By Bobbie Kullman, Nelson Mullins Riley & Scarborough, LLP
There have been changes to rules regarding service and issues arising out of service due to the global pandemic and outbreak of COVID-19. Namely, USPS’s COVID-19 modifications for certified mail/return receipt and not obtaining recipients’ actual signatures. Postal workers have been writing “COVID-19” in the recipient’s signature block on the return receipt. That clearly is not compliant with Rule 4 service. During this time, it is recommended you use another avenue of service if you need a true signature from your recipient. Prompted by the pandemic, Rule 5 regarding service and filing of pleadings has been revised to allow service of orders, subsequent pleadings, discovery, motions, notices, etc. to be served via email on opposing counsel without their consent to that avenue of service. There are some exceptions and a review of the rule might be in order.
Initial service of lawsuit and basic deadlines.
Once a summons and complaint has been served on your client, you have 30 days to file an answer in state court and 21 days for federal court. Along with getting a copy of the complaint and summons that was served on your client, always ask the client if discovery requests were served as well. This should be indicated on the civil summons, but some attorneys neglect to indicate such on the summons. If discovery is served with the complaint, that will add additional deadlines. Responses to interrogatories and requests for production will have a 45-day deadline while requests for admission will have a 60-day deadline for state court matters.
If the newly received lawsuit is a state court matter, review defendants and allegations in complaint to determine possibility for removal to federal court. Diversity in citizenship (i.e. plaintiff from NC and defendant is a Texas corporation) is one of the most common requirements for removal I run across in my work. Federal question is another requirement that could allow for federal court to maintain jurisdiction over the lawsuit. If the allegations raise any complaints as to civil rights, discrimination, or other violations under federal law, the matter will be removable. Review the applicable U.S. Codes for additional details for removal.
Is service proper?
As stated above, there have been some issues with the USPS and proper service. Additionally, there are certain avenues of service you must try first prior to using other avenues of service. Under Rule 4 governing service, it states “Upon the filing of the complaint, summons shall be issued forthwith, and in any event within five days. The complaint and summons shall be delivered to some proper person for service. In this State, such proper person shall be the sheriff of the county where service is to be made or some other person duly authorized by law to serve summons.” Many attorneys like to utilize a process server right out of the gate. Technically, that’s not proper service in N.C. but many don’t raise a fuss. The use of private processors is very limited and require you first try service through the Sheriff’s Department. Three points of reference regarding this issue are:
In order to use a process server for a summons, Rule 4(h) or Rule 4(h1) have to apply and that includes:
If a person that is not named in the lawsuit accepts service for the lawsuit, ensure that person has the authority to do so. The person accepting must be over 18 y.o. and must live at the address where service is attempted. One recent problem experienced involved a husband and wife getting served at the family address. The husband accepted service for him and his wife; however, the wife no longer lived there and there was a restraining order in place that prevented them to be near each other. In this situation, the wife was not properly served.
One tidbit to remember is that we on defense have no responsibility to share the whereabouts, if known, of the Defendant to plaintiff’s counsel for service (i.e. defendant is in out-of-state drug treatment).
Another item to be noted regarding proper service is determining if a Summons/Alias & Pluries (A&P) Summonses are up-to-date and accurate. To keep a summons alive until properly served you will need to get an A&P issued no later than 90 days from the previous issuance. If your client is served with an A&P Summons, calculate the time between all dates issued to ensure timeliness of all issuances.
Statute of Limitation and Statute of Repose are always to be evaluated initially and correlate to proper service. Briefly, below are the typical years for the different statutes:
Service of Subpoenas
State subpoenas are easy to serve. You can use about any means available, including Sheriff, process server, certified mail/return receipt, and any person over 18 years of age and not a party to the lawsuit. Federal subpoenas require personal service. If you require the person’s attendance, you will need to include a check for 1-day appearance ($40) and round-trip mileage with the subpoena. One item to note when serving an out-of-state person with a federal subpoena, you need to find a location for their appearance or document production within 100-miles from where the witness resides to stay in compliance of federal rules. Tips: Any time I serve an out-of-state person with a federal subpoena for production of documents, I find a court reporter’s office near their residence to use as the location for production to comply with the 100-mile rule. Court reporting agencies are also a good resource for local process serves.
Typically, all expert deadlines are set out very specific in your scheduling order. However, occasionally the scheduling order may not specifically set out the deadline to serve your expert disclosers. In those instances, Rule 26 sets it at 90-days prior to trial. Remember, expert disclosures are considered part of discovery and are not filed.
In domesticating any subpoena, whether your assisting an out-of-state attorney in domesticating a foreign subpoena in N.C. or having a N.C. subpoena domesticated in another state, you must first determine if the foreign state is part of The Uniform Interstate Deposition and Discover Act (UIDDA). N.C. has adopted the UIDDA and makes the process much easier to conduct discovery across state lines and obtaining depositions of out-of-state witnesses. Most states have adopted the act leaving only a few (~8) that have not adopted the act. For those states, you have to do your research and figure out what that state requires (motions, hearing before a judge, hire local counsel, etc.). If the state has adopted the act, it’s a pretty simple procedure. First, look at that state’s rules on domesticating as they may have additional requirements. Then, call the county in the state where you need the subpoena domesticated and find out their filing fee. Everywhere is different. Explain what you are doing and most courts are pretty helpful in assisting you or confirming procedures.
In domesticating a N.C. subpoena in another state, first prepare a N.C. subpoena with all the information and issued by an attorney. Second, prepare a subpoena for the state you need to domesticate in and perform any additional requirements of that state/county. Third, send it all to the out-of-state county for issuance along with a check for their fee.
In assisting an out-of-state attorney in domesticating a foreign subpoena in N.C., you first need to obtain an issued out-of-state subpoena (some states allow an attorney to issue like N.C. or they may require a court official to issue). Second, prepare a N.C. subpoena with all required information. Third, prepare a List of Counsel and obtain a check for $200.00 for the issuance fee. Once you have all documents prepared, send to the Clerk of Court in the county you need it domesticated in and the Clerk will issue the N.C. subpoena.
As it goes, situations aren’t always black and white and there will be times of uncertainty on what to do or what’s expected. We are paralegals because we are paired with attorneys. Never be afraid to go to your attorney with questions. They would always rather you ask what you might think is a “dumb” question than fix a mistake.
by Patrick Brown
Happy Cybersecurity Awareness Month (well, almost)! As we enter October, consider a goal of taking a little time each week to think about cybersecurity. Maybe even revisit articles from past years such as: 10 Tips for Cybersecurity Month, The Myth of Security by Anonymity, Wait I hired a hacker, and more!
A great place to begin is with a free and easy security measure: Encryption! Not only is it easy, but it is also one of the best steps you can take to keep things secure. Use it anywhere you might have sensitive or confidential data: computers, laptops, tablets, mobile phones, removable media such as USB drives, etc. That way if your device is lost or stolen, it will not be possible for someone to access the contents without your password. Windows 10 has a built-in tool, BitLocker, and Mac OS has FileVault – you just have to turn it on!
Taking this a step further would be to use encrypted email for sending confidential information. If you use a file-sharing service, be sure your data is encrypted both at rest (stored on the system) and in transit (when sending, receiving, uploading, downloading, etc.). Those two solutions are usually not free, but the cost is typically very low for the protection it affords. Different providers you may encounter include: Citrix ShareFile, ZixCorp, Box, SharePoint, GSuite, and many more.
If you want to read for extra credit, take a glance at the NC State Bar’s ethics opinion 2011 FEO 6, the ABA’s formal opinion 477R, and the Texas State Bar’s ethics opinion 648 (with a shout out to the NSA!). These provide some guidance in selecting providers, using encryption, and factors to consider in implementing security measures.
Next, consider your network. Exclusive clubs and venues have “lists” you must be on to get in – why should your office be any less special? But you do not need to go out and hire a bouncer! Simply enable MAC address filtering on your network. In essence, it means that only your office’s official devices can connect to the local area network when you plug into the wall in your office. If an unknown device connects to your data lines, it will not be given an IP address by your system and will not be able to access your network. This prevents someone from plugging an unknown device to your network and either infecting it with a virus or malware or accessing confidential information.
Create similar exclusivity around your Wi-Fi as well. Consider two networks: an office network and a guest network. The office network should only be for your office’s official devices that require Wi-Fi access, the password should not be generally known, and the SSID (the name of the network) can even be hidden if you like so it is not generally able to be seen by the public. The guest Wi-Fi can then have a password that is available to clients, visiting attorneys, guests, and employee’s personal devices. Most importantly, these networks should be separated so someone on the guest network cannot access your office’s files and devices.
Then consider the Principle of Lease Privilege. What is this, you ask? Why, thanks for your interest! This is a concept that instead of giving access to everything and then restricting people from information they should not see, the access given should only be that which is needed to do this job. So, what do your employees need to do their job? Areas to consider include:
Great job! You have encrypted your computers and phones, you have set strong passwords/ passphrases, you have restricted access – but then you walk around the office and see computers logged on with no employees in sight. All those protections are for naught if the electronic doors are left wide open. The solution: automatic screen lock settings! That way if someone forgets to log off, the computer will lock itself after a period of inactivity (maybe start with 10 minutes).
I know. This is a lot to take in all at once. But you have the whole month of October to increase your cybersecurity awareness! Do not try to do everything at once – instead, take it one step at a time and you will quickly be on a path to greater security!
By Kimberly Marston, Brooks Pierce, LLP
If opposing counsel sends you discovery or a pleading by email, it is no longer just a courtesy copy. Beginning Thursday, Oct. 1, 2020, that email effects service under the North Carolina Rules of Civil Procedure.
During the pandemic, the Chief Justice’s interim orders permitted service by email only upon written consent. That interim order expires Sept. 30, 2020. The amendments to Rule 5 of the N.C. Rules of Civil Procedure enacted by House Bill 679 this summer take effect on Thursday, Oct. 1, 2020.
Under amended Rule 5, service by email (or eFiling where available) is permitted in most circumstances.
House Bill 679 amends N.C. Gen. Stat. § 1A-1, Rule 5 in several important ways:
This amendment was spurred by the pandemic, but it also paves the way for expansion of the state’s eFiling and case-management system.
The North Carolina Supreme Court also amended the General Rules of Practice for the Superior and District Courts by order effective Oct. 1, 2020. The amendment adds subsection (a), which lists the matters where eFiling is currently available. The Comment to the amended Rule 5 of Practice states, “the North Carolina Judicial Branch will implement a statewide electronic filing and case-management system beginning in 2021. The system will be made available across the state in phases over a five-year period.” The comment also notes that further changes to the General Rules of Practice, Business Court Rules and Supplemental Rules for the eFiling Pilot Project are expected.
If you litigate in state Superior and District courts, the North Carolina Business Court and federal district courts, keep your rule books close.
The chart below is a summary of generally applicable rules as of Oct. 1, 2020. Major differences are shown in red. Always consult the most up-to-date version of applicable civil rules, local rules, and eFiling rules for any differences based on specific circumstances or future changes.
You can subscribe to updates from the Judicial Branch, including Supreme Court rule announcements, at www.nccourts.gov.
(after Summons and Complaint)
(e.g. discovery, certain notices)
N.C. District and Superior Courts
(Effective Oct. 1, 2020)
N.C. Business Court
(upon designation or assignment to a Business Court judge under Rule 2.1)
Federal District Court
(Local Rules may vary)
If you have questions on these changes, please contact Kim Marston or Will Walker.
By Michelle Liguori, Ellis & Winters, LLP
Like most of us, three small business owners from Winston-Salem, North Carolina are unhappy about the effects of the Coronavirus on the health and economic prospects of North Carolina’s citizens.
Taking matters into their own hands, in Patella v. People’s Republic of China, No. 1:20-cv-00433 (M.D.N.C. May 15, 2020), the three Winston-Salemites filed a putative class action against the People’s Republic of China and several other Chinese government parties, seeking redress for all North Carolina citizens who have suffered physical injury or economic harm as a result of the pandemic. Based largely on cable news reports, the local business owners accuse the defendants of creating the Coronavirus in a research lab for infectious diseases, covering up a local outbreak, allowing the outbreak to spread and reach pandemic proportions, and then unlawfully hoarding the personal protective equipment that North Carolina citizens needed to keep themselves safe. The complaint asserts claims of public nuisance, strict liability, negligence, intentional and negligent infliction of emotional distress, and assault and battery.
While the claims, on their merits, may be destined for the chopping block, the North Carolina business owners’ attempts to seek redress for all affected North Carolinians provides a timely backdrop for highlighting some class-action basics.
What’s a Class Action?
In a class action, a group of individuals who have suffered the same injury by the same defendant may sue that defendant together in a single lawsuit. Class actions are typically brought where the injury suffered by each individual plaintiff is relatively small, and not worth pursuing in an individual action due to the expense of individualized litigation. The class-action form allows a large number of individual plaintiffs to pursue their claims at the same time, with the same counsel, in the same proceeding, and, often, with the same evidence. A class action is typically brought by one named plaintiff, or a small group of named plaintiffs, who seek to represent the interests of the entire class.
But not just anyone can bring a class action. Under Rule 23 of the Federal Rules of Civil Procedure, to sue on behalf of a class, the named plaintiffs must first show the following four things (deemed “prerequisites” for a class action):
(1) the class is so numerous that it would be impractical for each class member to sue individually;
(2) there are common questions of law or fact common to the class;
(3) the named plaintiffs’ claims are typical of the claims of all other class members; and
(4) the named plaintiffs will fairly and adequately represent the interests of the class.
Once these four prerequisites are satisfied, the proponents must also show that a class action is appropriate on one of three alternative bases:
(1) separate actions by class members could create inconsistent decisions that would be dispositive of individual class members’ claims, or could create incompatible standards of conduct for the defendant;
(2) injunctive relief is sought regarding the class as a whole; or
(3) questions common to the class predominate over questions that affect only individual class members, such that resolving the dispute as a class action is superior to individual adjudications.
What does this all mean, in a nutshell? To pursue a class action, the named plaintiffs must show that there is a large class of people, who are just like them, were injured by the defendant in the same way as they were, have the same legal claims as them, and will prove those claims in the same way.
What can a defendant do to stop the class?
The defendant may be able to cut off the head of the snake with a motion to dismiss, by showing that the named plaintiffs’ claims care not viable on the merits, or that the named plaintiffs lack standing to bring them. The grounds for dismissing claims on the merits depend on the particular claims at issue. As for standing, a common argument—particularly in cases where plaintiffs seek penalties for statutory violations—is that the named plaintiffs suffered no real injury from the defendant’s conduct, and thus the plaintiffs do not meet the Constitution’s requirements for filing a lawsuit in the first place.
If a motion to dismiss fails, the case moves on to class certification, where the name of the game is individualized differences. While the proponents of a class action must show that the named plaintiffs and class members are the same, the opponent of the class action must show that the named plaintiffs and the class members—and the claims they seek to pursue—are meaningfully different, such that pursuit of the claims as a class does not make sense. This includes showing that the class members suffered different injuries, that their claims are based on different facts, and that proving the claims will require different evidence.
Class-action defendants may also be able to show that some or all class members entered arbitration agreements, which require them to arbitrate their claims against the defendant, rather than pursue them in court. Many arbitration agreements also contain class-action waivers, which prohibit claimants from proceeding as members of a class, either in court or in arbitration.
Some Tips for China
Given all this, what are the People’s Republic of China and other defendants to do with the looming class-action complaint?
First, they might consider moving to dismiss for lack of standing. Setting aside possible merits-based challenges to the complaint (such as sovereign immunity and failure to state a claim, to name a few) there is a conspicuous standing problem: The complaint fails to identify any injuries that Mr. Patella and his two fellow Winston-Salemites actually suffered. The complaint does not state, for example, whether any of these men contracted the Coronavirus, whether any of them were forced to close their businesses as a result of stay-at-home orders, or whether any of them suffered any other harm as a result of the virus. (The complaint does not even allege the type of business each man owned.) Instead, the men largely seek to redress injuries suffered by North Carolina citizens generally.
This is not enough. While a class action allows a plaintiff who has himself been injured to sue on behalf of a class of those who have been similarly injured, it does not give any citizen the ability to sue on behalf the public interest. That role is left to prosecutors and attorneys general. Thus, the People’s Republic of China and other defendants might argue that the complaint should be dismissed because its allegations provide no basis for the named plaintiffs to sue on behalf all North Carolina citizens.
If a motion to dismiss fails, the case will proceed to class certification, where the defendants might try to identify individualized differences between the named plaintiffs and other class members in the injuries they suffered, the basis for their claims, and the proof that would be needed for each to prevail. The defendants might explore the following questions, for example:
In short, while the Coronavirus has affected the lives of all North Carolinians, the People’s Republic of China and other defendants may be well served by showing how the virus has touched each of our lives in different ways—and that proving the specific harms each of us has suffered would require individualized evidence.
Finally, the defendants should not overlook the possibility of arbitration. They may want to consider whether the named plaintiffs, or any potential class members, entered arbitration agreements that would cover their claims that the Chinese government entities violated duties owed to them as North Carolina citizens.
* * *
While Mr. Patella and his associates’ attempt to get redress for all North Carolina citizens may not make it past the chopping block, their complaint has, at least, provided an opportunity to highlight some class-action basics for those in North Carolina and beyond.
By Jon Berkelhammer,
Ellis & Winters, LLP
On June 16, I had the pleasure of being one of the first handful of attorneys to argue before the North Carolina Supreme Court via WebEx. To say it was a little more nerve wracking than usual would be an understatement. In addition to actually trying to master the subject matter, there were a number of items to address before the first word came flowing across my lips, and I thought I would pass them along.
Number one, and probably numbers two and three, get to know Amy Funderburk and Fred Wood. Ms. Funderburk is the Clerk of the Supreme Court, and Mr. Wood handles the Court’s IT, and they are invaluable resources. Ms. Funderburk and Mr. Wood scheduled one session with the parties to check out the equipment. She offered to do as many more as you would like. I accepted her offer and suggest that you do as well. Like a trial lawyer who visits a new courtroom before the first day of trial to learn her surroundings, each time you have a session with Ms. Funderburk and Mr. Wood you should be in the same place you will use for the argument. During these sessions, you should check your lighting and sound. It is not a good day if you cannot be heard. To ensure you can be, do not use a wireless connection. No matter how strong you think your connection is, the day you argue there will be a severe thunderstorm or sunspots and you will start breaking up. There is no “A” for effort at the Supreme Court.
Next, which I guess is number four, decide whether you want to sit or stand. Whichever one you decide to do, do it with Ms. Funderburk and Mr. Wood. Among the gameday decisions if you stand will be what to do when you are not arguing. Do I sit and then have the camera capture my less than six-pack abs as I stumble to my makeshift podium or do I walk in and out of the frame. The Court, I am told, does not care, so we elected to sit for a couple of reasons. One, it avoided the “what to do when I am not arguing” issue. Second, it allowed easier access to the record or other information that I had prepared, such as a reference to a list of facts and record citations for the main issues that came up. By sitting, no one could tell if and when I reached for and relied on those little “cheat sheets.”
If you elect to sit, test the distance you are from the camera and its height so you present yourself as cleanly as possible in the frame. No one wants to look up your nose while you are arguing, and you do not want to be peering down at anyone as you speak. Adjusting the height can be as easy as placing one or more books under your laptop or moving the camera on your monitor. Also, if you sit, sit still. I was able to lock my chair to prevent it from rocking, but I could not find a way to make it so it would not spin, and other chairs were too low. I tried hard to plant my feet firmly and not move below the waist. I do not know how successful I was, but I am sure you can sit still longer than a seven-year-old. Practice it.
And, while we are testing how we look on screen, practice how you will speak to the screen as well. Some people may want to stare directly into the camera as they talk to make the others feel like you are looking at them. Others may want to look at the Justice who asked the question. I felt uncomfortable staring at the little camera on my laptop while trying to speak or answer questions (I practiced that). In addition, by looking at the screen, I felt that I could tell when one of the Justices was wanting to ask a question, though there were no hand signals.
WebEx allows you to “pin” the participants to one location. Although I am not sure whether the Justices would play “musical chairs” and float from spot to spot if no one else is entering or leaving the “room,” I did not want to take that chance. Importantly, I wanted to make sure that I knew where the timer was. The Court will have the timer as a separate participant and therefore on a separate screen. Pin it in place. Although the timer is visible, the lack of proximity decreases the utility of the warning lights. As a result, if you know where the timer is, you can check it easily throughout your argument.
Finally, and to end where this began – do not mute yourself. Being told by one or more justices you are on mute is not the comment you want. If you cannot keep quiet for the time your opponent is arguing, get someone else to argue for you.
I am sure others have additional tips for arguing in this new age. Reach out to them. And, of course, enjoy your thirty minutes of fame.
By Gary Parsons,
Brooks Pierce, LLPOriginally printed in Lawyers Weekly
I have spent my 43-year legal career in the courtroom as a litigator, including participating in more than 75 trials and 125 appeals. During this time, I have seen the science and psychology of trials evolve. In many cases, litigation has become more a war of attrition than a way to find the truth. Even with all of these changes, there are some fundamental lessons that have helped me in and out of the courtroom,
Lesson 1: You don’t need to be a pit bull to be successful.
When a business has been sued, or is considering filing a lawsuit, it is often after a long period of increasing tension and rancor. There may be little good will left between the parties. It’s not uncommon for everyone involved to want to make life difficult for the other side.
A client’s initial reaction in this situation is often is to hire a “pit bull” – a lawyer seen as fierce, uncompromising and highly combative. Resist this urge, unless you like paying for conflict that does not improve your position.
When you do everything you can to make your opponent miserable, at least two things happen – (1) you spend resources fighting about things that could be solved with a phone call or a courteous email, and (2) you can be confident that for every sharp letter, email or contentious motion you fire off, you will likely get the same or worse in return, if only in self-defense.
This kind of drama may be entertaining to some, but it costs money. Courtesy will often get you where you want to go, sooner and cheaper.
When you are faced with the take-no-prisoners opponent, most trial lawyers know how to respond. The most experienced, effective ones know to try the high road first.
Lesson 2: Focus on the long-term.
The litigator’s core role is to resolve disputes – one way or another. Sometimes that means going to trial. Far more often, it means finding a compromise that works for the client.
When a client approaches me about a filing or defending a lawsuit, one of the first questions I ask is “Where do you want to be a year from now?” If the lawsuit will help you get to that goal, we keep going in that direction. If it won’t help the client’s business, or is likely to cost more than it will yield the client in return, I usually try to persuade them to look at other alternatives.
Lesson 3: Listen to the client more than you talk.
One of the biggest mistakes litigators, and attorneys in general, make is talking more than they listen. In initial meetings with clients, it’s important to learn about them, their business, and their goals and objectives. I ask a lot of questions. I need to fully understand the problem so I can help them find the best solution.
If the client is not doing at least 70 percent of the talking during those initial conversations, I am talking too much. As a good lawyer once told me, “If I’m talking, I ain’t learning.”
Lesson 4: In the courtroom, it’s all about the story you tell.
In a lawyer’s early years, they tend to focus heavily on rules – rules of procedure, rules of evidence, and more. The longer a lawyer practices, they more they learn that, in the end, it’s the story you tell, and how you tell it, that carries the day. It needs to be simple, compelling, and presented one piece at a time.
Jurors learn visually and auditorily. So show them your story and tell them, at the same time.
Technology has given us many great tools to present images, both still and video, to help our storytelling. Use them all – show exhibits on a screen, pop out key passages or images from text or photos on-screen, play videos of critical testimony on cross-examination, make poster-size versions of important images, give jurors copies of material you want them to touch and remember. You never know which medium will best resonate with a pivotal juror.
Just don’t get so enthralled with the toys that you forget the story. Jurors have several times remarked to me about how effective it was when I wrote key points on a flip chart during direct and cross-examination. Surprisingly, I’ve received few remarks on the more elaborate tools we used.
Lesson 5: Don’t assume you are smarter than the jury.
One of the worst mistakes I have seen other attorneys make is talking down to jurors. Jurors sense condescension and will hold it against you and your client.
Jurors also possess skills and talents the lawyer does not. No one is highly skilled at everything. You will have jurors who may have limited formal education but be very gifted at visual-spatial reasoning, mathematics, or many other skills that will be relevant to the story they are asked to judge.
Respect those people. Respect those skills. It will make you a better advocate – and a better person.
At the end of the day, being successful as a litigator and as an attorney simply comes down to being courteous, a good listener, a hard worker and a decent human being.
By Austin Walsh, Hedrick Gardner Kincheloe & Garofalo, LLP
“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” - Sir Winston Churchill, Remarks at The Lord Mayor’s Luncheon, Mansion House, London (Nov. 10, 1942).
From the time it took effect, North Carolina Rule of Evidence 414 profoundly changed how tort claims are investigated, negotiated, and litigated. However, but for withstanding a constitutional challenge before a three-judge panel in Pollard v. Huber, the Rule has faced little scrutiny in the courts. Last summer, after initial successes in defense of Rule 414, the Court of Appeals opinion in Sykes v. Vixamar and Progressive Univ. Ins. Co. caused us to take pause and consider what Rule 414’s language regarding “amounts actually necessary” to satisfy a medical expense actually means.
We know that Rule 414 limits the admissibility of medical expenses to “the amounts actually paid to satisfy the bills that have been satisfied, regardless of the source of payment, and evidence of the amounts actually necessary to satisfy the bills that have been incurred but not yet satisfied.” The primary dispute since 2011 has been what constitutes relevant evidence of those expenses. See Nicholson v. Thom, 236 N.C. App. 308, 337, 763 S.E.2d 772, 791 (2014) (noting in dicta that Rule 414 abrogated the collateral source rule with regard to past medical expenses). See also Sigmon v. State Farm Mut. Auto. Ins. Co., 5:17-CV-00225, 2019 WL 7940194 at *2 (WDNC Nov. 14, 2019) (holding that Rule 414 is limited to past medical expenses but that a plaintiff may admit the total amount of medical expenses for tangential arguments “such as pain and suffering, embarrassment, or reputational harm – related to the alleged ‘bad debt’ or ‘uncollectible’ write offs”).
Amendments to General Statute Section 8-58.1(b) took effect on the same date as Rule 414. This section receives much less fanfare but does the heavy lifting by clarifying how a defendant may overcome the presumption that a plaintiff’s medical expenses are reasonable. Section 8-58.1(b) states that when a “provider of hospital, medical, dental, pharmaceutical, or funeral services gives sworn testimony that the charge for that provider’s service either was satisfied by payment of an amount less than the amount charged, or can be satisfied by payment of an amount less than the amount charged” then the presumption of a medical bill’s reasonableness is rebutted. Therefore, to contest the admission of a plaintiff’s medical expenses, a defendant may “introduce evidence that some of those bills were written off” or, in the case of the tangential arguments described in Sigmon, a defendant may receive “a limiting instruction informing the jury that the amount written off cannot be considered for determining medical expenses.”
Sykes v. Progressive
Following enactment of Rule 414, attorneys and paralegals scrutinized write offs and contractual adjustments and began to consider why a provider might be required to take less than sticker price. Cue the Fair Health Care Facility Billing and Collections Practices Act.
NC General Statute Section 131E-91 was enacted in 1991 and, at first, only required hospitals to provide an itemized list of charges within 30 days of discharge if requested by the patient. In 2013, the statute was expanded to its current form and subsection (c) was added, which states: “A hospital or ambulatory surgical facility shall not bill insured patients for charges that would have been covered by their insurance had the hospital or ambulatory surgical facility submitted the claim or other information required to process the claim within the allotted time requirements of the insurer.”
Based on Rule 414’s favorable treatment in Nicholson, and the clear language of Rule 414, defendants naturally argued that, pursuant to Section 131E-91, if a plaintiff owed nothing on a medical bill, the amount “actually necessary to satisfy the bills that have been incurred but not yet satisfied” was in fact zero.
In Sykes, the Court of Appeals took up the issue of whether Section 131E-91(c) required hospitals to bill a patient-plaintiff’s medical insurance in order to maintain a lien against a plaintiff’s recovery in a civil action. The Sykes Court held that Section 131E-91(c) was “not intended to force hospitals to bill health insurers” and, therefore, timely billing to a plaintiff’s health insurer was not required to maintain a lien against a plaintiff’s recovery.
The Court of Appeals acknowledged that the provider abandoned its right to seek payment from plaintiff by means other than the litigation when it failed to timely submit a claim to plaintiff’s health insurer. Thus, if plaintiff lost on liability, so too did the provider. Progressive argued that this elimination of plaintiff’s liability to the provider outside of litigation (due to untimely billing) eliminated the provider’s lien on plaintiff’s recovery. In effect, there could be no lien without an underlying debt.
On this point, Progressive cited cases in which medical providers sought to collect more through a statutory lien than they would be entitled to collect through health insurer contracts. In this regard, the Court of Appeals made two points. First, the provider’s failure to timely bill health insurance did not wipe away the debt because an alternative payment source - defendant - remained available. Second, the cases cited by Progressive were distinguishable because, in those cases, the hospital was seeking more than the amounts paid and actually necessary to satisfy the bill. The hospitals in cases cited by Progressive were seeking reimbursement for the health insurance contractual adjustment, which the hospitals would not have been paid under any circumstance. On this second point, the Court of Appeals specifically stated in dicta that “defendants may introduce evidence showing a hospital seeks more through its lien than it would have otherwise accepted from a patient or health insurer. . . . . Evidence that the hospital would accept less than the amount claimed in a medical lien to satisfy the underlying bill is admissible to challenge the reasonableness of the bill. . . . Defendants in these cases may seek discovery on this issue and courts should freely admit this evidence at trial.”
Rule 414 after Sykes
Rule 414 was not directly at issue in Sykes; however, the Court’s holding that the medical provider’s lien (rather than amount billable to plaintiff) was evidence of the amount “actually necessary to satisfy the bills that have been incurred but not yet satisfied” will affect how defendants negotiate and litigate tort claims going forward. After Sykes, Defendants can no longer argue that a total write off under Section 131E-91(c) results in exclusion of the original bill or lien. Whether the Court of Appeals’ logic allows providers to claw back charitable write offs or uninsured discounts and assert liens on the original amounts is a question for another day.
The silver lining to Sykes is the clear affirmation given to defendants, albeit in dicta, that a defendant may develop evidence from a provider about what the provider would have been required to accept under a health insurance contract or, perhaps, under required charity care discounts, and that such evidence shall be “freely” admitted by the trial court.
Sykes was the first time since 2011 that we have had to pause and re-think the language of Rule 414. It marks the “end of the beginning” to our use and understanding of the Rule, opens up new issues for litigation, and begs questions of language that we believed to be plain and clear. Nevertheless, Sykes’ affirmation that defendants are entitled to pull back the curtain of provider’s billing practices gives defendants the strongest support yet for discovery and motion practice on Rule 414.
N.C. Gen. Stat. § 8C-1, Rule 414 (2019).
N.C. Gen. Stat. § 8-58.1(b) (2019).
Nicholson v. Thom, 236 N.C. App. 308, 337, 763 S.E.2d 772, 791 (2014)
Sigmon v. State Farm Mut. Auto. Ins. Co., 5:17-CV-00225, 2019 WL 7940194 at *2 (WDNC Nov. 14, 2019).
1991 N.C. Sess. Laws Ch. 310 (H.B. 588).
2013 N.C. Sess. Laws Ch. 382 (H.B. 834).
Sykes v. Vixamar and Progressive Univ. Ins. Co., 830 S.E.2d 669, 673, 830 S.E.2d 669.
By Kaitlyn Haran, McAngus Goudelock & Courie
On June 14, 2018, the North Carolina House of Representatives voted on the Appropriations Act of 2018, otherwise known as SB 99. This new bill brings about a big change for Worker’s Compensation Penalties per N.C. Gen. Stat. §97-94, which discusses the Employer Penalty Section and comes into effect July 1, 2018.
N.C. Gen. Stat. §97-94 lays out the penalties for failing to comply with §97-93, which states employers are required to carry insurance or prove financial ability to pay for benefits. If the employer refuses or forgets to do this, they are punished by a penalty. This penalty is one dollar for each employee, but not less than fifty dollars or more than one hundred dollars, for each day of refusal or neglect until it stops. Moreover, if an employee is injured during this time, the employer is liable for compensation for that employee. This means if you have 10 employees, and forget to get insurance for one year, you could be liable for $50 per day for 365 days, resulting in an $18,250 penalty. If you have 150 employees for one year, you could be liable for $100 per day for 365 days equaling a penalty of $36,500.
If an employer is found to have violated this, the penalty may be assessed by the Industrial Commission, and the employer has a right to a hearing within thirty days of the notice of noncompliance. The Attorney General enforces this and if the employer willfully fails to secure compensation, they will be guilty of a class H felony, and if they neglect to secure compensation, they are guilty of a class 1 misdemeanor. If you know about the noncompliance and have the ability and authority to get the employer to comply, and you willfully do not, you will be guilty of a class H felony. If you simply neglect to do so, you are guilty of a class 1 misdemeanor. Moreover, you could be liable for a civil penalty up to 100% of compensation due to an injured employee during the time of disobedience.
The Industrial Commission does have the ability to suspend or remit the penalty however, if the employer pays the compensation due and complies with N.C. Gen. Stat. §97-93.
The new law changes the penalty section of the current law. Section (b1) of the new law states instead of not less than fifty dollars, it is not less than twenty dollars and not more than one hundred. Using the same analogy as above, if the employer has 10 employees and forgets insurance for one year, rather than a penalty of $18,250, their penalty is $7,300. However, if you have 150 employees, the penalty remains the same as above.
Section (b2) now offers an alternative to this that was not available before. The employer may submit to the Industrial Commission proof they have obtained insurance and all payroll records for the period of noncompliance. The Commission shall verify the coverage and rescind the (b1) penalty and instead assess a new penalty. The new penalty will be calculated by first determining the cost per employee for insurance. This is done by dividing the cost of the policy by the number of employees. Then, they will determine the average number of employees during the penalty period. Finally, they will multiply the cost per employee during the period by the average number of employees during that time. The Commission will use that number plus an additional ten percent as their new penalty.
For example, under this section, say the worker’s compensation insurance costs $1000 and you currently have twenty employees, you divide 1000 by 20. This is $50. If you had 10 employees during the period of noncompliance, you take 50 times 10 and get $500. Then you add an additional 10% of this, $50, and your total fine is $550. The number of days you were disobedient does not matter. Therefore, if it lasted a year, you still only owe $550 rather than the $18,250 that it was. Keep in mind however; this is only available to an employer who has not previously been penalized under this section.
Again, the employer has a right to a hearing if requested within 30 days after notice and sections (b1) and (b2) the penalty shall not apply to a period that occurred more than three years prior to the date the Commission first assessed the penalty. The employer also continues to be liable for compensation of the injured employee during the penalty period as well, and the criminal charges remain the same. The Commission still has the authority to suspend or remit collections if employer pays any compensation due and complies with §97-93.
How Law has been applied in Past Year
Since the law has passed, there have been several cases at both the Deputy Commissioner Level and Full Commission wherein the issue includes whether there should have been a penalty assessed by the Commissioner at all. However, there have not yet been any cases wherein the parties fight over what the penalty should be and how it should be calculated. The typical course of action has been for the Courts to apply the penalty using the b(1) penalty unless the Defendant specifically requests the penalty be calculated under b(2). As such, it is important to request the Court asses the penalty under b(2) so that the potential reduction applies.
By Melissa K. Walker, NC Department of Justice
As I sat in my hospital bed recovering from an emergency c-section at 28-weeks, I opened my laptop and sent emails requesting opposing counsel agree to extensions of time and continuances in several pending matters. Some were gracious and agreeable, others were not. Thankfully, the requests were ultimately granted by the court, which mooted any potential issue. Had the court not granted my requests, although I was not yet cleared to drive or lift anything heavier than my child (who weighed three pounds at that point), I would have been required to get dressed in a suit and appear in court. Let’s be honest folks -- mesh postpartum underwear is not courtroom attire. Although potentially comical, my situation was not uncommon. Going forward, this situation will be much less likely based on recent advancements in parental leave rights. These recent developments will help to ease some of the burden and uncertainty brought on by parenthood.
The first advancement stems from Executive Order No. 95 signed by Governor Roy Cooper on May 23, 2019. Executive Order No. 95 provides eight weeks of paid parental leave for eligible state employees of any North Carolina department, agency, board or commission under the Governor’s oversight. The Department of Justice, through an Office of State Human Resources Paid Parental Leave Pilot Program, adopted Governor Cooper’s Executive Order effective September 1, 2019. The Administrative Office of the Courts and the Office of Administrative Hearings have also voluntarily agreed to provide paid parental leave to eligible employees. As of August 13, 2019, other agencies that voluntarily agreed to provide paid parental leave to eligible employees included: the Department of Agriculture and Consumer Services, the Office of the Commissioner of Banks, the Office of the Secretary of State, the Office of the State Auditor, the Office of the State Controller, and the Department of Public Instruction.
The Office of the State Treasurer, led by State Treasurer Dale R. Folwell, and the Department of Labor, led by Labor Commissioner Cherie Berry, elected not to offer paid parental leave. A spokesperson for the Department of Labor was quoted in the News & Observer as saying, “Labor Commissioner Cherie Berry ‘feels that there are sufficient leave programs already available to state employees to address such absences.’” The Department of Insurance, the State Education Lottery, UNC System, and the Community College System Office were still evaluating participation as of August 13, 2019. At the time of the entry of Executive Order No. 95 by Governor Cooper, five states, including Rhode Island, California, New Jersey, New York, and Washington, mandated paid family leave to both public and private employees. Eight states including Delaware, Illinois, Indiana, Kansas, Maryland, Ohio, Missouri, and Virginia, provide parental leave to state employees.
According to Governor Cooper’s Executive Order No. 95 Fact Sheet,
Paid parental leave has been shown to promote mental and physical family health, increase worker retention, improve worker productivity and morale and reduce the demand on the social safety net by reducing the likelihood that working parents must apply for taxpayer-funded benefits. Paid parental leave can also reduce gender inequities in the workplace and at home, where women are more likely to bear the burden of unpaid caregiving responsibilities on top of their careers. Furthermore, research suggests that babies born to mothers with paid parental leave are less likely to be born prematurely and more likely to be born at a healthy weight, and children whose parents have access to parental leave are more likely to attend well care visits and exhibit fewer health problems. When paid parental leave is available, women who give birth are less likely to experience postpartum depression and men are more likely to be involved fathers.
Prior to the entry of Executive Order No. 95 and its adoption by multiple state agencies, options for paid parental leave were limited. Employees could use accumulated vacation and sick days, if available, or rely on the kindness of strangers to donate leave in response to a Voluntary Shared Leave Request. Taking unpaid leave was another option. Fortunately, with the adoption of the Paid Parental Leave policy, parents can now bond with their new child without having to worry about using saved or donated leave or taking leave without pay.
In addition to the advancement in paid parental leave, lawyers across the State are also benefiting from a recent rule change that now allows attorneys to designate up to 12 weeks of secured leave when a child is born or adopted. The North Carolina Supreme Court, led by Chief Justice Cheri Beasley, amended Rule 26 of the General Rules of Practice and Rule 33.1 of the Rules of Appellate Procedure to allow an additional 12 weeks of secured leave to be designated in the 24 weeks after the birth or adoption of the attorney’s child. Therefore, if a child is born or adopted in a two-attorney household, the 12-week period of secured leave could be used consecutively to ensure the primary care of the child was provided by a parent during the first six months of the child’s birth or adoption. Moreover, this 12-week period is in addition to the three weeks of secured leave available in a calendar year, for any purpose.
Secured leave is defined as a complete calendar week period, designated by an attorney, within which trial and appellate courts will not hold a proceeding in the attorney’s cases. Therefore, while in-court appearances will not be required by the newly amended secured leave rules, deadlines for filing notices of appeal, as well as the submission of briefs, and records, are not impacted by the change. However, as the amended rules encourage courts to adopt a flexible approach to secured leave, hopefully the appellate courts will also be flexible with requests for extension of time when deadlines fall during a secured-leave period.
While Chrissy Teigen and Amy Schumer can pull off public appearances in postpartum mesh underwear, thankfully now North Carolina attorneys won’t have to endure that experience in the courtroom!
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