E-Newsletter, June 2011

In this issue:

  • Celebrating Christmas with Defective Chinese Christmas Trees
  • New Recordkeeping Requirements on Employers under the D.C. Family Medical Leave Act
  • Pollution Exclusion Precludes Coverage for Defective Chinese Drywall
  • Demand with a Plan: The Need for Retailers to be Aware of the Variations in Civil Demand Statutes Across the Country

Celebrating Christmas with Defective Chinese Christmas Trees

By Matthew D. Berkowitz, Esq.

As more and more United States citizens purchase foreign manufactured products, international companies must be mindful that they may be required to submit to the jurisdiction of U.S. courts to resolve lawsuits involving injuries caused by their products. For example, in Virginia, foreign corporations are likely required to defend themselves in products liability suits in the Commonwealth’s courts, even if the corporation has no offices in Virginia, the corporate officers have never been to Virginia, and it has no actual knowledge that its product would be wind up in Virginia. This point was illustrated in Jones v. Boto Co. Ltd., 498 F. Supp. 2d 822 (E.D. 2007).

In Jones v. Boto, Virginia consumers brought a product liability action against a Chinese manufacturer, seeking to recover for property damage that occurred as a result of a fire caused by a defective Christmas tree that was manufactured in China. 497 F. Supp. 2d at 823-24. Boto moved to dismiss for lack of personal jurisdiction. Id. at 824-25. Boto does not have a distribution facility in the United States. Rather, it negotiates sales contracts in China with its customers, which include Wal-Mart and Target, and it has no control of the trees after they are loaded on shipping carriers in China’s ports. Although Boto operates a website, it does not sell directly to U.S. customers. However, U.S. customers can access products manuals and can complete warranty registration forms on the website. It is not authorized to do business in Virginia and has no physical presence in Virginia. Moreover, none of its employees, representatives, or agents are or were ever in Virginia, and none of Boto’s customers have their principal place of business in Virginia. Id. at 824. Despite these facts, the Court refused to dismiss for lack of personal jurisdiction ruling that Virginia’s long-arm statute authorizes jurisdiction over Boto since the manufacturer derived substantial revenue from goods used or consumed in the Commonwealth and the exercise of jurisdiction comports with the requirements of the Due Process Clause of the Fourteenth Amendment. Id. at 831.

In determining that there was no violation of the Due Process Clause, the Court first concluded that Boto had the necessary minimum contacts with Virginia. Relying on the landmark case, Asahi Metal Industry Co v. Superior Court of California, 480 U.S. 102 (1987), the Court found that, based upon its sales to Wal-Mart and Target, “it was foreseeable to Boto that a substantial number of its artificial trees would ultimately be purchased by consumers in Virginia.” Id. at 829. The Court, however, cautioned that “without more, the mere fact that it was foreseeable” is insufficient to confer jurisdiction. Id. Nonetheless, the Court ruled that that Boto’s website constituted the requisite “plus” to establish jurisdiction. Id. at 829-30. Although the website rationale constituted a relatively weak “plus,” the Court reasoned that it was apparent that one of the purposes of the website was to provide information and services, such as warranty registration, to American customers, including those that reside in Virginia. Another purpose was to attract new customers. Id. at 829. Accordingly, the Court held that the minimum contacts test was satisfied. Id. at 830. The Court then went on to hold that the exercise of personal jurisdiction over Boto did not offend traditional notions of fair play and substantial justice.

Jones v. Boto teaches us that it does not take much for a Virginia Court to assert personal jurisdiction over a foreign corporation. All that may be required is that the foreign corporation have a website and it be foreseeable that its products could make it into the hands of Virginians. Thus, as foreign corporations continue to import more and more products into the United States, they could be required to submit to the jurisdiction of U.S. courts.

 

New Record keeping Requirements on Employers under the D.C. Family Medical Leave Act

By: Tina M. Maiolo, Esq. and Suzanne E. Derr, Esq.

In May 2010, the District of Columbia Office of Human Rights (OHR) issued proposed new and revised regulations for the D.C. Family and Medical Leave Act (DC FMLA). After a public comment period, the OHR implemented these new regulations, which became effective on November 19, 2010. While the basic provisions of the DC FMLA have not changed, new notice and recordkeeping regulations have been imposed on employers. Therefore, it is important for employers subject to DC FMLA1 to quickly take steps to ensure that they are acting in compliance with these new notice and recordkeeping requirements.

First, the regulations encourage all covered employers to designate an FMLA Coordinator or a specific person to administer the DC FMLA and the federal FMLA. The FMLA Coordinator must be knowledgeable of the requirements of the law to ensure proper handling and processing of all FMLA requests. The Coordinator would also have the following responsibilities:

(a) Notifying the employees of their rights under the applicable law through posters, the employee handbook or manual, and trainings on the subject;

(b) Providing information to an employee regarding his or her rights and obligations if any employee requests DC FMLA leave or if the employee gives notice of a DC FMLA-qualifying event;

(c) Issuing an eligibility letter within five (5) days after request for the leave; and

(d) Issuing a designation letter within five (5) days after the submission of the employee’s medical certification.

The new regulations also impose new mandatory recordkeeping requirements on the employer. The FMLA Coordinator or other employee designated to coordinate FMLA compliance must keep the following records on an annual basis:

(a) The total number of employees who have taken leave pursuant to the DC FMLA;

(b) The annual additional cost to the employer for the expenses incurred to replace an employee during the time the employee is on leave granted pursuant to the DC FMLA;

(c) The annual additional cost incurred to pay for the employee’s health insurance during the time the employee is on leave granted pursuant to the DC FMLA;

(d) The length of leave taken by an employee pursuant to the DC FMLA;

(e) The reason(s) an employee took leave pursuant to the DC FMLA;

(f) The salary, hourly wage, or grade level of the employee who has taken leave pursuant to the DC FMLA;

(g) The employee’s request and supporting documents for leave requested pursuant to the DC FMLA; and

(h) The employer’s disposition of the employee’s request for leave pursuant to the DC FMLA.

Furthermore, because of the confidential nature of DC FMLA requests, the employer must preserve the confidentiality of its records, including DC FMLA requests, forms, and medical certifications, by maintaining these records separate and apart from the employer’s human resource files.
Therefore, employers subject to the DC FMLA can ensure compliance with the new notification and recordkeeping requirements by designating an FMLA Coordinator with the above-described responsibilities and by compiling the requisite records on an annual basis.

1. Pursuant to 57 DCR 10789 (November 19, 2010) §1601.2, “a private employer shall be covered [by DC FMLA] if it maintains twenty (20) or more employees on the payroll during twenty (20) or more calendar workweeks (whether consecutive or not) in either the current or the preceding calendar year.”

 

Pollution Exclusion Precludes Coverage for Defective Chinese Drywall

By Matthew D. Berkowitz, Esq.

Recently, a Virginia federal court applied a pollution exclusion broadly to preclude coverage under Virginia law. In May, the Court in Nationwide Mut. Ins. Co. v. The Overlook, LLC, No.4:10cv69, __ F. Supp. 2d. ____ (E.D.Va., May13, 2011), held that a pollution exclusion in a number of insurance policies absolved an insurer from having to defend and indemnify its insurer in connection with an underlying plaintiff’s claim that the insured installed defective Chinese drywall in his home. The Court ruled that the policy language was unambiguous and concluded that the word “pollutant,” when used in the pollution exclusion, includes sulfide gases emitting from defective Chinese drywall found indoors, and is not limited to traditional environmental pollution.

In Overlook, the underlying plaintiff alleged that the drywall used in his home was defective because it emited various sulfide gases and/or other toxic chemicals causing damage to the structure and plumping systems of the house and serious health consequences to residents of the home subjected to prolonged exposure. The pollution exclusion at issue generally mirrored the allegations in the underlying complaint. The pollution exclusion precluded coverage for “‘[b]odily injury’ ‘or property damage arising’ out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ . . . .” The policies generally defined “pollutants” as “any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

The Court found that the underlying complaint unambiguously alleged “bodily injury” and “property damage,” as well as the “dispersal,” “release,” “escape,” etc. of “various sulfide gases and/or other toxic chemicals.” The Court, however, was called upon to determine whether the sulfide gases could be classified as “pollutants.” Nationwide argued that the sulfide gases are “irritants” or “contaminants.” However, Overlook contended that the pollution exclusion was meant to exclude coverage for damage caused by traditional environmental pollution, not damage caused by drywall used in the construction of a home. The Court noted that numerous courts have held that the exclusion does not apply if the pollutant is not traditional environmental pollution and/or is limited or localized to a confined or indoor area. The Court, however, rejected this approach. Instead, it looked at the plain language of the policies. Nowhere in the policies was there a reference to the words “environment,” “environmental,” “industrial,” or any other limiting language suggesting that the exclusion could not be applied to non-environmental or indoor pollution. The Court also found the exclusion to be reasonable. Accordingly, the Court concluded that the pollution exclusion precludes coverage for damage caused by defective Chinese drywall. Indeed, this holding can be viewed as victory for insurers as they likely will have no duty to defend and indemnify their insureds in Chinese drywall lawsuits in Virginia if the policies at issue contain a similar pollution exclusion.

 

Demand with a Plan: The Need for Retailers to be Aware of the Variations in Civil Demand Statutes Across the Country

By: Jan E. Simonsen, Esq. and Alexander M. Gormley, Esq

Shoplifting is a uniform problem for retailers throughout the United States. However, the statutes that govern the rights of retailers to recover civil liability from shoplifters are anything but uniform from state to state. While there are similarities among some states, often along regional lines, each state has its own set of rules for how merchants can—or must—go about seeking restitution for shoplifting and all of its attendant costs. The important point for retailers and their loss prevention departments is that instead of having a single approach towards pursuing civil remedies for shoplifting, retailers must tailor their civil demand policies to the unique requirements and restrictions of each of the states in which their stores are located. This may ultimately require more work and planning up front, but will avoid unnecessary and costly litigation down the road.

The first category of Civil Demand Statutes explicitly require merchants to send a demand notice for restitution to the shoplifter as a prerequisite to filing a civil suit for damages. There are ten (10) states in this category and they can be divided into two sub-categories. The first sub-category is those states that enumerate the specific language and/or form that the civil demand notice must have: These states are Georgia, Maryland, Mississippi, and Ohio. Retailers should pay careful attention to the requirements of the statutes, as they can be numerous and very precise. For example, in Maryland, the demand letter must: 1) identify the act of shoplifting alleged to have been committed; 2) specify the amount of damages sought; 3) specify the amount of the civil penalty sought and the method of calculating that amount; 4) request payment of the damages and civil penalty by cash, money order, certified check, or cashier’s check; 5) contain a conspicuous notice advising the responsible person that payment of the damages and civil penalty does not preclude the possibility of criminal prosecution, but that the payment would not be admissible in any criminal proceeding as an admission or evidence of guilt; and 6) specify the date by which the payment should be made in order to avoid civil action. See, Md. Code Ann., (Cts. & Jud. Proc.) § 3-1303 (West).

The second sub-category of states is those that do not have specific requirements for the civil demand notice. These states are Alaska, Arkansas, Florida, Kansas, New Jersey and Pennsylvania. For example, Florida’s civil demand statute, Fla. Stat. Ann. § 772.11 (West), requires only that “Before filing an action for damages under this section, the person claiming injury must make a written demand for $200 or the treble damage amount of the person liable for damages under this section.”

The second category of Civil Demand Statutes explicitly allow merchants to send a civil demand notice, but do not require it as a prerequisite to filing a civil action for shoplifting. There are seventeen (17) states in this category. As with the first category, the states in this second category can be divided into two sub-categories based on whether they set specific requirements for the civil demand notice. The first sub-category is comprised of Delaware, the District of Columbia, Michigan, Minnesota, North Carolina, Rhode Island, South Dakota, Tennessee, Utah, Vermont and Washington. Michigan’s statute, Mich. Comp. Laws Ann. § 600.2953 (West), is representative of what the statutes in the sub-group tend to say, as it states that the merchant “may make a written demand for payment of the amount for which the person who committed [shoplifting] is liable”, and then provides several paragraphs of text that the letter must contain, verbatim. The second sub-category of states—those that do not set specific requirements for the civil demand notice—are Hawaii, Nebraska, New York, Oregon, Virginia and West Virginia. Virginia’s civil demand statute, Va. Code Ann. § 8.01-44.4 (West), offers a representative example. It states, “Prior to the commencement of any action [for shoplifting], a merchant may demand, in writing, that an individual…make appropriate payment to the merchant in consideration for the merchant’s agreement not to commence any legal action under this section”, but does not go so far as to set forth what the written demand must say.

The third category of Civil Demand Statutes create an explicit right to file a civil action for shoplifting, but are silent as to the issue of whether a demand can or must be made as a prerequisite to a civil suit. There are fifteen (15) states in this category: Arizona, California, Colorado, Connecticut, Idaho, Illinois, Indiana, Massachusetts, Missouri, Montana, Nevada, New Hampshire, New Mexico, Wisconsin, and Wyoming. It is important to note that, although many of these statutes appear to create a broad right to pursue restitution through civil remedies, they may have certain limitations. For example, in California, the statute that creates civil liability for shoplifting is a part of the penal code. See, Cal. Penal Code § 490.5 (West). According to Newman v. Checkrite California, Inc., 912 F. Supp. 1354, 1378 (E.D. Cal. 1995), because Cal. Penal Code § 490.5 is considered a “statutory penalty”, claims brought pursuant to it are not assignable. Therefore, while retailers in California could likely pursue a civil claim for shoplifting by way of a pre-suit demand, they could not assign such a claim to a debt collection agency without first obtaining an actual judgment.

The fourth category of Civil Demand Statutes create an explicit right to file a civil action for shoplifting, but do not allow for civil recovery by way of a pre-suit demand. There are only two (2) states in this category: Oklahoma and Texas. In Texas, under Tex. Civ. Prac. & Rem. Code Ann. § 134.005 (Vernon), “a person who has sustained damages resulting from [shoplifting] may recover…the amount of actual damages found by the trier of fact and…a sum not to exceed $1,000.” The implication from the language of this statute is that a retailer must present its claim to the trier of fact in a civil action, for a finding of a liability and damages, rather than make a demand to settle the claim based on its own calculation of its damages. That appears to have been the upshot of the interpretation of the statute in Alcatel USA, Inc. v. Cisco Sys., Inc., 239 F. Supp. 2d 660 (E.D. Tex. 2002), which stated: “an award of statutory damages is contingent upon an award of actual damages.” Oklahoma’s statute, Okla. Stat. Ann. tit. 21, § 1731.1 (West), is similar to Texas in that it requires “judgment” to be “rendered” before a merchant can obtain damages.

The fifth and final category of Civil Demand Statutes do not appear to create an explicit right to file a civil action for shoplifting, and therefore are also silent on the issue of pre-suit demand. There are seven (7) states in this category: Alabama, Iowa, Kentucky, Louisiana, Maine, North Dakota, and South Carolina. These states preclude retailers from filing civil actions for shoplifting, given that the cause of action would sound in the common law tort of conversion, but clearly does not allow for any statutory damages or penalties. Ultimately, the question of whether a retailer in these states could make a pre-suit demand to settle such a claim for conversion should be first reviewed with counsel based on research of local trial-court level practice and rulings.

Given the vast number of states in which many retailers operate, and the many idiosyncrasies of these various statutes, it is important for retailers to fully understand what their responsibilities are before pursuing civil demand in a shoplifting situation.