The Lawletter Vol 36 No 7
Doug Plank, Senior Attorney, National Legal Research Group
The importance of the discovery requirements announced in Brady v. Maryland, 373 U.S. 83 (1963)—and the shocking manner in which prosecutors still disregard those requirements—were recently highlighted by the U.S. Supreme Court in its decision in Smith v. Cain, No. 10-8145, 2012 WL 43512 (U.S. Jan. 10, 2012), in which the Court reversed the Louisiana conviction of a defendant who had been found guilty of five counts of first-degree murder. Since Brady, it has been well understood that the due process provisions of the Fifth and Fourteenth Amendments to the U.S. Constitution require prosecutors to turn over to defendants any and all evidence that could be deemed to be exculpatory, including evidence that might be used to impeach prosecution witnesses.
In Smith, the defendant had been accused of killing five persons in a home invasion robbery, and, at trial, the sole identification evidence against the defendant came from a single eyewitness who had been present at the home with the victims during the robbery. The witness testified at trial that he was certain that the defendant had been the killer, claiming that he had been face-to-face with the defendant during the initial moments of the robbery. However, during the police investigation of the case, this same witness had told police that he could not identify anyone because he had not been able to see any faces during the crime and "would not know them if [he] saw them." Id. at *2. Consequently, the investigating officer's typewritten report of the interview with the witness stated that the witness "could not identify any of the perpetrators of the murder." Id.
None of these facts were ever revealed to defense counsel during discovery, and they came to light only after the trial, when defense counsel began to pursue postconviction relief. Remarkably, the state trial court denied the defendant's request for relief under Brady, and the Louisiana appellate courts affirmed.
In a brief opinion for the 8-1 Supreme Court, Chief Justice Roberts easily found that the eyewitness's pretrial statements to police had been both favorable to the defendant and material to the determination of guilt. Because the Court believed that the undisclosed statements were sufficient to undermine confidence in the defendant's conviction, the Court ordered the judgment of the trial court to be reversed. Justice Thomas dissented, arguing that the defendant should have been required to show a "reasonable probability" that the jury would have been persuaded by the undisclosed information, and he contended that this burden had not been met.
Id. at *3 (Thomas, J., dissenting).
The Lawletter Vol 36 No 7
Matthew McDavitt, Senior Attorney, National Legal Research Group
It is sometimes unclear whether particular governmental bodies enjoy the broad-based blanket immunity afforded to political subdivisions of states, such as counties, or whether the more limited "governmental function" immunity applies, granting protection from tort suit regarding only political, discretionary, or legislative functions.
"A function is governmental if it is directly tied to the health, safety, and welfare of the citizens." Niese v. City of Alexandria, 264 Va. 230, 239, 564 S.E.2d 127, 132 (2002) (citation omitted) (internal quotation marks omitted). Where governmental function immunity applies, any actions deemed to be "proprietary" in nature, i.e., those performed for the private benefit of the governmental bodyClikened to for-profit activities of private corporations such as distributing water to households for a feeCare not immune from suit.
Case law confirms that the water authorities generally do not enjoy the blanket immunity from tort suit that counties do, but merely the limited "governmental function" immunity afforded to municipal corporations.
A characteristic example of a function undertaken by cities and towns in their private or proprietary capacity is the distribution of water to their inhabitants for domestic purposes. Such a function is one that is often performed by private water companies, and when assumed by a municipal corporation it is a purely commercial transaction between the municipality as a dealer and the citizen as a customer. While an ample supply of fine water doubtless enhances the public health, this result is merely incidental, and the primary object of a city or town in securing a water supply is to increase the comfort and convenience of its own inhabitants. It is accordingly well settled that a municipal corporation is liable for the negligence of its employees in connection with its water department to the same extent as a private company.
City of Richmond v. Va. Bonded Warehouse Corp., 148 Va. 60, 71, 138 S.E. 503, 506 (1927) (citation omitted) (internal quotation marks omitted). Additionally, an unpublished trial order of the Circuit Court of Virginia, City of Roanoke, similarly held that public water authorities created pursuant to the Virginia Water and Waste Authorities Act, Va. Code Ann. §§ 15.2-5100 through -5158, constitute municipal corporations, even where created under the auspices of counties. "[T]he General Assembly intentionally withheld full sovereign immunity from entities chartered under the Water and Waste Authorities Act. As a municipal corporation, the Authority is entitled to assert, and to try to prove, that it is entitled to governmental-function immunity [only]." Robertson v. W. Va. Water Auth., No. CL07-1316, 2011 WL 3295668 (Va. Cir. Ct. City of Roanoke July 25, 2011). Finally, in a recent opinion, an Attorney General concluded that
It is my opinion that a water authority created pursuant to the Virginia Water and Waste Authorities Act is a public body, specifically, a municipal corporation. . . . As a municipal corporation, sovereign immunity shields a water authority from liability for its governmental functions, but not its proprietary functions.
Op. Va. Att'y Gen. 06-060, 2006 WL 4286453, at *3 (Oct. 31, 2006). As a result, proprietary functions performed by Virginia water authorities, such as installing or removing meters in private homes or terminating water service, are acts not immune from tort suit, and such water authorities are fully liable for the negligence of their employees, just as a private person or corporation would be.
February 7, 2012
Steve Friedman, Senior Attorney, National Legal Research Group
The Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1692–1692p, is a federal consumer protection statute intended "to promote consumers' 'informed use of credit' by requiring 'meaningful disclosure of credit terms[.]'" Chase Bank USA v. McCoy, 131 S. Ct. 871, 874 (2011) (quoting 15 U.S.C. § 1601(a)). Pursuant to its authority under TILA, the Board of Governors of the Federal Reserve System has promulgated Regulation Z, codified as 12 C.F.R. part 226, "which requires credit card issuers to disclose certain information to consumers." Id. Among other things, TILA and its implementing Regulation Z give the consumer-borrower a remorse period in which to rescind a transaction.
Significantly, when the TILA notice is provided in writing, as opposed to electronically, Regulation Z requires that lenders "deliver two copies of the notice" and that such notice include "[t]he date the rescission period expires." 12 C.F.R. § 226.23(b)(1). Ordinarily, the rescission period is three business days, see 15 U.S.C. § 1635(a), but that period is extended to three years if the requisite notice of the right to cancel is not delivered to the borrower, see 12 C.F.R. § 226.23(a); see also 15 U.S.C. § 1635(f). This distinction proved critical in a recent case from the U.S. Court of Appeals for the Ninth Circuit.
In Balderas v. Countrywide Bank, No. 10-55064, 2011 WL 6824977 (9th Cir. filed Dec. 29, 2011), a Spanish-speaking couple alleged that they had been pressured by a bank and its representatives to enter into a mortgage loan that the bank knew they could not afford and on terms they did not agree to. Among other theories, the plaintiffs sought to rescind the entire transaction, alleging that they had been given defective copies of TILA's notice of right to cancel in that the notice did not include the date on which their right to rescind expired. However, the district court granted the bank's Rule 12(b)(6) motion to dismiss, because the court determined that the plaintiffs had been entitled under TILA to only a three-day rescission period, which had elapsed prior to the filing of their lawsuit. The court's decision was based upon a copy of a nondefective notice-of-right-to-cancel letter bearing the plaintiffs' signatures, attached as Exhibit 14 to the complaint, that included an acknowledgment that the plaintiffs had received two copies of said notice. Upon the plaintiffs' appeal, the Ninth Circuit reversed and remanded.
Initially, the appellate court recognized that the plaintiffs' signatures on the disclosure statement did not conclusively prove that it had been delivered to them as required by TILA. "[P]roviding someone a document long enough to sign it does not comply with 12 C.F.R. § 226.23(b)(1), which requires the lender to 'deliver' copies of the Notice of the Right to Rescind to the consumer." Id. at *3. By using the word "deliver," Regulation Z undoubtedly commands that the consumer be allowed to keep the notice. See also 12 C.F.R. § 226.17(a)(1) (the requisite written disclosures must be provided "in a form that the consumer may keep"). The court drove this point home by relating a couple of common-sense analogies: "When you have pizza delivered, you don't sign for it and let the deliveryman take it back to the restaurant. And when a newspaper boy delivers a paper, he doesn't show you the headlines and then return it to the printer." 2011 WL 6824977, at *3.
Furthermore, the appellate court noted that the plaintiffs' signed acknowledgment of receipt of the requisite notice was merely prima facie evidence of delivery. "Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under this subchapter by a person to whom information, forms, and a statement is required to be given pursuant to this section does no more than create a rebuttable presumption of delivery thereof." 15 U.S.C. § 1635(c).[1] Admittedly, the presumption will certainly be helpful to the bank when the trier of fact is called upon to decide whether the plaintiffs received proper TILA notice, e.g., upon a motion for summary judgment. But such presumptions are inappropriate in the context of a Rule 12(b)(6) motion, wherein the plaintiffs' factual allegations must be accepted as true. And in this case, the plaintiffs sufficiently stated facts to support their plausible assertion that they had not received a properly prepared notice of right to cancel as required by TILA.
In sum, there are three important lessons to be learned from the
Balderas case. First, on a substantive point, Regulation Z's "delivery" mandate means that the consumer-borrower must be allowed to keep a copy of the requisite notice of right to cancel; a mere visual inspection by the consumer is not sufficient. Second, a practical and strategic tip for plaintiff's counsel is that "it's unwise to use a complaint as an ersatz document production." 2011 WL 6824977, at *2. Absent Exhibit 14 attached to the complaint, the Balderases' written acknowledgment of the TILA disclosures would not have been in issue upon the bank's motion to dismiss. This last statement dovetails nicely into the third lesson learned from
Balderas: While it is by no means a lesson introducing a groundbreaking legal principle, counsel must recognize the distinct standards of review applicable to motions to dismiss versus those for summary judgment, and that such differences are often dispositive.
[1]But see 15 U.S.C. § 1641(b) ("Except as provided in section 1635(c) of this title, in any action or proceeding by or against any subsequent assignee of the original creditor without knowledge to the contrary by the assignee when he acquires the obligation, written acknowledgment of receipt by a person to whom a statement is required to be given pursuant to this subchapter shall be conclusive proof of the delivery thereof[.]").
January 24, 2012
John F. Buckley IV, Senior Attorney, National Legal Research Group
In 2007, the State of Arizona enacted the Legal Arizona Workers Act, Ariz. Rev. Stat. §§ 23-211 to -216, which imposed what were at the time the nation’s toughest sanctions against employers that knowingly hired undocumented workers. The Act provided that an Arizona business caught in more than one such violation would lose its license to operate. In addition, the Act required all employers to check the legal status of their new hires using the federal E-Verify program. A federal court challenge to the new law was unsuccessful at the district court level, and, on March 1, 2008, Arizona’s county prosecutors became authorized to prosecute employers for violations of the Act. On May 1, 2008, Arizona’s governor signed legislation amending the Act to provide additional safeguards for employers who made good-faith efforts to comply with the law.
In the meantime, the federal court challenge to the Act worked its way up to the Court of Appeals for the Ninth Circuit, which affirmed the district court’s order upholding the Act. Chicanos por la Causa, Inc. v. Napolitano, 558 F.3d 856 (9th Cir. 2009). Ultimately, the case reached the U.S. Supreme Court, and, on May 26, 2011, the Court upheld the Act in a 5-3 decision, U.S. Chamber of Commerce. v. Whiting, 131 S. Ct. 1968 (2011). First, the Court determined that the provision of the Act allowing suspension and revocation of business licenses fell within the federal Immigration Reform and Control Act’s (“IRCA”) savings clause for licensing laws and that, therefore, the provision was not expressly preempted by the federal law. The Court noted that the Arizona law did no more than impose licensing conditions on businesses operating within the state. Although the IRCA prohibits states from imposing civil or criminal sanctions on those who employ unauthorized aliens, it expressly preserves state authority to impose sanctions through licensing and similar laws. Next, the Court held that the provision was not impliedly preempted by the IRCA, as the regulation of in-state businesses through licensing laws does not involve uniquely federal areas of interest and the operation of the Arizona law does not interfere with the operation of a federal program. Finally, concerning the Arizona law’s E-Verify requirement, the Court held that the requirement was not preempted, either expressly or impliedly, by any provision of federal law. Although the federal Illegal Immigration Reform and Immigrant Responsibility Act of 1996 made the E-Verify program voluntary at the national level, it expressed no intent to prevent the states from mandating participation in the program, and Arizona’s use of the program did not conflict with the federal scheme.
The Lawletter Vol 36 No 6
Brad Pettit, Senior Attorney, National Legal Research Group
A recent advisory issued by the Chief Counsel's Office of the Internal Revenue Service ("IRS") sets forth the IRS's position on the procedures that its agents must follow in order to obtain a taxpayer's e-mails from his or her Internet service provider ("ISP"). In I.R.S. Chief Counsel Advisory ("I.R.S. C.C.A.") 2011-41-017 (July 8, 2011), the IRS interpreted provisions of the Internal Revenue Code relating to examination of a taxpayer's records, the Stored Communications Act ("SCA"), and a decision by the U.S. Court of Appeals for the Sixth Circuit, and concluded that there are certain restrictions on the ability of an IRS agent to issue a summons to a taxpayer's ISP, seeking the contents of a taxpayer's electronic communications.
The Internal Revenue Code provides that
For the purpose of ascertaining the correctness of any return, making a return where none has been made, [or] determining the liability of any person for any internal revenue tax . . . , the Secretary [of the Treasury] is authorized—
(1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry;
(2) To summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary may deem proper, to appear before the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry[.]
I.R.C. § 7602(a)(1)–(2). The federal SCA states that
[a] governmental entity may require the disclosure by a provider of electronic communication service of the contents of a wire or electronic communication, that is in electronic storage in an electronic communications system for one hundred and eighty [180] days or less, only pursuant to a warrant issued using the procedures described in the Federal Rules of Criminal Procedure (or, in the case of a State court, issued using State warrant procedures) by a court of competent jurisdiction.
18 U.S.C. § 2703(a). The Sixth Circuit, relying on the Fourth Amendment to the U.S. Constitution, recently held that since an Internet "subscriber enjoys a reasonable expectation of privacy in the contents of emails that are stored with, or sent or received through, a commercial ISP[, t]he government may not compel a commercial ISP to turn over the contents of a subscriber's emails without first obtaining a warrant based on probable cause." United States v. Warshak, 631 F.3d 266, 288 (6th Cir. 2010) (emphasis added) (citations omitted) (internal quotation marks omitted), reh'g and reh'g en banc denied, 2011 U.S. App. LEXIS 5007 (6th Cir. Mar. 7, 2011). The Warshak court also ruled that "to the extent that the SCA purports to permit the government to obtain such emails warrantlessly, the SCA is unconstitutional." Id. However, the Warshak court applied the so-called "good-faith reliance by an officer" exception to the exclusionary rule and determined that the IRS had not violated the taxpayer's constitutional rights by obtaining the e-mails at issue in that case. Id. (citing Illinois v. Krull, 480 U.S. 340, 349-50 (1987)).
In I.R.S. C.C.A. 2011-41-017, the IRS Chief Counsel advised that since an agent must obtain a warrant in order to gain access to the "contents" of a taxpayer's electronic communications that are less than 180 days old from the taxpayer's ISP, the summons issued by the IRS to an ISP in that case should have been withdrawn. I.R.S. C.C.A. 2011-41-017 concl. 1. However, the Chief Counsel also advised that with respect to the "contents" of a taxpayer's e-mails or other electronic communications that are more than 180 days old, there is a "warrantless" administrative summons procedure described in 18 U.S.C. § 2703(c)(2) that can be followed by an IRS agent in order to obtain such communications from the taxpayer's ISP. Id. Furthermore, the Chief Counsel noted that various federal courts "have recognized that a warrant is not required by the Constitution for a government entity to require an electronic communications provider to produce a customer's non‑content information regarding an electronic communication." Id. concl. 3 (emphasis added). In addition, the Chief Counsel advised as follows:
Pursuant to 18 U.S.C. § 2703(c)(2)(F), the Service may continue to use an administrative summons upon an ISP (with no "notice" to the affected customer) to request, inter alia, the "means and source of payment" for the ISP's electronic communication services to the customer, "including any credit card or bank account number." Through follow‑up requests based on this ISP customer payment information, if sought in a new summons, the revenue officer may indirectly obtain some of the potential collection asset leads he is interested in pursuing further in this case.
Id.
The above-described rulings by the IRS provide up-to-date guidance as to the IRS's position on the procedures that an IRS agent must follow in order to review the content of a taxpayer's e-mails or other electronic communications. However, it should be noted that under I.R.C. § 6110(j)(3), the Chief Counsel's Advisory "may not be used or cited as precedent." For additional discussion of I.R.S. C.C.A. 2011-41-017 and the issues surrounding the IRS's right to review a taxpayer's e-mails, see
Chief Counsel Nixes IRS Agent's Attempt to Get Taxpayer Emails from Internet Service Provider, 57 Fed. Taxes Weekly Alert (RIA) art. 9 (Oct. 20, 2011).
The Lawletter Vol 36 No 6
John Stone, Senior Attorney, National Legal Research Group
The California Invasion of Privacy Act ("Act"), Cal. Penal Code § 632, prohibits unconsented-to recording or monitoring, regardless of the content of the conversation or the purpose of the monitoring. The law is intended to protect rights that are separate and distinct from the right to prevent the disclosure of improperly obtained private information, and it requires the assent of all parties to a communication before another person may listen. An actionable violation of the Act occurs the moment a surreptitious recording or eavesdropping takes place, regardless of whether it is later disclosed.
In Kight v. CashCall, Inc., 200 Cal. App. 4th 1377, 2011 WL 5829678 (Nov. 21, 2011), the court reversed a summary judgment for the defendant company, finding that a lending corporation was potentially liable for violating the Act's prohibition against eavesdropping on telephone calls, without the consent of all parties, if it had directed one or more of its employees to secretly listen to a telephone conversation between a borrower and another employee. The legislature enacted the Act prohibiting the recording of confidential communications to ensure an individual's right to control the firsthand dissemination of a "confidential communication," and the legislature further expressed its intent to strongly protect an individual's privacy rights in electronic communications.
During the relevant period for the class action, CashCall randomly monitored 547 calls to and from the servicing department: 225 inbound calls and 322 outbound calls. The calls were monitored for quality control purposes to ensure that CashCall employees were following CashCall's policies and procedures and applicable laws governing debt collections. Supervisors monitored calls either electronically by using software or by physically sitting next to the representative and "plugging" in to the call. For purposes of the summary adjudication motion, it was assumed that the calls were not recorded; the supervisor would listen to the call while the conversation was occurring.
While in many cases of incoming calls the customer heard the familiar recording that "[t]his call may be monitored or recorded for quality control purposes," it was not always the case, and it was never the case on outgoing calls. At the beginning of the borrower relationship, CashCall generally provided written notice to all borrowers that information disclosed to CashCall would be disseminated to "those employees who need to know that information to provide products or services to you."
A "person" is defined in the Act broadly to include business entities like the defendant in Kight. Based on the facts before it, the appellate court ruled that the lender corporation had potentially violated the Act's prohibition against eavesdropping on telephone calls if the borrowers had had a reasonable expectation that their telephone conversations with its employees were not being secretly overheard by other employees, even if the borrowers knew that the information in their calls would eventually be disseminated to other employees.
A communication is "confidential" under the Act if a party to the conversation has an objectively reasonable expectation that the conversation is not being overheard or recorded, Flanagan v. Flanagan, 27 Cal. 4th 766, 41 P.3d 575 (2002), and that is generally a question of fact in an action under the Act. (This standard is to be distinguished from any requirement that a party to the conversation had a reasonable expectation that the contents of the conversation would be kept secret.) In the case before the court, CashCall argued that the telephone conversations were not confidential as a matter of law, because the undisputed evidence established that all callers had been informed, at least at the outset of the borrower/lender relationship, that calls might be monitored. However, there was a genuine issue of material fact as to whether notice of monitoring had been disclosed to borrowers during all telephone calls, regardless of what the company might have said to a customer at an earlier point in time. The presence of this issue should have precluded summary adjudication for the lender on the borrowers' class action claims for violations of the Act, so the case was remanded to the lower court for further proceedings.
The Lawletter Vol 36 No 6
Alistair Edwards, Senior Attorney, National Legal Research Group
For obvious reasons, one's decision to purchase or not to purchase a home may be impacted by the knowledge that there was a previous murder or suicide (or a combination of both) at the home. Does the seller have a duty to disclose this sort of information to a potential purchaser? Does the failure to disclose this information before the sale is accomplished amount to an actionable fraud or a negligent misrepresentation on the part of the seller?
Recently, in Milliken v. Jacono, 2011 PA Super 254, 2011 WL 5936768, a Pennsylvania court suggested that a home seller may be required to disclose to a potential purchaser that the house had been the site of a murder-suicide involving the home's prior owners. First, the court considered whether there was a duty to disclose this information under Pennsylvania's Real Estate Seller Disclosure Law ("RESDL"), 68 Pa. Cons. Stat. §§ 7301–7315. The RESDL requires that a seller of residential real estate disclose to a buyer any material defect with the property. See 68 Pa. Cons. Stat. § 7303. The court indicated that the murder-suicide history would constitute a material defect under the RESDL if it were to have a significant adverse impact on the value of the property. The court went on to hold that there was a genuine issue of material fact on the issue of a material defect under the RESDL, thereby precluding the defendant seller's and real estate agents' motion for summary judgment on the purchaser's claim for a RESDL violation.
Likewise, the court also held that there were genuine issues of material fact as to the purchaser's claims for fraud and negligent misrepresentation (as well as the Unfair Trade Practices and Consumer Protection Law claim). As with the RESDL claim, the court held that there were factual disputes concerning whether the murder‑suicide incident was a material defect. With respect to the fraud claim, the court commented:
Whether a fact is material in the context of a fraud claim hinges on whether the transaction would have been consummated if the other party knew of the fact. See Skurnowicz v. Lucci, 798 A.2d 788, 793 (Pa.Super.2002). Here, Buyer has alleged that had she known of the murder suicide, she would not have purchased the property. R. at 268a. Based on the foregoing, we conclude that whether Sellers and Agents failed to disclose a material fact was a question for the jury. See Alloway v. Martin, 434 Pa.Super. 518, 644 A.2d 201, 204 (Pa.Super.1994) (stating that "fraud is a question of fact for the trier‑of‑fact to decide"). Accordingly, we conclude that the trial court erred in granting Sellers and Agents summary judgment on Buyer's fraud claim.
2011 WL 5936768, at *6.
It is important to consider that the above decision was based purely on Pennsylvania law. Other state courts have also had an opportunity to consider the issue of a seller's (or real estate agent's) duty to disclose the type of information involved in
Milliken.
See, e.g.,
Reed v. King, 145 Cal. App. 3d 261, 193 Cal. Rptr. 130 (1983) (purchaser stated a cause of action against vendor and real estate agent for vendor's failure to disclose that house was site of a multiple murder). Moreover, other States may have enacted disclosure laws that expressly require a seller to disclose this type of information.
January 17, 2012
Fred Shackelford, Senior Attorney, National Legal Research Group
As the cost of medical treatment in the United States continues to increase, health-care providers and patients must often weigh the costs and benefits of various treatment options in deciding what course of treatment to follow. Until recently, there was apparently little or no case law directly addressing the effect of treatment cost considerations on a health-care provider's potential liability for medical malpractice.
However, in Murray v. UNMC Physicians, 282 Neb. 260, ___ N.W.2d ___, 2011 WL 4104935 (2011), the court addressed the novel issue of whether the standard of care in a medical malpractice action may be affected by the cost of treating a patient. In Murray, a patient had been suffering from pulmonary arterial hypertension, a chronic condition in which blood vessels in the lungs constrict, causing pressure on the heart that can cause heart failure. The condition can be treated by a vasodilator known as Flolan, but this treatment costs roughly $100,000 per year, and if this treatment is begun, it must generally be continued for the rest of the patient's life. If the treatment is discontinued, pulmonary blood pressure rebounds and can be life-threatening. In Murray, the treating hospital's practice was to wait for the patient's insurance company to approve the treatment before beginning it, as most patients cannot afford the drug and it is more dangerous if treatment is started and then stopped. Unfortunately, Mrs. Murray died before the Flolan treatment was begun, and a medical malpractice complaint asserted that treatment should have been started before obtaining insurance approval.
At trial, the defendant hospital presented witnesses who testified that the standard of care required finding some source of payment for the Flolan treatment but that if insurance was unavailable, it was usually possible to find some other payment on a "compassionate need basis" within the 12-week period that was purportedly appropriate for treating the condition. The jury returned a general verdict for the hospital, but the trial court granted a motion for new trial, concluding that "a medical standard of care cannot be tied to or controlled by an insurance company or the need for payment." 2011 WL 4104935, at *3. The trial court added:
The "bean counters" in an insurance office are not physicians. Medicine cannot reach the point where an insurance company determines the medical standard of care for the treatment of a patient. Nor, can we live in a society where the medical care required is not controlled by the physicians treating the patient. The position advanced by [UNMC's] expert tells us that the standard of care is different for those with money than for those without. This is neither moral nor just. It is wrong.
Id.
On appeal, the Murray court noted that the issue of whether a medical standard of care can appropriately be premised on cost considerations was a matter of first impression in Nebraska. Furthermore, the "parties have not directed us to (nor are we aware of) any other authority speaking directly to that issue." Id. at *6. (However, the court noted that a number of commentators have addressed the issue in various legal publications.) The court observed that, in general, identification of the standard of care is a question of law, while the issue of whether a party breached the standard and was negligent is an issue of fact. Id. "Malpractice," the court reiterated, is defined as a "failure to use the ordinary and reasonable care, skill, and knowledge ordinarily possessed and used under like circumstances by members of [the] profession engaged in a similar practice." Id.
The Murray court concluded that the trial court had erroneously granted a new trial, for three reasons. First, the trial court had misunderstood a defense expert's testimony to mean that treatment was required by the standard of care regardless of how it was to be paid for. Instead, the expert's basic opinion was that because of the risks associated with interruption of treatment, the standard of care requires a doctor to make sure that a payment source is in place before beginning Flolan treatment.
Second, the standard of care is mandated by statute, and the defense witnesses testified that the hospital's policy was consistent with the statutory standard inasmuch as other health-care providers in the same or similar communities also deferred Flolan treatment until payment for a continuous supply had been secured.
Finally, the Murray court decided that the trial court's concerns about health-care policy had been misplaced "in a situation in which the patient's ability to continue to pay for treatment [was] still a medical consideration." Id. at *7 (court's emphasis). The court found that there was no evidence that the decision to defer treatment had been based on the hospital's concern for its own financial interests. The hospital's "physicians were weighing the risk to Mary's health of delaying treatment against the risk to Mary's health of potentially interrupted treatment." Id. (court's emphasis). The court compared the defendants' medical decision in Mary's case to other situations in which treatment decisions might be based upon the patient's individual circumstances:
As explained by Murphy, Thompson, and Johnson, the reason for waiting to begin Flolan until after insurance approval had been obtained was out of concern for the health of the patient. That was not meaningfully different from any number of other circumstances in which a health care provider might have to base a treatment decision upon the individual circumstances of a patient. For instance, a physician with concerns about a particular patient's ability to follow instructions, or report for appropriate followup care, might treat the patient's condition differently in the first instance. And a health care provider who is told that a patient cannot afford a particular treatment may recommend a less expensive but still effective treatment, reasoning that a treatment that is actually used is better than one that is not. These are difficult decisions, and there may be room to disagree, but it is hard to say they are unreasonable as a matter of law, or that an expert cannot testify that such considerations are consistent with the customary standard of care.
Id.
The Murray court noted that the plaintiff's witnesses had been free to disagree with the defendants' experts as to whether the standard of care required more than those experts had said it did. Moreover, the evidence might have shown that in light of the patient's deteriorating condition, there was little risk in beginning Flolan treatment before securing a payment source. Id. at *8. Thus, the jury could have found that the standard of care required Flolan to have been administered immediately, but the trial court had erred in concluding that it should have directed a verdict on the standard of care. Id.
The Murray court characterized its holding as being limited, stating that it was not deciding "whether the standard of care can or should incorporate considerations such as cost control or allocation of limited resources." Id. The court added:
Although the decision (or lack thereof) of a third‑party payor contributed to the circumstances of this case, UNMC's decisions were still (according to its evidence) premised entirely upon the medical well‑being of its patient. In a perfect world, difficult medical decisions like the one at issue in this case would be unnecessary. But we do not live in a perfect world, and we cannot say as a matter of law that UNMC's decisions in this case violated the standard of care.
Id.
The Murray decision may well be the first of many cases that will grapple with the issue of how cost considerations may affect the standard of care in medical malpractice cases. As health-care costs continue to rise and exert pressure on the resources of private and governmental insurance sources, it is likely that this issue will be addressed in many jurisdictions in the future.
January 3, 2012
John Stone, Senior Attorney, National Legal Research Group
It should not come as a surprise to most people that when an individual gets a driver's license from a State, he or she necessarily gives the State some personal information that is then stored in a database for use by the Division of Motor Vehicles ("DMV"). Typically this information includes name, address, telephone number, vehicle description, Social Security number, some medical information, and a photograph. What may not be so commonly known is that the States legally can and do turn around and sell that information to individuals, businesses, and other governmental entities.
There are some federal statutory limits on the States' ability to sell DMV driver record information. In a recent case, Howard v. Criminal Information Services, 654 F.3d 887 (9th Cir. 2011), the Ninth Circuit heard appeals from two essentially identical class actions that had been filed in two different states, by different groups of plaintiffs, seeking damages on the ground that their personal information had been obtained by defendant companies in violation of the Driver's Privacy Protection Act ("DPPA"), 18 U.S.C. §§ 2721–2725. That statute provides that personal information from state driver's license databases can be obtained, disclosed, or used only for certain specified purposes. The 14 enumerated permissible purposes include, in addition to those directly related to motor vehicles, such purposes as court or law enforcement functions; verification of information by businesses, including employers; research activities; and insurance purposes. All in all, the list and scope of permissible purposes for obtaining DMV information on drivers is rather broad, and it is little wonder that companies decide to mine these databases.
In the case before the Ninth Circuit, a newspaper company had used the information in reporting stories involving the operation or safety of motor vehicles. Another company had found the information helpful in performing background checks; it used the information to verify personal information submitted by the person about whom the background check was being performed. Another of the defendants had used the information to perform research about motor vehicles. A parking lot management business had used the information to check information provided by its customers and to provide notice to owners of towed or impounded vehicles. These businesses had determined that it is neither efficient nor cost-effective to request records piecemeal—that is, individually, each time they had a need for the information—or to be limited to getting the information during business hours when the state agency is open. Instead, they purchased the entire database from the State "in bulk" so as to be able to access specific information as and when the need arose.
Thus, in the consolidated cases, each of the defendants had purchased driver record information in advance and in bulk so that it would have the information available for its possible future use. The plaintiffs did not complain that the ultimate use of the information by any of the defendants had been for a purpose not permitted under the DPPA. They argued, however, that the DPPA forbids bulk purchasing of drivers' personal information for future use, because obtaining the information for future use is not itself a permitted purpose under the DPPA. Joining other courts that had dealt with similar claims, the Ninth Circuit concluded that the defendants' actions, sometimes referred to as "stockpiling" information, were not unlawful under the DPPA, and it affirmed the dismissal of the actions by the federal district courts.
The plaintiffs' allegation that the defendants had obtained the information for the improper purpose of stockpiling misconstrued the meaning of "purpose." "Purpose" is defined as something that one sets before oneself as an object to be attained, an end or aim to be kept in view. Stockpiling was plainly not the defendants' "purpose" for obtaining the information, as that term is used in the statute. The object or end to be attained by the defendants in obtaining the driver record information—the reason they wanted the information—was not just to have it available: The defendants had obtained the information so that they would be able to use it for eventual or ultimate purposes that the plaintiffs conceded were allowed by the statute.
The plaintiffs' argument also confused the defendants' purposes for obtaining the information with their reasons for obtaining the information in bulk form. By purchasing the entire database in bulk rather than waiting to obtain individual records when they were needed, the defendants no doubt wanted to make their access to the information easier when the time came to use it, and they also probably hoped to get the information at a lower cost than would be incurred by requesting one record at a time. But those were not, in any real sense, the "purposes" for obtaining the information. At this point in its reasoning, the court employed an unusual, though apt, analogy:
Someone who buys toilet paper in a package of 48 rolls from a warehouse store, for example, ordinarily buys it for the same purpose as the person who buys it one roll at a time. That it might save money or extra trips to the store to buy in bulk isn't why the toilet paper is bought in the first place.
Id. at 890.
The court observed that if Congress had meant to prohibit the sale of a State's driver record database in bulk, the statute could have, and presumably would have, said as much. Instead, the legislation was written in a way that logically put the focus on the purposes for which the information would eventually be used—on the "end" sought by the purchaser—not on the reason for buying it in bulk.
It also did not save the plaintiffs' case that the acquired personal information had been obtained for its potential for future use and, as to the majority of records, might never actually be used. The DPPA does not contain a time requirement for when the information obtained must be used for the permitted purpose. Nor is there a requirement that the information actually be used at all once it has been obtained for a permitted purpose.
The Ninth Circuit drew upon precedents reaching the same outcome on similar challenges under the DPPA in other federal circuits. See Taylor 10833 v. Acxiom Corp., 612 F.3d 325, 340 (5th Cir. 2010) ("A person who buys DMV records in bulk does so for the purpose of making permissible actual use of information therein under [the DPPA], even if that person does not actually use every single item of information therein."), cert. denied, 131 S. Ct. 908 (2011); Roth v. Guzman, 650 F.3d 603, 614-17 (6th Cir. 2011) (citing Taylor, 612 F.3d 325).
The Lawletter Vol 36, No 5
Charlene Hicks, Senior Attorney, National Legal Research Group
Professional medical employees are subject to such a wide variety of laws and regulations that it has become increasingly difficult for such professionals to both treat patients effectively and navigate through the legal maze. With the passage of time, the problem seems to be deepening. In 2009, California adopted an unprecedented program of medical privacy oversight by enacting laws that increase the financial penalties for a medical professional's unauthorized access of a patient's medical records. This legislation was a direct response to a series of high-profile privacy breach cases at UCLA Medical Center. In anticipation of the strong likelihood that the new state laws would conflict with existing federal laws, the State also established a new agency, the California Office of Health Information Integrity ("CalOHII"), to oversee the State's new medical privacy program.
Studies showed that in 2009, the first year California's new medical privacy laws were in effect, a total of 2,490 breaches were reported to the Department of Public Health. That Department, in turn, referred approximately 320 individuals to CalOHII for investigation. To date, CalOHII has demonstrated a willingness to investigate and fine medical professionals who did not actively intend to breach the law: Instead of interpreting the State's medical privacy laws as requiring a medical professional's specific knowledge that his or her action constituting the offense violates state law, CalOHII has interpreted the laws as requiring only the professional's knowledge that he or she performed the action.
To avoid federal preemption problems, CalOHII is in the process of completing preemption analyses of every California medical privacy statute. If the agency determines that a specific state law concerning personal medical information is preempted, that state law shall not be applicable to the extent of the preemption. Cal. Health & Safety Code § 130311.5(b). However, the extent to which a medical professional may view a patient's private medical information in contexts that do not directly relate to the treatment of that patient (such as administrative or even whistle-blowing activities) under the State's new legal scheme is unclear.
Where personal (medical) privacy interests clash with medical professionals' performance and workplace rights, the current trend is for legislators to favor the individual's privacy interests. Whether and to what extent this action may impede the future advancement of the medical field and/or infringe upon the employment rights of medical professionals remains to be seen.