Featured Articles

By Taylor Richards, Garrison Law Group PLLC

The Medical Malpractice Group offers the following updates on several issues that are significant to our members: the upcoming lifting of the COVID-19 State of Emergency and its impact on application of immunities, tips on trying cases during a pandemic, and recent appellate decisions.  

COVID-19 State of Emergency To Be Lifted August 15

Governor Roy Cooper recently announced that North Carolina’s State of Emergency Order—originally issued on March 10, 2020—will be lifted on August 15, 2022. https://www.newsobserver.com/news/politics-government/article263365608.html. Termination of the Order will have a significant impact on application of COVID-19 immunities enacted by our legislature, as discussed in an outstanding article by Christopher G. Smith, James C. Wrenn Jr., and David Ortiz: https://www.smithlaw.com/resources-publications-1937. As detailed in that article, immunity for negligent transmission of COVID-19 will essentially continue for an additional 180 days, but the temporary immunity for civil liability (which provided “broad protection against most ordinary negligence”) established by SB 704 will end on August 15, 2022.  https://www.smithlaw.com/resources-publications-1937.

Tips on Trying Cases During a Pandemic

The Medical Malpractice breakout session at the NCADA Annual Meeting in June featured an outstanding panel discussion with tips on trying cases during the pandemic. Our esteemed panelists were Chip Holmes, Jerry Allen, Pat Meacham, and Barrett Johnson.

The panelists agreed that jury selection has been greatly affected by the pandemic. One panelist realized how much he relies on facial expressions during voir dire, finding that it was quite difficult due to masking. Masking procedures have varied from county to county. Some courtrooms are now “back to normal” in the sense that jurors are not required to be masked, and courtroom logistics are back to pre-pandemic status. Other courtrooms may still require masks. Some judges allow masked jurors or witnesses to pull their masks down when they are testifying.

Discussion of COVID-19 issues during voir dire also varies. One panelist had opposing counsel file a motion in limine seeking to prevent any discussion of COVID-19, and that motion was granted. In contrast, in other cases, counsel directly asked jurors how the pandemic has impacted them and their families. A member of the panel found that due to the challenges of a COVID courtroom, voir dire would take longer because of counsel digging deeper during questioning.

One particularly unpleasant scenario involves what to do if a juror tests positive for COVID-19 during trial. One panelist asked the judge to continue the trial to another date to maintain the current jury. That request was denied. As with the pandemic itself the logistics and practice of trying cases is constantly evolving. However, the panel provided important tips and tricks that will not only be instructive to our practice in COVID-19 courtrooms, but also will help serve our clients in a “normal” courtroom setting.

Recent Medical Malpractice Appellate Decisions

At the Annual Meeting in June, Leslie Packer provided an extensive update on recent decisions. The excellent manuscript authored by her and Dixie Wells is here. (“Wells & Packer”). Three cases of the cases discussed in their paper are of particular interest to the Medical Malpractice Group: (1) Blue v. Bhiro, 871 S.E.2d 691, 2022-NCSC-45 (N.C. 2022); (2) Bryant v. Wake Forest Univ. Baptist Med. Ctr., 870 S.E.2d 269, 2022-NCCOA-89 (N.C. App. 2022); and (3) Hall v. Wilmington Health, PLLC, 2022-NCCOA-204 (N.C. App. 2022).

The Hall case addressed a deponent’s right to have counsel physically present while testifying, even in a pandemic setting. Specifically, “the court of appeals considered whether a trial court’s order prohibiting a medical center’s counsel from being physically present with the center’s own witness during remote depositions violated the center’s constitutional right to due process.” (Wells & Packer, p. 64). The Court reversed and remanded, and Chief Judge Stroud wrote for the majority. The Court held that “[t]his wholesale ban on personal attendance of Defendant’s counsel at depositions of its own employees and witnesses presented the constitutional issue Defendant asserts in this appeal and was not supported by existing law, emergency orders or evidence. … The trial court’s order violated Defendant’s constitutional right by prohibiting counsel from being physically present at depositions of its own employees and witnesses.” Hall at ¶3.

The Bryant case addressed a variety of issues, including whether an implanted device should be considered a “foreign object” under North Carolina law. Procedurally, the Court of Appeals in Bryant “considered whether a doctor had sufficiently shown an absence of material fact necessary to receive summary judgment on his former patient’s claims against him for actual and constructive fraud, res ipsa loquitur, breach of fiduciary duty, and medical malpractice. (Wells & Packer, p. 86). Plaintiff alleged that a “Gore-Tex barrier” that the defendant implanted years ago caused her infertility. Bryant at ¶6. ¶23. Regarding the actual fraud, breach of fiduciary duty, and constructive fraud claims the court held the Defendants were entitled to judgment as a matter of law. Id. at ¶14, 23. The Court “agree[d] with the trial court that res ipsa loquitor cannot apply because a layperson, without the assistance of expert testimony, could not infer negligence from the facts of this case based on common knowledge and ordinary human experience.” Id. at ¶27. The Court also addressed whether the Gore-Tex barrier had a therapeutic purpose and was not a “foreign object,” which would trigger the 10-year statute of limitations. The Court found that the Gore-Tex barrier had a therapeutic purpose or effect, relying on the trial court finding: “’Plaintiff’s and Defendant’s experts agree that Gore-Tex can be properly used as an adhesion barrier to prevent pelvic adhesion formation and that such a use is therapeutic.’” Thus, affirming the trial court’s application of the 4-year statute of limitations. Id. at ¶30. Regarding the punitive damages claim the court held “because we hold that the trial court properly granted summary judgment on each of Plaintiff’s claims above, Plaintiff has no independent basis for punitive damages and this claim necessarily fails.” Id. at ¶ 43.Finally, in the Blue case, the North Carolina Supreme Court “considered whether inclusion of additional facts not in the pleadings converted a trial court’s order on a Rule 12(b) motion to dismiss to a motion for summary judgement under Rule 56.” (Wells & Packer, p. 84). The Court reversed the Court of Appeals, holding that “the trial court did not consider matters outside the pleading and thus was not required to convert the motion.” Blue at ¶ 1. In Blue, the plaintiff alleged that the defendants “were negligent by failing to provide follow-up care after learning the results of the 24 January 2012 PSA test and failing to diagnose plaintiff with prostate cancer.” Id. The Court of Appeals held that the trial court did not expressly exclude facts in the parties’ memoranda and arguments (facts that were not in the Complaint), so the trial court “’considered matters beyond the pleading,’” which converted the motion to dismiss to a summary judgment motion. Id. at ¶6. The North Carolina Supreme Court disagreed, finding that the trial court’s order did not mention any additional documents outside the parties’ memorandums. The defendants’ memorandum “included the pleadings, a statute, and case law as exhibits, but did not include any evidentiary materials” and the plaintiff “did not include any exhibits with his memorandum.” Id. at ¶13. Further, plaintiff’s counsel’s factual assertions in his memorandum and oral arguments were “not evidence and thus are not matters outside the pleading.”

Pamela Graham, MSN, RN, LNC 

There was a collective gasp across the country amongst all health professionals following the criminal conviction of Tennessee Registered Nurse RaDonda Vaught for “reckless  homicide” and “gross neglect of an impaired adult." For any practicing nurse, the precedence of this conviction and the staffing and prevention issues surrounding COVID are enough to make any nurse immediately resign or retire. Is it any wonder the nursing shortage has roused itself once again?

As a defense attorney, your reassuring strengths and skills are to guide your client through a most confusing and frightening time in their career and, now, as Ms. Vaught can attest, life. The nurse must journey through the trauma of a licensing hearing process that may likely take his or her professional license, livelihood and a beloved profession.  There is also the probability of a civil suit for “wrongful death” or some claim of harm for which, hopefully, professional liability insurance will cover.

Criminal charges must be the worst issue to face. In North Carolina, the charge probably would have been “involuntary manslaughter," the “unintentional killing of another person resulting from recklessness or criminal negligence.” As a defense attorney, defining “intent” and “recklessness” comes with the job; however, how do you define the intent of a nurse who removes the wrong drug from an electronic medication dispensing machine? A machine that required being overridden to obtain the medication ordered? Within a delivery system that apparently required nurses to consistently override it to obtain different medications?  Is that “recklessness”? Or is that the current ‘standard’ for that facility at that moment?

There were other extenuating circumstances that drew concerns about the Just Culture philosophy to which we supposedly espouse. While Ms. Vaught reported her error and admitted her fault, the health care delivery system failed to report the incident to the State as required.  Ultimately, Ms. Vaught’s failure was that she did not confirm that she had the right medication. The institution failed to report a Sentinel Event. They had the ‘deep pockets’ to settle the case. Ms. Vaught faced criminal charges. It was a horrific error and caused the death of a family’s loved one. 

Then comes Michelle Hewitt, a Forsyth County correctional facility nurse charged with “involuntary manslaughter” or “criminal negligence” in the death of inmate, John Neville. Mr. Neville reportedly fell from his bunk and was rendered aid by five correctional officers and Ms. Hewitt.  He unfortunately passed away under their care. Now, all five correctional officers and Ms. Hewitt have been charged.  It would be interesting to see what failures in the system, aggravating factors and mitigating circumstances influenced this horrible incident.

Defense attorneys have their work cut out for them. Having a Legal Nurse Consultant on your team can help find these nuances and details to define what was “negligent” or “reckless." An LNC is a Registered Nurse who has practiced in a clinical setting and understands what it is like “inside” the practice setting. Most have regulatory experience with a good grasp of what standards and deviations from those standards mean. They can quickly help identify where and how the failures occurred and guidance on evidenced-based references and resources.  The LNC can also serve as a trusted colleague and counselor for your nurse-client enduring probably the most frightening time of his or her career.

Don’t go it alone! Have a Legal Nurse Consultant for your team when needed to assist and advise. Your health professional clients will thank you!

Pamela Graham, MSN, RN, LNC is a Legal Nurse Consultant with Pamela Graham LNC, PLLC.

She is a member of the American Association of Legal Nurse Consultants.

by Jeffrey Kuykendal, McAngus Goudelock & Courie, LLC

On May 3, 2022, in Tutterow v. Hall, No. COA21-326, 2022-NCCOA-300, the North Carolina Court Appeals answered the question of how to calculate the underinsured motorist (“UIM”) coverage in a case involving both multiple underinsured tortfeasors and multiple UIM insurance policies.

On October 21, 2014, Vivian Tutterow was a passenger in a vehicle being driven by Pamela Crump. At that same time, Brian Hall was operating a vehicle owned by Kris Hall, his mother, and while in the course and scope of his agency relationship with Randy Hall Automotive, LLC. Ms. Crump stopped her vehicle in a lane of travel and Mr. Hall collided with the back of her vehicle resulting in Ms. Tutterow’s death.

Ms. Crump had an auto policy issued by Horace Mann with a $100,000 per person liability limit and a $100,000 per person UIM coverage limit. Mr. Hall was covered by an auto policy issued by Nationwide with a $100,000 per person liability limit. Ms. Tutterow also had an auto policy issued by State Farm with a $100,000 per person UIM coverage limit.

On October 10, 2016 Horace Mann tendered the $100,000 limits of its liability policy on behalf of Ms. Crump. On October 18, 2016, Nationwide tendered the $100,000 limits of its liability policy on behalf of Hall. Several weeks later, Ms. Tutterow’s estate informed the UIM carriers of the tenders, but advised that it had not accepted the tendered limits. Neither Horace Mann nor State Farm advanced any UIM coverage at that time.

In June 2017, Plaintiff informed the UIM carriers that it had accepted the liability limits of Ms. Crump’s policy. Soon thereafter, State Farm, in light of the North Carolina Supreme Court’s decision in Lunsford v. Mills, 367 N.C. 618, 766 S.E.2d 297 (2014), advanced $100,000 to Tutterow’s estate under its UIM policy while expressly reserving its rights to recoup those funds should Plaintiff recover some or all of the liability limits from the Nationwide policy.

In July 2019, Plaintiff informed the UIM carriers that it had accepted the liability limits of Mr. Hall’s policy. Shortly thereafter, State Farm requested that Plaintiff reimburse the $100,000 that it had advanced in 2017. The funds were placed in escrow and Plaintiff filed a declaratory judgment action to determine the obligations of the UIM carriers.

Plaintiff contended that the stacked per person limits of the two UIM policies, $200,000, was to be compared to the liability limits of Ms. Crump’s policy and Mr. Hall’s policy separately, meaning Ms. Crump was underinsured by $100,000 and Mr. Hall was also underinsured by $100,000. Further, Plaintiff argued State Farm had waived its right of subrogation by failing to timely advance within 30 days of notice of the tender of the liability limits. The UIM carriers contended that the stacked per person limits of the UIM polices were to be compared to the combined limits of the tortfeasors’ liability policies, meaning no underinsured motorist coverage was owed and that State Farm was entitled to reimbursement.

After the trial court granted summary judgment to the UIM carriers, Ms. Tutterow’s estate appealed to the North Carolina Court of Appeals.

The North Carolina Court of Appeals focused on the language in the Financial Responsibility Act. See N.C. Gen. Stat. § 20-279.21. The Court held:

Under the statute, the calculation of applicable UIM coverage has three basic steps. First, the reviewing court must determine if a torfeasor’s vehicle meets the definition of an “underinsured highway vehicle.” If so, the court must determine if the limits of that tortfeasor’s liability policy are exhausted. Finally, if those liability limits are exhausted, the court must calculate the amount of coverage that is available under the applicable UIM policy.

The Court noted that it was not disputed that the first two steps were satisfied and that UIM coverage was triggered. Thus, all that remained was to calculate the amount of UIM coverage available.

The Court determined the answer was in the unambiguous language of N.C. Gen. Stat. § 20-279.21(b)(4). The Court focused on the sentence, which provides:

Furthermore, if a claimant is an insured under the underinsured motorist coverage on separate or additional policies, the limit of underinsured motorist coverage applicable to the claimant is the difference between the amount paid to the claimant under the exhausted liability policy or policies and the total limits of the claimant’s underinsured motorist coverages as determined by combining the highest limit available under each policy…

The Court found this sentence answered the question of what to do when multiple UIM policies apply to a claimant. The Court held “the statute provides an unambiguous method to calculate the applicable limit of combined UIM coverage: it is the difference between the total amount paid under all exhausted liability policies and the total limits of all applicable UIM policies.”

As applied to the facts of the case, the total amount paid under the exhausted liability policies was $200,000, with $100,000 from the Horace Mann liability policy and another $100,000 from the Nationwide liability policy. The total limits of the available underinsured motorist coverages was also $200,000, with $100,000 from the Horace Mann UIM coverage and another $100,000 from the State Farm UIM coverage. Thus, the difference between those two totals was $0.00, which was determined to be the amount of available UIM coverage.

Beyond the unambiguous language of the Financial Responsibility Act, the Court noted the result comported with the purpose of the Act. The purpose of UIM coverage is to put the insured in a position where total insurance coverage for injuries sustained in an automobile accident is not less than the amount of UIM coverage obtained. The Court noted, the result in this case precisely accomplished that purpose. The available UIM coverage for Ms. Tutterow was a total of $200,000, which is the precise amount tendered to the Plaintiff by the carriers for the two liability policies.

Finally, the Court held that State Farm was entitled to reimbursement of the $100,000 it advanced. The Court determined the statutory provision requiring advancement within 30 days to preserve the right to subrogation was inapplicable. Once the limits of both of the liability policies were exhausted, the UIM carriers had no duty to advance any payments because they owed nothing under their policies. Thus, because State Farm did not have an obligation to advance payment under its UIM policy, it was entitled to have its advance returned in full.

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:

•         Negligent misrepresentation;^iix
•        Rescission of a shareholder agreement;^ix
•       Tortious interference with contract;^x and
•        Appointment of an independent person to investigate derivative          claims under N.C. Gen. Stat. § 57D-8-03(f);^xi

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).

 ⁱⁱⁱBCR 7.5.

 ^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).

 ^xId.

 ^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

 v. Id.

 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.

• ·       In I.C. No. X51195, Nobles v. NC DHHS/Central Regional Hospital, Plaintiff sustained compensable injuries to his eye, mouth, and shoulder when he was assaulted by a patient on 6/26/2011.  Deputy Commissioner Robert J. Harris awarded extended compensation on 1/25/2021.  Much of the litigation focused on the compensability of Plaintiff’s alleged chronic post-traumatic stress disorder (“PTSD”) and major depression and alleged disability resulting therefrom.  Two neuropsychiatrists authorized by Defendants deemed Plaintiff malingering, and a Rehabilitation Professional prepared a Labor Market Survey (“LMS”) identifying several positions Plaintiff could perform.  Plaintiff presented evidence from a treating psychiatrist who opined his chronic PTSD and major depression were related to the 6/26/2011 incident and render him permanently and totally disabled and unemployable.  The Deputy Commissioner gave greater weight to the testimony of Plaintiff’s treating psychiatrist over other expert testimony, noting the two neuropsychiatrists authorized by Defendants were one-time evaluators and the Rehabilitation Professional did not meet with Plaintiff and based her LMS entirely on the premise that Plaintiff was malingering and had no restrictions related to the 6/26/2011 incident.  The Deputy Commissioner concluded Plaintiff’s chronic PTSD and major depression are causally related to the 6/26/2011 incident and result in a total loss of wage-earning capacity.  Defendants appealed to the Full Commission.  On 9/29/2021, the Full Commission issued a decision denying compensability for the alleged chronic PTSD and major depression and denying Plaintiff’s application for extended compensation.  The Full Commission gave greater weight to the opinions of the two neuropsychiatrists authorized by Defendants, finding Plaintiff’s treating psychiatrist relied solely on Plaintiff’s subjective reports to support his diagnosis while the two neuropsychiatrists authorized by Defendants formed their opinions based upon both Plaintiff’s subjective reports and his objective testing performance.  In addition, the Full Commission found Plaintiff had not treated for his eye, mouth, and shoulder injuries since 2012, had reached maximum medical improvement for the injuries, and did not retain any work restrictions stemming therefrom.  Accordingly, the Full Commission concluded Plaintiff had not established a lack of total wage-earning capacity as a result of his compensable injuries and thus was not entitled to extended compensation.  Vice-Chair Myra L. Griffin authored the Full Commission’s Opinion & Award, and Commissioner Kenneth L. Goodman and Deputy Commissioner David Mark Hullender concurred. 

• ·       In I.C. No. X59367, Betts v. NC DHHS/Cherry Hospital, Plaintiff sustained an ankle injury while restraining a combative patient on 8/12/2011 and ultimately underwent six surgeries.  Deputy Commissioner Harris awarded extended compensation on 3/12/2021.  One authorized treating physician assigned sedentary work restrictions to Plaintiff, while another added that Plaintiff should be allowed to raise her foot to at least heart level.  Plaintiff retained a Rehabilitation Professional who performed a vocational evaluation and opined Plaintiff’s ankle condition and restrictions prevent her from obtaining and maintaining employment in any setting due to the foot elevation requirements.  Defendants retained a Rehabilitation Professional who opined it is more likely than not Plaintiff could return to wage-earning capacity, but if Plaintiff is required to keep her right foot elevated for at least twenty minutes every hour, there are no jobs in the national economy which Plaintiff could perform unaccommodated.  The Deputy Commissioner gave greater weight to the testimony and opinions of the Rehabilitation Professional retained by Plaintiff, determining her analysis is more tailored to Plaintiff’s specific circumstances.  In addition, the Deputy Commissioner found that while Plaintiff may be a candidate for a very flexible, part-time, stay-at-home position with an employer which offers on-the-job training, the possibility of such a position existing does not reach the level of providing a reasonable expectation that Plaintiff could earn wages in the competitive economy.  Thus, the Deputy Commissioner found, Plaintiff met her burden of proof on extended compensation by showing there is no reasonable expectation she could earn wages in the competitive economy given her limitations and need for accommodation due to her injury, in combination with her age, limited education, and limited transferrable skills for sedentary work.  Defendants have appealed to the Full Commission, which heard oral argument on 8/11/2021.

• ·       In I.C. No. Y18418, Sturdivant v. NC DPS, a prior Deputy Commissioner decision had deemed Plaintiff’s 8/31/2011 back injury compensable and awarded TTD.  Deputy Commissioner Erin F. Taylor denied extended compensation on 5/5/2021.  In rejecting Plaintiff’s argument that the prior decision is res judicata on the issues determined therein and entitles him to a presumption of ongoing disability, the Deputy Commissioner relied on the statutory language of N.C. Gen. Stat. § 97-29, which applies the compensation cap to instances “when a claim has been deemed compensable following a hearing,” and notes TTD compensation ends 500 weeks from the date of first disability “unless the employee qualifies for extended compensation” under subsection (c).  In analyzing the merits of the extended compensation application, the Deputy Commissioner relied on Webster’s Dictionary for the plain, ordinary, and literal meaning of a “total loss” of wage-earning capacity, and concluded Plaintiff is required to show “a complete destruction of the ability to earn wages” to extend his compensation.  Though Plaintiff testified he was unsuccessful in finding work and that his pain kept him from working, the Deputy Commissioner gave great weight to the opinions of four medical providers, some of whom provided restrictions but none of whom opined Plaintiff was unable to work.  The Deputy Commissioner also gave greater weight to the opinions of the Rehabilitation Professional Defendants retained, noting the Rehabilitation Professional Plaintiff retained did not contact any prospective employers for additional information regarding job postings and restricted her LMS to Plaintiff’s home county.  Plaintiff has appealed to the Full Commission, which heard oral argument on 9/15/2021.

• ·       In I.C. No. X72421, Tyson v. NC DHHS/O’Berry Neuro-Medical Treatment Center, Plaintiff sustained a low back injury on 10/8/2011 while transferring a client from a wheelchair.  Deputy Commissioner Kevin V. Howell denied extended compensation on 8/12/2021.  During depositions, Plaintiff’s pain management provider opined that although Plaintiff has been out of work for some time and his medication carries potentially negative side effects, Plaintiff could perform work in the sedentary-to-light physical level; a rheumatologist who also continued to treat Plaintiff agreed he is capable of work with restrictions even after considering his co-existing conditions.  Defendants retained a Rehabilitation Professional who conducted an LMS and opined Plaintiff was capable of work and able to earn wages in some capacity.  Though Plaintiff disputed his ability to return to work, the Deputy Commissioner gave greater weight to the opinions and testimony of the medical providers and the Rehabilitation Professional.  In reviewing the 2011 changes to the Act, the Deputy Commissioner concluded N.C. Gen. Stat. § 97-29(c) utilizes a “new and different standard for weekly compensation beyond 500 weeks,” and its plain meaning  prohibits TTD compensation beyond 500 weeks from the date of first disability “if the employee has any wage-earning capacity.”  Thus, the Deputy Commissioner concluded, because Plaintiff has not demonstrated by a preponderance of the evidence that he sustained a total loss of wage-earning capacity, he is not entitled to extended compensation.  Plaintiff has appealed to the Full Commission, and the appeal is in the Briefing stage.

• ·       In I.C. No. X59853, Kotsias v. Florida Health Care Properties, Plaintiff sustained a mid-back injury while transferring a patient on 8/17/2011.  The case has an interesting fact pattern and winding procedural history.  Though the issue of extended compensation was not identified in the parties’ 2014 Pre-Trial Agreement, it was subsequently raised, and Deputy Commissioner Tiffany M. Smith addressed it in an 8/12/2021 decision.  Of note, the Deputy Commissioner found that Plaintiff was entitled to temporary partial disability compensation when employed in a make-work position in early 2014, but was thereafter capable of some work, did not perform a reasonable job search, and is not totally disabled due to her mid-back injury; in addition, the Deputy Commissioner found Plaintiff’s subsequently reduced and at times total lack of earnings did not arise out of her mid-back injury, Plaintiff had not made an application for extended TTD compensation, and Plaintiff had not demonstrated a total loss of wage-earning capacity.  Both parties have appealed to the Full Commission, and the appeals are in the Briefing stage.

 

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:

• ·       First, it is impossible to make honey that is 100% derived from one floral source. The court discussed the “foraging nature of bees” and charged the reasonable consumer with knowing that “it is impossible to exercise complete control over where bees forage down to each specific flower or plant” and that “[u]nlike other domesticated animals, bees cannot be commanded or directed.”
• ·       Second, the comparatively low cost of Trader Joe’s product should have been a “signal” that the honey inside had a lower concentration of honey derived from Manuka flower nectar.
• ·       Third, the Trader Joe’s label did include the product’s “10+” rating on the UMF scale. The court explained that “[r]easonable consumers of Manuka honey would routinely encounter such ratings and would likely have some knowledge about them.”

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

• ·       there is no fruit in “Froot Loops”;
• ·       Cap’n Crunch “Crunch Berries” are not actual berries;
• ·       soymilk does not come from cows; and
• ·       a cracker is a “dry thin crispy baked product” and is “not composed of primarily fresh vegetables.”

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.