Appellate Cases of Interest

Rejecting the "punctiliously stated 'theory of pleading'" applied by the district court and the Fifth Circuit, the U.S. Supreme Court in Johnson v. City of Shelby, Mississippi, ___ S.Ct. ___, 2014 WL 5798626 (2014), held that the plaintiffs need not expressly invoke Section 1983 in order to state a claim for violations of their Fourteenth Amendment due process rights. The Court quoted FRCP 8(a)(2) and explained that "[f]ederal pleading rules call for 'a short and plain statement of the claim' . . . ." And they "do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted."

Twombly and Iqbal were not on point because those two cases dealt with insufficient factual allegations to support a plausible claim for relief; whereas here the alleged pleading deficiency was the failure to invoke a specific statute or legal theory arising from sufficiently-stated facts. There was no dispute here that the plaintiffs had stated sufficient facts to support a Section 1983 claim. "Having informed the [defendant] of the factual basis for their complaint, [plaintiffs are] required to do no more to stave off threshold dismissal for want of an adequate statement of their claim."

Update provided by Mike Mitchell, Smith Anderson

There are many ways for a claim against a public entity to fail. Sometimes the problem is governmental or sovereign immunity. For claims against individuals working for the public, the problem may be public official immunity. When law enforcement activities are involved, the problem may well be the public duty doctrine, which basically prohibits claimants from suing police officers or similar folks who are providing protection to the general public. The idea is that cash-strapped police departments around the state would be unfairly burdened by having every quick decision they make in exigent circumstances second-guessed in court several years later by a bunch of Monday-morning quarterbacks. In a recent case arising from a hit-and-run accident in Columbus County, the court dismissed a lawsuit against the police officer which had sought money damages from his allegedly poor investigation.

The plaintiff in Inman v. City of Whiteville has been forced off the road by another driver, though there was no contact between the vehicles. While the investigating officer did question the other driver, he did not include the identity or contact information for that driver on the accident report. Since there had been no contact between the vehicles, the department had decided that no further investigation of that driver was needed. Because the identity of the at fault driver was now unknown, and because the no-contact fact prevents any claim under Uninsured Motorist Coverage, the plaintiff was left without a remedy – so of course that meant suing the police was their only remaining option.

Whatever one thinks about the sensibility of the policeman’s decision from a law enforcement point of view, the duty of a police officer to investigate car accidents is clearly the type of duty that is owed to the general public and thus the public duty doctrine operated to dismiss the suit according to the Court of Appeals. The plaintiff had not even tried to fall into one of the two recognized exceptions to the public duty doctrine, but let’s pretend that did happen so we can discuss those.

First, the doctrine does not apply if there is a “special relationship” between the claimant and law enforcement. This would apply if, for example, the claimant had been a police informant or perhaps an embedded reporter or something where the claimant could have reasonably expected a higher level of individualized protection based upon the existence of that relationship. Second, the doctrine does not apply if the claimant had been specifically promised protection by law enforcement and did not receive it, like when a person has been threatened or stalked and the police promised protection for some specific period of time. The claimant in Inman could not benefit from either of these exceptions.

Submitted by David Hood, Patrick Harper & Dixon, LLP

On August 5, 2014, the North Carolina Court of Appeals issued an important decision in Purcell v. Friday Staffing, 2014 N.C. App. LEXIS 817. The case, which was handled by MGC attorney Sally Moran, is the first appellate decision interpreting the application of N.C.G.S. § 97- 12.1. N.C.G.S. § 97-12.1, which was enacted as part of the June 24, 2011, reforms to the North Carolina Worker’s Compensation Act, provides as follows:

No compensation shall be allowed under this Article for injury by accident or occupational disease if the employer proves that (i) at the time of hire or in the course of entering into employment, (ii) at the time of receiving notice of the removal of conditions form a conditional offer of employment, or (iii) during the course of a post-offer medical examination:

(1) The employee knowingly and willfully made a false representation as to the employee’s physical condition;

(2) The employer relied upon one or more false representations by the employee, and the reliance was a substantial factor in the employer’s decision to hire the employee; and

(3) There was a causal connection between false representation by the employee and the injury or occupational disease.

In Purcell, the plaintiff had a worker’s compensation claim for a back injury in 1999. The plaintiff underwent surgery and was ultimately assigned permanent work restrictions of no lifting greater than 20 pounds as a result of this injury. On May 28, 2010, the plaintiff applied for employment with the employer-defendant, Friday Staffing. As part of the job application process, the plaintiff completed two pre-employment questionnaires. In one of the questionnaires, the plaintiff specifically indicated that she could engage in work requiring lifting greater than 50 pounds. In responding to the second questionnaire, the plaintiff indicated that she had never filed a workers’ compensation claim, had never suffered any injury or undergone surgery and had never received treatment or consultation about back pain or possible back injuries.

Before the Court of Appeals, the plaintiff did not dispute that the first two prongs of N.C.G.S. § 97-12.1 were satisfied. Rather, the plaintiff argued that the Industrial Commission erred in finding a causal connection between her false representation and her back injury. In its decision, the Court held that when requiring a “causal connection” to satisfy the third prong of N.C.G.S. § 97-12.1, the legislature intended that a defendant show that a plaintiff’s undisclosed or misrepresented injury, condition or occupational disease increased the risk of the subsequent injury or disease. The Court found that the plaintiff’s treating physician provided unchallenged testimony that the plaintiff was at an increased risk of injury if she exceeded her work restrictions of no lifting greater than 20 pounds. The Court held that this finding, in conjunction with the Industrial Commission’s finding that the plaintiff exceeded her work restrictions as part of her employment with Friday Staffing, supported the Industrial Commission’s finding of a causal connection under the third prong of N.C.G.S. § 97-12.1. As a result, the Court upheld the Industrial Commission’s denial of benefits.

Submitted by Sally Moran and John Barringer, McAngus Goudelock & Courie

Its 10-year reign is over.  Howerton is no longer the standard of admissibility for expert testimony in North Carolina.  Daubert is. 

On January 21, the Court of Appeals issued its opinion in State v. McGrady, No. COA13-330.  McGrady was a first-degree murder case in which the defendant contended that he shot his cousin in self defense.  He proffered the testimony of a “use of force” expert to bolster his defense.  Upon the State’s motion in limine, the trial court conducted a voir dire of the expert witness, at which time he excluded his testimony.  The defendant appealed.

Writing for a unanimous panel, former NCADA President and Court of Appeals Judge Linda Stephens noted that in 2011 the legislature amended Rule 702(a) of the North Carolina Rules of Civil Procedure to conform to Federal Rule 702(a), which itself was amended to codify the standard of expert admissibility articulated in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).  [The NCADA was intimately involved in drafting this amendment, with the express intent to codify the Daubert standard.] 
As amended, Rule 702(a) now requires an expert’s opinions to be (1) based upon sufficient facts or data; (2) the product of reliable principles and methods; and (3) based on a reliable application of those principles and methods to the facts of the case.  Judge Stephens noted that the newly amended Rule 702(a) “represents a departure from our previous understanding of Rule 702,” i.e., Howerton, “which eschewed the Supreme Court’s decision in Daubert. . . .  Given the changes brought by our legislature, however, it is clear that amended Rule 702 should be applied pursuant to the federal standard as articulated in Daubert.”

Judge Stephens then articulated that standard:  “an expert must first based his testimony on ‘scientific knowledge,’ which ‘implies a grounding in the methods and procedures of science,’ in order for that testimony to be admissible.”  The trial court, she observed, serves as the gatekeeper to determine if the expert’s proposed testimony satisfies that requirement:

It is the trial court’s responsibility to determine “whether the expert is proposing to testify to (1) scientific knowledge” and whether that knowledge “(2) will assist the trier of fact to understand or determine a fact in issue.”  In deciding whether the proffered scientific theory or technique will assist the trier of fact, the trial court may consider, among other things, (1) “whether [a theory or technique] can be (and has been) tested,” (2) “whether the theory or technique has been subjected to peer review and publication,” (3) “the known or potential rate of error . . . and the existence and maintenance of standards controlling the technique’s operation,” and (4) whether the theory or technique is generally accepted as reliable in the relevant scientific community.  This inquiry is “a flexible one,” and remains reviewable under the abuse of discretion standard.

Applying this standard, and standard of review, the court affirmed the trial court’s exclusion of the defendant’s proffered “use of force” expert.  In doing so, it observed that federal courts traditionally grant “a great deal of discretion” to the trial court in performing its gatekeeping function under Daubert.  Judge Stephens concluded that the defendant’s expert provided scant data to support the reliability of his methodology and “provided no substantive reasons – no specific knowledge, methods, or procedures – to support those assertions.”  He was not even able to cite a single specific study supporting his methodology and admitted he knew nothing about its rate of error.  He also lacked medical credentials required to makes some of the judgments inherent in his opinion.  The appellate panel therefore saw “no reason to conclude that the trial court was manifestly unreasonable in determining the [the expert’s] knowledge . . . was not helpful to the jury.”

McGrady and its rationale should have significant impact on the way cases involving expert testimony proceed in our state courts.  Indeed, expert-intensive cases in state court will begin to resemble cases litigated in federal court, with Daubert challenges and hearings becoming the norm, rather than the exception.  In the early going, defense attorneys will need to pull the laboring oar in helping superior court judges understand the contours of Daubert and its progeny, their gatekeeping function, and the discretion they enjoy in making Daubert determinations.  Before long, Daubert will should begin to weed out state court cases premised on weak science, just as it does with its federal counterparts.  So, good-bye and good riddance Howerton!  We hardly knew ye.

Submitted by Steve Epstein, Poyner & Spruill, LLP

WDNC Bankruptcy Judge George R. Hodges issues precedent-setting Order on January 10, 2014 in "Garlock Sealing Technologies."  If you've missed it, as part of Garlock's $1 billion bankruptcy case, the Judge's order has slashed what the manufacturer owes asbestos victims after finding that the victim's lawyers abused the system.

Read More About It:

Cloud Lifted:  Gasket Maker Dodges Over $1 Billion in Asbestos Liability
David Donovan, NC Lawyers Weekly, February 6, 2014

Case Sheds Light on the Murky World of Asbestos Litigation
NPR, February 4, 2014

Judge Finds Fraud and Deceit by Plaintiffs' Lawyer in Asbestos Cases
Bloomberg Businessweek, January 13, 2014

Judge Slashes Asbestos Liability in Garlock Bankruptcy to $125 Million
Forbes, January 10, 2014 

State v. McGrady, __ N.C. App. __, __ S.E.2d __ (Jan. 21, 2014), is the first appellate decision which provides a meaningful analysis of the North Carolina legislature's adoption of the Daubert standard for evaluating the admissibility of expert testimony.  In McGrady, the trial court excluded the testimony of a defense expert in the "use of force."  The defense offered the expert's testimony in support of a claim of self-defense, primarily focusing on "pre-attack" cues by the decedent that might indicate a reasonable belief by the defendant of a forthcoming assault.  Although the expert testified he had special knowledge concerning "use of force," he was unable to convince the trial court that his opinions were based upon sufficient facts or data or that his methods were reliable.  The Court of Appeals upheld the trial court, finding it had not abused its discretion but had correctly applied Rule 702 and Daubert in concluding that the expert's opinions were not based on reliable principles and methodologies and were merely "within the realm of common knowledge."  The Court noted that while the trial court's inquiry is "flexible," valid considerations included whether the expert's theory or technique had been tested, subject to peer review, and had an established error rate.  McGrady serves as a reminder that where there is "too great an analytical gap" between science and an expert's proffered opinion, such testimony is inadmissible.

Submitted by Will Latham and Phillip Brown, Womble Carlyle Sandridge & Rice

Lawyers who deal with interpretation of automobile insurance policies know that a fertile source of coverage litigation is the extent to which a family member can be considered as a member of the “household” of a named insured on a policy. This most often arises in the context of underinsured motorist coverage, where attorneys for an injured plaintiff try like the dickens to find additional potential coverage when the liability limits are not going to be enough to pay the whole claim. When children or adolescents are involved, it can often be true that they can be members of more than one household at the same time for coverage purposes.

In the recent Court of Appeals case of North Carolina Farm Bureau Mutual v. Paschal, the issue was whether a granddaughter of the Farm Bureau insured could be considered a “household” member of the grandfather even though they really did not live in the same “house.” Unlike a 1950s sitcom, family units in the real world of the 21st Century often have not only shared custody arrangements between ex-spouses, which often lead to multiple household status for injured kids, but also kids and teens that are shifting caregivers with varying degrees of responsibility and contact with them. In this case, the granddaughter lived in one house on a family farm while the grandfather generally lived in another nearby house, but the whole shebang was considered by some to be a “family farm.” Even though the grandfather did not have legal custody of the girl, he often took care of her, accompanied her to appointments, and provided for her financially. The Court of Appeals reversed the trial court’s grant of summary judgment to Farm Bureau, quoting from previous decisions which held 1) that family members need not reside under the same roof to be members of the same household, and 2) that since the term “resident” of a household is an inherently slippery term, a court should not “sprinkle sand on the ice” by construing that term in favor of the insurer.

Practice point from this decision for lawyers in similar coverage cases – look not only for facts about where the prospective insured sleeps or stays, but also the extent to which that person has physical, emotional, and financial ties to the named insured of the subject policy. This is a highly fact-specific inquiry, so dig up as many facts as you can.

Submitted by David W. Hood, Patrick Harper & Dixon, LLP

Two plaintiffs from St. Louis sued a company in Moore County for failure to complete improvements to a development that would allow the plaintiffs to construct their dream home. The defendant in Davis v. Woodlake Partners raised several defenses, all of which were rejected by the trial court sitting without a jury - resulting in a $191,000 judgment for breach of contract. Two arguments were presented on appeal, one of which was fact-specific and thus of limited interest beyond the parties. The second argument focused on the statutes of repose and limitation, and the date upon which each of those two clocks would begin to run. After finding that the claim was brought within six years of the date the construction was to have been completed, and thus that the filing complied with the statute of repose, the court then considered the competing arguments for when a three-year statute of limitations would begin to run.

And here's where it gets interesting - the court said that both sides had missed the boat. Instead of worrying about when the three years would begin to run, the court said the issue was irrelevant because the ten-year statute for actions on sealed contracts applied instead. There were three separate documents that were signed, on different dates, but the Purchase Contract included the word "seal" on the signature lines - thus meaning that it, at least, was a sealed instrument. Because the court could not find any scenario under which the three documents were not intended to constitute one integrated agreement between the parties, it determined as a matter of law that the "seal" on one means a "seal" for all. A ten-year statute of limitations means no defense to the claim. Judge McGee dissented, arguing that there should be a fact issue for determination about whether the parties intended for all three documents to be under "seal". The practice point here is to pay close attention to the documents in any case which includes a contract claim - the "seal" language may not be very prominent or conspicuous, but it can loom large.   Even when neither party argues that point on appeal.

A recent decision of the Supreme Court has removed one of the strongest arguments that an attorney resisting arbitration had - that the party demanding arbitration had waived the right to so demand by engaging in discovery procedures not available to the demanding party in arbitration. In the case of HCW Retirement and Financial Services v. HCW Employee Benefit Services, the Court granted discretionary review of a unanimous Court of Appeals decision upholding the trial court's denial of a motion to compel arbitration. Although there was also a dispute about whether some or all of the claims were subject to the arbitration clause, the operative issue was waiver by the time the case reached the Supreme Court. At issue was the interpretation of two Supreme Court decisions from nearly 30 years ago, Cyclone Roofing Co. v. David M. LaFave Co., 312 N.C. 224, 321 S.E.2d 872 (1984) and Servomation Corp. v. Hickory Constr. Co., 316 N.C. 543, 342 S.E.2d 853 (1986)). 

The plaintiffs had argued that arbitration was waived because the defense attorney had deposed a witness under the Rules of Civil Procedure and had asked about an hour's worth of questions about the claims clearly subject to arbitration. Since one point of arbitration is to avoid the expense and delay caused by the judicial discovery process, prior decisions of the Court of Appeals had interpreted Cyclone Roofing and Servomation Corp to mean that if a party exercised a discovery device like a deposition, then a waiver had occurred. In the context of UM/UIM arbitration this was the precise result in Capps v. Virrey, 184 N.C.App. 267, 645 S.E.2d 825 (2007), where a plaintiff waived his arbitration rights by sending interrogatories, requests to produce, and requests for admission.

Rejecting this line of authority, the Supreme Court bought instead the defense argument, that under the rules of arbitration, discovery is allowable at the discretion of the arbitrators - and thus depositions or other forms of discovery are not "unavailable in arbitration." As such, the language in the earlier Supreme Court decisions would not support a waiver of the right to demand arbitration. The Court did not discuss in its opinion the Court of Appeals precedent overruled by this decision, as it need not worry about such things, but those of us in practice need to realize that what we thought the law was is just plain wrong (particularly in the area of UM/UIM arbitration where this issue often arises). This result also essentially means that there no longer is any waiver argument to make based on discovery conducted by the moving party, because in theory virtually every potential discovery device under the Rules of Civil Procedure could in fact be allowed by the arbitrators. It is hard to imagine any such waiver argument succeeding under the test now clarified by this Supreme Court decision.