The law in California has been established for some time regarding a lawyer’s duties when an opposing counsel inadvertently produces an attorney client/work product protected document:  

When a lawyer who receives materials that obviously appear to be subject to an attorney-client privilege or otherwise clearly appear to be confidential and privileged and where it is reasonably apparent that the materials were provided or made available through inadvertence, the lawyer receiving such materials should [1] refrain from examining the materials any more than is essential to ascertain if the materials are privileged, and [2] shall immediately notify the sender that he or she possesses material that appears to be privileged. The parties may then proceed to resolve the situation by agreement or may resort to the court for guidance with the benefit of protective orders and other judicial intervention as may be justified.  

State Compensation Insurance Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644, 656-657 (“State Fund”) extended to cover documents protected by the work product doctrine in Rico v. Mitsubishi Motors Corp. (2007) 42 Cal.4th 807, 817-818 (“Rico”).  The rule applies irrespective of whether the documents are marked as “confidential” or “work product.”  Id. The State Fund/Rico rule is an objective one.  To determine whether a lawyer has complied with the State Fund/Rico standard, courts must consider “whether reasonably competent counsel, knowing the circumstances of the litigation, would have concluded the materials were privileged, how much review was reasonably necessary to draw that conclusion, and when counsel's examination should have ended.  Rico, supra., 42 Cal.4th at p. 818, quoting State Fund, supra., 70 Cal.App.4th at pp. 656-657.

The question, however, of whether the State Fund/Rico rule continues to apply when a document is intentionally sent from a source other than the privilege owner/counsel, without owner’s consent, has generated much debate, both in California and elsewhere, with mixed results across jurisdictions. In 2013, California, through State Bar of California Formal Opinion 2013-188, answered the question YES, that a lawyer recipient of an attorney-client privileged document sent without consent of its owner has the same obligations triggered by State Fund/Rico, regardless of whether the source of the privileged documents was the owner itself, owner's counsel, or a third party.   

Formal Opinion 2013-188 analyzed the hypothetical wherein a defense attorney receives an unsolicited email from an anonymous ex-employee Sender, claiming to attach a confidential communication between attorney’s opposing counsel and opposing counsel’s client, employer, purporting to establish that employer was committing a fraud, assisted by opposing counsel.  Formal Opinion 2013-188 concluded that this factual scenario, the intentional transmission of a privileged document without the privilege owner's consent, does not change application of the State Farm/Rico rule.  Noting the core value nature of the attorney client privilege in the American justice system, Formal Opinion analyzed the two prongs of the State Fund/Rico rule trigger: whether a document 1) “obviously appears” or “otherwise clearly appears" to be confidential and privileged; and 2) whether it is “reasonably apparent that the materials were inadvertently disseminated.”  

On the first prong, Formal Opinion 2013-188 reviewed Clark v. Superior Court (2011) 196 Cal. App. 4th 37, 49, which held that the transmission of information between attorney and client is presumptively privileged, regardless of its content.  In the Opinion's hypothetical, the document is identified as communication between Employer and opposing counsel. Thus, it "obviously appears" or "otherwise clearly appears" to be privileged under Clark.

On the second prong, Formal Opinion 2013-188 acknowledged that the document was not received from opposing counsel through inadvertence, but was intentionally transmitted by an anonymous third party.  Nevertheless, given the strong public policies underlying the State Farm/Rico rule to protect the core values of the attorney client privilege, the Opinion concluded that the State Fund/Rico rule applies both when it is "reasonably apparent that the materials were provided or made available through inadvertence" by the privilege holder's counsel himself (the original rule), and when a third party intentionally sends privileged materials to another attorney, and it is reasonably apparent that those materials were sent without their owner's authorization.

Turning to the final issue triggered by the hypothetical, Formal Opinion 2013-188 analyzed whether the potential applicability of the crime fraud exception to the attorney client privilege altered the lawyer recipient’s duties under State Fund/Rico, and allowed recipient attorney to read the attachment, and again concluded no.  Like in any other crime-fraud exception scenario under California law, the recipient attorney would be required to establish the prima facie elements of the crime-fraud exception through non-privileged information to trigger a judicial review of the applicability of the exception.  The Opinion declined to opine whether or not the cover email from ex-employee would be sufficient to prove those prima facie elements. 

Thus, in light of the strong policies underlying the attorney client privilege under California law, Formal Opinion 2013-188 rejected the argument that the method of transmission of a privileged document without consent of its owner should be a distinguishing factor in the applicability of a receiving attorney's ethical obligations upon receipt of that privileged material.  Irrespective of the circumstances under which the attorney receives the document, if it is reasonably apparent that the materials were sent without their owner's authorization, receiving attorney's ethical obligations under State Fund/Rico are triggered and counsel must stop reading, and notify the opposing counsel immediately.  

Practitioners are cautioned that jurisdictions vary widely in approach to this scenario, and that non-California practitioners should consult their own jurisdiction’s approach before proceeding in a similar fact scenario.
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The Connecticut Supreme Court is presently considering whether claims for breach of contract against a contractor for failing to properly construct a building may constitute an “occurrence” under a commercial general liability policy.  At issue in Capstone Development Corp. v. American Motorists Ins. Co., No. SC 18886 are various questions certified from a federal district court in Alabama concerning the availability of insurance coverage for defects in the construction of buildings an the University of Connecticut.

Meanwhile, the U.S. Court of Appeals for the Second Circuit has issued a new ruling calling into question an earlier precedent that insurers have relied on in disputing such claims.  In Scottsdale Ins. Co. v. R.I. Pools, Inc., No. 11-3529 (2d Cir. March 21, 2013), the Second Circuit reversed a Connecticut District Court’s declaration that a liability insurer did not owe coverage for claims brought against its insured by purchasers of swimming pools for damage the purchasers sustained when cracks developed in their pools.  

The District Court had ruled in Scottsdale Ins. Co. v. R.I. Pools, Inc., No. 09-1319 (D. Conn. August 15, 2011) that the insurer had no duty either to indemnify or defend the insured, and was furthermore entitled to the return of funds it had previously expended in the defense of the insured.  On appeal, however, the Court of Appeals recently ruled that the District Court had erroneously relied on a distinguishable Second Circuit precedent and therefore remanded the matter for further proceedings in the District Court.

The District Court had relied on Jakobson Shipyard, Inc. v. Aetna Cas. & Sur. Co., 961 9 F.2d 387 (2d Cir. 1992) in finding that the cracking of the concrete resulting from defects in the insured’s work could not constitute an “accident” or “occurrence.”  The Second Circuit found, however, that there was a crucial difference between the CGL policy that Scottsdale had issued to R.I. Pools and the Aetna policy as issue in Jakobson.  In this case, the Scottsdale “your work” exclusion contained an “exclusion [from coverage] does not apply if the damaged work . . . was performed on [the insured’s] behalf by a sub-contractor.”  The court noted:

Whereas Jakobson held that the insured's faulty workmanship could not be a covered occurrence under the policy, the present policies expressly provide that in some circumstances the insured's own work is covered. As coverage is limited by the policy to “occurrences” and defects in the insured's own work in some circumstances are covered, these policies, unlike the Jakobson policy, unmistakably include defects in the insured's own work within the category of an “occurrence.” 

While therefore remanding the case for further findings as to whether the underlying claims fell within the sub-contractor exception, the Second Circuit held that there was a duty to defend up until the point at which it is legally determined that there is no possibility for coverage under the policies and that Scottsdale therefore had no right to recoup the defense costs up until then.

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Categories: Construction Law | State Law

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Affordable Care Act Upheld

Posted on June 28, 2012 06:14 by Marc E. Williams

This morning the Supreme Court issued its long–awaited decision on the constitutionality of the Patient Protection and Affordable Care Act. The Court upheld the most important feature of the act, the individual mandate, which requires that individuals not covered by health insurance buy coverage or face a “shared responsibility payment.” This mandate was critical to the success of the Act, since the availability of affordable coverage for the millions of uninsured Americans required a large pool of customers. In reviewing the authority of Congress to require this mandate, the Court found that it falls within the taxing power of Article I, Section 8 of the Constitution. The Court also noted that the individual mandate was not an appropriate exercise of Congressional power under the Commerce Clause or the Necessary and Proper Clause. Writing for a plurality of justices, Chief Justice Roberts noted that the questions of the soundness of the policy is not an issue for the court to consider, but only to decide whether it is an appropriate exercise of Congressional authority. Ultimately the Court found that the mandate’s imposition of a penalty for failing to purchase insurance was not commerce that could be regulated by Congress, but would fall within its taxing power. In finding that the mandate was a tax, the Court adopted the position of the Solicitor General, and guaranteed that the issue will continue to resonate in political debates through the November election.


A separate part of the decision considered the constitutionality of a provision of the Act that expanded Medicaid coverage to millions of new individuals. As a result, states were required to adopt new eligibility requirements or risk losing all of its Medicaid funding. The coercive nature of this requirement was the critical feature of the review of this portion of the Act. A complicated plurality of justices held that the expansion was unconstitutionally coercive, but that the remedy for this violation is to strike down the provision allowing the federal government to withhold all Medicaid funds unless a state agrees to the expansion. Accordingly, states that do not agree to the expansion will only lose new Medicaid funding.

For a complete copy of the opinions, see this link: http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf

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A growing trend among employers is requesting applicants’ usernames and passwords to gain access to restricted social media in order to investigate applicants during the hiring process.  In response to this trend, Illinois and Maryland have each recently proposed laws that would essentially ban employers from requesting this type of information.  The main arguments for and against the proposed laws are centered around constitutional privacy concerns, however,  employers should consider that restricting their hiring personnel’s access to this type of information is not as harmful as some opponents have argued.

There are several federal statutes that prohibit employers from considering age, color, race, religion, sex, national origin, disability, medical conditions/information, family history, etc. in making employment decisions.  These laws typically provide that employers may not even elicit such information during the hiring process and sometimes even after an offer of employment has been made.  Social media, like Facebook, is likely to contain some or even all of this information for any particular person.  

For example, the Age Discrimination in Employment Act (ADEA) protects persons age 40 and over from discrimination in the workplace.  In most instances, employers may not ask when the applicant was born, when they graduated high school, or any other questions likely to elicit a person’s age.  A person’s age, however,  is almost always listed prominently on their Facebook ‘info’ page. 

Also, Title VII of the Civil Rights Act of 1964 (Title VII) prohibits employment discrimination based on race, color, religion, sex, or national origin.   In most instances, employers are prohibited from considering any of these attributes during the hiring process.  Again, all these are usually readily apparent on any given person’s Facebook profile.  

If employers are openly asking for usernames and log-in information for various social media during the hiring process, they risk an employment discrimination claim by a rejected applicant.  There are many ways to judge an applicant’s ability to perform a job without resorting to these types of social media investigations.  The proposed laws, however restrictive on employers’ ability to deeply investigate its applicants, may save employers heartache down the road.  

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In its 2011 legislative session, the Alabama Legislature made significant changes affecting the construction industry, specifically relating to the Prompt Payment Act and the Statute of Repose.  This article provides practitioners with an update on those amendments.

A.      Prompt Payment Act

Since 1995, Alabama law has provided a Prompt Payment Act, Ala. Code § 8-29-1 et seq., to assist contractors and subcontractors with recovering prompt payment for their services on construction jobs.  The 2011 amendments modified the maximum retainage provisions included in the Act.  These amendments went into effect on September 1, 2011, and apply to contracts entered into on or after that date. 

The maximum retainage allowed to be withheld by the owner is 10% of the estimated amount of work properly done and the value of materials stored onsite or suitably stored and insured offsite.  Ala. Code § 8-29-3(i).  After 50% project completion has been accomplished, no further retainage may be withheld.  Id.

In practical terms, therefore, an owner is limited to retaining 5% of the total contract sum as security for proper completion of the job (10% of earned payments for the first half of the job). 

Contractors and subcontractors are limited by the same caps.  Any retainage withheld in excess of the allowable amount will accrue interest at the rate of 1% per month (12% per annum).

The owner is required to release and pay retainage to the contractor for work completed on any construction contract no later than sixty (60) days after completion of the contractor's work as defined in its contract or "substantial completion" of the project, whichever occurs first.  Ala. Code § 8-29-3(l)(1).  "Substantial completion" means "the stage in the progress of the project when the project or designated portion thereof is sufficiently complete in accordance with the contract documents with all necessary certificates of occupancy having been issued so that the owner may occupy or use the project for its intended purpose."  Ala. Code § 8-29-3(l)(2).

The contractor is required to release and pay retainage to its subcontractors for work completed in accordance with the payment terms agreed to in the parties' contract, but if payment terms are not agreed to, then within seven (7) days of receipt of payment from the owner.  Ala. Code § 8-29-3(l)(1); Ala. Code § 8-29-3(b).  Owners, contractors, and subcontractors may condition payment on the receipt of a full release of any lien of the contractor, subcontractor, or sub-subcontractor for the amount of work being paid.  Ala. Code § 8-29-3(n).

The Prompt Payment Act does not apply to:  (1) residential home builders; (2) improvements to real property intended for residential purposes which consist of 16 or fewer residential units; (3) contracts, subcontracts, or sub-subcontracts in the amount of $10,000.00 or less; or (4) contracts with state or local governments (although these contracts do have the benefit of payment bonds under Alabama's Little Miller Act, Ala. Code § 39-1-1 et seq.).  Ala. Code § 8-29-7. 

In addition, the Prompt Payment Act is not applicable in civil actions to enforce mechanics' or materialmen's liens under Ala. Code § 35-11-210 et seq.  Ala. Code § 8-29-8.  Finally, the retainage caps and 60-day rule do not apply to construction projects for or by an electric utility regulated by the Public Service Commission.  Ala. Code § 8-29-3(m).

B.      Statute of Repose.

The 2011 legislative session also saw amendments to the Statute of Repose that significantly limit the potential liability of architects, engineers, and general contractors for damages relating to their work on construction projects.  Ala. Code § 6-5-220 et seq.

The amendments provide that no lawsuit may be filed against any architect, engineer, or licensed general contractor for any cause of action (whether in contract, tort, or otherwise) which arises more than seven (7) years after substantial completion of the construction project.  Ala. Code § 6-5-221(a).  (Formerly, lawsuits could be filed up to thirteen (13) years after substantial completion of a project.) 

Under the statute, a cause of action "arises" at the time of injury or, where the injury is latent in nature, at the time the injury should reasonably be discovered.  Ala. Code § 6-5-220(e).  In general, a lawsuit must be brought within two (2) years after the cause of action arises, Ala. Code § 6-5-221(a), but a latent defect may not cause any actual injury or be discovered for many years after the project has been completed. 

Before the current legislation, a latent defect could create a situation where potential liability could go on almost indefinitely.  Under the amended Statute of Repose, however, if the cause of action does not arise within seven (7) years of substantial completion of the project, then the injured party is forever barred from filing a lawsuit against the architect, engineer, and general contractor on the project. 

The amendments are not retroactive, so the new time limits will only apply to projects that are substantially completed on or after September 1, 2011.

Jaime W. Betbeze
Hand Arendall LLC
Mobile, AL
jbetbetbeze@handarendall.com

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As my pastor said in Church this past Sunday, "What are we waiting for?"  In other words, don’t wait until doomsday to get your house in order.  If you aren't in compliance with CSA now, take advantage of the winter slowdown to get there. Take 1 step this week to move towards compliance before you get hit. Here are few easy ways to save your company from racking up points. (All citations below to Code of Federal Regulations.)


Pull your drivers’ personnel files and double check everything is up to date:
Medical certificate not up to date – 1 point (391.41(b)(3))
No double-triple endorsement on the CDL – 3 points (383.93)
Operating without a valid CDL -- 3 points (383.23(a)(2))
Allowing driver to operate with a suspended or revoked CDL – 6 points (383.37(a))
Allowing driver under 21 years of ago drive interstate – 6 points (391.11(b)(1))

Hold a safety meeting and remind drivers about necessary details about their log books including:
Failure to sign the log book – 2 points (395.8(d)(5))
Failure to retain prior 7 days of log book – 5 points (395.8)
Hours of service violations – 7 points (various)
Failure to list motor carrier name in log – 2 points (395.8(f)(6))

Remind drivers that safety is priority one: 
Failure to wear seatbelt – 1 point (393.16)
Allowing an unauthorized passenger aboard – 1 point (392.60)
Smoking within 25 feet of a HM (hazardous material) vehicle – 1 point (397.13)

As you can see, some of these are heavily weighted, but so easy to prevent. Take the time now to protect your companies, your drivers, and yourself from a potential doomsday.

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Barbie Rockin' without Permission

Posted on December 28, 2010 07:06 by David H. Levitt

According to the article appearing on DRI Today from Courthouse News, Mattel/Barbie are once again heading to court.  The Hard Rock Barbie series sought permission from Cyndi Lauper and Joan Jett for dolls modeled after them, but neglected to seek permission from Patricia Day of HorrorPops for this version.  It is noteworthy that Ms. Day has chosen Indiana as the venue for her right of publicity lawsuit.  The right of publicity is a creature of state law, not federal law, and Indiana is considered by many to have among the most far-reaching right of publicity statutes.  The choice of law decision by the federal court will be interesting, since Ms. Day is from Denmark (the Complaint does not allege in which U.S. state she resides) and the target defendants are based in California (Mattel) and Florida (Hardrock International).  In addition to the right of publicity, the lawsuit also claims false association and false endorsement as a violation of Section 1125(a) of the Lanham Act.

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