after, a retirement community manager claimed she was unaware of the abuse that led DHHS to the facility.  Several employees stated the manager must have been aware of the abuse because the employees reported such abuse.  Upon completion of the visit and a staff meeting, the two caregiver employees were terminated. 

The employees filed suit alleging, among other claims, unlawful retaliation after engaging in a protected activity.  The retirement community moved in the District Court for summary judgment, which was granted, resulting in a judgment against the employees and dismissing their claims.  The employees appealed. 

On appeal, the Eighth Circuit considered whether the lower court erred in granting the retirement community’s motion for summary judgment.  Under Nebraska law, an employer may not discriminate against an employee who opposed or refused to carry out any unlawful action of the employer.  Neb. Rev. Stat. § 48-1114(1)(c).  In other words, employees claiming retaliation must demonstrate that they opposed an unlawful practice of their employer. 

The two employees alleged engaging in the following activities: the report made to DHHS, internal complaints to supervisors about the abuse, and confronting a manager about her alleged ignorance of their report of abuse.  However, none of these acts were found to have opposed unlawful activity of the retirement community. Nor did they amount to acts of refusing to carry out an unlawful action. Thus, there was no protected activity on which to base a retaliation claim.  Accordingly, the Eighth Circuit upheld the summary judgment because the employees’ conduct in response to the abuse of the facility resident did not constitute protected conduct under Nebraska law. 

Obviously, the facts of the case suggest egregious acts of abuse. However, a retaliation claim is closely focused on the activities of employees and the response of the employer. Any time an issue arises, employers are cautioned to involve their attorneys at an early stage to avoid or minimize potential claims of retaliation and to appropriately respond to abuse, to complaints, or to protected activity of employees.

Thanks to Rob Toth, current law clerk and joining E|S as an associate attorney in the fall of 2022, for assistance in preparing this article.

Bonnie Boryca and E|S employment attorneys can be reached at 402-397-2200.

Law or equity – whether a jury decides the claim in light of the equitable ‘clean up’ doctrine

In Schmid v. Simmons, the Nebraska Supreme Court held that the common law “clean up” doctrine is still good law, discussed when a party is entitled to a jury trial on civil disputes, and clarified how a litigants may waive the right to jury trial on legal claims.  311 Neb. 48 (2022).   

The Nebraska Constitution guarantees the right to trial by jury. However, on civil matters, which are generally disputes about money or other non-criminal matters, the state Constitution allows the Legislature to modify this right to allow juries less than 12 to decide matters in courts inferior to the District Courts, and, in such cases, the decision may be rendered by five-sixths majority of the jury.  Neb. Const. art. I, § 6.

 Litigants still have a right to seek a jury trial on legal claims—those involving disputes over specific real or personal property and money damages—but not on equitable claims, which may be tried “to the bench” without a jury.  Whether a claim is legal or equitable rests upon the “main object” of the claim, which is shown by the issue the lawsuit seeks to resolve.  

 Under the “clean up” doctrine, a court may determine equitable issues and then “clean up” other legal issues in the case, even where a defendant asserts a legal claim as a defense or counterclaim.  The purpose of this doctrine is to preserve judicial efficiency by allowing the same court to hear and determine all disputed issues in a single lawsuit. 

Applied to the facts, the Court found proper the district court’s decision to resolve plaintiff’s equitable claims (quiet title, declaratory judgment, LLC accounting, and judicial dissolution) and then “clean up” defendant’s amended counterclaims seeking damages for breach of contract, a legal claim.  Because the District Court retained jurisdiction to quiet title and determine rights of LLC members, and because the parties agreed the matter before the court was equitable, the District Court correctly applied the “clean up” to resolve any remaining legal claims all equitable claims were decided.  

The Court further clarified the manner in which parties may waive the right to trial by jury on a breach of contract action, or with the court’s agreement in other actions, finding that waiver could be accomplished in three ways: (1) by consent of a party where the other party fails to appear, (2) by written consent delivered to the clerk of court, or (3) by oral consent in open court on the record.  Neb. Rev. Stat. § 25-1126.

 E|S attorneys are experts in civil trials, whether to a jury or to a judge, whether in equity or common law. Bonnie Boryca and E|S litigators can be reached at 402-397-2200. 

Thanks to E|S law clerk Ross Serena for contributing to the above article.

E|S Successful Before Nebraska Supreme Court In Construction Site Accident Case

In Porter v. Knife River, Inc., the Nebraska Supreme Court affirmed the district court for Thurston County’s grant of summary judgment to D.P. Sawyer, Inc., a traffic control and highway striping company. 310 Neb. 946 (2022).  Erickson | Sederstrom’s attorneys aided in the summary judgment and appeal process. 

In the case, the administrator of decedent’s estate sued D.P. Sawyer, along with several other construction contractors, alleging negligent maintenance of a construction site.  The administrator’s claim arose when an Omaha Tribal Police officer bypassed warning signals and road barricades along a highway closed for construction.  The officer then tragically collided with a large crane parked on the closed highway.  The administrator argued the contractors were liable for negligence because the crane was left on the highway without adequate illumination, barricades, or other traffic control, which allegedly caused decedent’s death. 

E|S attorneys argued defendants were entitled to summary judgment because the administrator failed to prove a prima facie case of negligence and that the decedent assumed the risk of harm involved when he bypassed the road barricades.  The Honorable John E. Samson, District Judge, agreed, granting summary judgment in favor of the defendants.  The administrator appealed.

The Nebraska Supreme Court affirmed the district court’s grant of summary judgment, determining that barricades placed at the termini of a closed highway need not absolutely prevent entrance to the construction area.  Highway contractors are not statutorily required to place additional signals at the termini of a closed highway notifying drivers that the highway utilizes dangerous machinery and may contain potential defects.  This is because warning signals and barricades at the termini thereof already give drivers notice that the highway is under construction and the condition of the highway itself shows that it is under various stages of completion. 

Accordingly, the Nebraska Supreme Court upheld the district court's order granting summary judgment because they offered evidence showing they exercised ordinary care under Nebraska law. 

Erickson | Sederstrom’s experienced litigation group has a long history of success in defending claims arising out of construction projects, vehicle accidents, and all types of injury accidents.  Ross M. Serena or E|S’s litigation attorneys can be reached at 402-397-2200.

Thanks to E|S law clerk Rob Toth for his assistance in preparing the above analysis!