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by Robin A. Seelbach, Wall Templeton & Haldrup, P.A.

In re New Bern Riverfront Dev., LLC, Case No. 8:10-ap-23 (Bankr. E.D.N.C.).

Recent orders from the Bankruptcy Court for the Eastern District of North Carolina and the District Court for the Eastern District of North Carolina provide authority for a general contractor, or any other contractor, to apply the discovery rule in N.C. Gen. Stat. § 1-50(a)(5)f. to its construction defect claims, even if the contractor is not the owner of the project.

The opportunity for risk transfer for non-owners in construction defect cases may have just gotten a little broader. In In re New Bern Riverfront Dev., LLC, Case No. 8:10-ap-23 (Bankr. E.D.N.C.), the Bankruptcy Court for the Eastern District of North Carolina held N.C. Gen. Stat. § 1-50(a)(5)f. tolled the three-year statute of limitations for negligence and contract-based claims until the defect became apparent or should reasonably have become apparent to the non-owner claimant. While North Carolina jurisprudence is replete with cases recognizing a discovery rule for claimants that own the damaged property at issue, this is the first decision applying North Carolina law that has recognized a discovery rule for non-owner claimants (e.g., general contractors, first-tier subcontractors, second-tier contractors, etc.). Depending on the facts of your case, risk transfer options for a non-owner client may extend beyond those parties that performed work on the project within three years from the date suit was filed.

In re New Bern Riverfront Dev., LLC, arose out of the construction of the Skysail Luxury Condominiums in New Bern, North Carolina (the “Project”). Substantial completion of all relevant work occurred on April 15, 2009 (depending on who you ask). In March 2009, New Bern Riverfront Development, LLC (“New Bern”), the owner/developer of the Project, filed suit in Wake County Superior Court alleging construction defects and asserting claims against the general contractor, Weaver Cooke Construction, LLC (“Weaver Cooke”), Weaver Cooke’s surety, the architect, and select concrete and design subcontractors. In November 2009, New Bern filed a petition for relief under Chapter 11 of the Bankruptcy Code and the state court defect action was also removed to the Bankruptcy Court for the Eastern District of North Carolina, where it progressed as an adversary proceeding.

In 2010, Weaver Cooke filed a third-party complaint against the banks that financed the Project, but did not add any building envelope subcontractors for the Project. On April 19, 2012, Weaver Cooke filed a motion for leave to file a second third-party complaint asserting claims of negligence, contractual indemnity, and express warranty against building envelope subcontractors. Citing the substantial completion date of April 15, 2009 – or even earlier completion dates – the subcontractors claimed the three-year statute of limitations under N.C. Gen. Stat. § 1-52(1) and (5)1 barred Weaver Cooke’s claims.

After extensive discovery, almost all of Weaver Cooke’s subcontractors filed motions for summary judgment. The Bankruptcy Court (Judge Stephani Humrickhouse) issued a series of orders on these motions beginning in June 2014 and continuing through December 2014. One of the main issues litigated was whether Weaver Cooke’s breach of contract and/or negligence claims were subject to a statute of limitations defense or if they could be saved by tolling under a discovery rule. There was extensive oral argument and briefing on whether or not the discovery rule in N.C. Gen. Stat. § 1-52(16) would apply to these claims since that statute, by its plain language, only applies to claims for “personal injury or physical damage to claimant’s property.” (emphasis added). The subcontractors argued persuasively that this was inapplicable because Weaver Cooke, the general contractor, did not own the property that was damaged.

Instead of relying on N.C. Gen. Stat. § 1-52(16), Weaver Cooke asserted it was entitled to tolling under N.C. Gen. Stat. § 1-50(a)(5)f., which states:

For purposes of the three-year limitation prescribed by G.S. 1-52, a cause of action based upon or arising out of the defective or unsafe condition of an improvement to real property shall not accrue until the injury, loss, defect or damage becomes apparent or ought reasonably to have become apparent to the claimant.

The Court accepted Weaver Cooke’s position and applied the plain language of the tolling provision in N.C. Gen. Stat. § 1-50(a)(5)f. to find that Weaver Cooke’s claims did not accrue until the injury became “apparent or aught reasonably to have become apparent to the claimant.” This is the first written opinion applying the discovery rule under N.C. Gen. Stat. § 1-50(a)(5)f. to a non-owner. In support of its holding, the Court cited Oates v. Jag, Inc., 314 N.C. 276, 333 S.E.2d 222 (1985). The Supreme Court in Oates, however, applied N.C. Gen. Stat. § 1-50(a)(5)f. to toll claims by a homeowner plaintiff, not to a litigant that did not actually own the property at issue.

After determining that Weaver Cooke was entitled to tolling of the statute of limitations, the Court then performed factual analysis of accrual of the claims against each individual subcontractor under Pembee Mfg. Corp. v. Cape Fear Constr. Co., 313 N.C. 488, 329 S.E.2d 350 (1985). Based on the facts of a given claim, the Court reached different results for different subcontractors. See, e.g., Docket Number 882 (filed 6/3/14) (denying summary judgment on statute of limitations) and Docket Number 884 (filed 6/10/14) (granting summary judgment on statute of limitations). The Court’s discussion of the accrual issue and the governing statutes is in Docket Number 882 (“Order on Summary Judgment Regarding Statute of Limitations: East Carolina Masonry, Inc.”). Later orders on the statute of limitations issue generally refer back to this order and do not give the full explanation. These orders do not appear to be available through Westlaw but can be accessed through PACER.

The majority of Judge Humrickhouse’s orders on the parties’ various summary judgment motions are currently on appeal to the Eastern District of North Carolina. In the first decision to be handed down on appeal, Judge Britt agreed with Judge Humrickhouse’s application of the tolling provision in N.C. Gen. Stat. § 1-50(a)(5)f. and affirmed the denial of summary judgment to Weaver Cooke’s masonry subcontractor. See East Coast Masonry, Inc. v. Weaver Cooke Construction, LLC, Case No. 5:15-CV-252-BR, Docket Number 77 (filed 1/20/16) (E.D.N.C.). Given the number of appeals currently pending in the Eastern District from the Bankruptcy Court’s orders, this issue may well be appealed to the Fourth Circuit.

While these federal opinions are not binding authority on North Carolina state courts, they are persuasive authority on how the plain language of N.C. Gen. Stat. § 1-50(a)(5)f. should be applied. Based on this favorable jurisprudence, non-owners will likely be emboldened to seek claims against entities that completed their work outside the three-year statute of limitations more frequently. The issue, however, is far from settled. There is very real tension between the federal courts’ application of this statute and opinions from North Carolina state courts holding that the statute of limitations for a breach of contract claim begins running as of the date of breach. See, e.g., Kaleel Builders, Inc. v. Ashby, 161 N.C. App. 34, 43-44, 587 S.E.2d 470, 477 (2003) (“A cause of action based upon breach of a contract accrues on the date of the breach, at which time the three years begin to run.”) (citing Miller v. Randolph, 124 N.C. App. 779, 780, 478 S.E.2d 668, 670 (1996)). Ultimately, these issues are likely to be speed bumps rather than roadblocks on the nascent rule’s journey to becoming state law.

1In general, a cause of action based on breach of contract and/or breach of warranty accrues on the date of the breach, at which time the three years begin to run. Kaleel Builders, Inc. v. Ashby, 161 N.C. App. 34, 43-44, 587 S.E.2d 470, 477 (2003). “A cause of action based on negligence accrues when the wrong giving rise to the right to bring suit is committed, even though the damages at that time be nominal and the injuries cannot be discovered until a later date.” Harrold v. Dowd, 149 N.C. App. 777, 781, 561 S.E.2d 914, 918 (2002).

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by Stacy M. Imler, Ph.D., P.E., Exponent, Inc.

History

The first rollover-activated side curtain airbags (RSCAs) were offered by Ford Motor Company in their 2002.5 model year Ford Explorer/Mercury Mountaineer 4 door sport utility vehicles, manufactured after March 4, 2002. The purpose of this technology was to provide incremental benefit to belted occupants in rollover crashes. Implementation of this technology into production vehicles involved rigorous developmental and testing work to design, develop, and test the overall system which included the curtain airbag, seatbelt pretensioners, restraint control module, and platform-specific algorithms for sensing and deployment, all integrated within a specific vehicle platform. Since the introduction of RSCAs, vehicle manufacturers have continued to incorporate this technology into their vehicle fleet at a steady rate with a sharp increase in market insertion starting in the 2010 model year (Figure 1, N

HTSA, DOT HS 811 882, 2014).

RSCAs are passive supplemental restraint systems to seatbelt use. Analysis of field accident data demonstrates that seatbelt use is highly effective in prevention of occupant ejection and reduction of serious and fatal injury in rollovers. For example, Malliaris and Digges (SAE 1999) found that 98.8% of belted pickup rollover occupants did not sustain serious or greater injury. Further, they reported serious and greater injury rates of 1.4% to 3.1% for belted passenger vehicle occupants in rollover crashes.

Initial development of RSCAs was directed at providing incremental head protection through cushioning, as well as a level of supplemental containment through reduced portal size. These objectives were balanced with the goal of minimizing injury potential associated with deployment and occupant interaction with the device itself (e.g., the system must “do no harm”). The resulting systems have evolved and continue to evolve in response to regulatory efforts, but have finite coverage, finite energy capacity, and finite head cushioning capacity. These concepts are demonstrated in the National Highway Traffic Safety Administration’s (NHTSA’s) guided impactor testing of production systems, wherein it has been demonstrated that the greatest retentive capacity occurs in the regions where the curtain is supported by vehicle structures (e.g., at the upper rear aspect for the front window positions). The lowest retentive capacity occurs at the unsupported perimeter of the curtain airbags or in areas of limited coverage. In the region of lower retentive capacity, tests have demonstrated motion of the guided impactor well beyond the glass plane and boundaries of the RSCAs, resulting in ejection of the impactor. More generally, this testing demonstrates that forceful occupant loading into an inflated RSCA results in movement of the RSCA into and through the window plane and can result in occupant ejection.

Published research examining field accident data has shown that an occupant’s injury risk cannot be reduced to zero through implementation of a particular safety countermeasure, particularly for occupants involved in severe crashes. Analysis of initial field accident data which includes vehicles equipped with RSCAs demonstrates estimates of fatality reduction by approximately 20% to 40% (Padmanaban and Fitzgerald, IRCOBI 2012; NHTSA, 2014). Examination of the distribution of rollovers shows that the average rollover crash in the field involves less than 2 quarter revolutions (Gloeckner et al., AAAM 2007), and it is well established that occupant injury potential increases with corresponding increases in the number of quarter revolutions (Moore et al., AAAM 2005). Accordingly, to estimate RSCA efficacy in multiple roll events, the NHTSA specifically incorporated this relationship with recognition of reduced RSCA efficacy with increased exposure for belted, partially ejected occupants (NHTSA FRIA, 2011). Field accidents contain examples of fatal injury as a result of partial ejection even in the presence of a deployed RSCA. These examples as well as those encountered in litigation, demonstrate that for belted occupants, the presence of a deployed RSCA cannot preclude partial ejection or fatal injury.

In addition to ejection related injuries, research examining the effects on occupant kinematics and occupant loading in the presence of RSCAs has been performed in the context of catastrophic neck injuries, also referred to as “diving” injuries, sustained during rollover crashes as a result of torso augmentation at vehicle-to-ground impact. It has been shown in spin testing as well as in full-scale rollover testing that the presence of an RSCA does not prevent the up-and-out motion of a belted dummy. Further, the presence of an RSCA does not prevent the head from coming into contact or close proximity to the interior of the roof nor does it prevent the head-neck-torso alignment needed for “diving” injuries (Heller et al., SAE 2015; Newberry, Imler, et al., SAE 2014). Rollover component system testing demonstrated that the use of pretensioners and RSCAs did not preclude head contact with the roof and had a limited effect on the dummy neck loading at roof to-ground impacts (McCoy, SAE 2010). These tests demonstrate the potential for occupants to sustain catastrophic neck injury even in the presence of a deployed RSCA.

As with considerations for implementation of all safety countermeasures, the incremental benefits in safety provided by RSCAs need to be balanced with the goal of minimizing occupant injury potential related to deployment (i.e., the safety countermeasure should “do no harm”). As supported by field accident data, there are limitations to the efficacy of rollover curtain technologies, particularly in high severity rollover crashes. Further, the design and performance goals need to be balanced with the inherent risks, to result in a system which will increase occupant safety. However, the resulting system cannot mitigate all serious injuries. For a particular rollover crash, the occupant injury outcome related to the performance of the rollover curtain technology is dependent on the vehicle-, occupant-, and crash specific parameters.

FMVSS No. 226: Ejection Mitigation

On January 19, 2011, nearly a decade after vehicle manufacturers first introduced RSCAs into production vehicles, Federal Motor Vehicle Safety Standard (FMVSS) No. 226, “Ejection Mitigation”, was established “to reduce the partial and complete ejection of vehicle occupants through side windows in crashes, particularly rollover crashes.” As detailed in the Final Rule, ejection mitigation countermeasures are required to limit the outboard displacement of a projected headform to 100 mm (3.9 in) beyond the inside surface of the window glazing of the portal. The NHTSA anticipated that manufacturers will modify their existing side curtain airbags through increased window coverage, increased inflation duration, and tethering geometry changes to meet the standard. The agency asserted, “full window opening coverage was key to the effectiveness of the curtain in preventing ejection.” The phase-in schedule for FMVSS 226 requires that a percentage of vehicles meet the new requirement beginning September 1, 2013, and will require that all new vehicles meet the standard by September 1, 2017.

To test for the 100 mm displacement criterion, an 18 kg (40 lb) headform is projected at impact speeds of 20 kph (12.4 mph) and 16 kph (10 mph), at 1.5 and 6 seconds, respectively, following curtain airbag deployment. As per the Final Rule, these tests “replicate the forces that an occupant can impart to the curtain during the rollover event as well as during side impacts.” Impact target locations are determined based on the vehicle specific geometry of the side daylight openings. Pertaining to the specific ejection mitigation countermeasure, the standard “does not allow the use of movable glazing as the sole means of meeting the displacement limit of the standard (i.e., movable glazing is not permitted to be used without a side curtain air bag).” Further, the second impact, executed at 6 seconds following curtain deployment, must be performed with the glazing retracted or removed from the daylight opening.

Conclusions

Rollover-activated side curtain airbags were first available in late 2002 model year vehicles, but only after extensive development and testing performed by component and vehicle manufacturers. Since then, introduction of this technology into the vehicle fleet has followed a phase-in approach for multiple reasons, including technological challenges, still-limited field performance data, and the potential for unintended consequences. As this technology continues to evolve, design and performance goals need to be balanced with the inherent risks, to result in a system which will increase occupant safety. However as with all safety countermeasures, the resulting system cannot mitigate all serious injuries. Evaluation of occupant injury outcome related to the performance of RSCA technology in a specific rollover crash is dependent on the vehicle-, occupant-, and crash specific parameters.

Citation abbreviations: SAE – Society of Automotive Engineers; IRCOBI – International Research Council on Biomechanics of Injury; AAAM – Association for the Advancement of Automotive Medicine.

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About the Author: Dr. Stacy Imler is a Managing Engineer in Exponent’s Atlanta office. Dr. Imler is a licensed engineer who specializes in injury biomechanics and her work includes evaluation of the effects of existing or hypothetical safety countermeasures such as airbags and seatbelts on injury outcome. She earned her undergraduate degree in Mechanical Engineering at Lehigh University and her Masters and PhD in Mechanical Engineering at Georgia Tech.

by Josh Durham, Bell Davis & Pitt, P.A.

North Carolina's new state law 2015-50 is getting a lot of attention these days, and for good reason. For starters, the law brings to mind the Primetime Live controversy from the early nineties, when ABC employees obtained employment at Food Lion in order to record certain food handling and sales practices. North Carolina's new law would’ve given Food Lion a new remedy against ABC, as it addresses those situations in which an employee does the following acts:

• enters a "nonpublic area” of an employer’s business;
• does so for a reason "other than a bona fide intent of seeking or holding employment or doing business with the employer;”
• records images or sound without authorization; and
• causes damage or harm to the business.

The new law also brings with it a lot of controversy. Critics call it an “ag-gag” law, because they fear it will stifle legitimate investigations into farms and food processing facilities. Critics also say that the new law will hamper investigations into other types of businesses as well, such as nursing homes and daycare centers. While the law provides some limited exceptions, including those for law enforcement, it’s still a violation to go to the press. Governor McCrory actually vetoed the bill last year, saying that “it does not adequately protect or give clear guidance to honest employees who uncover criminal activity,” but the legislature overrode the Governor’s veto.

The new law took effect last month, and People for the Ethical Treatment of Animals; Center for Food Safety; Animal Legal Defense Fund; Farm Sanctuary; Food & Water Watch; and Government Accountability Project are among those who have already filed suit in an effort to declare the law unconstitutional. The New York Times recently blasted the law, claiming that “[t]he secrecy promoted by ag-gag laws should have no place in American society."

But there’s one part of the new law that often gets overlooked in these discussions. It applies to a situation that I’ve seen numerous times in my litigation practice.

Imagine this. John Smith has been a loyal and faithful employee of XYZ Sales for years, but he lately has grown disenchanted with his job. It’s just not as fulfilling as it once was. He seeks other employment in his same field, finds a new job, and provides his two weeks’ notice. One day during the notice period, he secretly downloads a customer list and other company information. He uses this information at his new job. XYZ Sales finds out about it, and let’s just say it’s not happy.

Before this new law, XYZ Sales might have filed suit against Smith for breach of a confidentiality agreement, if he in fact ever signed one. Unfortunately, too few employers make use of such an agreement. XYZ Sales also might have tried to make a claim under the federal Computer Fraud and Abuse Act (“CFAA”), which applies to situations in which someone accesses another’s computer without authorization or in which someone exceeds his or her authorized access. Unfortunately for XYZ Sales, courts in our region have dismissed such CFAA claims, because John Smith technically had the right to access the information. He was, after all, still an employee. That he might have copied the information with ill intent is irrelevant under the CFAA.

This leaves XYZ Sales with a possible claim for misappropriation of trade secrets, but this can be extremely hard. Courts in our area require employers to describe such trade secrets with sufficient particularity in their pleadings; merely alleging that an employee stole “processes,” “strategic information,” “designs,” “marketing plans,” and even “customer lists,” can be insufficient. Also, to succeed on its trade secret claim, XYZ Sales must prove that the information is not generally known to others, that the information is valuable to others because of its secrecy, and that it took reasonable steps to protect the secrecy of the information. These are extensive, and expensive, parts of any trade secret litigation.

But have no fear, the ag-gag law is here. In addition to its prohibitions against unauthorized recording, the new law provides a remedy against any employee who "enters the nonpublic areas of an employer's premises for a reason other than a bona fide intent of seeking or holding employment or doing business with the employer and thereafter without authorization captures or removes the employer's data, paper, records, or any other documents and uses the information to breach the person's duty of loyalty to the employer.” If John Smith indeed went to work that day intending to copy that information, it looks like XYZ Sales has a claim against him under the new act.

In pursuing such a claim, XYZ Sales will not have to prove that the information was a secret or that it wasn’t widely known. XYZ Sales will not have to prove that it took any steps to protect the information or that the information was of great value to a competitor. From my reading of the new law, XYZ Sales will only have to prove that John Smith came to work with the intent to take the information, that he gained the information from a nonpublic part of its business, and that such actions damaged XYZ Sales. Under the law, XYZ Sales will be able to recover all damages that Smith caused, plus $5,000 for each day that Smith committed a violation. XYZ Sales can also recover its attorney’s fees.

From a public policy perspective, it will indeed be interesting to see how the courts rule on the attacks to the new law’s constitutionality. It is undisputed that the press has been a powerful force for change in American history, and the ag-gag law does seem to deprive it of potentially valuable sources of information.

But from a litigator’s perspective, I can’t wait to see how, and to what extent, companies like XYZ Sales make use of the new law in cases involving departing employees.

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by Jay C. Salsman, Harris Creech Ward & Blackerby, P.A.

In North Carolina, a physician seeking to challenge the outcome of a corrective action proceeding taken against the physician’s hospital privileges faces substantial obstacles. The Health Care Quality Improvement Act establishes a presumption of immunity for a professional review body participating in a corrective action, and the physician has the burden of overcoming this immunity. Additionally, North Carolina statute establishes a broad grant of immunity to medical review committee members in corrective action proceedings. Importantly, the North Carolina peer review statute also creates an evidentiary privilege preventing the introduction of evidence of the proceedings of a medical review committee, inclusive of the records and materials it produces. When combined with the presumption of immunity under the HCQIA, the evidentiary privilege creates a powerful shield from liability for defendants.

The Immunity Statutes

N.C.G.S. § 131E-95(a). The North Carolina peer review statute provides a broad grant of immunity to medical review committee participants. A medical review committee member, in the absence of malice or fraud, “shall not be subject to liability for damages in any civil action on account of any act, statement or proceeding undertaken, made, or performed within the scope of the functions of the committee.” N.C.G.S. § 131E-95(a). A medical review committee is defined to include, among other things, a committee of a medical staff of a hospital formed for the purpose of evaluating medical staff credentialing. N.C.G.S. § 131E-76(5).

Note that on the face of the statute the immunity applies to “[a] medical review committee member.” Does the statute provide immunity to the hospital which forms the committee? While no North Carolina case has expressly addressed this issue, there is authority which at least implicitly supports the proposition that a hospital is entitled to immunity under the statute. In McKeel v. Armstrong, 96 N.C. App. 401, 386 S.E.2d 60 B1989), the Court of Appeals affirmed summary judgment in favor of a defendant-hospital on immunity grounds under Section 131E-95(a) without specifically analyzing whether a hospital falls within the scope of the immunity provision. Similarly, in Philips v. Pitt County Mem'l Hosp., Inc., -- N.C. App. --, 731 S.E.2d 462 (2012), the Court of Appeals found the defendant-hospital immune under Section 131E-95(a), again without any analysis of the statute’s application to a hospital. Notwithstanding, a convincing argument can be put forth that to further the clearly defined goals of the statute, the immunity must be afforded to a hospital which forms a medical review committee. Otherwise, the immunity could be easily avoided, and the legislative intent behind enactment of the statute frustrated, merely by suing the hospital instead of the committee members who are acting as agents of the hospital in carrying out their committee responsibilities.

Thus, when a physician files suit seeking damages to challenge the result of a corrective action proceeding (assuming the defendants fall within the purview of the statute), the pertinent issue becomes whether the plaintiff is able to establish malice or fraud to overcome the immunity. In McKeel, 96 N.C. App. at 408, 386 S.E.2d at 64, the Court of Appeals recognized that “in almost any situation [involving a corrective action], opportunities [exist to] compromise the investigation if the persons involved [are] motivated by malicious intent[.]” However, the court refused to infer malice or fraud from such opportunities since the plaintiff “failed to produce any evidence of such intent.” Thus, the plaintiff must produce specific evidence demonstrating the hospital or members of the medical review committees acted fraudulently or with malicious intent. Philips, 731 S.E.2d at 472.

The Health Care Quality Improvement Act (42 U.S.C. § 11111, et seq.). Under the HCQIA, professional review bodies are protected from damages suits for professional review actions taken:

(1) in the reasonable belief that the action was in the furtherance of quality health care,

(2) after a reasonable effort to obtain the facts of the matter,

(3) after adequate notice and hearing procedures are afforded to the physician involved or after such other procedures as are fair to the physician under the circumstances, and

(4) in the reasonable belief that the action was warranted by the facts known after such reasonable effort to obtain facts and after meeting the requirement of paragraph (3).

42 U.S.C. § 11112(a); see also 11111(a)(1). HCQIA immunity is not dependent on a hospital’s compliance with its bylaws, but rather, provides a uniform set of national standards. Wahi v. Charleston Area Med. Ctr., Inc., 562 F.3d 599, 609 (4th Cir. 2009). There is a presumption that these requirements have been met. 42 U.S.C. § 11112(a). The plaintiff bears the burden of proving that immunity does not attach. Bryan v. James E. Holmes Reg’l Med. Ctr., 33 F.3d 1318, 1333 (11th Cir. 1994).

The first element for HCQIA immunity is met if “the reviewers, with the information available to them at the time of the professional review action, would reasonably have concluded that their action would restrict incompetent behavior or would protect patients.” Bryan, 33 F.3d at 1334-35. Because the standard is an objective one, assertions of hostility or bad faith are irrelevant to immunity analysis. Poliner v. Texas Health Sys., 537 F.3d 368, 378 (5th Cir. 2008). The Act does not require an actual improvement in health care, nor does it require that the conclusions reached by the reviewers be correct. Poliner, 33 F.3d at 378.

The second element for HCQIA immunity is that the action in question be taken after a reasonable effort to obtain the facts of the matter. 42 U.S.C. § 11112(a)(2). The HCQIA only requires that the totality of the process leading up to the professional review action be evidenced by a reasonable effort to obtain the facts of the matter. Gabaldoni v. Washington Cnty. Hosp. Assoc., 250 F.3d 255, 261 (4th Cir. 2001).

The third requirement for immunity under the HCQIA is that the action be taken “after adequate notice and hearing procedures are afforded to the physician involved or after such other procedures as are fair to the physician under the circumstances.” 42 U.S.C. § 11112(a)(3). There are “safe harbor” provisions established by 42 U.S.C. § 11112(b) which, if satisfied, result in the reviewing body being deemed to have met the adequate notice and hearing requirements as a matter of law. However, failure to satisfy the safe harbor provisions does not mean the reviewing body failed to provide adequate notice and hearing procedures, so long as the procedures were fair under the circumstances.

Finally, the analysis under § 11112(a)(4) closely tracks the analysis under § 11112(a)(1). Poliner, 537 F.3d at 384. To the extent the inquiry differs at all from that under § 11112(a)(1), courts tend to examine whether the specific action taken was tailored to address the health care concerns raised. Id.

The Evidentiary Privilege under N.C.G.S. § 131E-95(b) and its application in actions challenging the corrective action process N.C.G.S. § 131E-95(b) provides:

The proceedings of a medical review committee, the records and materials it produces and the materials it considers shall be confidential . . . and shall not be subject to discovery or introduction into evidence in any civil action against a hospital . . . or a provider of professional health services which results from matters which are the subject of evaluation and review by the committee. No person who was in attendance at a meeting of the committee shall be required to testify in any civil action as to any evidence or other matters produced or presented during the proceedings of the committee or as to any findings, recommendations, evaluations, opinions, or other actions of the committee or its members . . . A member of the committee or a person who testifies before the committee may testify in a civil action but cannot be asked about the person’s testimony before the committee or any opinions formed as a result of the committee hearings.

On the face of the statute, the privilege is broad and absolute. But does the privilege apply when the corrective action itself is being challenged? The answer, it appears, is yes, even though (or perhaps because) application of the privilege severely handicaps a plaintiff-physician’s ability to overcome the immunity provided by state and federal law.

The purpose of the Hospital Licensure Act, under which Section 131E-95 is codified, is “to promote the public health, safety and welfare and to provide for basic standards for care and treatment of hospital patients.” Shelton v. Morehead Mem’l Hosp., 318 N.C. 76, 82, 347 S.E.2d 824, 828 (1986). The privilege was enacted because of fear that access to peer review investigations would stifle candor and inhibit objectivity. Id. “The Act represents a legislative choice between competing public concerns. It embraces the goal of medical staff candor at the cost of impairing plaintiffs’ access to evidence.” Id. There is no exception to this rule when the peer review itself is being challenged as the privilege applies to “any civil action.” Virmani v. Presbyterian Health Svs. Corp., 350 N.C. 449, 515 S.E.2d 675 (1999). Unlike the immunity provision under Section 131E-95(a), there is no “malice or fraud exception” to the evidentiary privilege under Section 131E-95(b).

Similar evidentiary privileges have generally been upheld in other jurisdictions, even when the corrective action is being challenged. For example, in Patton v. St. Francis Hosp., 539 S.E.2d 526 (Ga. Ct. App. 2000), the plaintiff-physician filed suit against the defendant-hospital related to the termination of the plaintiff’s staff privileges. Through discovery, the plaintiff sought information related to the peer review process which resulted in the termination of his privileges, but the court held that such information was immune from discovery under the Georgia peer review statute. Even assuming that the hospital acted with malice, the privilege nonetheless applied. To allow an allegation of malice to destroy the discovery shield would result in full discovery in virtually all peer review cases, contrary to the intent behind enactment of the statute. Id. at 528. Moreover, the failure of a hospital to comply with its bylaws does not destroy the privilege, as allowing such an exception “would virtually destroy the candor sought in the setting of hospital peer review.” The court also rejected the plaintiff’s argument that the privilege should not apply when the peer review process itself is challenged. To allow such an exception would similarly “swallow the rule,” as it is a “rare case in which disciplined physicians do not challenge the peer review process.” Id. at 529-30.

Similarly, in Holly v. Auld, 450 So.2d 217 (Fla. 1984), the Florida Supreme Court upheld a statutory peer review discovery privilege in a suit alleging defamation against members of a hospital’s credentials committee, after the plaintiff’s application for staff privileges was denied. The court held that the peer review discovery privilege applied, even in the face of a defamation claim. The court reasoned as follows:

Inevitably, such a discovery privilege will impinge upon the rights of some litigants to discovery of information which might be helpful, or even essential to their causes. We must assume that the legislature balanced this potential detriment against the potential for health care cost containment offered by effective self-policing by the medical community and found the latter to be of greater weight. It is precisely this sort of policy judgment which is exclusively the province of the legislature rather than the courts.

Id. at 20.

At least one state, however, has adopted a physician-plaintiff exception. In Hayes v. Mercy Health Corp., 739 A.2d 114 (Pa. 1999), the Pennsylvania Supreme Court held that the confidentiality provisions of its state peer review statute did not apply where a physician challenged his own peer review process. Instead, the court reasoned that the privilege applies only in actions where an outside party seeks to hold a health care provider for negligence.

In North Carolina, the Court of Appeals recently had occasion to apply the privilege in a case in which a plaintiff-physician brought suit against a hospital and several medical review committee members after a series of corrective actions which resulted in the revocation of the physician’s hospital privilege. In Philips v. Pitt County Mem'l Hosp., Inc., -- N.C. App. --, 731 S.E.2d 462 (2012), the trial court entered a protective order pursuant to Section 131E-95(b), finding the documents generated by various medical review committees were privileged. In light of the protective order, the entry of which the plaintiff failed to challenge on appeal, the plaintiff was unable to produce any evidence of malice or fraud sufficient to overcome the immunity afforded by Section 131E-95(a). Further, he was not able to admit evidence of allegedly defamatory testimony of several defendants presented before various medical review committees involved in the corrective action proceedings. Thus, the court applied the evidentiary privilege even though it deprived the plaintiff of crucial evidence. See also Virmani, 350 N.C. at 464, 515 S.E.2d at 686 (rejecting argument that the privilege under Section 131E-95(b) applies only to third party malpractice plaintiffs).

Practical Implications

Philips highlights the challenges a plaintiff faces when attempting to overcome statutory immunity, both under state and federal law, when the plaintiff lacks the ability to introduce evidence of the very proceedings the plaintiff is challenging. This difficulty is compounded by the fact that the HCQIA creates a presumption of immunity, which the plaintiff bears the burden of overcoming.

From a defense perspective, your instinct will likely be to defend the case by establishing that the action taken against the plaintiff-physician’s privileges was the “correct” decision based upon the evidence developed during the corrective action proceeding. However, carefully balance your client’s need for this evidence against the plaintiff’s ability to prosecute his case in the absence of this evidence. It will be very difficult for a plaintiff to produce evidence to overcome the statutory immunities if the evidentiary privilege is applied. This decision will likely need to be made early in the litigation, perhaps before filing an answer to the complaint, so as to avoid inadvertently waiving the privilege.

Additionally, in those situations where removal to federal court is a consideration (whether in a diversity case or in action brought pursuant to 42 U.S.C. § 1983), you will need to determine at the outset of the case whether to enforce or waive the privilege. If you remove to federal court, the evidentiary privilege may not be recognized. See, e.g., Virmani v. Novant Health Inc., 259 F.3d 284 (4th Cir. 2001). Accordingly, you may prefer to remain in state court.

Finally, it is important to keep in mind that the proponent of the privilege has the burden of establishing its existence. Hammond v. Saini, -- N.C. App. --, 748 S.E.2d 585 (2013); Bryson v. Haywood Reg'l Med. Ctr., 204 N.C. App. 532, 536, 694 S.E.2d 416, 420 (2010). Thus, the defendant must establish that the committees in question meet the statutory definition of “medical review committees” and that the documents at issue fall within the purview of Section 131E-95(b). This will likely be done through affidavits, with the privileged documents submitted under seal for in camera review. Make sure you submit enough information to allow the trial court, and ultimately the appellate court, to determine the existence of the privilege.

Conclusion

Application of the evidentiary privilege under N.C.G.S. § 131E-95(b) deprives a plaintiff of crucial evidence which is likely necessary to overcome the immunities afforded to defendants by statute. This is no doubt a harsh result and one which plaintiffs and their counsel will likely see as unjust. However, an examination of the legislative histories of the North Carolina peer view statute and the Health Care Quality Improvement Act suggest that this is the very purpose the statutes were enacted to achieve.

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A Paralegal’s Guide to Relationship Building with New Attorneys

by Faye Bass, Ragsdale Liggett, PLLC

When you are assigned to a newly licensed attorney, you can be a very valuable asset in the attorney’s transition from the classroom to the courtroom. Many of you have already been in that position, perhaps multiple times, and already have a vast knowledge of how to assist a new attorney in preparing for transition from the classroom to the courtroom. For those of you presented with this challenge for the first time, these are just some suggestions that may prove helpful to both the attorney and you.

First of all, remember to put yourself in their place. Think back to the first day that you started your career and how uncertain and unfamiliar things seemed to you. This will give you an insight as to how they must be feeling, knowing that they are facing many new challenges. This will allow you to help build their confidence.

As each office is set up differently, ensuring that they have items they will need on a daily basis at their disposal is a good way to start. Try to find just a few minutes to show the attorney where the supplies are located so they will be able to find them without having to waste time looking for them. You might also want to set aside a few minutes as soon as you can to go over the instructions for the office equipment. This could include copiers, printers, fax machines, and even postage machines. This may sound trivial, but as you know, it can be daunting to have to deal with not having the appropriate supplies on hand, or a “temperamental” copier or printer or other office equipment when working on a deadline.

The new attorney has likely already interned at a law firm before starting practice. You may find that it is helpful to chat with the attorney for a few minutes and go over skill sets of both the attorney and you. This will also help in establishing a working relationship that will make meeting the challenges of everyday schedules easier for both of you.

Most law firms have a policy and procedure system in place that is unique to their own firm. These policies and procedures probably include many various procedures from scheduling conference rooms for mediations, depositions and other client meetings to an internal website that provides valuable information pertinent to your particular law firm. Reviewing those policies and procedures with the new attorney will also provide resources to turn to when needed.

During law school, attorneys are taught rules and regulations and how to practice law itself, but you will likely also play an important role in assisting the new attorney in the mechanics of how to get things done, such as filing pleadings with the various branches of the Courts. Most of you already have a bank of valuable contacts in most of the court offices that you can rely on for assistance when needed. The attorney will more than likely rely on you to handle these tasks, but by sharing this information with the attorney, the attorney could then reach someone that could assist them with any issue should you not be available at a time when a quick answer is needed.

As you already know, different counties have different procedures, especially when it relates to scheduling matters, calendar requests, and notices of hearing. The attorney will need also to be familiar with these procedures should an emergency arise and neither you, nor any other staff member is available to assist them. I have always found that it is a good idea to review the local rules, and if necessary, a simple phone call to the court can answer the question at hand.

Most of you also have a docketing system in place to insure that no deadlines are missed. You are already aware that one of the main sources for such deadlines are contained in the Case Management Order received from the Court for any given case. Reviewing these deadlines with the attorney as the case progresses will assist in everyone being on the same page as to what date a document is due or dates for hearings and/or trials.

Unless your firm has a database in place to update cases daily, it is a good idea to keep a chart or at the least, a list of all the cases that the attorney is assigned to. If this chart or list includes such information as the client number, name, description of the case, a list of the deadlines for each case, and what person is assigned to a particular task and any other needed information about the case, the chart or list would prove to be very helpful to have handy. It is important to review deadlines or hearings, deposition dates, etc. with the attorney as often as necessary to ensure that all the deadlines are on schedule.

If you are as proactive as possible yourself, and constantly review the caseload and deadlines, this will enable both you and the attorney to work on upcoming deadlines/documents to try to avoid last minute filings. As you have already experienced yourself, these last minute deadlines cause greater stress on both the attorney and you. Anything you can do ahead of time to ensure that the deadline is properly met will prove to be most beneficial.

I have found that the most important goal to establish with the attorney is communication, communication, communication! A reliable, set plan of communication with the attorney will be necessary for everyone involved with a case in order meet all requirements and deadlines, and to avoid duplicative work or last minute issues.

These are just a few of the ways that have assisted me in doing my best to be a valuable asset to a new attorney, as well as seasoned attorneys, and I hope that they will also be helpful to those of you presented with new challenges.

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by Colleen Byers, Bell Davis & Pitt

Although often wielded as such, the work product doctrine is not an impenetrable shield. Whether advising a client pre-suit or during the pendency of a lawsuit, both lawyers and their clients should be cautioned that just because a lawyer was involved in the preparation of a document or the communication with a third-party does not necessarily make the document, the communication or the information learned thereafter sacrosanct. The work product doctrine is not an absolute privilege, but rather a qualified immunity. See, e.g. Evans v. United Services Auto. Ass’n, 142 N.C. App. 18, 541 S.E.2d 782 (2001). Courts must strike a balance between the need for relevant, non-privileged discovery and the need to safeguard the lawyer’s work in developing the client’s case. Lawyers would be wise to consider and strategically maneuver around the limits of the work product protection long before they begin drafting objections to written discovery. Although the general rule that documents prepared in anticipation of litigation are not discoverable holds true, there are several notable exceptions and limitations to this rule.

1. Substantial need and undue hardship.

Pursuant to Rule 26(b)(3) of the North Carolina Rules of Civil Procedure if a document is created in anticipation of litigation, the party seeking discovery may access the document only by demonstrating a “substantial need” for the document and “undue hardship” in obtaining its substantial equivalent by other means. It is important to note, however, that the requesting party must show both a substantial need and an undue hardship in order to overcome the work product protection. See, e.g. North Carolina State Bar v. Harris, 137 N.C. App. 207, 527 S.E.2d 728 (2000) (even if the attorney, who was the subject of disciplinary proceedings, showed a substantial need to discover reports and witness interview notes of State Bar’s investigator, the attorney failed to show an undue hardship where he failed to exercise his right to depose the witnesses who were the subject of the investigator’s notes and reports). Moreover, where a substantial need and undue hardship have overcome the work product protection, the producing party should consider requesting an in camera review and redactions of the mental impressions, conclusions, opinions and legal theories of an attorney contained therein, which are entitled to a heightened level of protection from disclosure, in order to limit discovery to the fact work product contained in the document(s).

2. Only applicable to documents and tangible things.

The work product protection only applies to documents and tangible things. [Rule 26(b)(3) of the North Carolina Rules of Civil Procedure.] Accordingly, the protection does not extend to actions taken or the identification of persons contacted by a party or the party’s counsel. Brown v. American Partners Federal Credit Union, 183 N.C. App. 529 645 S.E.2d 117(2007); Young v. Kimberly-Clark Corp., 219 N.C. App. 172, 724 S.E.2d 552 (2012).

3. Ordinary course of business exceptions.

Because the work product doctrine only protects documents and tangible things prepared in anticipation of litigation, it does not apply to materials prepared in the ordinary course of business or to facts known by any party. For example, e-mails containing nothing more than that which would be sent in the ordinary course of business that are copied to an attorney are not protected by the work product doctrine solely because they were sent while a lawsuit was pending. Isom v. Bank of America, 177 N.C. App. 406, 628 S.E.2d 458 (2006). Additionally, internal investigations may not be protected if they are conducted in the ordinary course of business and are completed prior to the reasonable anticipation of litigation. Fulmore v. Howell, 189 N.C. App. 93, 657 S.E.2d 437 (2008) (trucking company’s accident report and internal investigation following fatal traffic accident were conducted for safety purposes in the normal course of business and, therefore, subject to discovery in subsequent negligence action); Evans, 142 N.C. App. 18 (in coverage dispute, investigative report completed by independent claim adjusters prior to insurer’s denial of claim was not protected by work product doctrine because it was completed in the ordinary course of the insured’s business and the insured could not reasonably anticipate litigation of a coverage question before the investigative procedure was completed and the claim was denied); Cook v. Wake Co. Hosp. System, Inc., 125 N.C. App. 618, 482 S.E.2d 546 (1997) (hospital’s accident report prepared after physician’s slip and fall in hospital was not prepared in anticipation of litigation, but rather for routine, business risk management purposes and was, therefore, discoverable in physician’s personal injury action).

4. Certain communications with experts.

Effective October 1, 2015, Rule 26(b)(4)(e) of the North Carolina Rules of Civil Procedure now expressly identifies the circumstances under which communications between an attorney and an expert witness are discoverable. Communications between an attorney and an expert witness, regardless of the mode of communication, are protected from discovery except to the extent that the communications do any of the following: (i) relate to compensation for the expert’s study or testimony; (ii) identify facts or data that the party's attorney provided and that the expert considered in forming the opinions to be expressed; or (iii) identify assumptions that the party's attorney provided and that the expert relied on in forming the opinions to be expressed. To avoid an in camera review and a redaction fight, consider keeping protected communications with an expert witness separate from those that are discoverable under the recently revised Rule 26(b)(4)(e).

Although the work product doctrine is not without its limits, a little strategic planning can go a long way to mitigate the impact of those limits.

Endnote:  This article is limited to North Carolina state law, but it should be noted that, unlike the attorney-client privilege, the analysis of the work product rule in federal court is governed by federal law rather than the state law of the jurisdiction. Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. 465 (S.D.N.Y. 1993).

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by R. Kent Warren, McGuireWoods

Effective October 1, 2015, the rules regarding expert discovery have changed. North Carolina Rule of Civil Procedure 26(b)(4), which governs expert discovery, has been amended to bring it more in line with its federal counterpart. Amended Rule 26(b)(4) changes the way parties disclose testifying experts and extends work-product protections to draft expert reports and most attorney communications with experts. Amended Rule 26(b)(4) only applies to cases filed on or after October 1, 2015. Cases filed before then are still governed by the old rule. The most notable changes to Rule 26(b)(4) are summarized below.

Affirmative Obligation to Disclose Testifying Experts. The prior version of Rule 26(b)(4) did not require parties to identify testifying experts unless another party requested this information by way of interrogatory. Amended Rule 26(b)(4) now imposes an affirmative obligation on parties to disclose their testifying experts regardless of whether this information has been requested. Failure to comply with this disclosure requirement could result in exclusion of the expert at trial.

Expert Reports Permitted By Agreement. Amended Rule 26(b)(4) provides parties with the option of accompanying their expert disclosures with a written report. If the parties agree to exchange written reports, the report must contain the following information: a complete statement of the witness’s opinions and the basis and reasons for them; the facts or data considered by the witness in forming the opinions; the witness’s qualifications, including a list of all publications authored in the previous 10 years; a list of all cases in which the witness testified in the previous four years; and a statement of the witness’s compensation. Absent an agreement by the parties or court order requiring written reports, a party may through interrogatory require any other party to identify the following information: the subject matter on which the witness is expected to testify; the substance of the facts and opinions to which the witness is expected to testify; and a summary of the grounds for each opinion.

Right to Depose Testifying Experts. Under the prior version of Rule 26(b)(4), a party was only entitled to obtain expert discovery “through interrogatories.” As a result, expert depositions were permitted only by agreement of the parties or court order. Under Amended Rule 26(b)(4), a party is now entitled to depose any other party’s testifying expert; no agreement by the parties or court order is needed.

Discovery of Non-Testifying Experts Is Prohibited Absent “Exceptional Circumstances.” Amended Rule 26(b)(4) provides that discovery of non-testifying experts is prohibited absent a showing of “exceptional circumstances under which it is impracticable for the party to obtain facts or opinions on the same subject by other means,” or unless permitted under Rule 35(b) (court-ordered examining physicians).

Discovery of Draft Reports Prohibited. Amended Rule 26(b)(4) provides that “[d]rafts of reports provided under [this Rule] are protected from disclosure and are not discoverable regardless of the form in which the draft is recorded.”

Trial Preparation Protections Extended to Attorney Communications with Experts. Under the prior version of Rule 26(b)(4), it was unclear whether or to what extent attorney communications with testifying experts were discoverable. Amended Rule 26(b)(4) resolves this issue by explicitly shielding from discovery communications between a party’s attorney and its testifying experts unless the communications do any of the following: (1) relate to the expert’s compensation; or (2) identify information or assumptions provided by the attorney that the expert considered in forming his or her opinions.

Default Deadlines for Disclosing Expert Testimony. Under Amended Rule 26(b)(4), unless otherwise agreed to by the parties or ordered by the court, the parties must disclose any expert opinions (either by written report or interrogatory response, as applicable) at least 90 days before trial. Parties must disclose any rebuttal witnesses within 30 days after the other party’s expert witness disclosure.

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By Eric Guyer, Ph.D. and Joseph Lemberg, Ph.D., P.E.

It’s true: nothing lasts forever, certainly no useful engineering materials or products made of them do. Moreover, it is not reasonable to expect an engineer or scientist to design a product that does last forever. Indeed, all products have a finite service life. When things do eventually break, whether early or late in their life, it is sometimes important for a manufacturer of the product or an attorney who represents a manufacture to determine why it broke. That’s where Failure Analysts come in. Failure Analysts can be of many engineering and scientific disciplines; the authors of this article are both Metallurgists with specific training in the fracture, fatigue and corrosion of materials. We are often asked to describe the cause as to why something broke. Accordingly, we use tools such as optical microscopes and scanning electron microscopes to examine and study the features on fracture surfaces – this field of study is called “fractography.” We look at features on a fracture surface that are centimeters in size to nanometers (or one billionth of a meter). A common perception is that this field seems more like reading tea leaves as opposed to objective science.

Here we peel back the curtain and discuss briefly some of the features we as metallurgists, fractographers, and failure analysts examine to help us diagnose failures. In doing so, we hopefully shed some light on a process that at times can seem to be a black art.

Common Fracture Modes

When we first learn of a failure, specifically a fracture, we ask several questions in order to understand how and why it occurred:

• What type of material was it and how was it manufactured?
• What type of environment was it subjected to?
• How long was it in service before the fracture occurred?
• Was it subjected to loads or forces and were they sustained or cyclic?
• How was the product used and maintained?
• Is this a new design or old design?
• How many failures exist and how large is the total population of similar parts?

Such questions help us sort through potential failure modes and develop potential hypotheses so that we can apply the scientific method to our investigation. For instance, if a product is never subjected to cyclic loads, then fatigue is not a likely failure mode. Questions about the material help us understand, for instance, if it is generally going to be a brittle or ductile material and whether or not it may be susceptible to attack by various environments. As a general proposition, there are numerous failure modes that exist in reality, only the most predominant failure modes are discussed in this paper which include:

• Overload
• Fatigue
• Environmentally-assisted cracking

Each of these modes is now described as well as compared and contrasted. All leave behind tell-tale signs that a trained metallurgist can use to determine which type of failure occurred.

Overload

Briefly, the word “overload” represents a one-time excursion where the load-carrying capacity of the part is exceeded and the part breaks. Overload failures typically originate from a single location that may be a small surface nick, an inclusion in a part, or an area where stress concentrates as a result of the design of a part (a hole, for example). Depending on the properties of the material, a crack can propagate in what is known as a “brittle” manner or a “ductile” manner.

Brittle Overload Fracture

On the microscopic scale, metals are comprised of crystals which we call “grains” (see Figure 1). The morphology of these grains forms what we call the “microstructure” of the metal. Brittle fracture commonly occurs by two means: intergranular fracture (at the interface between adjacent grains) or transgranular fracture (meaning the fracture grows through a grain). The boundaries between adjacent grains may represent a natural weak point in the structure or potentially as a result of contamination of the boundaries as well as other factors. An example of intergranular fracture is shown in Figure 2. Transgranular fracture, also known as cleavage, occurs when a crack plows through a grain, and doesn’t follow the boundaries. Transgranular fracture typically occurs in very hard materials, like ceramics. An example of a transgranular fracture is shown in Figure 3.

Ductile Overload Fracture

Ductile fracture occurs by a different mechanism entirely. A ductile fracture presents a dimpled fracture surface, as shown in Figure 4. These dimples form as the result of tiny voids that form and grow together (coalesce) as the material is deformed. Typically, these voids form around local hard particles, where the nearby material can deform to a different extent than the hard particle; eventually, the hard particles separate from the softer material deforming around them, leading to the characteristic dimples. The crack propagates as these dimples link up in a process known as microvoid coalescence.

Fatigue

In contrast to an overload fracture, fatigue is the cyclic application of loads to a part; here, damage accumulates on a part, a crack is initiated and then it grows to the point of final fracture. It is a time dependent fracture mechanism. In fatigue, a crack can propagate a minute amount with every load-unload cycle. Though the vast majority of fatigue occurs as a result of ductile processes, it is possible to have fatigue of brittle materials. One of the hallmarks of fatigue is the presence of multiple origins. Local inhomogeneities, surface perturbations or surface damage can all lead to the propagation of fatigue cracks.

Most of the lifetime of a part is spent generating the small perturbations, while crack extension typically consumes only a small portion of the life of a part. The fact that a crack extends a small amount with every load cycle leaves behind features known as “striations.” These marks, which are another hallmark of fatigue, point back towards the origin of the crack (picture ripples in a pond from a rock that is dropped). As the crack grows, the spacing between striations increases. Striations start out very small, and require very high magnifications to observe (1000s of times magnification). Such fracture surfaces also generally contain larger features, known as “beach marks” for their similarity to ripples sometimes observed in the sand at the water line at a beach, do not necessary represent a single load-unload cycle (that is, many load-unload cycles may occur between beach marks). An example of striations on a fracture surface is shown in Figure 5.

Environmentally-Assisted Cracking: Stress-Corrosion Cracking

Both of the above fracture modes are primarily and typically related to loads and material properties (temperature can be an exception). However, the service or manufacturing environment can play a role in a fracture as well. One such mechanism is known as stress-corrosion cracking, or SCC. SCC is also a time dependent fracture mechanism and is the result of a sustained stress, rather than a sudden overload or the cyclic application of stresses. A combination of three factors are required for SCC to occur, as described below and shown schematically in Figure 6:

1. Stress: This can be an applied stress from installation or service, or residual stresses left over from manufacturing.

2. Susceptible material

3. Environment: A service or manufacturing environment containing a component that can attack a particular material is required. One common SCC agent for brass is ammonia.

SCC cracks tend to have multiple origins, and usually present as highly branched, intergranular cracks (though transgranular SCC cracks are also possible). An example of SCC cracks in brass is shown in Figure 7.

Final Thoughts

Fractography is a challenging field of study with many intricacies and subtleties that can impact the outcome of an analysis and accordingly requires a trained eye to accurately diagnose. Hopefully, although only a few of the high level features are examined here, this short article sheds some light on the types of features that we metallurgists look for when examining a failure. The fracture surfaces are therefore extremely important, and are sometimes the only information available to aid in determining what led to a failure.

Eric Guyer, Ph.D., Principal, Exponent, Inc., 3350 Peachtree Rd. NE Atlanta, GA 30326 eguyer@exponent.com

Joseph Lemberg, Ph.D., P.E., Managing Engineer, Exponent, Inc., 3350 Peachtree Rd. NE Atlanta, GA 30326 jlemberg@exponent.com

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Medicare Advantage Plans: There is a New Lien in Town
Erin T. Collins, Hedrick Gardner Kincheloe & Garofalo, LLP

Attorneys defending clients in civil and workers’ compensation cases understand that settlements involving Medicare beneficiaries must involve an arrangement to reimburse traditional Medicare for claim-related conditional payments made under Medicare Parts A and B. There is an established process (albeit a long and arduous one) to obtain a conditional payment demand from traditional Medicare when settling these types of claims. As the title of this article indicates, there is now yet another box to check when resolving claims with Medicare-eligible claimants: Do any Medicare Advantage Plans have a lien against this settlement?

Medicare Advantage Plans are not actually new; however, they are becoming increasingly popular with Medicare-eligible individuals, and recent litigation indicates they may have the same or similar recovery rights as traditional Medicare. Medicare Advantage Plans are insurance plans for Medicare-eligible individuals administered by private entities (for example: Medicare Blue, Humana, AARP) but funded in part by the federal government. See 42 U.S.C. §§ 1395w-21-28. It is Medicare’s formal position that these plans should be given the same rights of recovery against third party claims as traditional Medicare. (See CMS Memorandum on December 5, 2011, re: Medicare Secondary Payment Subrogation Rights, Authored by Danielle R. Moon, J.D., M.P.A., and Cynthia Tudor, Ph.D.)1. Several Courts throughout the country have recently allowed these plans to recover their payments from settlements through filing a private cause of action in federal court. In re Avandia Mktg. Sales Practices and Products Liability Litigation, 685 F.3d 353 (3d Cir. 2012); Humana Ins. Co. v. Farmers Texas County Mutual Insurance Co., 95 F. Supp. 3d 983 (W.D. Tex. 2014); Collins v. Wellcare Healthcare Plans, Inc., 73 F. Supp. 3d (E.D. Louis. 2014). Assuming this position continues to prevail, Medicare Advantage Plans will be able to bring private causes of action against insurers - even after a settlement - in the event they are not reimbursed out of the settlement proceeds. To add insult to injury, these plans may also be able to seek double damages against primary payers under the right set of circumstances. See 42 U.S.C. § 1395y(b)(3)(A).

Approximately one third of all Medicare-eligible individuals have enrolled in a Medicare Advantage Plan. See “Don’t Settle for Less: Protecting Medicare Advantage Plans’ Recovery Rights,” Aaron P. Frederickson, 88 A.P.R. Wis. Law. 30 (April 2015). As such, it is likely that most workers’ compensation and/or liability defense attorneys are currently handling at least one case involving a Medicare Advantage beneficiary (even if they do not know it). There are unique challenges presented when dealing with Medicare Advantage Plans, and although some questions remain unanswered, here is basic information for attorneys handling cases involving claimants with a date of birth of 1950 or earlier, or with a long-term SSA-approved disability.

• How are defendants to know there is a Medicare Advantage Plan involved? If a conditional payment letter or final demand letter received from traditional Medicare is $0.00, and the claimant, a Medicare-eligible individual, has undergone claim-related medical treatment, there is likely a Medicare Advantage Plan involved. The typical reaction to a $0.00 lien letter from traditional Medicare involves a call for a quick disbursement and file closure, but the reaction should be motivation to do more research before finalizing the settlement. Someone (or entity) paid for the medical treatment, and oftentimes, the payer is a Medicare Advantage Plan. Also, if the itemized billing statements reference AARP, Humana, Medicare Blue, etc., there will likely be payments by a Medicare Advantage Plan.
• Do you notify the Medicare Advantage Plan of their rights? It feels unnatural to place a lienholder on notice when they have not provided any indication of a lien. However, these plans will likely have notice of the third party claim through the manner in which they are funded by the federal government. Insurance companies now report settlement/judgment/award payments to the federal government through the Section 111 mandatory reporting requirements, and in turn, the federal government reduces the “capitation rate” they pay the Medicare Advantage Plans for the beneficiary. See “Is Medicare Advantage Entitled to Bring a Private Cause of Action Under the Medicare Secondary Payer Act?” by Jennifer Jordan, 41 Wm. Mitchell L. Rev. 1408, 1417 (2015)2. Assuming everything works as designed, in theory, the Medicare Advantage Plan will indirectly have notice of the third party claim. It goes without saying it is better to negotiate before settlement/disbursement, rather than after the funds have been disbursed and are unavailable to satisfy the lien.
• How do you obtain a lien once the Medicare Advantage Plan is identified? This is perhaps the good news. Medicare Advantage Plans are administered through private insurance companies and as such, the parties are able to call, email or fax to obtain a lien amount and itemized statement relatively promptly (particularly compared to the traditional Medicare process).
• May there still be a conditional payment reimbursement request from Medicare for Medicare Parts A and B? Yes. A beneficiary can switch back and forth from Medicare Advantage to traditional Medicare and therefore, although there was good news in bullet three above, a thorough lien search will involve both confirmation that there are no liens being asserted by traditional Medicare or any Medicare Advantage Plan.
• Why is this my problem? It does not have to be; however, if opposing counsel (or the unrepresented claimant) does not reimburse the Medicare Advantage Plan (or any claim by traditional Medicare), the lienholder, whether traditional Medicare or a Medicare Advantage Plan, may have a direct cause of action against the insurance carrier to be reimbursed for claim-related payments, and potentially double damages.

Awareness of the “new lien” in town is step number one to protecting clients from future liability related to Medicare-related liens. Good luck out there!

1Found at:  https://www.cms.gov/Medicare/Health-Plans/HealthPlansGenInfo/downloads/21_MedicareSecondaryPayment.pdf

2  Found at http://web.wmitchell.edu/law-review/wp-content/uploads/2015/05/5.-Jordan_Website.pdf,  

Department of Education Sides with Transgender Student’s Allegations of Sex-Based Discrimination
Sidney O. Minter, Teague Campbell Dennis & Gorham, LLP

On November 2, 2015, the Department of Education (the “DoE”) issued a potentially landmark decision regarding the rights of transgender students.  This decision was issued following months of investigation into allegations that Palatine High School District 211 (the “District”) discriminated against a transgender female (“Student”) on the basis of her sex.  The DoE determined that the District violated federal discrimination laws by denying Student access to gender-appropriate locker rooms because she is transgender.

Student’s Complaint:

In December 2013, Student filed a complaint against the District alleging violations of Title IX. of the Educational Amendments of 1971 (“Title IX”). Based on the allegations of Student’s complaint, she was born a male at birth, but identified as a female from a young age.  The complaint also indicated that Student came out to her family as transgender a few years earlier and that she owned a United States passport identifying her as a female.  The complaint outlined that Student had been diagnosed with a psychological condition—gender dysphoria—a condition for persons who experience incongruence between their experienced/expressed gender.  In addition, Student indicated that, for the past few years, she lived her life as a female (There was not any discussion regarding whether Student underwent a medical procedure to change her sex).  This included dressing and presenting as a female, requesting that everyone refer to her by her female name, requesting that everyone refer to her using female pronouns, and by using female restrooms.

During her eighth grade year, she requested a meeting with administrators from the District regarding her transition to high school.  Following a meeting with a psychologist from the District, she was informed that she would be allowed to use girls’ restrooms, to wear female uniforms during gym class, and to participate on female athletic teams.  However, at the same time, she was informed that she would not be allowed to use girls’ locker rooms to change for her daily gym class.  Instead, she was instructed to use a separate bathroom, which she contended was far from the gym.  Following this decision, Student met with the District’s principal—who confirmed the District’s position regarding Student’s access to girls’ locker rooms. 

Student’s Legal Arguments:

In Student’s complaint against the District, her legal counsel alleged a number of legal claims.  First, Student alleged the District had engaged in per se discrimination by singling Student out for differential treatment and segregating her from other students because of her gender identity.  Next, she alleged that the District engaged in per se discrimination against Student due to her change of sex.  Lastly, she alleged that the District’s decision to ban her from the girls’ locker rooms was unlawful sex stereotyping under Title VII.

The District’s Legal Arguments:

The District has made a number of legal arguments, but, ultimately, its legal position seems to be steeped in Constitutional Rights—namely, the Right to Privacy.  The District believes its decision to not allow Student unfettered access to the girls’ locker rooms is both lawful and reasonable.  The District emphasized that its position protects the privacy rights of all students when changing clothes or showering before or after physical education and after-school activities.  Moreover, the District noted that it continues to support transgender students and families—while always balancing the rights and concerns of the other 12,000 or so students it serves.  Further, the District believes that it has provided individual accommodations in a manner that does not infringe on the privacy concerns of other students, and will continue to do so—despite the DoE’s ruling.  Lastly, the District underscored that it is prepared to contest the DoE’s ruling through litigation—if necessary.   

Department of Education’s Ruling:

On November 2, 2015, the DoE found that the District denied Student access to the girls’ locker rooms because of: (1) her gender identity, and (2) her gender nonconformity.  If true, both of these claims are actionable causes of action.  The DoE’s ruling mandates that the District: (1) reach a solution before the expiration of thirty days (on or before December 2, 2015); or (2) face enforcement, which could include administrative law proceedings or a Justice Department court action.  Additionally, the District could lose some or all of its Title IX. funding.

Potential Ramifications of the Ruling:

This case is the first of its kind and could lead to new legal precedent in the developing area of discrimination against transgender individuals.  The parties on both sides of this issue—whether the District violated federal discrimination laws by not allowing Student unfettered access to the girls’ locker rooms—are fighting for the rights of many.  The District is advocating for similarly situated schools across the country.  The District believes it has been reasonable and complied with applicable federal laws as it relates to Student’s treatment.  On the other hand, Student is fighting for transgender students across the country who have been subjected to discriminatory treatment, and/or been ostracized, bullied or demeaned.

I believe this case will be litigated in federal district court because it seems that the District will not comply with the DoE ruling.  The legal arguments being advanced by both sides are nuanced and broad sweeping.  Determining whether a person’s right to be treated equally should be given more, less or the same credence as another person’s right to privacy is a very difficult legal question. This type of legal question may prove to be one that can only be decided—once and for all—by our nation’s highest court—SCOTUS. To add an additional layer to this case, I also believe the issue of accommodation can easily be applied in other areas of society—such as the workplace.  With such potentially wide-sweeping ramifications, I believe we have only reached the tip of the iceberg with respect to the relevant legal issues discussed above. 

I will continue monitoring this case because the final decision could very well set legal precedent—as it relates to transgender individuals—in public schools across the country.