By Ross Bromberger, Hedrick Gardner Kincheloe & Garofalo, LLP
What happens when an owner brings a lawsuit against its former general contractor six years to the day from substantial completion? Or if the owner brings a suit one month before the claim is barred by North Carolina’s statute of repose but the complaint is not served until more than six years after substantial completion? In either scenario, can a general contractor bring suit against its subcontractors or are those derivative claims, either in contract, indemnity, or contribution, barred by North Carolina’s statute of repose? Unfortunately, the answer appears to be that the general contractor is barred from asserting those valuable derivative claims against the subcontractors, even though the subcontractors are often the ones that performed the work at issue.
In ESA, Inc. v. Walton Constr. Co., Inc., the Eastern District Court was faced with this exact scenario. No. 7:04-CV-75-F(3), 2007 WL 9718764, 2007 U.S. Dist. LEXIS 113115, (E.D.N.C. Mar. 16, 2007) (applying North Carolina law). Plaintiff, Extended Stay America (ESA), filed suit against its general contractor, Walton, six years to the day after substantial completion. Walton filed a third-party complaint against its subcontractor, Power Plus, which actually performed the work in dispute. Walton’s Third-Party Complaint, however, was filed six years and two months after substantial completion. At summary judgment, Power Plus sought dismissal of Walton’s Third-Party Complaint, arguing the claim was barred by North Carolina’s six-year statute of repose. In response, Walton argued that such an application of the statute of repose would be inequitable. Ruling in favor of Power Plus and dismissing Walton’s Third-Party Complaint, the ESA Court noted:
Although the court appreciates the seeming inequity of the result, [N.C.G.S.] § 1-50(a)(5)(a), (b)(6) plainly dictates it. Therefore, where, as here, an owner files an action against a general contractor for defective or unsafe conditions arising from improvement to real property on the very last day allowed by law, that same statute of repose operates to preclude that contractor from seeking contribution or indemnity from his subcontractors. The Court of Appeals of North Carolina expressly has rejected the argument that the statute of repose does not bar an action for contribution or indemnification under similar circumstances, pursuant to an earlier version of the statute. New Bern Assoc. v. The Celotex Corp., 359 S.E.2d 481, 483 (N.C. Ct. App.), cert. denied, 362 S.E.2d 782 (N.C. 1987). The court also has pointed out that “[w]hether a statue of repose has expired is strictly a legal issue . . .,” Cellu Products Co. v. G.T.E. Products Corp., 344 S.E.2d 566, 568 (N.C. Ct. App. 1986), and that where “the pleadings and proof show without contradiction that the statute has expired, then summary judgment may be granted.” Id.
ESA, at *3.
What can a general contractor do to avoid, as the ESA court noted, such an inequitable ruling? Such a question requires a closer look at North Carolina’s construction statute of repose. For construction disputes, North Carolina’s statute of repose can be found in N.C.G.S. § 1-50(a)(5), stating, “[n]o action to recover damages based upon or arising out of the defective or unsafe condition of an improvement to real property shall be brought more than six years from the later of the specific last act or omission of the defendant giving rise to the cause of action or substantial completion of the improvement.” (emphasis added).
In reviewing N.C.G.S. § 1-50(a)(5), the North Carolina Supreme Court, in Christie v. Hartley Const., Inc., undertook an inquiry as to the legislative basis and intent behind a statute of repose. 367 N.C. 534, 766 S.E.2d 283 (2014). The Christie Court noted that “[b]ecause an applicable repose period begins to run automatically, statutes of repose give potential defendants a degree of certainty and control over their legal exposure that is not possible when such exposure hinges upon the possibility of an injury to a plaintiff that may never manifest.” Id. at 539, 766 S.E.2d at 287. Therefore, as a statute of repose acts to provide a bulwark against open-ended exposure, where a business contractual modifies and extends the statute of repose, North Carolina courts will allow such modification. Id. at 539-41, 766 S.E.2d at 287-88. Such a modification is allowable as parties generally are “free to contract as they deem appropriate.” Id.
In adopting and applying Christie, Judge Bledsoe of the Business Court found that contracting parties can seek to toll the applicable statute of repose. Window World of Baton Rouge, LLC v. Window World, Inc., 2019 NCBC 10,, 2019 WL 540755, 2019 NCBC LEXIS 11 (N.C. Super. Feb. 11, 2019). In support of this position, Judge Bledsoe stated, “North Carolina courts have explicitly recognized that a statute of repose may be tolled by agreement.” Id. at 6.
Not only can a party contractually modify to extend or toll the applicable statute of repose, but contracting parties can also agree to shorten the applicable statute of repose. Tsonev for Est. of Shearer v. McAir, Inc., 272 N.C. App. 689, 847 S.E.2d 788 (2020). In Tsonev, the plaintiff-homeowners hired McAir to remediate flood damage at their personal residence. Plaintiff and McAir entered into a contract, which, in part, specifically stated, “[McAir is] not liable for any consequential incidental, indirect, punitive, treble, speculative, or special damages of any kind whatsoever, and you may not bring any action against us more than two (2) years after the Completion Date.” Id. at 694, 847 S.E.2d at 792. Five years after completion date, plaintiff-homeowners discovered defective workmanship by McAir and brought suit. Upon review of the contract, the Tsonev Court dismissed plaintiff-homeowners’ claim, stating that the contractually shortened statute of repose was allowable “[b]ecause the express provision of the contract is clear” and therefore “the contract must be enforced as written.” Id. Based upon the Tsnoev decision, it appears a party may contractually modify the statute of repose to match the three-year statute of limitations for construction claims.
Back to the question at hand: what can a general contractor do to avoid the inequity of being sued within an owner’s statute of repose but outside a subcontractor’s statute of repose? At least one of the potential answers is the contractual formation on the front end. A general contractor can contractually modify and limit the statute of repose with the owner as in Tsonev. To that end, one suggestion would be to limit the statute of repose to match the applicable statute of limitations at three years. Alternatively, a general contractor could modify their subcontract agreements to include a tolling provision pursuant to Christie and Window World. In so doing, a subcontractor’s statute of repose would be contractually tolled from the date the owner brings suit against the general contractor. While there’s no silver bullet, at least there do appear to be contractual options available to protect a general contractor against the implicit risk of the statute of repose.
Finally, what can be done if the contracts are silent on the issue of modifying or tolling the statute of repose? Under such a scenario, the options for a general contractor are limited. If, however, the owner of the project has provided notice of potential issues, it might be advisable for a general contractor to file suit against any subcontractors that performed the work in dispute to preserve any available claims. The lawsuit against the subcontractors could later be consolidated with any lawsuit that was filed by the owner but served after the statute of repose has run.
By Josh Durham, Bell Davis Pitt
North Carolina’s Rule 12(b)(6) provides, in theory, a powerful tool for a defendant to dismiss a lawsuit in its early stages. A challenge under the rule compels the trial court to consider “whether the pleadings, when taken as true, are legally sufficient to satisfy the elements of at least some legally recognized claim.”i A motion under Rule 12(b)(6) is properly granted when (1) no law supports the plaintiff’s claims, (2) the complaint does not plead sufficient facts to state a legally sound claim, or (3) the complaint discloses facts that necessarily defeat the plaintiff’s claims.ii
In other words, Rule 12(b)(6) can provide a much-desired early exit to litigation, sparing a defendant substantial expense and saving considerable time.
But there is often still a cost to pursue such a motion. Many of our commercial litigation section members practice in the North Carolina Business Court, the state’s specialized forum for cases involving complex and significant issues of corporate and commercial law. While motions in non-Business Court cases frequently do not require briefs, briefs are mandatory in Business Court cases, and they must accompany the motion.iii In 2017, the Court made clear that any defendant pursuing a motion to dismiss under Rule 12(b)(6) must do so, with a motion and supporting memorandum, prior to serving an answer.iv At least in the Business Court, this put an end to the common practice of placeholder motions to dismiss in answers, to be followed later by a more formal motion and brief.v
These days, nearly every type of case could merit a Rule 12(b)(6) motion. For example, in suits accusing another of misappropriating a trade secret, the rule can be used to dismiss the case because a plaintiff did not sufficiently describe the alleged secret. Sued for violating a covenant not to compete? Use the rule to challenge the reasonableness of the time, geography, and scope restrictions in the covenant. Rule 12(b)(6) is frequently used in corporate disputes to challenge whether an owner in a closely held entity owed fiduciary duties to another owner. And if a complaint makes reference to a contract, but does not attach it, a defendant can use the rule to introduce the actual contract.vi At that point, while still under the rule, the defendant can show that a plaintiff’s claims are clearly contrary to the parties’ written agreement.
But, are such motions ultimately worth it?
Each year, the state’s Business Court judges participate as a panel in various continuing education events. In such panels, the judges offer views from the bench, practice pointers, and tips for successfully navigating Business Court practice and procedure. Recently, one of the judges spoke on motions to dismiss under Rule 12(b)(6). The judge confirmed that nearly every type of case could merit such a motion, estimating that nine out of ten cases before the court involve a Rule 12(b)(6) motion.
And he suggested they may not always be the best approach.
Why? A dismissal under Rule 12(b)(6) is not always with prejudice, which means the case will not necessarily end if the motion is granted. A dismissal without prejudice allows a plaintiff to amend its claims, fixing any shortcomings in the allegations. The decision whether to dismiss a case with prejudice or without prejudice (and whether to allow a plaintiff to amend its claims) is entirely within the court’s discretion.vii A quick survey of Business Court cases within the last six months shows the court often exercises that discretion to dismiss cases without prejudice. Such cases include claims for:
At the recent event, the judge suggested parties should instead consider addressing shortcomings in pleadings without the court’s involvement. In other words, because a motion to dismiss and briefs from the parties might very well result in a plaintiff being given the chance to amend, the parties might save themselves considerable time and expense by just working through a complaint’s shortcomings on their own. And, if a defendant files a motion and memorandum but does not file an answer to the complaint, the plaintiff can amend the complaint as a matter of right. This moots the entire motion and memorandum. The judge suggested this was all the more reason to meet and confer, so to speak, regarding any alleged deficiencies in a complaint. Doing so could avoid having to prepare for a hearing that will ultimately not happen.
The judge’s comments at the recent program follow comments from another judge at past events. With regard to trade secret claims, the judge suggested it might make for a better strategy to refrain from 12(b)(6) motions that attack the sufficiency of a complaint’s trade secret description. Instead, a party should consider whether to wait to attack the trade secret claim at summary judgment, when, if a motion is successful, the case will indeed be over.
These comments are definitely food for thought, and Rule12(b)(6) strategies definitely merit further discussion.
That is why, at this year’s Annual Meeting in Wilmington, the Commercial Section will be holding a breakout session on June 18 to specifically discuss Rule 12(b)(6) strategies. We are planning an engaging session with insight from an esteemed panel and robust discussion from attendees.
We hope to see you there!
iArroyo v. Scottie’s Prof’l Window Cleaning, Inc., 120 N.C. App. 154, 158, 461 S.E.2d 13, 16 (1995).
iiOates v. JAG, Inc., 314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985).
ivNew Friendship Used Clothing Collection, LLC v. Katz, 2017 NCBC 71 (N.C. Super. Ct. Aug. 18, 2017).
vAdmittedly, I had done this in a case before the Business Court, filing a formal motion and memorandum more than a year after serving the answer.
viErie Ins. Exch. v. Builders Mut. Ins. Co., 227 N.C. App. 238, 242, 742 S.E.2d 803,808 (2013).
viiFirst Fed. Bank v. Aldridge, 230 N.C. App. 187, 191, 749 S.E.2d 289 (2013).
iixBotanisol Holdings II, LLC v. Propheter, No. 21 CVS 102, 2021 WL 4844528, at *9 (N.C. Super. Oct. 18, 2021).
ixLoyd v. Griffin, No. 20 CVS 2394, 2021 WL 5865360, at *8 (N.C. Super. Dec. 10, 2021).
xiNorris v. Greymont Dev., LLC, No. 21 CVS 12659, 2022 WL 278278, at *8 (N.C. Super. Jan. 31, 2022).
By Austin R. Walsh
Hedrick Gardner Kincheloe & Garofalo, LLP
On 12/17/21, the NC Supreme Court issued its opinion in North Carolina Farm Bureau Mut. Ins. Co., Inc. v. Dana i, which clarifies the maximum underinsured motorist (UIM) coverage available to claimants regardless of whether the liability coverage was exhausted based on the per-person or per-accident policy limits.
The Dana decision is a win for common sense interpretation of the policy and N.C. Gen. Stat. §20-279.21(b)(4) and a marked change in course following the Supreme Court’s 2018 decision in Hairston v. Harward ii, which declared for the first time that UIM coverage is a collateral source and profoundly increased a defendant’s exposure to an excess verdict.
In Dana, the tortfeasor was intoxicated when his vehicle crossed the center line and collided with the Danas and a third vehicle, causing the death of Pamela Dana and serious injury to William Dana.
The tortfeasor’s vehicle was insured by Integon National Insurance Company with liability limits of $50,000 per-person, $100,000 per-accident. Integon tendered the per-accident limits in a global settlement, including offers of $43,750 to the Estate and $32,000 to William.
The Dana vehicle carried a Farm Bureau UIM policy with limits of $100,000 per-person, $300,000 per-accident. Farm Bureau offered $56,250 in “new money” to the Estate of Pamela and $68,000 in “new money” to William for a total UIM payout of $124,250. When combined with the liability recovery, Farm Bureau’s offers brought the Estate and William’s total recovery to $100,000 per claimant.
The Estate and Mr. Dana refused the offer, arguing that under N.C. Farm Bureau v. Gurley iii, the total UIM coverage available to the Danas was $200,000, not $124,250. The Danas arrived at $200,000 by reducing the $300,000 per-accident UIM limits by the $100,000 per-accident liability limits. Assuming an even split of the UIM coverage, this would have resulted in the Estate of Pamela Dana and Mr. Dana recovering $143,750 and $132,000, respectively.
Farm Bureau sought a declaratory judgment. On cross motions for summary judgment, the trial court found for the Danas. Farm Bureau appealed and the Court of Appeals unanimously affirmed. The Supreme Court granted discretionary review and reversed.
The Supreme Court opinion authored by Justice Ervin gives a detailed analysis of Gurley and N.C. Gen. Stat. § 20-279.21(b)(4). In Gurley, the Court of Appeals laid out two exclusive scenarios to determine available UIM coverage: (1) a liability settlement tendering the per-person limits and (2) a liability settlement tendering the per-accident limits to multiple claimants. In scenario #1, the liability settlement is subtracted from the UIM per-person limits to find the maximum UIM coverage. In scenario #2, the per-accident liability limits are subtracted from the per-accident UIM limits, but an individual’s recovery is not bounded by the per-person limit iv.
The statutory language at issue provided that “the limit of underinsured motorist coverage applicable is determined to be the difference between the amount paid to the claimant under the exhausted liability policy or policies and the limit of underinsured motorist coverage applicable to the motor vehicle involved in the accident.” In Gurley, the Court of Appeals implied that by using the singular “limit” and not the plural “limits,” the Legislature intended for only the per-person or per-accident limit to apply as a cap to coverage, but not both v. As applied to the Danas, the Gurley Rule would have resulted in a windfall recovery of $75,750 above the per-person UIM limits.
In a clear rebuke, Justice Ervin wrote that the Gurley Court’s reliance on the use of the singular “limit” was a “slender reed upon which to base a conclusion that the per-person and per-accident limits of liability may not both be applicable.” vi Relying instead on “the traditional use” of the per-person and per-accident liability limits “that insurers, policyholders, and policy makers are all familiar with,” vii Justice Ervin continued, “[w]e are unable to discern any reason why the General Assembly would have intended to preclude the use of both per-person and per-accident liability limitations in determining the maximum amount of underinsured motorist coverage.” viii
The opinion went on to hold that in calculating the amount to be paid, Courts should treat “the per-accident amount of [UIM] coverage as the total sum that is available to all of the claimants . . . subject to the caveat that the amount of [UIM] coverage that is available to any individual claimant is limited to the per-person amount.” ix As a result, the Danas would receive a total recovery of $100,000 per claimant, which is the maximum per-person coverage bargained for when the policy was purchased.
In her concurrence, Justice Earls argued that the majority rightfully supplanted Gurley, but should have overruled Gurley explicitly, rather than preserving Gurley’s analysis to avoid a “one size fits all” rule.
A second concurrence, authored by Justice Berger and joined by Chief Justice Newby and Justice Barringer, argued that because the statute does not expressly provide whether the per-accident limit is subject to the per-person limit, the Court should have looked to the policy. Specifically, the Dana policy clearly states that “[s]ubject to [the] limit for each person, the limit of bodily injury liability shown in the Declarations for each accident for [UIM] Coverage is our maximum limit of liability for all damages for bodily injury resulting from any one accident.” x
For two decades, the personal automobile policy language has been in conflict with the Gurley Rule. Fortunately, the Supreme Court has taken a step in the right direction with Dana’s common-sense re-alignment of the uniform policy and the statute and by providing insurers and policy holders with a solid foundation to evaluate future UIM claims. xi
i. N. Carolina Farm Bureau Mut. Ins. Co., Inc. v. William Thomas Dana, Jr., et al., 2021-NCSC-161, 866 S.E.2d 710 (2021).
ii. Hairston v. Harward, 371 N.C. 647, 821 S.E.2d 384 (2018).
iii. N. Carolina Farm Bureau Mut. Ins. Co. v. Gurley, 139 N.C. App. 178, 532 S.E.2d 846 (2000).
iv. Id. at 183, 532 S.E.2d at 849
vi. Dana, 2021-NCSC-161 at ¶ 19, 866 S.E.2d at 717.
vii. Id. at ¶ 18, 866 S.E.2d at 717.
iix Id. at ¶ 19, 866 S.E.2d at 717.
ix. Id. at ¶ 23, 866 S.E.2d at 719.
x. Id. at ¶47-48, 866 S.E.2d at 724 (Berger, J. Concurring) (emphasis added).
xi. The positive outcome in Dana is owed in part to the NCADA’s Amicus Committee and the efforts of J.T. Crook, Phillip A. Collins, and David S. Coats of Bailey & Dixon, L.L.P., who authored the NCADA’s amicus curiae brief.
by Charles E. McGee, Sizemore McGee, PLLC
In workers’ compensation claims arising on or after 6/24/2011, N.C. Gen. Stat. § 97-29 limits the payment of temporary total disability (“TTD”) compensation to 500 weeks from the date of first disability, unless the claimant qualifies for extended compensation through N.C. Gen. Stat. § 97-29(c). To qualify for extended compensation, the claimant’s extension application must be made at least 425 weeks after the date of first disability, and unless otherwise agreed to by the parties, the claimant must prove by a preponderance of the evidence a total loss of wage-earning capacity. Deputy Commissioners have thus far entered decisions in eight cases addressing extended compensation; five of these have been appealed to the Full Commission, which very recently entered its first decision in the appeals.
Going forward, it will be important for counsel to identify and track the legal standards and methods of proof applied by the Full Commission in its decisions in these extended compensation cases. While Sturdivant and Tyson indicate a “new and different” showing is required to prove a total loss of wage-earning capacity – i.e., “a complete destruction of the ability to earn wages” or a complete lack of “any wage-earning capacity,” buttressed by sufficient medical and vocational evidence – Betts indicates a showing of “no reasonable expectation [to] earn wages in the competitive economy” may be combined with a claimant’s age, education, and transferrable skills to demonstrate a total loss of wage-earning capacity. Though the appellate courts may ultimately weigh in on some or all of the cases, the Full Commission’s decisions will help clarify the applicable burdens and analyses in the meantime.
In addition, the defense bar has noted several issues arising during litigation of extended benefits cases, including: objection to the use of an LMS where the claimant did not take part in its formulation; attempts to require the institution of full vocational rehabilitation efforts in conjunction with an LMS; attempts to add new and even previously-denied body parts/conditions to bolster disability claims (including allegations of injury- and claim-induced psychological issues); and attempts to take voluntary dismissals without prejudice after filing a Hearing Request. Counsel would be well served to be aware of these potential issues going forward, and to anticipate the need to counter new or denied body parts/conditions and restrictions as well as efforts to extend litigation and thwart or blunt LMS evidence.
By Chad Jones, P.E., CMSE, CFEI, The Warren Group
One of my more interesting calls and subsequent forensic investigations was regarding water accumulating inside of 2X4 fluorescent light fixtures in a suspended ceiling of a secondary school in South Carolina.
A client called reporting an unusual problem. They indicated that the metal chassis of the classroom lights were sweating and generating enough water to accumulate on the diffuser lens of the lights. Seeing is believing, so obviously an on-site investigation was in order!
On arrival at the school the next day, water was indeed observed to be accumulating inside the 2X4 fixtures and puddling on the diffuser lens in one classroom and the adjoining teachers work room. The sweating light fixtures were not observed in the adjacent classrooms or teacher workrooms. The phenomenon was also only observed on the first floor of the building. The facility was an approximately 50-year-old two-story educational facility with CMU walls and precast concrete double tees for the floor and roof.
Inspection above the ceiling of the first story in the affected spaces showed large amounts of condensate on the underside of the double tee panels. The concrete panels were literally sweating and looked like the tile walls of a bathroom after a long, hot shower! Measurements were taken using a non-contact infrared thermometer and the temperature of the areas indicated mid to high 50 degrees Fahrenheit. A quick check of a psychrometric chart indicates that these temperatures are near or at the saturation line for water, explaining why the moisture in the air was condensing on the panels. Test measurements in adjacent rooms not showing moisture problems indicated the temperature of the concrete double tees were in the high 60’s F, certainly above the saturation point as evidenced by the lack of condensation.
These observations led to two main questions, why is the ceiling in the first floor of the affected area so cold and why is there excess moisture present in a conditioned building?
Investigating the cause of the extremely cold concrete double tee in the affected room involved inspecting the classrooms above. When I entered the classroom above our subject one, I noted that it was very cold. From discussions with the teacher, it was discovered that the space was unbearably cold at all times since the start of the school year. In fact, the teacher and students wore coats in class even though it was August in South Carolina, definitely not a normal sight for sure.
The HVAC system in the building was antiquated and did not have a central building management system. Each HVAC unit had a local thermostat housed in locked box. The teachers were not allowed to adjust the setpoint at all. Through the clear face of the locked box, the setpoint in the classroom was observed to be set on 55 °F and the space temperature was 59 degrees!! Because the thermostat setpoint was not reached, the HVAC unit continued to supply 55 – 57 °F air to the space in an attempt to reach setpoint. The unit never cycled off, it continually supplied air at saturation conditions. Temperature measurement of the floor indicated 55 – 57 °F, explaining the high 50-degree temperatures observed in the ceiling of the space below the classroom. Maintenance was notified and the thermostat was reset to mid 70’s per district temperature policies.
With the first question of why the double tees were cold answered, the next question to answer is to find the source of the excess moisture in the ceiling space. As the building is not new, infiltration of outside air is always a concern. While investigating above the ceiling the exterior walls were checked for air intrusion. Large amounts of air could be detected entering the building through the building joints and seams. The quantity of air was so large it could be felt on the skin of the back of your hand and it caused the spider webs above ceiling to sway! A check of exterior doors indicated that the doors had significant resistance to being opened. Once a door was opened, large amounts of air began to rush into the building. The day was calm with little to no wind detectable outside. So why was the building so negative?
Next stop was the roof of the building. Several large upblast “mushroom” exhaust fans were observed on the roof, towards the center of the building. Data plate information on the fans was located and recorded. The fans were obviously quite large and moved a great deal of air. Investigation back inside the building indicated that the fans exhausted the restrooms located in the core of the building but based on experience and knowledge of fan HP and chassis size, the fans were moving air well in excess of code required levels. Where was the makeup air coming from and why were the fans so large?
A trip to the central file repository for the District Maintenance Department was in order. Original drawings were obtained for the building. Reviewing the drawings indicated that the classrooms used to be conditioned by a two-pipe hydronic system with fan coil units located in the ceiling. Each fan coil had an outside air duct tied to the return duct with a louver on the exterior wall to bring in fresh air to the space. The two-pipe system and associated ductwork had been demolished and the louvers sealed. Wall mounted heat pumps had been retrofitted to the school in the past. These units had outside air dampers that would close when the wall mount unit was not running. However, the exhaust fans in the restroom were not replaced with appropriately sized fans considering the HVAC system change. This set up an extremely negative condition in the structure. This was the source of the massive infiltration observed above ceiling.
Outside air calculations and code required exhaust calculations for the restrooms were performed. The overall air balance for the space was then analyzed. New exhaust fans were sized to meet current exhaust requirements in the restroom area. Subsequent replacement of the oversized fans with properly sized fans reduced the infiltration to a level expected from a 50-year-old structure. The space above the ceiling dried up and there were no further reports of puddles of water accumulating in light fixtures.
Design defects can manifest in mysterious places. A thorough investigation should lead us to the root cause and potential responsible parties.
Chad Jones, PE, CFEI, CMSE has a Bachelor of Science in Mechanical Engineering from Clemson University. Chad has over 20 years of engineering experience including mechanical, process, and manufacturing engineering. This work has included equipment design, machine safeguarding, cost estimating and safety compliance. Chad also has over 10 years of commercial, industrial, and residential HVAC and plumbing design experience. Chad is a Certified Fire and Explosion Investigator and IFSAC certified Firefighter II in Greenwood County, South Carolina.
By Kristine L. Prati, Wilson Ratledge, PLLC
After announcing a return to in-person hearings, the Industrial Commission notified practitioners that Full Commission and Deputy Commissioner hearings will continue to be held by videoconference until further notice. While the Industrial Commission has been hosting virtual hearings for over a year now, here are some tips and reminders to consider, should you participate in a virtual procedure.
For hearings at the Deputy Commissioner level, email addresses of all witnesses and attorneys must be provided. Similarly, the Full Commission requires identification of the attorney handling the oral arguments, if different from the attorney of record. Prior to the hearing, a WebEx link for the hearing will be provided by the Deputy Commissioner. Similarly, the clerk of the Panel Chair will send an email requesting/confirming a preferred email address to send the Microsoft Teams invite to. Thereafter, a Microsoft Teams meeting invitation and link will be provided by the Full Commission’s office. It is imperative that attorneys respond to the clerk and accept the Microsoft Teams meeting invitation in a timely fashion to ensure receipt of the invitation/link and for oral arguments to run smoothly on the day of.
Prior to a Deputy Commissioner hearing, practitioners and witnesses may perform a “test hearing” through www.webex.com/test-meeting.html. It is also recommended that you and your witnesses “appear” for the virtual conference at least 15 minutes ahead of time to work out at any issues. While members of the Industrial Commission have become quite adept with the virtual platforms, they often have to spend large amounts of time guiding less adept practitioners and claimants who are experiencing technology issues. Microsoft Teams, used by the Full Commission, allows practitioners to navigate the system, through use of the “join” link that is emailed by the Full Commission ahead of time, to ensure competency with it (the link can be used more than once). Alternatively, a request can be made to the clerk of the Panel Chair a few weeks in advance of the oral arguments to schedule a “meeting” through Microsoft Teams.
Some witnesses have trouble securing a strong internet connection, which can cause massive delays, particularly if the witness keeps freezing or dropping the connection, and thus necessitating a pause in the hearing. As such, reaching out to plaintiff’s counsel a few days before the hearing to discuss plans to ensure that all witnesses have a strong internet connection, as well as a device to access the virtual hearing, is advisable.
Asking the Deputy Commissioners for a pre-trial conference via WebEx to work out connectivity issues, especially for pro se claimants, is another excellent resource. In addition to working out connectivity issues, it also gives Deputy Commissioners a chance to explain to pro se plaintiffs what will take place at the hearing and answer questions that may slow a hearing down. Additionally, some Deputy Commissioners have been utilizing the pre-trial conference to explain the Pre-Trial Agreement to pro se plaintiffs and ask the pro se plaintiff to stipulate to everything in the Pre-Trial Agreement if there is no disagreement.
As for exhibits, an organized binder of all bate stamped exhibits the parties intend to admit should be prepared well in advance of the hearing and provided to each witness ahead of time, as a substantial amount of time can be wasted trying to identify what document the witness is to review during the hearing. In addition, while WebEx allows documents to be pulled up on the platform for everyone to see, it is a slow process and some witnesses may not be able to review the document and testify on video at the same time. As far as video evidence is concerned, each Deputy Commissioner seems to have a different protocol for submission of the video, as it cannot be uploaded through the Industrial Commission portal. For example, one Deputy Commissioner requested that the video be mailed to the Industrial Commission on a USB prior to the hearing, while another requested that the video or video link be sent by email and then be mailed to the Industrial Commission post-hearing if admitted into evidence. As such, it is advisable to contact your Deputy Commissioner in advance of the hearing to determine how he or she would like the video to be accessible during the hearing and for entry into evidence.
By Thomas Segars, Ellis & Winters, LLP
Imagine yourself combing the aisles of the local Trader Joe’s with your brood in tow. You are minding your own beeswax when, above the drone of swarming shoppers, you hear a buzz about a new product: “100% New Zealand Manuka Honey.” As you grab a jar off the shelf, what would you reasonably believe was inside?
The United States Court of Appeals for the Ninth Circuit examined this question recently and offered some lessons about litigating section 75-1.1 claims in the process.
The Comb Foundation
Moore v. Trader Joe’s Co. was a putative class action brought under the consumer-protection laws of California, New York, and North Carolina. The plaintiffs purchased a Trader Joe’s store brand of “100% New Zealand Manuka Honey” that listed “Manuka Honey” as its sole ingredient. Disappointed to learn that only 57.3% to 62.6% of the honey inside actually derived from Manuka flower nectar, the plaintiffs sued. They claimed that the product was adulterated because it had been made, in part, with the nectar of other types of flowers. They also claimed that Trader Joe’s label was misleading because it implied that the honey inside was derived exclusively from the nectar of Manuka flowers.
Trader Joe’s moved to dismiss the complaint on two grounds: (1) that the label was not misleading and the product was not adulterated as a matter of law, and (2) that the state-law claims were preempted by federal labeling laws. The trial court agreed with Trader Joe’s on both points and dismissed the case. The plaintiffs appealed.
Let Me Tell You About the Birds and the Bees
The Ninth Circuit began with some basic facts of life about honey—some of which you probably knew, but others that you may not have.
Honey is made by bees. Bees forage among flowers to collect nectar for honey. By examining a honey’s pollen content, you can estimate the relative concentrations of different floral nectars.
The FDA provides guidance on how honey may be labeled for sale. Although all honeys are made from a combination of different floral nectars, these are not considered separate ingredients. For labeling purposes, honey is a “single-ingredient food.” The FDA allows a honey producer to label honey as being derived from a particular plant or blossom (e.g., clover honey, tupelo honey, or orange blossom honey) if it can show that the plant or blossom on the label is the “chief floral source of the honey.”
The Manuka bush is a plant native to Australia and New Zealand. Honey derived from the Manuka’s floral nectar contains methylglyoxal, an organic compound believed to have antibacterial and other beneficial properties. As Manuka honey has grown in popularity, producers have developed a system for grading the purity called the “Unique Manuka Factor” or “UMF” system. The UMF system grades a honey’s concentration of methylglyoxal on a scale of 5+ (at the low end) to 26+ (at the high end).
The “Reasonable Consumer” Is a Busy Bee
The Ninth Circuit affirmed the dismissal, reasoning that the plaintiffs’ claims failed as a matter of law.
The court made quick work of the adulteration claim. That claim rested exclusively on the fact that the bees had visited different flowers—not only Manuka blossoms. This was not adulteration, the court explained: “Bees make the honey, without any input from Trader Joe’s or any other manufacturer.”
As to the claim that Trader Joe’s label was misleading, however, the Ninth Circuit did something more unusual. Although reasonableness is almost always a question of fact that cannot be resolved on the pleadings, the Moore court held that it was unreasonable as a matter of law for a consumer to be misled by Trader Joe’s label. To reach that result, the court turned to the fabled “reasonable consumer.”
Under section 75-1.1 and the other state laws invoked, the Moore court explained, “claims based on deceptive or misleading marketing must demonstrate that a ‘reasonable consumer’ is likely to be misled by the representation.” For example, the Eastern District of North Carolina’s Solum v. CertainTeed case, to which Moore cited, held that “reasonableness” requires the recipient of the representation to use “reasonable care to ascertain the truth.”
The Ninth Circuit reasoned that “other information about Trader Joe’s Manuka Honey would quickly dissuade a reasonable consumer from the belief that Trader Joe’s Manuka Honey was derived from 100% Manuka flower nectar.”
What information should have tipped off the reasonable consumer? The Ninth Circuit identified three points:
The Ninth Circuit similarly rejected the plaintiffs’ claim that Trader Joe’s label was misleading because it claimed a single ingredient: Manuka honey. The Moore court looked to the FDA guidelines for labeling honey. It concluded that Trader Joe’s single-ingredient label was appropriate under those guidelines. “Manuka honey,” it reasoned, meant “honey whose chief floral source is Manuka.” Even plaintiffs’ analysis that Trader Joe’s product was 57.3% to 62.6% pure confirmed that this was true.
Having concluded that the label was not misleading as a matter of law, the Ninth Circuit did not need to decide whether federal labeling laws preempted plaintiffs’ state-law claims.
Have Consumers Been Stung?
The Moore court charged the reasonable consumer with knowledge of several nuanced facts about bees, honey, and how Manuka honey is graded. Scholars are already debating whether this was fair. See, for example, Rebecca Tushnet’s thought-provoking post on the case.
After all, the rare cases that do hold that it is unreasonable as a matter of law for consumers to be misled tend to read like a page from Captain Obvious’s diary. The reasonable consumer is expected to know, for example, that
On the other hand, Manuka honey is a “niche, specialty product”—not a “low-cost, everyday item” like shelf-stable parmesan cheese. The Moore court seized on this fact to explain why a reasonable consumer of Manuka honey would be expected to exercise greater diligence, to have a keener price sensitivity, and to have known about the UMF grading system. In short, the Ninth Circuit expects the reasonable Manuka honey consumer to be a busy bee.
The Flight Path for Section 75-1.1 Litigants
Moore is a helpful datapoint for anyone litigating section 75-1.1 claims about deceptive or misleading advertising or labeling. It provides new insight into the mind of the elusive reasonable consumer.
Moore’s use of FDA guidelines and industry standards like the UMF grading system is notable, too. Although the Ninth Circuit never reached the question of whether federal labeling laws preempted section 75-1.1, its analysis relied on those laws and similar standards. As we have discussed in the past, courts evaluating section 75-1.1 claims frequently borrow conduct standards from external sources. Here, both the FDA guidelines and the industry’s UMF grading system informed the court’s analysis of Trader Joe’s conduct.
Do you find Moore’s reasoning sweet? Or did it leave you feeling stung? Either way, its lessons can inform your section 75-1.1 practice. And we hope we’ve left you a more educated consumer of honey heading into National Honey Month.
Following up from yesterday's webinar with JS Held--Fact or Fiction: Can You Trust Your Fire Investigator’s Report?
By Dan Strong and Becky Thornton, Teague Campbell Dennis & Gorham, LLP
Article I, Section 15 of the North Carolina Constitution provides that “[t]he people have a right to the privilege of education, and it is the duty of the State to guard and maintain that right.” N.C. Const. art. I, § 15. The North Carolina Constitution implements this provision in Article IX, Section 2 by commanding the General Assembly to “provide by taxation and otherwise for a general and uniform system of free public schools ... wherein equal opportunities shall be provided for all students.” N.C. Const. art. IX, § 2. On June 11, 2021, the North Carolina Supreme Court determined that this constitutional protection extends to instances of extreme bullying in public schools, thereby permitting claimants to bring a tort action against a school system based on allegations that it failed to act.
In Deminski v. State Board of Education, the North Carolina Supreme Court considered whether a tort action for violation of these two constitutional provisions could be filed against the State Board of Education. Ashley Deminski, guardian ad litem of her three elementary school aged children in Pitt County, North Carolina, filed suit against the State Board of Education and Pitt County Board of Education alleging the three students had been bullied and sexually harassed by other students. The minor plaintiffs and Deminski repeatedly informed teachers and school administrators about the bullying. The County Board of Education is alleged to have been made aware of the incidents. School personnel reportedly informed Deminski that there was a “process” that would “take time.” However, as time progressed, plaintiff alleges the bullying and harassment continued with no real change. When the school did take action to resolve bullying against one of the three students by modifying one bully’s schedule, it resulted in that bully having more time in the other two bullied students’ classes. The three students eventually transferred to a new school effective only for the 2016-2017 school year. The transfer was later modified to be effective for as long as Deminski and the minor plaintiffs resided at their then-current address.
The Deminski suit included claims for violations of Article I, Section 15 and Article IX, Section 2, alleging that the minor plaintiffs were denied their right to a sound basic education as a result of being in a hostile academic environment where the School Board entities: “had substantial control over the harassing conduct;” “had actual knowledge of the harassing conduct;” and “exhibited deliberate indifference to the harassing conduct.” Both the State Board of Education and Pitt County Board of Education moved to dismiss the Complaint. The State’s motion was granted in full. Pitt County’s motion was denied, in part, allowing the Constitutional claims to proceed. Pitt County appealed.
The Court of Appeals Reverses
The Court of Appeals reversed the trial court’s order denying the motion to dismiss, holding that the constitutional guarantee to a sound basic education extended no further than an entity making educational opportunities available. A dissenting opinion, however, concluded that the minor plaintiffs had sufficiently alleged that Pitt County failed to provide them with an opportunity to receive a sound basic education based on the school’s deliberate indifference to a hostile classroom environment. Deminski appealed to the North Carolina Supreme Court based on the reasoning outlined in the dissenting opinion.
The Supreme Court’s Ruling
The Supreme Court, quoting Leandro v. State, 346 N.C. 336, 345, 488 S.E.2d 249, 254 (1997), stated that “[a]n education that does not serve the purpose of preparing students to participate and compete in the society in which they live and work is devoid of substance and is constitutionally inadequate.” An affirmative duty is placed upon the government “to guard and maintain” a student’s right to a sound basic education. The Supreme Court found that Deminski had sufficiently pleaded the elements required to assert a Constitutional claim against Pitt County, including the first and third elements that the violation was undertaken by a state actor and that there was no “adequate state remedy” for the alleged injury. Interestingly, when analyzing whether Deminski had alleged a “colorable constitutional claim,” the Court adopted the rationale of the dissent issued in the Court of Appeals. The Supreme Court found that the school’s “deliberate indifference to ongoing student harassment created an environment in which plaintiff-students could not learn.” The Court noted that “the right to a sound basic education rings hollow if the structural right exists but in a setting that is so intimidating and threatening to students that they lack a meaningful opportunity to learn.”
A claim for deliberate indifference, which requires a showing that the defendants actually knew of and disregarded the alleged activity, arises in several types of actions. In § 1983 claims alleging violation of the Eighth Amendment protection against cruel and unusual punishment, allegations of deliberate indifference require a showing that the actor actually knew of and ignored a detainee’s serious need for medical care.Young v. City of Mount Ranier, 238 F.3d 567, 575-76 (4th Cir. 1999). Mere negligence or, from a medical provider’s perspective, medical malpractice, is insufficient to establish a violation of the Eight Amendment rights of an inmate. Grayson v. Peed, 195 F.3d 692, 695 (4th Cir. 1999). These deliberate indifference claims involve both an objective and subjective component. As to the objective component, a plaintiff must first show that the alleged deprivation is sufficiently serious, and as to the subjective component, a plaintiff must show that the defendants acted with deliberate indifference to the inmate’s safety. Farmer v. Brennan, 511 U.S. 825 (1994).
Monell claims, which refer to the 1978 United States Supreme Court case Monell v. Department of Social Services, are specific to § 1983 claims against a local government entity as an employer, supervisor, and policymaker. 436 U.S. 658 (1978). For a Monell claim to survive, the plaintiff must establish that a public entity had an unconstitutional policy either by an actual written policy or an unofficial custom or practice exercised repeatedly. Monell claims can include allegations that the municipality was deliberately indifferent in a failure to train or supervise the government employee. While most frequently applied in policing or jail operations, Monell claims can also be asserted in employment-related discrimination claims.
Deliberate indifference claims have been applied in student-on-student harassment in other contexts and jurisdictions. In 1999, the United States Supreme Court held that a student can maintain a private cause of action against a school board under Title IX in cases of student-on-student sexual harassment, “but only where the funding recipient acts with deliberate indifference to known acts of harassment in its programs or activities.” Davis Next Friend LaShonda D. v. Monroe Cty. Bd. of Educ., 526 U.S. 629, 633 (1999). Under the Court’s holding in Davis, a plaintiff must allege that the deliberate indifference, at a minimum, caused the plaintiff to undergo harassment or make them vulnerable to it. Importantly, the Court found that a Title IX fund recipient would only be deemed “deliberately indifferent” to acts of student-on-student harassment where the “recipient's response to the harassment or lack thereof is clearly unreasonable in light of the known circumstances.” Notably, the Court found that a mere decline in grades is not enough to survive a motion to dismiss but that the drop-off in grades could provide necessary evidence of a potential link between the harassed student's education and the harasser's misconduct. The harassed student's ability to state a cognizable claim depends equally on the alleged persistence and severity of the harasser's actions and the board's alleged knowledge and deliberate indifference. In a recent case applying Davis, the United States District Court for the Eastern District of North Carolina found that, to be actionable, the “student-on-student harassment must effectively deny the victim access to the school's educational resources and benefits.” Jane Doe, by her next friend, Tonisha Pullen-Smith, Plaintiff, v. Cumberland County Board Of Education, et al., No. 5:20-CV-523-FL, 2021 WL 2546456, at *5 (E.D.N.C. June 21, 2021). The Court stated that “[w]hile deliberate indifference is a high standard that requires more than a showing of mere negligence, a half-hearted investigation or remedial action will [not] suffice to shield a school from liability.” Id.
Prior to the ruling in Deminski, North Carolina Courts had never “recognized abuse, even repeated abuse, or an abusive classroom environment as a violation of the constitutional right to education.” Deminski v. State Bd. of Educ., 269 N.C. App. 165, 174, 837 S.E.2d 611, 617 (2020); see also Doe v. Charlotte-Mecklenburg Bd. of Educ., 222 N.C. App. 359, 731 S.E.2d 245 (2012) (holding that the education rights recognized by the state constitution related to the nature, extent, and quality of the educational opportunities made available to students in the public school system). In Doe, The Court previously recognized that a student was entitled to receive “a sound basic education” in public school which included, among other things, the ability to read and write; fundamental knowledge of geography, history and basic economic and political systems; as well as sufficient academic and vocational skills to enable the student to be successful in post-secondary education, vocational training or employment pursuits. Because “all sound basic education” claims prior to Deminski focused solely on educational opportunities made available to students, deliberate indifference claims were not recognized as “colorable constitutional claims” and would therefore be subject to dismissal.
Under Deminski, however, the Court has expanded the definition of colorable constitutional claims to include situations where a student is not provided with a meaningful opportunity to learn due to the deliberate indifference of a state actor. The expansion of the concept of deliberate indifference to claims for violation of Article I, Section 15 and Article IX, Section 2 creates several areas of uncertainty. One notable question left unanswered in the Deminski opinion, which analyzed a claim of deliberate indifference only against a county school board, is how to apply such claims against individual educators or school administrators. In fact, it now appears likely that individuals acting in their official capacity could be subject to § 1983 claims based upon a theory of deliberate indifference. Other questions that the Court did not address are the objective and/or subjective elements of a deliberate indifference claim under these circumstances, nor did it address whether the claims would be treated similarly to those asserted under Title IX. An additional consideration is that it now appears likely that the State Board of Education could be subject to deliberate indifference claims as well, since the Supreme Court in Leandro held that the State has the ultimate responsibility to provide students with access to a sound basic education. This specific issue was not addressed in Deminski because the trial court’s complete grant of the State Board of Education’s motion to dismiss meant the issue was not considered on appeal. Ultimately, the Deminski opinion presents issues of first impression that will likely result in additional appeals throughout the course of the litigation.
By Lisa Frye Garrison, Garrison Law Group, PLLCOn June 18, 2021, Governor Cooper signed into law Session Law 2021-47 (Senate Bill 255), which makes two changes in the procedures for medical malpractice cases in North Carolina. The first involves the handling of final jury instructions. The second involves designating a specific superior court judge to preside over all proceedings in each medical malpractice case.
First, Rule 51 of the NC Rules of Civil Procedure has a new subsection “(d),” which applies to “[f]inal instructions to the jury. – [i]n civil cases subject to G.S. 90-21.11(2) [the statute that defines a “medical malpractice action”].” In such cases, “the court shall reduce the oral instructions given to the jury to writing. Upon the jury retiring for deliberation, the court is encouraged to and may provide the jury a written copy of the oral instructions for the jury to take into the jury room during deliberation.” (Emphasis added) In short, judges in these future medical malpractice trials are not required to give the jury a written copy of their final instructions, but they are “encouraged to” do so, and are always required to reduce their final instructions to writing. Pursuant to subsection “(1.c)” of SL 2021-47, this new Rule 51(d) only applies to “actions filed on or after” October 1, 2021.
Second, North Carolina General Statute § 7A-47.3—which addresses superior court judges’ rotations, assignments, and sessions—has been amended to add a new subsection "(e)." This new section states, “The senior resident superior court judge, in consultation with the parties to the case, shall designate a specific resident judge or a specific judge assigned to hold court in the district to preside over all proceedings in a case subject G.S. 90-21.11(2)..” (Emphasis added.) Pursuant to subsection “(1.c)” of SL 2021-47, this new subsection “(e)” is effective October 1, 2021. It should apply to all pending medical malpractice cases at that time, as well as all cases filed thereafter.
Section (e) does not indicate that the Senior Resident must select one judge who will hear all medical malpractices cases filed in a given district; the phrase “in a case” suggests that a judge is designated for each individual case. That said, the judge designated must “preside over all proceedings in” that case. Presumably, that will include all dispositive motions, discovery motions (including the process of entering a discovery scheduling order), the trial, pre-trial and post-trial motions, and any settlements requiring court approval.
Notably, the Senior Resident has two options, after consulting with the parties: (1) designating a “resident judge” or (2) designating “a specific judge assigned to hold court in the district.” One open question is whether non-resident judges designated in a given case may only hold hearings in their designated cases while they are “assigned to hold court in the district.” It is possible that the phrase “in the district” only applies to the “designation” period—when the judge is selected by the Senior Resident—and not to the entire life of the case. If so, non-resident, designated judges for particular cases might be able to hold hearings in their assigned cases on occasions when they are not actually sitting in the district, as Rule 2.1 appointed judges often do. It will be interesting to see how judges and parties—particularly parties who do not want to travel to a non-resident judge’s district for hearings—interpret the “in the district” language and its implications for these jurisdictional issues.
Having specific judges assigned to handle each future medical malpractice case will represent a significant change for counsel, parties, and the court. For example, having only one judge who can hear motions in each case may slow down the parties’ ability to calendar motions for hearings that require prompt attention, depending on how the “in the district” language discussed above is interpreted. On other hand, this new designation process may lead to efficiencies and continuity within each case, as the judge assigned will become quite familiar with the parties and the issues involved, as well as the specialized rules applicable to this area of law. This new designation process may also provide opportunities for judges with interests and expertise in medical malpractice cases to handle them more frequently, if Senior Residents are inclined to focus the assignments of these cases accordingly.
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