The following was originally published in The Transportation Lawyer, February 2021, and is reprinted here with permission.
The 2019 decision of the Supreme Court of the United States in New Prime v Oliveira, shocked many in the transportation world, holding that the contracts of all truck drivers, including owner-operator independent contractors, are contracts of employment of transportation workers. Under an exemption in Section 1 of the Federal Arbitration Act, the provisions of the FAA shall not apply to arbitration clauses in their contracts. Thus, arbitration cannot be compelled against these workers under the FAA.
Transportation and arbitration lawyers have since worked to devise means to get to arbitration even in the face of New Prime. Many have succeeded. These are their stories (with apologies to the venerable television series, “Law and Order”).
A new court practice rule will affect the timing of motions to bar crucial expert testimony. A motion in limine is commonly brought shortly before trial to allow a trial judge to trim issues of evidence to be admitted and streamline the actual trial. But a motion to bar an expert from testifying can be distinctly different. If the adversary’s case will fail without the expert, the motion is tantamount to a dispositive motion for summary judgment and must be made well ahead of trial.
Under the new court rule such a motion must now be made within the time frame for summary judgment motions, usually at least 30 days before trial. And if counsel waits until the eve of trial to file the motion as a motion in limine, the court may refuse to hear it. The reason, according to a 2015 Appellate Division case that spawned the new rule, is that such a motion made just before trial denies the adversary due process of law.
In Cho v. Trinitas Regional Med. Center, an appellate court grappled with a motion brought one day before jury selection, to bar plaintiff’s medical-malpractice expert witness from testifying. The witness was needed to sustain plaintiff’s burden of proof. So, as the court stated, this motion was really one for summary judgment because it could end the case, which should have been brought well ahead of trial to permit the adversary time to respond. The trial court granted the motion as one in limine, and dismissed the complaint. The Appellate Division reversed. Disguising a motion for summary judgment as a motion in limine denied plaintiff a fair opportunity to respond to the complaint-killing motion. Thus, the trial court’s ruling denied plaintiff fundamental due process. The Appellate Division stressed that the timing and sequence of a motion for summary judgment gives a reasonable framework to ensure due process.
The new rule applies to plaintiffs and defendants, and refers broadly to all types of expert witnesses, such as doctors, engineers, architects, accountants, economists, contractors, insurance and accident-reconstruction experts, to name a few, and without regard to the nature of the case. If a successful motion to bar an expert, such as an engineer in a product liability case, would lead to summary judgment, then the motion must be as one for summary judgment.
The rule can also be a blessing for defendants. A successful motion to bar expert testimony can lead to summary judgment well before trial. Judges hearing motions to bar critical expert testimony may no longer refer them to the time of trial as motions in limine, a frequent practice. These motions must be addressed when made, just as are motions for summary judgment. This is a good development for defendants.
So when your attorney asks authority to make an early motion to bar plaintiff’s expert, that just may be very good advice.
It certainly does, as Sofya Reznik learned when she sued American Honda in New Jersey for alleged product liability and personal injuries. She claimed the company defectively designed and manufactured her Acura’s seatbelt and airbag, which in turn exacerbated injuries she sustained in an accident with another vehicle. That collision resulted when Sofya made an unsafe left turn, according to the court, leaving her with little claim against the other driver. She immediately contemplated a lawsuit against Honda, yet she did not preserve the car or the seatbelt as evidence or for inspection by Honda. The lower court dismissed her lawsuit, and the appellate court affirmed. Here’s why.
After the accident Sofya was transported for medical care. Her friend retrieved her personal items from the Acura, and claims to have noticed the driver’s side seatbelt was torn and hanging from the driver’s side window. An EMT who assisted Sofya stated that if he had seen a torn seatbelt, it would be mentioned in his report. It was not. Nor could he say whether a first responder cut the belt to help extricate her from the car. He did observe that the driver’s airbag had deployed. No photographs were taken of the Acura or the allegedly defective seatbelt.
Then Sofya made it worse. She accepted a “total loss” payment from her insurance company but took no steps to preserve the Acura or the seatbelt. Eventually it was sent out of the country and could not be retrieved. As her lawsuit proceeded, Honda moved for dismissal, both because Sofya could not prove any defect, and the failure to preserve the evidence warranted sanctions for spoliation of evidence. The trial court found that Sofya had a duty to preserve the evidence. That duty arose the day after the accident, when she determined to sue Honda. The Acura was needed to prove her case and to allow Honda to inspect it and defend the case. The trial court held that the absence of the evidence was probably fatal to her case, ordering dismissal of the lawsuit. Sofya appealed.
The appellate court took spoliation a step further. It held that it does not matter that Sofya may not have intended to frustrate Honda’s defense. It was enough that she was negligent in failing to preserve the Acura, as she knew she planned to sue Honda and gave no explanation for doing nothing to preserve it. The prejudice to Honda’s defense “was so significant that dismissal was the only option.” The dismissal was with prejudice.
The case of Reznik v. American Honda Motor Co., decided September 1, 2020, reminds us that principles of spoliation of evidence apply to defendants and plaintiffs alike. The obligation to preserve evidence arises as soon as one has reason to believe that a claim or litigation may result, for or against that party, from an event, breach of contract, or other potentially culpable conduct or omission.
It should be obvious. This is as much a lesson for personal-injury attorneys as it is a lecture in the law. The case and the lesson grow out of a slip-and-fall injury in September 2016. Carolyn took the fall on the steps of a hospital where her son-in-law had just had surgery. She suffered a broken nose and cuts above the eye, among other injuries. Three days later Carolyn hired a lawyer to pursue a claim against the hospital. Fifteen months later, with no lawsuit yet filed, Carolyn died of unrelated causes. The lawyer had no idea that she had died.
Nine months passed. Then, in September 2018, and just before the running of the statute of limitations, the lawyer filed Carolyn’s lawsuit against the hospital. He still did not know of her death. Discovery began in the suit, and the lawyer wrote to his client to discuss the discovery. Carolyn, of course, did not respond. In time the lawyer searched public records and discovered, at last, that his client had died over a year before. He had filed a court complaint for a dead person. What was he to do?
In March and April 2019, the lawyer wrote to Carolyn’s son, who agreed to continue the personal-injury suit in the name of her estate, under the Survivor’s Act. The lawyer asked the hospital to consent to an amended complaint naming the estate as plaintiff, and having it relate back to the September 2018 filing. The hospital refused, and in October 2019 the lawyer filed a motion asking the court for the same amendment and grace period. Otherwise, the complaint would be time-barred and dismissed. But would the court agree?
This was now three years after the accident, fifteen months after Carolyn’s death, and thirteen months after the end of the statute of limitations. Had Carolyn died after filing suit, the substitution of her estate would be no problem. But a dead person has no standing to file a lawsuit. The appellate court quoted from a 1945 Chancery case: “an earthly court has no jurisdiction over the dead. Only the living can litigate here.”
And so it was. The original complaint was a nullity, ruled the court, “leaving nothing for the amended complaint to ‘relate back’ to.” The court denied the motion and ordered the original complaint dismissed with prejudice.
The lesson is clear: make sure your client is living before filing her lawsuit.
According to a Transport Topics report on July 29, 2020, New Prime, Inc., has settled two putative class-action lawsuits by its truck drivers for allegedly improper compensation payments and violations of the federal Fair Labor Standards Act, as well as state laws. Transport Topics reports that the settlement, awaiting court approval, will provide a total of $28,000,000 for a potential class of 40,000 drivers, most of whom are independent owner-operators.
On January 15, 2019, the Supreme Court of the United States ruled against New Prime, Inc., in its petition to refer to arbitration a class action lawsuit claiming that New Prime improperly paid truck drivers which it had classified as independent contractors, allegedly in violation of the federal Fair Labor Standards Act. The Court ruled that under the Federal Arbitration Act, an independent owner-operator’s contract is a “contract of employment” of a transportation worker, falling squarely into a class of FAA-exempt agreements. That sent the case back to the First Circuit, and ultimately to the District Court for Massachusetts. A second putative class action suit, Haworth v. New Prime, was filed in 2019, according to Transport Topics. The settlement reportedly resolves both lawsuits.
As reported, New Prime believes its business model, using independent owner-operators in its trucking operations, is “completely lawful and compliant with all regulations.” The settlement, though, was “the right thing to do,” New Prime’s general counsel advised Transport Topics.
The settlement brings to a close the saga of New Prime v. Oliveira, but the issues of arbitration of truck driver employment claims, and waiver of jury trials and class actions, will remain on the foreground for trucking companies and on the dockets of the courts.
A void was left when the Supreme Court of the United States held last year in New Prime v. Oliveira that the Federal Arbitration Act does not apply to a dispute involving a transportation worker’s contract, even if the worker is an independent contractor. The holding rested on an exemption found in Section 1 of the FAA for “contracts of employment” for transportation workers. But that is not the end of the story. The Court left open the use of state arbitration acts for parties and disputes exempted from the federal law. New Jersey stepped up to fill the void in a decision by the state’s Supreme Court in two companion cases, Arafa v. Health Express Corporation and Colon v. Strategic Delivery Solutions, LLC, decided July 14, 2020.
Both plaintiffs are delivery truck drivers whose industries arguably involve interstate commerce. Each signed a contract containing an arbitration clause to be governed “by the FAA.” They sued under wage and hour laws, among others, alleging they were not paid in accordance with those laws. Since the FAA does not apply under New Prime, the plaintiffs argued that there was no meeting of the minds to arbitrate, because the contracts failed to invoke the New Jersey Arbitration Act expressly, as an alternative. The New Jersey Supreme Court disagreed: “[T]he NJAA will apply unless preempted even without being explicitly referenced in an arbitration agreement; no express mention of the NJAA is required to establish a meeting of the minds that it will apply inasmuch as its application is automatic.”
Like the FAA, the New Jersey Arbitration Act provides that a written agreement to arbitrate a dispute shall be valid, irrevocable and enforceable. The two acts operate in the background. The FAA has wide preemptive application to contracts involving international or interstate commerce. But where the FAA does not apply, the New Jersey act steps up “automatically” to fill the void and compel arbitration.
We look forward to more states following New Jersey to apply their own arbitration acts to contracts, such as contracts of employment of transportation workers, to validate and enforce arbitration agreements.
The clause must be reasonably communicated to the other party;
The clause must make the forum selection mandatory, not merely permissive; and
The claims and the parties involved in the lawsuit must be subject to the forum-selection clause.
If these three tests are met, the forum-selection clause will be presumptively enforceable. The opposing party can overcome this presumption only by a sufficiently strong showing that the clause is unreasonable or unjust, or is invalid because of fraud or overreaching. These “public interest” considerations will rarely defeat a forum-selection clause that is presumptively valid.
The operation of these rules was recently demonstrated clearly in Jones v. Povant USA LLC, in a decision by Judge Naomi Reice Buchwald of the Southern District of New York. Plaintiff Kimberly Moffitt Jones, of California, booked round-trip ocean passage for herself, her two daughters, and her autistic son, from Ushuaia, Argentina, to Antarctica, from December 20, 2018, to January 5, 2019. The total cost for the ocean voyage for the four family members was $125,028, which Ms. Jones paid in advance. Because the autistic son was not able to fly commercially, Ms. Jones chartered a private jet to fly the family, and the son’s therapist, from California to Argentina. She paid $355,000 for the private round-trip air travel. She alleges that she told Povant about this necessary additional cost in order for the family to go on the trip to Antarctica.
Problems and delays arose after the family arrived in Argentina. An issue with the ship’s propeller not only caused delays, but it also resulted in a change of the port of embarkation. Frustrated, Ms. Jones canceled the trip and demanded return of both the ocean fare and the air fare. Povant agreed to return the ocean fare but refused to pay Ms. Jones for the private jet travel from California to Argentina. Ms. Jones brought suit against Povant in federal court in New York, with allegations including intentional and negligent misrepresentation. Povant moved to dismiss based upon the forum-selection clause in the line’s General Terms and Conditions, which states that “only” the courts in Marseilles, France, have jurisdiction to hear any proceeding initiated against the line.
Judge Buchwald analyzed and followed precedent from the Supreme Court and the Second Circuit Court of Appeals governing the enforcement of forum-selection clauses. She first found the existence of the clause was properly communicated to Ms. Jones in the line’s General Terms and Conditions, not only to Ms. Jones but also to her travel agents. The payment of the ocean fare is deemed to signify agreement to the terms and conditions. Second, Judge Buchwald found that the clause was mandatory: only the courts in Marselles, France, would have jurisdiction over disputes arising from the ocean contract. Finally, the court concluded that Ms. Jones’s claims, and the parties to the lawsuit, were subject to the forum-selection clause.
Thus, the forum-selection clause was presumptively enforceable. “If a forum-selection clause is valid, then the only remaining inquiry is whether certain public interest considerations outweigh its enforcement.” Judge Buchwald found that Ms. Jones raised no public interest considerations, such as fraud in the contracting, unavailability of a convenient forum in France, or fundamental unfairness of the application of French law militating against enforcement of the clause.
The court dismissed the New York complaint without prejudice to refiling in France.
With those words the Third Circuit rules that removal to federal court does not cure jurisdictional defects or waive any other defenses available in state court. Danziger & DeLlamo, LLP v. Morgan Verkamp, LLP, (January 15, 2020) is a battle between two law firms over a purported referral fee worth millions of dollars. Morgan Verkamp, an Ohio firm, succeeded in a qui tam action in Pennsylvania federal court. Danziger, a Texas law firm, says it referred the case to Morgan, for an orally agreed referral fee made by telephone between Texas and Ohio.
In a qui tam action a party, called a relator, pursues a claim on behalf of a government, which is deemed the real party in interest. If the government succeeds, the relator receives a share of the award. In this case, Morgan brought the case under the federal False Claims Act, and the U.S. government received a settlement for hundreds of millions of dollars; Morgan received several million dollars in attorneys’ fees. Danziger wants a share of those fees.
The two firms spent a year and a half conducting discovery in a procedure permitted by Pennsylvania state court rules before the filing of a complaint. When Danziger finally filed its complaint, Morgan Verkamp promptly removed the lawsuit to federal court and moved to dismiss, arguing that it was immune from personal jurisdiction in Pennsylvania. The district court agreed and dismissed the complaint. Danziger appealed, arguing that Morgan consented to personal jurisdiction by removing the case to federal court.
The Third Circuit disagreed:
We now adopt this rule. On removal, a defendant brings its defenses with it to federal court. * * * Removal does not cure jurisdictional defects, so defendants can still challenge jurisdiction after removal.
The Third Circuit, which includes New Jersey, now joins the First, Second, and Eighth Circuits. “[T]he federal court takes up where the state court left off.” Nationwide Eng’g & Control Sys., Inc. v. Thomas (8th Cir. 1988). The governing case in the Second Circuit, which includes New York, is Cantor Fitzgerald, L.P. v. Peaslee (2nd Cir. 1996) (“Removal does not waive any Rule 12(b) defenses.”). Cantor continues to be cited by the New York federal courts.
We routinely remove cases to federal court in New York and New Jersey, with the confidence that our clients’ defenses to personal jurisdiction will remain intact in the federal forum.
The Graves Amendment, passed in 2005 and codified at 49 U.S.C. § 30106, bars an action for vicarious liability under state law against commercial lessors of motor vehicles involved in motor vehicle accidents, provided that the lessor is free from negligence or criminal wrongdoing. Courts across the country have used the Amendment to protect lessors of tractors, trailers, and intermodal chassis. New York courts have been leaders in protecting rights under the Graves Amendment, especially against New York’s infamous vicarious liability statute, Vehicle and Traffic Law § 388. So, what are the plaintiffs’ lawyers doing to avoid the Graves Amendment?
A double-truck head-on collision, and a downtown New York terrorist attack, illustrate the cleverness of the plaintiffs’ bar. The former is seen in the Illinois federal court case of Favorite v. Sakovsky (August 16, 2019). The terrorist attack is at the center of Grandelli v. City of New York, in Manhattan state court (September 24, 2019). In each horrible case the plaintiffs’ attorneys attempt to increase the pool of financially viable defendants, and to avoid the Graves Amendment.
In Favorite, widow Stephanie Favorite sued the Sakovski estate, BB Wolf, Inc., and Compass Truck Rental and Leasing, the company that leased the Sakovski truck to BB Wolf. She alleged that Compass negligently entrusted the truck to BB Wolf, and should have known that BB Wolf might employ an incompetent driver. Specious as the allegation was, the court denied Compass’s Graves Amendment motion to dismiss because there had been no discovery as yet. A full fact development might support Compass, but the bare complaint did state a cause of action for negligent entrustment.
In Grandelli, Sayfullo Saipov rented a pick-up truck from Home Depot and drove it into a crowd of pedestrians and bicyclists in lower Manhattan, killing eight people. The estate of one victim brought suit against the City and several agencies, and also against Home Depot, alleging that the truck’s lessor negligently entrusted the truck to Saipov, in spite of certain “red flags” from law enforcement publications to be on the lookout for customers who might use a truck to commit terrorist attacks. Home Depot made a Graves Amendment motion to dismiss before conducting any discovery. The court in New York County denied the motion without prejudice, on the incomplete record before it. The court held that the complaint sufficiently stated a case for negligent entrustment, which circumvents the Graves Amendment.
Only one appellate court has considered whether a negligent entrustment claim is barred by the Graves Amendment. In Carton v. GMAC (2010), the Eighth Circuit ruled that vicarious liability claims are barred, but a claim of negligent entrustment, not just negligent maintenance of a leased vehicle, can create an exception to the Graves Amendment. But in this case, the court held plaintiff’s allegations failed to rise to the level of negligent entrustment.
For now, equipment lessors will continue to face negligent entrustment claims, likely unprotected by the Graves Amendment. Lessors should be prepared to present proof of careful practices and procedures to thwart claims of negligent entrustment.
A federal district court in southern California issued a temporary restraining order on New Year’s Eve barring the enforcement of the state’s Assembly Bill 5, set to go into effect on New Year’s Day. AB 5 adopted the “ABC test” to determine if a particular worker is an independent contractor or an employee. The test hits particularly hard on the motor carrier industry, because many trucking companies use legitimate independent contractors – owner-operators – as part of their business model. The court’s decision was compelled largely because under the Federal Aviation Administration Authorization Act (“FAAAA”), states are not to enact or enforce their own laws related to a price, route, or service of any motor carrier regarding transportation of property. The TRO applies only to the motor carrier industry.
The ABC test presumes that a worker is an employee, not an independent contractor. The hiring party can rebut that presumption only if it can establish each of three factors: