Arbitration versus Litigation

The terms ‘arbitration’ and ‘litigation’ are often paired off against each other. When or if a dispute arises, we recommend knowing the general differences and similarities between these procedures.  

Litigation is a lawsuit filed in a court of law. People may be self-represented, but more often, attorneys represent their clients in moving through the phases of litigation. Phases include filing a complaint (or petition, depending on the court and type of issues involved), answer, discovery, motions, and may eventually involve a trial to a judge or jury.

 Arbitration is like litigation in that it is a process to resolve a dispute between two or more parties. It is a private means of resolving disputes. Arbitration may occur non-publicly. It usually takes place when parties have agreed in advance, through a written contract, to arbitrate future disputes on a specified subject matter, in lieu of bringing a lawsuit in court. The arbitrators are paid by the parties to assist in resolving the matter. Pros of arbitration can be that it moves more quickly, can be less expensive, and results in a final resolution earlier.  A major con for some is that there is no means of appeal or review after an arbitrator enters an award. The exception to that would require showing deceit or fraud or major errors in the fairness of the process, within very limited circumstances.

 More and more, large employers may require new employees to enter arbitration agreements in the onboarding process at start of employment. They will often cover possible future employment-related disputes. Employees should think carefully about rights they give up doing so. Employers should think carefully about how to draft these kinds of agreements and about how to present them to employees for their review and agreement. Courts and policy makers in our legislatures continue to consider how, whether, and to what extent these kinds of arbitration contracts should be enforced.

 If you are faced with arbitration in lieu of litigation, or are considering entering an agreement to arbitrate claims, or would like to craft a valid arbitration clause for your business, an attorney may be able to help. An experienced attorney can ensure your rights are fully addressed and you are fully informed about what you give up and what you gain in arbitration versus litigation.

 Bonnie Boryca and Erickson | Sederstrom, PC’s team of attorneys are well-versed in these issues. 

Partner Matt Quandt granted summary judgment in Sarpy County

Matt represented the City of Springfield, Nebraska regarding a single-vehicle injury accident that occurred within city limits. Plaintiff sued the City alleging:

• Improper intersection control under the Manual on Uniform Traffic Control Devices;

• Failing to reasonably place a “Stop” or “Yield” sign at the uncontrolled “T” intersection;

• Failing to place visible traffic control devices at an intersection with inadequate sight distance (Clear Sight Triangle) for uncontrolled approaching vehicles;

• Inadequate guidance for motorists approaching the uncontrolled “T” intersection;

• In constructing a retaining wall in excess of six feet high when the Defendant knew, or in the exercise of reasonable care should have known that said retaining wall would be unreasonably dangerous and/or present a hazard for members of the public;

• In constructing a retaining wall in excess of six feet high without providing a barrier at the top of said retaining wall to deter pedestrians, bikers and motorists from falling over the edge of the retaining wall when the Defendant knew or in the exercise of reasonable care should have known that said retaining wall would be unreasonably dangerous and/or present a hazard for members of the public;

• In failing to warn members of the public of the existence of the retaining wall hazardous drop off in excess of six feet;

• Violation of city ordinance regarding retaining wall height;

• Failing to provide a forgiving roadside suitable for the safe recovery and control of errant vehicles leaving the street.

Plaintiff claimed over $135,000 in medical bills, past and future lost wages, and permanent injury and disability.

With the help of Creighton law clerk Ali Clark, Matt filed a Motion for Summary Judgment. They argued that the City has discretionary function immunity, the purpose of which is to "prevent judicial 'second-guessing' of legislative and administrative decision grounded in social, economic, and political policy through the medium of an action in tort," and that Plaintiff was the sole proximate cause of the accident. After full briefing and oral arguments, Hon. George A. Thompson agreed and held:

• Defendant has sovereign immunity under the Political Subdivision Tort Claims Act; and

• Defendant was not the proximate cause of the accident.

The District Court of Sarpy County granted Defendant’s Motion for Summary Judgment and dismissed Plaintiff’s Complaint with prejudice.

Erickson | Sederstrom’s experienced litigation group is well-versed in defending claims brought under the Political Subdivision Tort Claims Act. Don’t hesitate to contact us with any litigation needs.

Trucking Accidents, Brokers, and Federal Preemption

In catastrophic trucking accidents, plaintiffs don't just limit their claims to the driver. More commonly, they try to sue the motor carrier, shipper, broker(s), etc. However, recent federal court rulings provide some insight and strategy for dismissing claims against brokers.

In Gillum v. High Standard, LLC, 2020 WL 444371 (W.D. Tex. Jan. 27, 2020), Scott Gillum was hit by a tractor-trailer and sued the driver, the motor carriers involved in hiring and training the driver, and the freight broker that selected the motor carriers. The freight broker, which Gillum accused of negligently hiring the motor carriers, moved to dismiss under the argument that federal law completely preempts state common law negligence claims against a freight broker. The federal district court agreed, concluding that the Federal Aviation Administration Authorization Act (FAAAA) completely preempts simple and gross negligence claims related to a freight broker’s services.

There was a split amongst courts that previously addressed this issue. The court considered the existing authority, looked at the plain language of the pertinent federal statutes, the limited statutory exceptions, Congressional intent, etc. The court held that “the FAAAA completely preempts Plaintiff's negligence claims . . . where that negligence ‘relates to’ the services the broker provides.”2020 WL 444371 at *7.

In essence, Plaintiff claims that [the broker] was negligent in arranging for the transportation of property between motor carriers. These allegations “go to the core of what it means to be a careful broker.” Krauss, 2018 WL 2063839, at *5 (holding FAAAA completely preempted claim against freight broker under negligent hiring theory because careless selection of a carrier is a core service of a freight broker); see also Georgia Nut Co. v. C.H. Robinson Co., No. 17 C 3018, 2017 WL 4864857 (N.D. Ill. Oct. 26, 2017) (“While the services of a freight broker do not include the actual transportation of property, they are focused on arranging how others will transport the property; these services, therefore, fall within the scope of the FAAAA preemption.”).

. . .

The Court finds most persuasive the line of cases that have held negligence claims against freight brokers are preempted under the FAAAA because “[e]nforcing state negligence laws that would have a direct and substantial impact on the way in which freight brokers hire and oversee transportation companies would hinder” the objective of the FAAAA in deregulating the shipping and transportation industry.

. . .

Plaintiff's claims against [the freight broker], therefore, seek to enforce a duty of care related to how Defendant arranged for the transportation of property between [the motor carriers], which—Plaintiff admits—are the very “services” Defendant provides as a federally-licensed freight broker. Such a claim “falls squarely within the preemption of the FAAAA.” Creagan, 354 F. Supp. 3d at 813.

. . .

Such a holding comports with the impetus behind the FAAAA's preemption provision because, in essence, Plaintiff is seeking “to reshape the level of service a broker must provide in selecting a motor carrier to transport property.” Miller v. C.H. Robinson Worldwide, No. 17-cv-408, 2018 WL 5981840, at *4 (D. Nevada Nov. 14, 2018), appeal docketed, No. 19-15981 (9th Cir. May 7, 2019). To avoid negligence liability, a broker like Defendant would need to inspect each motor carrier's background and the ways in which the motor carrier investigates, hires, and trains its own drivers, and “such additional inspection would result in state law being used to, at the least indirectly, regulate the provision of broker services by creating a standard of best practices, and ultimately contravening Congress's deregulatory objectives in enacting the FAAAA.” Id. (citing Rowe, 552 U.S. at 370).

Gillum, 2020 WL 444371 at *4, 5, 6.

Erickson | Sederstrom was recently involved in a similar case. The Southern District of Iowa held:

Plaintiffs’ negligence claim against NTC Logistics relates directly to NTC Logistics’ services as a broker and their arrangement of the transportation of property. Thus, the [Federal Aviation Administration Authorization Act] preempts it. Further, the FAAA’s safety regulation authority exception does not apply to Plaintiffs’ claim because the claim does not constitute a regulation of motor vehicles. Because Plaintiff’s claim against NTC Logistics falls under preemption provision of the FAAA and the safety regulatory exception to preemption does not apply, Plaintiffs fail to state a claim upon which relief may be granted.

Eugene Flanagan v. BNSF Railway Co. et al, No. 1:21-cv-00014-RGE-HCA (S.D. Iowa Nov. 19, 2021).

There is still a divide among some federal district courts, but current trends seem to be giving freight brokers detailed and persuasive preemption opinions to use for dismissal.

Matt Quandt is a member of Erickson | Sederstrom’s experienced litigation group. His practice concentrates on catastrophic trucking accidents. Mr. Quandt is a member of TIDA (the Trucking Industry Defense Association) and offers rapid response services. He is licensed in state and federal courts in Nebraska, Iowa, Missouri, and Kansas.

Nebraska Supreme Court Clarifies the Common Fund Doctrine

The common fund doctrine is a long held common law principle that allows recovery of reasonable attorney fees when legal services are used to recover money to which multiple people share an interest. The doctrine is typically applied where an insurance company makes a payment to its insured to cover certain out-of-pocket expenses. Then, when the insured files suit against the responsible party and recovers these out-of-pocket expenses, the insurance company has a right to recoup its earlier payments made pursuant to the policy, less the fees that the insured incurred to make that recovery.

While the doctrine has been around for decades, there still remain some gray areas in its application. One such gray area is whether the doctrine applies to an insurer's subrogation claim for medical payments under Neb. Rev. Stat. § 44-3,128.01. The Nebraska Supreme Court recently addressed that gray area and has provided some clarity.

In Hauptman O’Brien v. Auto-Owners Ins. Co., the insurer argued that an insurer who makes medical payments under an automobile liability policy is entitled to full reimbursement upon settlement of the case, without reduction for the attorney fees of the insured's lawyers. The basis for this argument was the insurer's position that § 44-3,128.01 preempts the common fund doctrine because the statute and doctrine were inconsistent and incompatible. The Court disagreed.

Applying rules of statutory construction, the Court found that is silent as to recovery of reasonable attorney fees under the common fund doctrine, and that by giving the insurer the right to recover medical payments in subrogation, the legislature did not necessarily rule out a reduction for attorney fees under the common fund doctrine. The Court decided that the legislature's silence in this regard meant that the common fund doctrine applies to allow for a reduction to account for attorney fees where a law firm secured a common fund in a pretrial settlement. The insurer was thus entitled to recover its $1,000 medical payment, less the 1/3 ($333) fee, to which the insured's counsel was entitled.

Thanks to law clerk Ross Serena for assistance in drafting this article. Matt Reilly and Erickson | Sederstrom’s litigation attorneys are ready to assist with a range of civil disputes and can be reached at 402-397-2200.

Erickson | Sederstrom represented at the Trucking Industry Defense Association’s annual meeting

Erickson | Sederstrom partner Matthew D. Quandt recently attended TIDA’s Annual Seminar in Philadelphia, PA.  The Trucking Industry Defense Association (TIDA) is a nonprofit association that is devoted to sharing knowledge/resources for defense of the trucking industry and committed to reducing the cost of claims and lawsuits. This year’s seminar featured presentations regarding the state of the industry, accident reconstruction experts, orthopedic experts, fraudulent claims, fleet management, jury psychology, and more.

 From the initial accident investigation, following a rapid response team call in the middle of the night, to pre-suit negotiations and litigation of catastrophic injury and wrongful death cases through discovery and trial, Matt handles all aspects of trucking and transportation litigation. He is committed to making sure his clients are comfortable with the litigation process and emphasizes early resolution of all claims in an efficient, cost-effective manner whenever possible.

A “Verdict” is not a “Judgment" for Purposes of Nebraska's Post Judgment Interest Statute, and it is Error to Grant Post Judgment Interest Until Certifying the Final Judgment

The recent Nebraska Supreme Court case of VKGS v. Planet Bingo, et.al., 309 Neb. 950, ___ N.W.2d ___ (2021) addressed proper application of Nebraska’s post judgment interest statute and the propriety of bifurcating issues at trial.   

Planet Bingo, LLC, (Planet Bingo) owns an electronic gaming software called EPIC.  EPIC was developed in the late 1990’s by Planet Bingo’s wholly owned subsidiary, Melange Computer Services, Inc. (Melange).  VKGS, LLC, (VKGS) and Planet Bingo, competitors in the bingo hall gaming industry, sued each other for breach of contract.  Although they were competitors, Planet Bingo and VKGS maintained a contractual business relationship from approximately 2003 through 2012, which as of 2005 was protected by an extensive confidentiality provision drafted by VKGS.   

In 2011, Planet Bingo sued VKGS for breach of contract for VKGS’s misuse of Planet Bingo’s confidential information -- by taking confidential EPIC information to develop its own competing software program called OMNI. VKGS in turn alleged that Planet Bingo breached contractual obligations and tortiously interfered with business relations by using pricing information and disparagement to influence customers. Two separate jury trials ensued. 

A jury trial commenced in August 2018 on both parties’ claims.  About halfway through the trial VKGS attempted to offer a Canadian Patent application that contained some description of EPIC’s source code.  VKGS claimed that this public discourse of confidential information precluded Planet Bingo’s misuse of confidential information as a matter of law.   But VKGS did not have a certified copy of the patent application and failed to otherwise authenticate it at trial.  VKGS did not disclose the patent application as a trial exhibit.  The district court sustained Planet Bingo’s objections and did not receive the exhibit into evidence. 

Furthermore, the existence of the patent application raised issues about whether Planet Bingo could proceed with its case in chief.  Thus, VKGS moved to dismiss Planet Bingo’s misuse claim.  Because VKGS had not yet rested its case in chief, and because Planet Bingo had not yet presented evidence on its claims, the court instead bifurcated VKGS’s and Planet Bingo’s claims and proceeded on the VKGS claims only.  About a year later, in June 2019, Planet Bingo’s claims were tried to a separate jury.   

In the trial on VKGS’ claims, the jury found Planet Bingo liable for $558,405. In the second trial on Planet Bingo’s claims, the jury found VKGS liable for $2,990,000.  After the second trial, the court offset the verdicts and entered one judgment in Planet Bingo’s favor, but also awarded VKGS post judgment interest on its 2019 verdict while still offsetting VKGS’ award.   

VKGS appealed the court’s order bifurcating VKGS’ and Planet Bingo’s claims and also appealed the court’s decision to exclude the patent application from evidence in the first trial (the patent application was eventually received into evidence during the second trial of Planet Bingo’s claims).  Planet Bingo cross appealed claiming that the court erred in awarding VKGS post-judgment interest on its verdict because the “verdict” was not a judgment for purposes of the post-judgment intertest statute.  

As to the patent application, the Nebraska Supreme Court held that VKGS failed to authenticate the exhibit.  Also, in noting that authentication is a condition precedent to a document’s admission into evidence the court said  “Neb. Rev. Stat. § 27-901(1) (Reissue 2016) does not impose a high hurdle for authentication or identification of proffered evidence as a condition precedent to admissibility. ”  Instead, authentication “may be satisfied by testimony that a matter is what it is claimed to be, and proper authentication may also be attained by evidence of appearance, contents, substance, internal patterns, or other distinctive characteristics, taken in conjunction with circumstances, sufficient to support a finding that the matter in question is what it is claimed to be. ”  In fact, the Court noted that certified public records are self-authenticating under Neb. Rev. Stat. § 27-902(4) (Reissue 2016) but VKGS failed to even offer a certified copy of the application. 

As to the bifurcation issue, the Court held bifurcation of a trial may be appropriate where “separate proceedings will do justice, avoid prejudice, and further the convenience of the parties and the court.”   Additionally, the Court reaffirmed that trial courts have the inherent power over the general conduct of a trial and a decision to bifurcate will not be overturned absent an abuse of discretion.  The Court held that no abuse of discretion occurred because the unauthenticated patent application was not properly offered in VKGS’ case in chief because its contents were irrelevant to VKGS’ tortious interference claim.  Also, the potential effect of the application on Planet Bingo’s claims was a sufficient reason to bifurcate the trial. Thus, the Court dismissed VKGS’ appeal.  

As to post judgment interest, Court agreed with Planet Bingo that VKGS’ trial verdict was not a “judgment’ for purposes of post judgment interest and that the lower court erred in awarding VKGS post judgment interest.  Instead, the Court held that the two competing verdicts were required to be offset and interest could only accrue on the final judgement entered after the verdicts were offset.  Thus, the Court reversed the trial court’s award of post judgment interest on VKGS’ verdict and held “Final judgment in this case occurred after all of the parties’ claims were adjudicated and both jury verdicts were accepted by the district court. As post judgment interest accrues only on judgments, and [Neb. Rev. Stat.] § 25-1316 contemplates only one ‘judgment,’ the district court erred in awarding VKGS post judgment interest when interest had not begun to accrue on VKGS’ claim and Planet Bingo’s claim exceeded VKGS’ claim.”

E|S Attorney Pat Guinan Does it Again.

Congrats to our attorney Patrick Guinan on another appeal win, this time in front of the United States Court of Appeals for the Eighth Circuit. The court upheld the lower court’s entry of summary judgment completely in favor of certain defendants, including one represented by Erickson & Sedestrom. The opinion can be found here: https://www.ca8.uscourts.gov/todays-opinions (Pals v. Weekly et al).

Eighth Circuit Denies Relief for Female Employee Who Was Paid Less for Doing More

In Perry v. Zoetis, the United States Court of Appeals for the Eighth Circuit upheld the United States District Court for the District of Nebraska’s decision finding that a female employee was not discriminated against for receiving less compensation than her male co-workers when she voluntarily chose to complete tasks that were not required of her. See Perry v. Zoetis, LLC, No. 20-2232, 2021 WL 3435535 (8th Cir. Aug. 6, 2021).

Barbara Perry, a former employee of Zoetis, LLC, became upset upon discovering she was making less money than her male co-workers. Perry met with the company’s human resource manager and requested a raise, arguing she was performing more job duties and receiving less compensation than her male co-workers. Soon after her requests were denied, Perry quit her job and brought suit against Zoetis under the Nebraska Equal Pay Act (“NEPA”) and the Nebraska Fair Employment Practices Act (“NFEPA”), alleging she was discriminated against because she received less compensation for performing more duties than her male peers.

When bringing a claim under NEPA, a plaintiff must establish that they completed equal work on jobs requiring equal skill, effort, and responsibility. When comparing Perry’s position to those of her higher-paid, male co-workers, the facts revealed that the male co-workers’ positions required different skills and responsibilities than Perry’s. Perry argued she completed the same duties as her male co-workers, but the record showed such duties were not required of her; rather, she volunteered to take on those extra tasks.

The court stated that “[w]hile Perry’s work ethic is laudable, the fact that she was not paid more for the extra tasks, or for her skill in completing them, is not proof of sex discrimination.” Perry needed to provide evidence that showed she was doing equal work requiring equal responsibility, which she failed to do since her position did not require her to take on the additional duties of her co-workers.

For similar reasons, Perry’s claim under the NFEPA was also rejected. Perry could not meet her burden to prove that she was treated differently than male employees who were “similarly situated” because the male co-workers had different duties and responsibilities.

The Eighth Circuit further relied on facts showing that one male co-worker earned more than Perry because new employee rates were based on differing levels of responsibility, education, and related experience. Another male co-worker earned more than Perry because Zoetis has an internal policy to keep an employee’s pay rate the same when transferring the employee from a different department. Ultimately, Perry failed to provide evidence that Zoetis “offered a phony excuse” for the disparate treatment in pay, and she was denied relief.

Bonnie Boryca is an employment and litigation attorney with Erickson & Sederstrom, PC in Omaha, Nebraska. She was assisted in the above article by law clerk Alison Clark, who will be joining the firm in 2022 as an associate. Bonnie can be reached at 402-397-2200 or boryca@eslaw.com.

No Recovery for Alleged Demotion of Military Servicemember Upon Return from Deployment

A former Union Pacific employee wasn’t entitled to judgment as a matter of law (i.e., a ruling in his favor) or attorneys’ fees after a job change following his return from military deployment, the U.S. 8th Circuit Court of Appeals (which covers Nebraska employers) recently decided, reversing the lower court’s opinion.

Facts

Rodolfo Quiles began working for Union Pacific as a general manager of safety analysis in 2014. He supervised other employees and received “D-band” level compensation. With A-band pay being the lowest, his salary slotted him just below E-band (or executive-level) compensation.

Quiles served in the U.S. Marine Corps Reserve and left Union Pacific in 2015 for voluntary deployment. While deployed, the company underwent a reduction in force (RIF), which eliminated all general manager titles, reclassifying many of them as directors instead. In addition, the company:

·         Adjusted the general director position to require five years of field experience; and

·         Hired a new employee for the position of general director of safety analysis, who Quiles believed was intended to be his replacement.

After the deployment, Quiles returned to work at Union Pacific under a new role as director of safety analysis. Although he received the same benefits and his compensation remained at the D-band level, he viewed the new job as a demotion. He claimed he was given less responsibility and status than in his previous position as general manager.

Quiles didn’t qualify for the general director job because he lacked the five years of field experience necessary to meet the new requirement for the position.

Unhappy with the new job title, Quiles became insubordinate, and his work performance declined, leading to his termination from Union Pacific in 2016. He then sued the company claiming it violated the Uniformed Services Employment and Reemployment Rights Act (USERRA) by effectively demoting him during his military leave.

How USERRA works

Under USERRA, military servicemembers are entitled to reemployment when they return from service that doesn’t exceed five years. Upon returning to work, they’re entitled to return to a job based on the “escalator position” principle, which places them in the job they “would have attained with reasonable certainty if not for the absence due to uniformed service.” The principle covers pay, benefits, seniority, and other job perks they would have attained if not for the period of service.

There are exceptions to the rule. You don’t have to reemploy a servicemember if:

·         The company’s circumstances “have so changed as to make such reemployment impossible or unreasonable”;

·         Employment would “impose an undue hardship” on your company; or

·         The servicemember’s previous employment was “for a brief, nonrecurrent period” with no reasonable expectation it would continue for a significant length of time.

The district court ruled in Quiles’ favor, finding Union Pacific demoted him upon his return in violation of USERRA and awarding attorneys’ fees. The case proceeded to trial on the remaining claims, and the jury returned a verdict in the employer’s favor, concluding Quiles was fired for cause and not entitled to any damages.

8th Circuit’s ruling

After the favorable jury verdict, Union Pacific appealed the district court’s grant of judgment as a matter of law and award of attorneys’ fees to Quiles. In reversing the lower court’s decision, the 8th Circuit held it was impossible to reemploy him to his previous position because:

·         It had been eliminated; and

·         A reasonable jury could find “Union Pacific attempted to fit Quiles into an appropriate job within the corporation’s reorganized structure upon his return from deployment” in accordance with the escalator-position principle and for which he was qualified.

Because Quiles wasn’t entitled to judgment as a matter of law, the court further held he didn’t qualify as a prevailing party for purposes of attorneys’ fees. Quiles v. Union Pac. R.R. Co., Inc., No. 19-3489 (8th Cir., July 6, 2021).

Bottom line

You should take care in responding to servicemembers’ requests for leave and be aware of USERRA’s strict requirements. When in doubt, call your employment law attorney.

Bonnie Boryca is one of Erickson Sederstrom’s employment attorneys and can be reached at boryca@eslaw.com or 402-397-2200. This article was written with assistance of law clerk Ali Clark, who will be joining the firm as an associate in the fall of 2022.

No Double Liability to Amputee for Loss of Foot and Toes in Workers’ Compensation Matter

In a recent decision, the Nebraska Supreme Court considered whether the discontinuance of temporary partial disability benefits triggered the payment of permanent partial disability payments in a Workers’ Compensation case involving an employee who endured an amputation below his knee as a result of a work-related injury. 

In Melton v. City of Holdrege, Mr. Benjamin Melton (“Employee”) was employed by the City of Holdrege (“City”) as a journey-man lineman where he sustained a work-related injury resulting in an amputation of his left leg just below the knee.  309 Neb. 385, 386-87 (2021).  Thereafter, Employee obtained a prosthesis; however, he endured issues with the prosthesis including shrinking, swelling, sweating, and obtaining a good fit.  Just over six years later, Employer provided City medical documentation from his physician indicating he reached maximum medical improvement (“MMI”).  City paid Employee permanent partial disability benefits for a one hundred percent loss of his foot and an additional five percent loss to his leg upon receipt of such documentation. 

The trial court waded through conflicting evidence concerning Employee’s impairment rating and when Employee reached MMI.  It was determined Employee’s amputation below the knee entitled him to statutory benefits for 150 weeks under Neb. Rev. Stat. Ann. § 48-121(3).  The trial court reasoned that Employee had not lost all functional use of his left leg, but his loss of thigh strength and atrophy combined with his knee pain reduced the function of his leg beyond the loss of his foot.  Employee suffered a twenty percent loss of function to his leg, entitling him to forty-three weeks of disability benefits.  Employee was awarded a combined total of 193 weeks of compensation, rejecting Employee’s argument that he was entitled to an award for the loss of each toe on his left foot in addition to the loss of that foot.   

On appeal, Employee argued the trial court (1) failed to evaluate loss of use of his leg without the prosthesis attached when determining his impairment; (2) should have awarded him compensation for the total loss of use of his leg; and (3) erred in failing to award him consecutive disability benefits for a total loss of all his toes, his foot, and use of his left leg.   

The Nebraska Supreme Court held the trial court did not err in failing to evaluate Employee’s loss of use of his leg without his prosthesis attached since Employee did not lose all functional use of his left leg.  The court reasoned Employee, without his prosthesis, could pick his left leg up waist high, crawl up stairs, climb ladders, and navigate uneven terrain by crawling, scooting, or sliding.  Accordingly, the trial court was not in error in determining Employee’s loss based on the use of his prosthesis.   

To bolster his argument in favor of an award for a total loss of use for his left leg, Employee turned to the practical intents and purposes test, which derived from Pennsylvania, and was cited in Jacob v. Columbia Ins. Group, a Nebraska Court of Appeals case.  2 Neb. App. 473, (1994).  In essence, the test has been used to determine whether a disability to a claimant’s body renders such a body part to serve “no real purpose.”  Applied in Melton, Employee argued he sustained a 100 percent loss of use of his left leg.  However, the court held Employee’s left leg could not be rendered “useless” because he retained enough strength in his left leg to successfully use the prosthetic device by being able to bend his knee and support weight on the residual limb.  Therefore, although Employee’s leg was not useless, Employee suffered an additional twenty percent loss of function in his leg that went beyond what would have otherwise been expected after amputation of his left leg below the knee.   

Finally, Employee asserted he was entitled to consecutive amounts of disability benefits for the loss of his five toes, the loss of his left foot, and the total loss of his left leg under Neb. Rev. Stat. Ann. § 48-121(3).  However, the court directed Employee to the four corners of the law and held § 48-121(3) explicitly stated a below-the-knee amputation was the equivalent of a loss of a foot and did not equate to the loss of one’s entire leg.  The court turned to the policy behind the law and reasoned a party may not have double recovery for a single injury.  Accordingly, Employee’s loss of his leg below-the-knee would obviously include the loss of his toes under § 48-121(3) since the legislature limited the loss to the foot.   

Ultimately, the court upheld the trial court’s determinations that Employee did not suffer a total loss of use of his leg because it appropriately compensated Employee for the functional loss of his leg that was not already accounted for in the compensation for the loss of his foot.  Further, the court upheld the trial court’s award of loss of use benefits for the leg and refused to extend double recovery to Employee.   

This article was prepared by Erickson Sederstrom’s law clerks Alison Clark and Rob Toth under the direction of employment attorney Bonnie Boryca, who can be reached at 402-397-2200.

COVID-19 Impacts Ordinary Course Defense When Defending Preference Claims

As a business owner or manager, it is frustrating to receive a bankruptcy preference demand letter.  Unless you want to pay the preference demand, you have little choice but to undertake a defense.  Unfortunately, the business disruptions caused by the COVID-19 pandemic have further complicated the legal landscape surrounding defense of preference claims.  The purpose of this article is to briefly summarize preference procedures, explain the COVID pandemic impact regarding preferences, and discuss some general strategies for businesses responding to or defending against preference claims.

I.                     Preference Process

Transfers made by a business within 90 days of it filing a bankruptcy petition under the Bankruptcy Code are potentially subject to a preference action.  In many cases, such transfers consist of payment for goods or services received by the bankrupt party in the months prior to filing its bankruptcy petition.  The preference statutes are intended to prevent the bankrupt party from preferentially transferring assets to favored parties or individuals before the bankruptcy is filed, to the detriment of other creditors, during the time leading up to the bankruptcy (when the business is likely insolvent). 

Bankruptcy trustees and debtors-in-possession have the right to seek the return into the bankruptcy estate of preferentially transferred assets or funds, so the assets can be allocated and distributed as part of the orderly bankruptcy process.  11 U.S.C. § 547(c)(2).  Typically, a preference claim begins with a demand letter being sent to the party who received the funds, demanding that payment be made back to the bankruptcy estate.  If the preference claim is not resolved based upon the demand letter, the matter may progress to an adversary proceeding, a lawsuit within the bankruptcy case for recovery of the alleged preference funds.

The most common defense against preference claims is that the transfer at issue to the bankrupt party was made “in the ordinary course” of business.  Proving the “ordinary course’ defense requires the party defending against the preference claim to show:  (A) the transfer was made in the ordinary course of business or financial affairs of the debtor and the transferee or (B) the transfer was made according to ordinary business terms.  11 U.S.C. § 547(c)(2).  (A) requires a subjective comparison of the historical transactions between this debtor and this creditor.  (B) requires an objective comparison with other transactions between parties in the same industry.  Either way, the question is whether the alleged preferential transfer was “ordinary”. 

II.                   COVID Impact

With the impact of COVID-19 since early 2020, very little has been “ordinary” about how many, or even most, businesses or industries have functioned.  This lack of normality makes it more difficult to present and prove the “ordinary course” defense.  When a course of dealing between the debtor and creditor, or even an entire industry, has been disrupted due to impacts of COVID-19, parties defending against preference actions need to think creatively.  Referring back to the business relationship between debtor and creditor preceding the 90 day preference period might not provide much value, if that time frame was influenced by COVID-19 effects. 

 III.                 Defense Perspective

When defending against preference claims, creditors preparing a defense need to take a broader look than in the past and be prepared to present extensive evidentiary support.  Developing and presenting an effective defense requires the assistance of experienced counsel to identify the best way to identify and present supporting evidence.

Questions for the creditor to evaluate include:

What relationship did this debtor and this creditor have prior to COVID-19 impacts and what changed?  How can these separate periods be quantified?  When was the last time their business relationship was “ordinary”?  If the transfer that is the subject of the preference claim was affected by COVID-19, what still makes it “ordinary”?

Was this transfer “ordinary” pursuant to a broader analysis of industry practices?  How can the industry be redefined to show what is “ordinary”?

As discussed above, defending against preference claims requires a solid understanding of relevant bankruptcy law, and effective application of bankruptcy law to the current business environment.  Erickson|Sederstrom’s bankruptcy attorneys are ready to help if your business needs to defend against a preference demand. 

New Nebraska Law Protects Culture-Specific Hairstyles

Recently enacted into law, Legislative Bill (LB) 451 amends the Nebraska Fair Employment Practices Act (NFEPA) to expand the definition of “race” to include protection against discrimination for characteristics such as skin color, hair texture, and protective hairstyles. Governor Pete Ricketts signed the legislation on May 5, and it will take effect 90 days after the current legislative session adjourns. Let’s examine the new amendment.

What new legislation covers

LB 451, introduced by Senator Terrell McKinney of Omaha, passed the legislature by a 40-4 vote (with five senators not voting) on April 29. The intent was to protect individuals against race discrimination based on characteristics associated with race, culture, and personhood, including natural and protective hairstyles. The law defines “protective hairstyles” to include braids, locks, and twists.

In legislative hearings and floor debate, the bill’s supporters claimed employers have forced some employees to straighten or trim their hair or cut off braids and dreadlocks to maintain their employment. Under the new law, employers can’t discriminate or base employment decisions on an individual’s culture-specific hair texture or hairstyle.

You’ll still be able to maintain bona fide health and safety standards that regulate characteristics associated with race and culture-specific hairstyles, however, if you can show:

·         A safety policy or grooming standard is necessary to guarantee employees’ health or safety;

·         You adopted the standard for nondiscriminatory reasons;

·         It’s applied equally; and

·         You’ve engaged in good-faith efforts to reasonably accommodate a particular applicant or employee with regard to the required standard.

For employers in most industries, however, it will likely be very difficult to establish a need for an exception to the standard.

Finally, the new law contains an exception for the Nebraska State Patrol, county sheriff’s departments, and various other law enforcement agencies as well as the Nebraska National Guard, which may continue to impose their own dress and grooming standards.

What happens next

The Nebraska Legislature is expected to end its session in very late May or early June. Therefore, the new law will go into effect sometime around September 1, 2021.

It’s too early to project the law’s full impact or the number of new employment discrimination claims it will likely generate. We may have to wait a few years to see how the claims are processed and interpreted by the Nebraska Equal Opportunity Commission and the courts. Of course, we’ll provide updates as necessary.

Attorneys Mark Schorr, Bonnie Boryca, and Heather Veik lead Erickson Sederstrom’s labor and employment group and can be reached at (402) 397-2200.

‘Patient Safety Near Miss’ Justifies Termination Without Age or Disability Discrimination Liability

After a university dismissed a member of its medical residency program, she sued for wrongful termination and alleged she had been a victim of age discrimination under the Age Discrimination in Employment Act (ADEA) and the Nebraska Fair Employment Practices Act (NFEPA) as well as disability discrimination and retaliation under both under the Americans with Disabilities Act (ADA) and the NFEPA. The U.S. 8th Circuit Court of Appeals (which covers Nebraska employers) recently upheld the dismissal of her claims without a trial, however, affirming a U.S. District Court for the District of Nebraska ruling.

Facts

Dr. Mary E. Canning, age 57, became an internal medicine resident at Creighton University in July 2015. During the first year of residency, she scored in the lowest 15 percent in the country on an in-service examination. Several doctors expressed concerns about her basic skills and level of competence, including memory issues.

After reviewing each resident's progress, a committee determined Canning hadn’t evolved in several areas, making it necessary for her to repeat the first year of residency. The panel let her know she was being placed on a leave of absence with pay until a fitness-for-duty evaluation could be conducted proving she was safe for patient care. She also was told her residency contract wouldn’t be renewed regardless of the evaluation’s results.

Canning retained counsel who sent the committee members a letter outlining their alleged acts of unlawful discrimination and objecting to her participation in the fitness-for-duty evaluation. Creighton's counsel in turn offered a firm resolve that she could repeat the first year of residency so long as she agreed to the evaluation and was cleared for duty.

A neuropsychologist evaluated Canning and found her to be in good mental health. The fitness-for-duty evaluation’s results also gave no indications of medical or psychiatric conditions that would preclude her from performing her duties. Therefore, she was permitted to repeat the residency intern year.

Canning continued to struggle academically, showing an inability to complete assessments or improve to the level of what would be expected from a first-year resident. After taking the in-service exam for the second time and scoring in the lowest seven percent in the country, she was placed on probation.

While on probation, Canning made an error that could have affected a patient’s safety. She discharged a patient admitted for a pulmonary embolism without providing a prescription for an anticoagulant. Her supervisors had previously reviewed the discharge plan with her and instructed her to prescribe the anticoagulant.

Canning admitted the error was “extremely serious.” The committee let her know she had been dismissed from the residency program, pointing to the “significant patient safety near miss” as its reason.

Resident’s claims and lawsuit

After Canning sued for age and disability discrimination and retaliation, Creighton offered nondiscriminatory reasons for terminating her from the residency program by thoroughly documenting her:

·         Lack of medical knowledge;

·         Substandard clinical skills; and

·         Inability to perform a first-year internal medicine resident's duties in a timely fashion.

The documentation showed Canning’s performance in the residency program lacked progression and was at the minimum standards expected of a first-year resident. Creighton argued it “had a right—if not an obligation—to respond to an act or omission affecting patient safety with termination of the responsible individual.”

Creighton asked for summary judgment (dismissal without a trial), and the district court agreed, concluding there wasn’t enough evidence for a jury ever to rule in Canning’s favor. She appealed.

On appeal, Canning argued the district court erred when it concluded no rational fact-finder ever could conclude her termination was motivated by age, but the 8th Circuit affirmed the ruling. It pointed out Creighton produced a legitimate, nondiscriminatory reason for the termination by explaining she had made an “egregious” error affecting patient safety in spite of “supervisor and attending efforts.”

Thus, Creighton satisfied its burden. To rebut the reason, Canning needed to show it was pretextual (or a cover-up for illegal discrimination). But, the 8th Circuit agreed with the district court that her proof had fallen short.

Bottom line

Sensitivity to an employee’s potential or actual disabilities is a good practice and required by the law in terms of considering accommodations. Often, older employees’ age may lead to the question of disabilities. But safety concerns, particularly in the medical arena, will often be paramount and provide justification for dealing with an employee’s errors that threaten the safety of a patient (or coworker, client, customer, or the public).

Bonnie M. Boryca is an attorney with Erickson│Sederstrom, P.C., in Omaha, Nebraska. You can reach her at 402-397-2200 or boryca@eslaw.com.

Nebraska: A Second Amendment Sanctuary State

The Second Amendment of the Untied State’s Constitution reads, “A well regulated Militia, being necessary to the security of a free State, the right of the people to bear Arms, shall not be infringed.” According to the Pew Research Center, over 72 million Americans own a gun and approximately three-quarters of Americans consider their right to own a gun essential to their freedom.

Many gun owning Americans were concerned with President Biden’s April 07, 2021 announcement that his administration would not “wait for Congress” to draft new legislation regarding gun ownership. The Biden administration advised that it will order the Department of Justice to issue new proposed rules to stop the proliferation of guns assembled from kits, provide a clear definition for stabilizing devices used in target shooting pistols, and publish model “red flag” legislation for states.

In the wake of the presidential announcement, Nebraska Governor Pete Ricketts, issued a signed proclamation designating Nebraska as a “Second Amendment Sanctuary State.” That proclamation read:

WHEREAS, The Second Amendment to the U.S. Constitution Protects the right to keep and bear arms; and

WHEREAS, Article 1-1 of the Nebraska State Constitution guarantees “the right to keep and bear arms for security or defense of self, family, home, and others, and for lawful common defense, hunting, recreational use, and all other lawful purposes” and states that this right “shall not be denied or infringed by the state or any subdivision thereof;” and

WHEREAS, The State of Nebraska has protected the right of Nebraskans to open carry and conceal carry; and

WHEREAS, Nebraska will stand up against federal overreach and attempts to regulate gun ownership and use in the Good Life; and

WHEREAS, The White House and U.S. Congress have announced their intention to pursue measures that would infringe on the right to keep and bear arms; and

WHEREAS, A growing number of counties in Nebraska have declared themselves as “Second Amendment Sanctuary” counties; and

WHEREAS, Nebraska will continue to take any necessary step to defend our right to keep and bear arms.

NOW, THEREFORE, I Pete Ricketts, Governor of the State of Nebraska DO HERBY PROCLAIM the State of Nebraska is a

SECOND AMENDMENT SANCTUARY STATE

and I do hereby urge all citizens to take due note of the designation.

IN WITNESS WHEREOF, I have hereunto set my hand and cause the Great Seal of the State of Nebraska to be affixed this Thirteenth day of April, in the year of our Lord Two Thousand Twenty-One.

With so much attention on firearms and the importance of the Second Amendment to the United States Constitution, responsible gun owners and prospective gun owners need to be informed regarding their rights and the laws surrounding gun ownership and possession. There are currently an array of confusing and rapidly changing legal authorities affecting gun owners. For example, there are many hurdles that a hopeful gun owner must clear before becoming an actual gun owner such as background checks. Gun owners must also be familiar with the many laws setting forth restrictions on the ownership of both handguns and long guns, the laws related to when and how guns can be carried concealed, when and how guns can be carried in the open, and where guns are and are not permitted. Not being familiar with these laws can have severe consequences for gun owners. Those consequences can include criminal repercussions and loss of a gun owner’s right to own or possess a firearm in the future. Some prospective gun owners may have already lost their rights to own a gun and wish to regain that right through the proper channels but do not know how. And, finally, current gun owners may wish to protect the ownership of their firearms with devices known as “gun trusts” but do not know where to get started.

Many of these answers can be found in Nebraska Revised Statute Chapters 69 and Chapter 28. Those interested in purchasing a firearm, or having questions about firearm ownership or possession should not hesitate to review the legislative materials in these statutes or contact an attorney familiar with the subject. Erickson | Sederstrom has several attorneys with significant expertise regarding this area of the law.

United States Supreme Court Holds that "Mere Retention" of Debtor Property Does Not Violate the Automatic Stay

The United States Supreme Court recently held, in City of Chicago v. Fulton, that a creditor's "mere retention" of a debtor's property does not violate the bankruptcy automatic stay.  In Fulton, the Court found that the Bankruptcy Code permits a creditor to maintain the status quo when a debtor files for bankruptcy.  In other words, the creditor is not automatically compelled to return property of the debtor that the creditor recovered prior to the bankruptcy filing, but the creditor also cannot dispose of the property while the bankruptcy case is pending absent permission from the bankruptcy court. 

                As most bankruptcy creditors are aware, the Bankruptcy Code contains an automatic stay within § 362(a)(3).  The automatic stay acts to automatically protect the debtor and his or her property from most collection or enforcement acts by creditors upon filing of a bankruptcy petition.  Many debtors' counsel have also taken the position that the automatic stay requires creditors to return property to the debtor if the property had been repossessed or otherwise recovered by the creditor shortly before the bankruptcy filing.  Bankruptcy courts had inconsistently interpreted this aspect of the automatic stay.  Fulton made clear that if the debtor seeks return of the property, the correct means to pursue the return is a Motion for Turnover under §542 of the Bankruptcy Code, not the automatic stay statute. 

                Fulton is good news for secured creditors who fear bankruptcy filings by their defaulted customers.  If the creditor can lawfully recover collateral before a bankruptcy case is commenced, the creditor is not automatically compelled to return that collateral as soon as the bankruptcy is filed.  The debtor must take the affirmative step of filing a Motion for Turnover to compel return of the property. 

                Writing the Supreme Court’s opinion, Justice Samuel Alito noted that the language of § 362(a)(3) leads most logically to the conclusion that only affirmative acts that disturb the status quo are prohibited.  If collateral is already in the creditor’s possession when the bankruptcy case is commenced, the creditor must retain the property, but at least is not automatically required to give up possession without a separate Motion for Turnover by the debtor and opportunity for the Bankruptcy Court to decide that issue.   

                Creditors navigating bankruptcy law issues regarding how to deal with collateral or other property recovered from debtors should seek legal advice about how to proceed.  Bankruptcy law remains fraught with potential pitfalls for creditors.  Erickson|Sederstrom’s creditors’ rights attorneys provide timely advice to creditors who are seeking guidance regarding pre-bankruptcy and bankruptcy rights against debtors and debtors’ property. 

Nebraska Supreme Court Clarifies the Duties of Mental Health Professionals

The Nebraska Supreme Court recently clarified duties of mental health professionals to warn and protect third parties from their patients.  In Rodriguez v. Lasting Hope Recovery Ctr. of Cath. Health Initiatives, the court held that mental health professionals owe no duty as a matter of law to third parties for physical injuries caused by a patient who has not “actually communicated” such a threat to their mental health professionals.  The court further determined that a mental health professional’s duty to warn or protect may be met by reasonable efforts to communicate the threat to the third party and law enforcement. 

 Facts of Rodriguez

 In Rodriguez, the Omaha police placed a patient under emergency protective custody and transported him to Lasting Hope because he expressed intentions of killing his mother.  Upon arrival, the patient was assigned a treating psychiatrist.  The patient’s psychiatrist determined the patient was paranoid, homicidal, delusional, and posed a risk for harm to others outside the hospital environment.  The psychiatrist’s determination was based on the patient’s previously expressed intentions of killing his mother.  Therefore, the psychiatrist recommended for the patient five to seven days’ hospitalization for stabilization and safety, and Lasting Hope called the patient’s mother to warn her of his threats.  

 During the patient’s hospitalization, his girlfriend visited and expressed that she no longer wished to be his girlfriend.  The girlfriend was not afforded the same warning as his mother because the patient had not expressed a similar threat against his girlfriend. 

 After six days of compliance with medication and hospitalization by the patient, the psychiatrist concluded the patient was ready to be released.  Further, the patient no longer expressed an intent to harm his mother.  In fact, the patient stated to his psychiatrist that he “had a good conversation” with his mother over the telephone during his hospitalization, and he committed to “not act to harm anyone.”

 The former girlfriend’s body was discovered the following day.  Investigators concluded that the patient strangled his former girlfriend.  The decedent’s parents brought action against Lasting Hope claiming that it was responsible for wrongful death. 

 Duty to Warn & Protect

 The Nebraska Mental Health Practice Act and the Nebraska Psychology Practice Act both contain limits on practitioners’ duties regarding treating patients with mental illness.  These limits were enacted in response to the California Supreme Court's decision in Tarasoff v. Regents of University of California.  There, the court held that a mental health professional “who knows or should know that a patient poses a serious danger of violence to a third party owes a duty to exercise reasonable care to warn and protect that third party.”   

 In the case of Munstermann v. Alegent Health, the Nebraska Supreme Court determined that:

 [A] psychiatrist is liable for failing to warn of and protect from a patient’s threatened violent behavior, or failing to predict and warn of and protect from a patient’s violent behavior, when the patient has communicated to the psychiatrist a serious threat of physical violence against himself, herself, or a reasonably identifiable victim or victims.  The duty to warn of or to take reasonable precautions to provide protection from violent behavior shall arise only under those limited circumstances . . . and shall be discharged by the psychiatrist if reasonable efforts are made to communicate the threat to the victim or victims and to a law enforcement agency.

 Like the Munstermann rule, the Mental Health Practice Act and the Psychology Practice Act explicitly require that for a duty to warn to arise, a serious threat of physical violence against a reasonably identifiable victim must be “actually communicated” to a mental health professional.  “Actual communication” requires the patient to verbally express or convey to the psychiatrist their prediction to commit physical violence either against themself or a reasonably identifiable victim.

 The only reasonably identifiable victim the patient “actually communicated” an intent to physically harm was his own mother.  Based on these verbal expressions of threats, the psychiatrist ordered Lasting Hope staff to call the patient’s mother to warn her.  By the time the psychiatrist had ordered the patient’s discharge, she knew that Omaha police were aware of the patient’s threats of physical violence against his mother because Lasting Hope staff had discussed the threats with law enforcement officers, who also warned the patient’s mother.  The patient never actually communicated to his psychiatrist that he intended to harm his former girlfriend; therefore, the psychiatrist had no duty to warn her.

 Under the Munstermann rule, psychiatrists owe no duty as a matter of law to third parties for physical injuries caused by a patient who have not “actually communicated” a threat of physical violence.  Once an “actual communication” has taken place, any duty to warn or protect on the part of the psychiatrist can be discharged by reasonable efforts to communicate the threat to the victim and a law enforcement agency.  Here, the patient’s lack of communicated threats against his former girlfriend meant that no duty to warn or protect was triggered for the psychiatrist.  The former girlfriend’s death was not legally attributable to a breach of duty by the psychiatrist or Lasting Hope because the patient never “actually communicated” that he intended to harm his former girlfriend. 

 Future Developments

 When faced with a patient who “actually communicates” a serious threat of physical violence against a reasonably identifiable individual, mental health professionals have a duty to both warn and protect that individual.  However, these duties shall be discharged by the psychiatrist if reasonable efforts are made to communicate the threat to both the individual and to a law enforcement agency.

 Erickson | Sederstrom has provided counsel to mental health and other practitioners for decades.  Please consult with one of our attorneys if you have questions regarding impact of the Rodriguez decision and how mental health practitioners can minimize their legal risks.

Erickson|Sederstrom Elects Matt Quandt and Shay Garvin as Partners; Connor Orr Joins the Firm

ERICKSON | SEDERSTROM is pleased to announce that MATTHEW D. QUANDT and SHAY GARVIN have been elected Partners and CONNOR W. ORR has joined the firm as an Associate.

Matt has been with the firm for two years, before which he litigated at a reputable Kansas City firm. His practice focuses on civil litigation, including catastrophic injury and wrongful death, trucking and transportation, construction defect, product liability, and professional liability. He is also a member of TIDA (the Trucking Industry Defense Association). He received his J.D. from the Washburn University School of Law (cum laude) and his B.S. from Baker University (cum laude). He is admitted to practice law in the state and federal courts of Nebraska, Kansas, and Missouri.

Shay has been with the firm since 2019. Prior to joining Erickson | Sederstrom, he practiced for several years with a nationally recognized firm in Lincoln. Shay focuses his practice on transactional areas, including mergers and acquisitions, business formation, securities offerings, debt and equity financing, and general counsel. Shay also has extensive experience in the transportation industry and is active in the Nebraska logistics community. He received his J.D. and M.B.A. in 2015 from the University of Nebraska and his B.A./B.S. from the University of Arizona. He is admitted to practice law in Nebraska.

Connor has joined the firm representing both individual and commercial clients for litigation and general counsel matters. Connor graduated from Creighton University Magna Cum Laude in 2014 with a Bachelor’s degree in Economics, then went on to obtain his Juris Doctorate from the Creighton University School of Law in 2017. He is a member of both the Nebraska and Iowa State bars, and has extensive litigation experience representing clients in both state and federal courts for matters including commercial contract disputes, insurance defense, personal injury, construction defects, product liability, wrongful death, trucking and transportation, and disputes concerning both commercial and residential real estate. He also has experience providing estate and business planning services, providing advice to help guide families and small, local business owners through both prosperous and difficult times.

The Acquired Immunity Doctrine – Will the Nebraska Supreme Court Take the Next Step and Adopt the Entire Doctrine?

The acquired immunity doctrine is an affirmative defense that may be available to state construction contractors that are sued by a third party for alleged construction plan design defects.  Here is the scenario: The Nebraska Department of Transportation (“Department”) contracts with a road contractor to remove and replace part of a state highway.  The Department designs the construction plans and requires the contractor to follow the plans as designed.  Part of the construction plans include a traffic control plan.  The traffic control plan complies with the Manual on Uniform Traffic Control Devices (“MUTCD”).  Traffic control is subcontracted to a traffic control manager.  The traffic control subcontractor has no discretion to deviate from the traffic control plan and must set up all traffic devices at the required locations as the Department orders. The subcontractor sets up the traffic devices as the traffic control plan requires.  

Subsequently, a third party is injured in the construction zone and alleges that additional or different traffic devices should have been used on the project.  The Department retains its sovereign immunity because: 1) the Department’s choice of devices was discretionary, and a matter of engineering judgment; and, 2) under Nebraska’s State Tort Claim Act, the Department retains its sovereign immunity for “Plans for Construction of or improvement to highways.” See Neb. Rev. Stat. §§ 81-8,219 (9) & (11) (Reissue 2014). Yet, the subcontractor is sued for the traffic plans’ alleged design defects even though the Department designed the plan and is immune from liability. Can the subcontractor raise the Department’s sovereign immunity as an affirmative defense?  The answer is “yes,” and the defense is called the “acquired immunity doctrine.”  

The acquired immunity doctrine “provides that a contractor who performs its work according to the terms of its contract with a governmental agency, and under the governmental agency’s direct supervision, is not liable for damages resulting from its performance.” Lopez v. Mendez, 432 F.3d 829, 833 (8th Cir. 2005) (citing Smith v. Rogers Group, Inc., 348 Ark. 241, 72 S.W.3d 450, 455 (2002)) (emphasis added). “Thus, if damages result from the contractor’s performance of a construction contract with the state, ‘and the damages result from something inherent in the design and specifications required by the public agency, the contractor is not liable unless he is negligent or guilty of a wrongful tort.’” Lopez, 432 F.3d at 833 (quoting Guerin Contractors, Inc. v. Reaves, 270 Ark. 710, 606 S.W.2d 143, 144 (1980)). “The purpose of the doctrine is to protect an ‘innocent contractor who has completely performed the work to the government’s plans and specifications.’” Lopez, (quoting Smith, 72 S.W.3d at 456).

The Nebraska Supreme Court has not yet adopted the acquired immunity doctrine.  But the Supreme Court has adopted the immunity’s fundamental concept. That is, the Supreme Court has said “where a construction contractor follows plans and specifications supplied by the owner which later prove to be defective or insufficient, [the contractor] is not responsible to the owner for loss or damage resulting therefrom as a consequence of the defectiveness or insufficiency of such plans and specifications.” Lindsay Mfg. Co. v. Universal Sur. Co., 246 Neb. 495, 506-07, 519 N.W.2d 530, 539-40 (1994); see also Langel Chevrolet-Cadillac, Inc. v. Midwest Bridge & Constr. Co., 213 Neb. 283, 287, 329 N.W.2d 97, 100-01 (1983) (citations omitted); Central Neb. Pub. Power & Irr. Dist. v. Tobin Quarries, Inc., 157 F.2d 482, 485-86 (8th Cir. 1946) (applying Nebraska law); State v. Commercial Cas. Ins. Co., 125 Neb. 43, 50, 248 N.W. 807, 808-09 (1933).

This is the acquired immunity doctrine. Furthermore, although the Nebraska’s State Tort Claims Act excludes independent contractors from the term “state agency,” “the acquired-immunity doctrine creates an exception to this rule.” See Neb. Rev. Stat. § 81-8,210(1); see also Lopez, 432 F.3d at 833. The reason for the exception “is to protect an ‘innocent contractor who has completely performed the work to the government’s plans and specifications.’” Lopez, 432 F.3d at 833 (quoting Smith, 72 S.W.3d at 456).  In fact, other jurisdictions with tort claims acts like Nebraska’s Act and that have the same “state agency” exclusion for contractors as Nebraska’s Act, still have adopted the acquired immunity doctrine to protect innocent contractors that follow the state’s construction plans. See id. at 833-34 (discussing the acquired immunity doctrine under Arkansas law); see also McLain v. State, 563 N.W.2d 600, 605 (Iowa 1997); Fraker v. C.W. Matthews Contracting Co., Inc., 272 Ga. App. 807, 614 S.E.2d 94 (2005); Garrett Freightlines v. Bannock Paving Co., 112 Idaho 722, 731, 735 P.2d 1033, 1042 (1987).

For example, the Iowa State Tort Claims Act also excludes independent contractors from the term “state agency.” I.C.A § 669.2(5). But the Iowa Supreme Court nevertheless adopted the acquired immunity doctrine to protect its independent contractors from liability. Specifically, in McLain v. State, supra, the plaintiffs sued the State of Iowa, its general contractors, and a subcontractor working in an interstate construction zone. The plaintiffs claimed that the construction zone was unreasonably dangerous because the traffic warning signs failed to warn motorists of traffic congestion. McLain, 563 N.W.2d at 601. The district court granted the general contractor and subcontractor summary judgment under the acquired immunity doctrine and in affirming summary judgment, the Iowa Supreme Court held:

The rule is well established that a contractor for the State is not liable to a third party for damages if the contractor complies with the State’s plans and specifications and is not negligent in performing its work . . . . In other words, in those situations the contractor shares the same immunity as the State.

* * *

Here, the evidence in the record reflects that [the general contractors and subcontractor] complied with all State plans and specifications and did not perform their work in a negligent manner. Throughout the project, the State controlled all decisions regarding the placement and installation of the traffic control devices. [The subcontractor] installed the warning signs as it contracted to, and on the day of the accident, the signs were in their proper locations and in complete working order.

Id. at 605 (citations omitted).

The Iowa court also noted that monitoring the effectiveness of the signs was “part of the decision-making process of whether to install additional signs,” which was a decision retained by the State and immunized by statute. Id. The Iowa Supreme Court then held that “[b]ecause [the general contractors and the subcontractor] complied with the State’s contract specifications, we conclude as a matter of law that they may share immunity with the State . . . .” Id.

            Here, like McLain, the subcontractor in our scenario followed the traffic control plan and the traffic plan complied with the MUTCD.  Also, the third-party’s claim that the traffic control plan should have included different or additional traffic devices is a claim against the Department because the Department designed the Traffic Plan —not the subcontractor. The Department, however, is immune from liability because: 1) the traffic plan’s design was a matter of engineering judgment; and, 2) the traffic plan was part of the Project’s “Plans for Construction” for a highway improvement. Neb. Rev. Stat. §§ 81-8,219 (9) & (11). Thus, the subcontractor is cloaked in the Department’s sovereign immunity because it “complied with all State plans and specifications and did not perform their work in a negligent manner. [And] [t]hroughout the project, the Department controlled all decisions regarding the placement and installation of the traffic control devices.” McLain, 563 N.W.2d at 605.

            Now, we need the right case to be taken to the Nebraska Supreme Court.  And remember, in Nebraska you can now file an interlocutory appeal on an order denying summary judgment based on the assertion of sovereign immunity.  Neb. Rev. Stat. § 25-1902.  

Post-Loss Assignments of Benefits: An Easier Way for Contractors to Get Paid

Contractors face an endless stretch of legal and business hurdles on a daily basis. They have to deal with weather, safety, personnel, material acquisition, permits, and needy homeowners. But, getting paid on residential construction work covered by a homeowner’s insurance policy should not be one of those hurdles because there is an easier way for contractors to get paid.

When a homeowner suffers a loss covered by their insurance policy, they have the right to assign their insurance benefits to the contractor making the repairs to their home. By doing this, the homeowner authorizes the insurance company to make the contractor a co-payee for that loss.

In most states, the law permits contractors to ask homeowners to assign their post-loss benefits to the contractor for the work they bid. This allows the contractor to receive payment directly from the homeowner’s insurance company. And, most importantly, helps the contractor avoid those dreaded situations where a homeowner receives their insurance payout but refuses to pay their contractor for its work.

Contractors, however, must beware of the many pitfalls that they can fall into with these post-loss assignments of benefit agreements. Failure to follow laws designed to protect insured homeowners can lead to a contractor’s entire contract becoming voided.

For example, a post-loss assignment of benefits has to be a written agreement. That agreement must contain certain language as set forth by statute, and the contractor has to place the homeowner’s insurance on notice of the assignment within a certain number of days depending on the jurisdiction.

Contractors also have to be careful not take certain forbidden actions on behalf of the homeowner. Some states like Iowa forbid a contractor from negotiating with a homeowner’s insurance company on the homeowner’s behalf. Other states strictly forbid a residential contractor from offering rebates on their deductible as an incentive for choosing their construction company for their job. Mistakes like these can cause a court to find the residential contractor’s entire agreement is void and unenforceable.

Finally, post-loss assignment of benefits under an insurance policy must include specific language depending on the jurisdiction that the contract is contemplated. For example, in Nebraska, a contractor must include the following language in all caps and in 14 pt. font for its assignment to be proper:

YOU ARE AGREEING TO ASSIGN CERTAIN RIGHTS YOU HAVE UNDER YOUR INSURANCE POLICY. WITH AN ASSIGNMENT, THE RESIDENTIAL CONTRACTOR SHALL BE ENTITLED TO PURSUE ANY RIGHTS OR REMEDIES THAT YOU, THE INSURED HOMEOWNER, HAVE UNDER YOUR INSURANCE POLICY. PLEASE READ AND UNDERSTAND THIS DOCUMENT BEFORE SIGNING.

THE INSURER MAY ONLY PAY FOR THE COST TO REPAIR OR REPLACE DAMAGED PROPERTY CAUSED BY A COVERED PERIL, SUBJECT TO THE TERMS OF THE POLICY.

IT IS A VIOLATION OF THE INSURANCE LAWS OF NEBRASKA TO REBATE ANY PORTION OF AN INSURANCE DEDUCTIBLE AS AN INDUCEMENT TO THE INSURED TO ACCEPT A RESIDENTIAL CONTRACTOR'S PROPOSAL TO REPAIR DAMAGED PROPERTY. REBATE OF A DEDUCTIBLE INCLUDES GRANTING ANY ALLOWANCE OR OFFERING ANY DISCOUNT AGAINST THE FEES TO BE CHARGED FOR WORK TO BE PERFORMED OR PAYING THE INSURED HOMEOWNER THE DEDUCTIBLE AMOUNT SET FORTH IN THE INSURANCE POLICY.

THE INSURED HOMEOWNER IS PERSONALLY RESPONSIBLE FOR PAYMENT OF THE DEDUCTIBLE. THE INSURANCE FRAUD ACT AND NEBRASKA CRIMINAL STATUTES PROHIBIT THE INSURED HOMEOWNER FROM ACCEPTING FROM A RESIDENTIAL CONTRACTOR A REBATE OF THE DEDUCTIBLE OR OTHERWISE ACCEPTING ANY ALLOWANCE OR DISCOUNT FROM THE RESIDENTIAL CONTRACTOR TO COVER THE COST OF THE DEDUCTIBLE. VIOLATIONS MAY BE PUNISHABLE BY CIVIL OR CRIMINAL PENALTIES.

The contractor must have the homeowner sign and date below this language as well. Then, after the  post-loss assignment of benefits is executed, a residential contractor in Nebraska must provide a copy of the assignment to the homeowner’s insurance company within five business days.

By taking advantage of post-loss assignments of rights under an insurance policy, contractors can keep revenue streams open cand collections moving. And often times, these simple assignments can help a contractor avoid the headache of executing liens as well. Residential contractors, however, should remember that contracts can be tricky. Assignments like the one described above need to be properly incorporated into the contractor’s underlying contract and those contracts need to meet all necessary formalities under the law to be binding. Therefore, contractors should never hesitate to reach out to a construction lawyer who is familiar with construction contracts and litigation when they have questions about their contracts.

Nebraska Supreme Court Clarifies Enforcement of Covenants Regarding Homeowners’ Associations

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 Real estate developments typically are governed by covenants that require or prohibit certain actions by property owners.  To be enforceable, covenants must involve issues that “touch and concern” the land.  The “touch and concern” element of real property covenants has been convoluted in its development.  The Nebraska Supreme Court recently narrowed the interpretation of this element as applied to communities governed by a homeowners’ association (“HOA”).  See Equestrian Ridge Homeowners Ass'n v. Equestrian Ridge Estates II Homeowners Ass'n, 308 Neb. 128, 146 (2021).  Specifically, the court determined that the “touch and concern” element may be satisfied as applied to communities governed by an HOA when the “burden” of HOA payments is afforded to a “benefit” that is: (1) considered a necessity to the community; and (2) increases the value of the community’s lots.

 Facts

 In Equestrian Ridge Homeowners Ass'n v. Equestrian Ridge Estates II Homeowners Ass'n, the Nebraska Supreme Court decided a dispute between two neighboring HOAs involving real covenants running at law in a neighborhood near Gretna, Nebraska.  The covenants addressed requirements to maintain a street.

 In 2004, Ted Grace (“Grace”) and Duane Dowd (“Dowd”) owned contiguous tracks of land near Gretna.  Together, Grace and Dowd agreed to grant their respective tracts of land to Equestrian Ridge, an L.L.C. established by Grace and Dowd, and develop the tracts into residential subdivisions.  Subsequently, Grace and Dowd executed an additional agreement to develop Grace’s tract (“Equestrian Ridge Estates”) first, then Dowd’s tract (“Dowd Grain Subdivision”) thereafter.  All fifteen lots in Equestrian Ridge Estates were sold and were subject to the authority of its HOA through a series of covenants, conditions, and restrictions (“CC&R’s”).  During the development of Dowd Grain Subdivision, the parties determined that Shiloh Road, the only accessible pathway to the Subdivision, terminated at a dead end; therefore, the parties decided to improve accessibility to the Subdivision by “extending Shiloh Road past its dead end to the west, across the border with” Equestrian Ridge Estates.  This agreement was evidenced by Dowd’s promise to subject Dowd Grain Subdivision and its forthcoming HOA, through a series of CC&R’s, “to a sharing of one third of the costs and expenses for the repair and maintenance of 232d Street within Equestrian Ridge Estates.”

 After developing several lots within Dowd Grain Subdivision and renaming the subdivision Equestrian Ridge Estates II, Dowd resigned from the HOA.  Thereafter, “[t]he board members of Equestrian Ridge Estates II HOA formally accepted Dowd's relinquishment of all his interests and agreed to manage the subdivision, and contributed its share of maintenance costs to improve 232d Street.

 In early 2015, Equestrian Ridge Estates II HOA “met to discuss major roadwork that was expected along 232d Street” and made several complaints, including “that when Equestrian Ridge Estates HOA made repairs to 232d Street, it did so without the input of Equestrian Ridge Estates II HOA.”  Equestrian Ridge Estates II HOA further complained “that they only ever learned about 232d Street maintenance projects upon receiving invoices from Equestrian Ridge Estates HOA, typically without any explanation about the maintenance for which they were being asked to contribute.”  Afterwards, Equestrian Ridge Estates II HOA amended its CC&R’s “to remove any requirement of [their] lot owners to contribute to maintenance costs of 232d Street” and refused to contribute to road maintenance costs, while Equestrian Ridge Estates HOA paid the entire amount.  As a result, Equestrian Ridge Estates HOA filed suit against Equestrian Ridge Estates II HOA to seek payment for the road maintenance costs pursuant to the covenants.

 Legal Conclusions

 The Nebraska Supreme Court held that Equestrian Ridge Estates II HOA “was bound to contribute to 232d Street maintenance costs under the 2004 Agreement” because Equestrian Ridge Estates II HOA “was a successor in interest of Dowd Grain Subdivision and, as such, was bound by the covenant at issue in the 2004 Agreement, which runs with the land in perpetuity.”  In support of its holding, the Nebraska Supreme Court set forth and applied the three requirements for a covenant to run with the land:

(1) The grantor and the grantee must have intended that the covenant run with the land, as determined from the instruments of record; (2) the covenant must touch and concern the land with which it runs; and (3) the party claiming the benefit of the covenant and the party who bears the burden of the covenant must be in privity of estate. 

 Applied here, the “intent to bind” element was met because it was contemplated in the 2004 agreement that the covenants at issue “would bind lot owners in the future.”  When considering the “touch and concern” element, the court noted that “it has been found impossible to state any absolute tests to determine what covenants touch and concern land and what do not.”  Therefore, this issue was “one for the court to determine in the exercise of its best judgment upon the facts of [the] case.”

 The Nebraska Supreme Court has adopted a clearer explanation of “what it means for a covenant to touch and concern the land.”  The “covenant must impose, on the one hand, a burden upon an interest in land, which on the other hand increases the value of a different interest in the same or related land.”  The “touch and concern” element is met in this instance because “[i]n exchange for the burden of being required to contribute to 232d Street maintenance costs, Dowd afforded Equestrian Ridge Estates II and its future lot owners the benefit of paved access across 232d Street to public roads.”

 Finally, the Nebraska Supreme Court distinguished and applied various definitions of “privity” when analyzing the third element of “privity of estate.”  See id. at 146-47.  In essence, “privity” can be “defined as mutual or successive relationships to the same right of property, or such an identification of interest of one person with another as to represent the same legal right or derivative interest . . . between parties.”  Id. at 147.  The “privity of estate” element is satisfied in this case because Equestrian Ridge Estates II, the same property that Dowd once owned, is now controlled by Equestrian Ridge Estates II HOA and owned by Equestrian Ridge Estates II HOA and Equestrian Ridge Estates II's lot owners.  Id.  Accordingly, “Dowd and these lot owners are successive owners of the same land pursuant to their deeds of purchase for the lots.”  Id. 

 Therefore, Dowd’s promise to subject his subdivision to a requirement to contribute to 232d Street maintenance costs at the time of the 2004 agreement “was a covenant that ran with the land.”  As a result, Equestrian Ridge Estates II HOA, as the successor in interest to Dowd, was bound to contribute to 232d Street maintenance costs.

 Future Developments for Covenants Running at Law as Applied to Communities Governed by an HOA

 Although the “touch and concern” element has been convoluted throughout its development, the Nebraska Supreme Court has now narrowed its interpretation of this element as applied to communities governed by an HOA.  Specifically, the court determined that the “touch and concern” element may be satisfied as applied to communities governed by an HOA when the “burden” of HOA payments is afforded to a “benefit” that is: (1) considered a necessity to the community; and (2) increases the value of the community’s lots, such as the street maintenance costs involved here.