By Lana D. Crump and Amanda Collura-Day

In Louisiana, the collateral source rule mandates that a tort plaintiff be awarded the full value of his medical expenses against the tortfeasor, including any amounts written off by the provider, when that plaintiff paid some “consideration” (money) for the benefit of the written-off amount.  In other words, even though a person may have health insurance and, therefore, received the benefit of discounted medical charges, the collateral source payment is not credited to the tortfeasor, and the tortfeasor has to pay the full amount charged for the services.

However, in Rabun v. St. Francis Med. Ctr., Inc., 50,849 (La. App. 2 Cir. 8/10/16), 206 So.3d 323, a hospital was attempting to recover on its medical lien against the patient for the full amount of medical services charged (without accounting for the patient’s health insurance discount). The Second Circuit capped the patient’s medical expenses incurred at the negotiated rates between the hospital and the patient’s health insurer.  The Second Circuit found that the contracted rate is deemed the amount “incurred” by the patient.  Rabun did not deal directly with a tort plaintiff against a tortfeasor, and was limited to the hospital’s lien on the patient’s tort recovery. La. R.S. 9:4752.  Regardless, the court left lawyers with language to make a strong argument that a tortfeasor can only be held liable to an insured plaintiff for the contracted rate – the amount actually incurred.

Hoffman v. Travelers Indem. Co. of America, 13-1575 (La. 5/7/14), 144 So.3d 993 is another example.  There, an automobile insured sought to recover the entire amount charged for medical services following an accident, pursuant to the medical pay provision of her auto policy that allowed her to claim all reasonable expenses for necessary medical services incurred.  The provider was paid less than list rates pursuant to an agreement between the provider and the insured’s health insurer.  The Louisiana Supreme Court held that, as a matter of first impression, the insured did not incur the full list cost of the medical services.  The court found that because the plaintiff’s health insurer had contractually pre-negotiated rates with the provider, the plaintiff was only legally obligated to pay the discounted amount.  Since she had no liability for any amount over that discounted amount she did not “incur” the full list rates and, therefore, she could only claim the discounted amount from her auto insurer.

Rabun and Hoffman show that Louisiana courts are taking a close look at quantifying medical expenses, and there is an argument to be made that a tort plaintiff’s recovery for medical expenses (past and future) is limited to the insurance negotiated rates for insured plaintiffs because that is the actual amount incurred by the plaintiff.  Louisiana courts are catching up to the reality of managed care costs in this country as it relates to recovery of medical expenses.

By Amanda Bourgeois

The substantial flexibility afforded by the limited liability company structure has made it an increasingly popular business entity choice.  Indeed, most of the default provisions in the Louisiana Limited Liability Company Law, La. R.S. 12:1301, et seq. (the “La LLC Law”) may be altered or superseded by the articles of organization or operating agreement of the limited liability company.  One such provision that is quite frequently altered or superseded in the operating agreements of many limited liability companies is that of the transfer or assignment of a membership interest in the limited liability company.

Unless the articles of organization or operating agreement of the limited liability company provide otherwise, a membership interest is freely assignable, in whole or in part, under the La LLC Law.[1]  This default provision is often unattractive to members of limited liability companies, especially ones that may be family-owned or formed for a particular joint venture project.  The desire to keep membership in the entity limited to either the current members or certain defined groups of persons drives many members of limited liability companies to include rules and restrictions to limit or prohibit the rights of a member to transfer or assign the membership interest in the limited liability company.  Most transfer restrictions included in a written operating agreement or the articles of organization are not problematic under Louisiana law.  However, members should be aware that restricting a member’s ability to pledge or encumber the membership interests in the limited liability company can be rendered ineffective by certain provisions of the Uniform Commercial Code – Secured Transactions, La. R.S. 10:9-101, et seq. (“UCC Chapter 9”).

Although there are some exceptions, in most cases, an interest in a limited liability company is considered a general intangible under UCC Chapter 9.  As a comparison, in most cases, shares of stock in a corporation are considered a security under UCC Chapter 9.  Under Louisiana law, this classification of general intangible versus security can affect, among other things, the available methods of perfecting the security interest, the determination of priority of competing security interests, and the effectiveness of anti-assignment provisions.

Pursuant to La. R.S. 10:9-408, certain contractual restrictions on the creation and perfection of a security interest of a general intangible are negated and rendered ineffective.  In the context of a limited liability company, Section 9-408 could be used to render ineffective a provision in an operating agreement or articles of incorporation (i) prohibiting a member from pledging or encumbering his or her membership interest or (ii) requiring the prior consent of the limited liability company or the other members thereof to the pledge or encumbrance of membership interests in the limited liability company.

Importantly, although the restrictions under Section 9-408 may permit a lender to take a perfected security interest in limited liability company interests despite contrary provisions in the organizational documents of the limited liability company, it does not necessarily mean that the secured creditor will have the right to enforce the security interest.  Further, it does not otherwise negate the default assignment provisions of the La LLC Law, or any similar provisions in the limited liability company organizational documents, that provide that any assignment of membership interests shall not grant to the assignee full membership rights absent the consent of the other members.  Consequently, absent contrary provisions in the organizational documents of the limited liability company or the unanimous consent in writing of the other members, in the event of a seizure of or foreclosure upon the membership interests, the creditor or any purchaser in a foreclosure sale is treated as an assignee of the membership interest, which only entitles the assigned to a right to receive distributions, share in the profits and losses, and receive allocations of income, gain, loss, deduction, credit or similar items to which the assignor member would otherwise have received.

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[1] It should be noted that even under the default provisions of the La LLC Law, an assignment of a membership interest does not entitle the assignee to become or exercise any rights or powers of a member, such as voting or participating in the management of the business, until such time as the assignee is admitted as a member, which requires the unanimous consent in writing of the other members of the limited liability company pursuant to the La LLC Law.  The assignment does, though, entitle the assignee to receive distributions, share in the profits and losses, and receive allocations of income, gain, loss, deduction, credit or similar items to which the assignor member would otherwise have received.   

 

By Erin L. Kilgore and Scott D. Huffstetler

On Monday, a Fifth Circuit majority held that a class-action and collective action waiver was enforceable, regardless of whether or not the waiver was part of an arbitration agreement.  This is good news for employers in the Fifth Circuit who do not want to have mandatory arbitration agreements with employees, but do want to have safeguards in place to prevent class and/or collective actions.

The National Labor Relations Board (“NLRB”) has consistently determined that such waivers violate the National Labor Relations Act (the “Act”), particularly an employee’s right to engage in concerted activities for the purpose of mutual aid or protection.  According to the NLRB, the Act contemplates a right to participate in class and collective actions.

In this case, the NLRB determined that the employer violated the Act by requiring job applicants to sign, and then subsequently seeking to enforce, a class and collection action waiver, which was not contained in an arbitration agreement.  The employer sought review of the NLRB’s decision, and the Fifth Circuit found for the employer.

The Fifth Circuit previously rejected the NLRB’s position on such waivers, holding that the use of a class or collective action is procedural, not a substantive right, and the Act does not guarantee employees a substantive right to participate in class and/or collective actions.  See D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013).

On Monday, the court reaffirmed this precedent.  Although the court’s prior decision considered class and collective action waivers in the context of an arbitration agreement, the Fifth Circuit held that its precedent was not limited to arbitration agreements.  Thus, class action and collective actions waivers are enforceable in the Fifth Circuit, regardless of whether the waiver is contained in an arbitration agreement or other contract.

Employers with operations outside of the Fifth Circuit (Louisiana, Mississippi, and Texas) should be mindful that there are courts in other jurisdictions that may have reached different conclusions, and that the NLRB takes a position contrary to the Fifth Circuit.  All employers should stay tuned on this issue, as the Supreme Court may decide an arbitration matter this year, which could force reconsideration of the Fifth Circuit’s decision.

A copy of the Fifth Circuit’s decision can be found here.

By Chelsea Gomez Caswell

Yesterday, the Department of Labor (“DOL”) Wage and Hour Division released a preview copy of a request for information (“RFI”) before issuing revised proposed overtime exemption regulations under the Fair Labor Standards Act (“FLSA”). The RFI is scheduled for publication in the Federal Register today, July 26, 2017, which will start a 60-day public comment period.

According to the DOL’s news release, the RFI solicits feedback on questions related to the salary level test, the duties test, various cost-of-living information, inclusion of non-discretionary bonuses and incentive payments to satisfy a portion of the salary test for highly compensated employees, and automatic updating of the salary level test. Instructions for submitting comments and additional contact information are found in the RFI. A preview copy of the RFI, released by the DOL, is available online here.

The regulations at issue (often referred to as the “white collar” exemptions) apply to workers employed in an executive, administrative, or professional capacity that also meet certain criteria relating to salary basis, salary level, and job duties. The DOL released the RFI in contemplation of revising the final rule released by the DOL during the Obama administration  (“2016 Final Rule”), which attempted to raise the minimum salary required to be exempt from the FLSA’s overtime pay requirements, from $455 per week to $913 per week. The 2016 Federal Rule was enjoined by a federal district judge in Texas in November 2016  and remains in limbo. In fact, in briefing to the Fifth Circuit Court of Appeal recently filed last month, the DOL acknowledged that it intends to undertake steps and further rulemaking to determine what the salary level should be. It is now clear that these steps include the release of the RFI. The RFI states that in light of the pending litigation, the DOL decided to issue the RFI, rather than immediately proceed to a notice of proposed rulemaking (“NRPM”), in order to gather public input and aid in the development of a NRPM. The DOL expressly recognized that it released the RFI to address stakeholder concerns, including concerns that the standard salary level set in the 2016 Final Rule was too high and to address the Rule’s potential adverse impact on low-wage regions and industries.

Some of the specific questions posed in the RFI include but are not limited to the following:

  • Whether updating the prior 2004 salary level for inflation would be an appropriate basis for setting the standard salary level and, if so, what measure of inflation should be used;
  • Whether the regulations should contain multiple standard salary levels and, if so, how they should be set;
  • Whether different standard salary levels should be set for the executive, administrative, and professional exemptions;
  • Whether the standard salary level set in the 2016 Final Rule works effectively with the standard duties test;
  • To what extent employers increased salaries of exempt employee to retain exempt status, or otherwise altered employees’ hours or pay, in anticipation of the 2016 Final Rule’s effective date;
  • Whether small businesses or entities encountered any unique challenges in preparing for the 2016 Final Rule’s effective date;
  • Whether a test for exemption relying solely on duties performed, without regard to the amount of salary paid, would be preferable;
  • Whether the salary level set in the 2016 Final Rule excluded from exemption particular occupations traditionally covered by the exemption; (
  • Whether there should be multiple total compensation levels for the highly compensated employee exemption; and
  • Whether the standard salary level and highly compensated employee total annual compensation level should be automatically updated on a periodic basis.

Although the future of the FLSA overtime regulations is still uncertain, for employers the key takeaway is that, for the time being, nothing has changed. The RFI suggests that changes are on the horizon, but for now, the 2016 Final Rule is still enjoined, and the DOL will not issue any revised rules until after the 60-day public comment period lapses and an NRPM is issued. Until further notice, the minimum salary threshold remains at $23,660 a year ($455 per week), but it is important for employers to continually monitor this ever-changing issue.

For additional information, see the DOL’s July 25, 2017 news release, available here.

By M. Dwayne Johnson

The D.C. Circuit’s July 7, 2017 decision on EPA’s 2015 definition of solid waste rule (DSW Rule)[1] may change the regulation of hazardous waste in Louisiana. First, some background.

In 2008, EPA promulgated a definition of solid waste rule that was intended to foster waste recycling (2008 Rule).[2] Therein, among other things, EPA provided two exclusions from the definition of solid waste:[3] (a) the generator control exclusion (GCE) for material reclaimed under the control of the generator, and (b) the transfer based exclusion (TBE) where the material is reclaimed by a third party reclaimer that has a RCRA permit or, if the reclaimer has no permit, the generator has made reasonable efforts to ensure that the reclaimer legitimately reclaims the material. The 2008 Rule was not mandatory.[4]

In 2015, EPA promulgated the DSW Rule that likewise was intended to foster waste recycling.[5] Therein, among other thing, EPA revised the GCE and replaced the TBE with the verified recycler exclusion (VRE). Under the VRE, material is excluded from the definition of solid waste if it is reclaimed by a third party reclaimer that has a RCRA permit or that has been approved (via variance) by EPA or a qualified state. EPA also provided 4 factors (Legitimacy Factors) to determine whether material is legitimately recycled and thus not discarded material (ergo solid waste): (1) the material must provide a useful contribution to the recycling process or to a product or intermediate of the recycling process; (2) the recycling process must produce a valuable product or intermediate; (3) the generator and the recycler must manage the material as a valuable commodity when it is under their control; and (4) the product of the recycling process must be comparable to a legitimate product or intermediate[6]. The DSW Rule contained both mandatory provisions (legitimate recycling) and non-mandatory provisions (the GCE and VRE).

Last month, LDEQ revised its hazardous waste regulations to adopt the DSW Rule and those portions of the 2008 Rule that remained in place.[7]

But in its decision, the DC Circuit:  (1) vacated the VRE, except for its emergency preparedness and response requirements and its expanded containment requirements; (2) reinstated the TBE (including its bar on spent catalysts); and (3) generally vacated Legitimacy Factor 4.[8]

The DC Circuit may reconsider its decision, and the Supreme Court may revise the decision on appeal. In the meantime, the decision’s effect is unclear and the Louisiana regulated community needs guidance from EPA and LDEQ.

Until then, it appears the DC Circuit’s decision will have the following effect in Louisiana:

  • The VRE is no longer available.
  • The TBE is not currently available (because it was never adopted in Louisiana).
  • If LDEQ amends its rules to adopt the TBE, spent catalysts will be barred, the generator will need to comply with the VRE emergency preparedness and response provisions, and the VRE expanded containment requirements will apply.
  • Because LDEQ’s hazardous program can be more stringent than EPA’s, until LDEQ amends its rules or otherwise stays enforcement, Legitimacy Factor 4 may remain in place for all recycling (not just under the GCE).

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[1] American Petroleum Institute v. EPA, No 09-1038 (D.C. Circuit 2017).

[2] 73 Fed. Reg. 64668 (October 30, 2008).

[3] Fundamentally, for a material to be a hazardous waste, it must first be a solid waste. Or stated differently, if a material is not a solid waste, it cannot be a hazardous waste. Thus, material excluded from the definition of solid waste will not be regulated as a hazardous waste.

[4] That is, qualified states — like Louisiana — that have been authorized by EPA to administer and enforce the state hazardous waste program in lieu of the federal program were not required by EPA to adopt the 2008 Rule in order to maintain their qualification (or delegation).

[5] 80 Fed. Reg. 1694 (January 13, 2015).

[6] Under the DSW Rule, for recycling to be legitimate, all four Legitimacy Factors have to be met.

[7] 43 La. Reg. 1151 (June 20, 2017).

[8] Because the GCE specifically requires compliance with the rule containing all four Legitimacy Factors (40 CFR 260.43(a)), Legitimacy Factor 4 apparently still will have to be met to establish legitimate recycling under the GCE.

 

By Tyler Kostal

Consistent with public comments that it will pursue all available appellate remedies, today the South Louisiana Flood Protection Authority filed a petition for a writ of certiorari with the United States Supreme Court, to seek review of the decision in Board of Comm. of the Southeast Louisiana Flood Protection Authority-East v. Tennessee Gas Pipeline Company, LLC,  850 F.3d 714 (5th Cir. 2017).

The questions presented focus on claims arising under federal law pursuant to the standard developed in Grable & Sons Metal Prods. v. Darue Engineering & Manufacturing, 125 S. Ct. 2363, 2368 (2005), and succeeding cases.  Specifically, the questions presented are:

  1. Whether the “substantial[ity]” and “federal-state balance” requirements of Grable are satisfied whenever a federal law standard is referenced to inform the standard of care in a state-law cause of action, so long as the parties dispute whether federal law embodies the asserted standard.
  2. Whether a federal court applying Grable to a case removed from state court must accept a colorable, purely state-law claim as sufficient to establish that the case does not “necessarily raise” a federal issue, even if the court believes the state court would ultimately reject the purely state-law basis for the claim on its merits.

It remains to be seen whether the Supreme Court will accept this case for review.

See prior post on this topic hereClick here for a copy of the petition.

by Carrie Tournillon

The Louisiana Public Service Commission (“LPSC”) and the State Legislature are conflicted over regulation of motor carriers of waste in Louisiana.  While the Louisiana Constitution grants the LPSC the authority to regulate common carriers, and the LPSC oversees the certification and permitting of such carriers, in the 2017 Regular Session the Legislature enacted Senate Bill 50 (Act 278) that changes the statutory requirements for a carrier to become an approved motor carrier of waste in the State.  Act 278 was signed into law by Governor Edwards on June 15, 2017.

Under the LPSC rules, carriers of waste must prove “public convenience and necessity,” which requires contracts with shippers for contract carrier permits and testimony or affidavits from shippers for common carrier certificates, in support of need for the requested new or expanded authority.  An applicant also must prove fitness to operate.

However, Legislative Act 278 eliminates the requirement to prove “public convenience and necessity” to obtain authority from the LPSC to operate as a common or contract carrier of waste within the state.  An applicant only must prove fitness to operate.

At the LPSC’s Business & Executive Session last month, there was much discussion regarding whether the new legislation is an unconstitutional infringement on the jurisdiction of the LPSC over common carriers. Ultimately, the LPSC directed its Staff to file suit challenging Act 278 and to take all action necessary to protect the LPSC’s jurisdiction.

At the same meeting, the Commissioners also considered but declined to adopt new rules for obtaining authority to haul waste within Louisiana. The LPSC Staff’s proposed rules would have set forth guidelines for certification of common and contract carriers and created a rebuttal presumption that granting the certificate was in the public interest if the applicant met the application requirements.  While considered to be an improvement over current LPSC rules, the Staff’s proposed rules still required applicants to prove “public convenience and necessity,” including having shippers provide affidavits in support of the need for the certificate.

The LPSC Commissioners disagreed over whether the Staff’s proposed new rules went far enough to change the standard for obtaining authority to haul waste within the state.  One Commissioner offered a motion to approve the Staff proposal, supporting it as an industry solution developed with stakeholders in the trucking business.  Another Commissioner argued extensively in favor of opening up the market for hauling waste in Louisiana and urged as a substitute motion that the LPSC adopt new rules based on the Legislative Act 278, which would eliminate the “public convenience and necessity” requirement.  Both motions failed 2-2.

While the LPSC Staff’s proposed rules were not adopted by the LPSC in June, it is expected that there will be additional discussion of changes to the rules, and that the constitutional issues raised by Act 278 will be pursued by the LPSC in the courts.

For more information, contact a member of the Kean Miller Utilities Regulatory Team.

 

By Tod J. Everage

The US Fifth Circuit recently published an opinion in Feld Motor Sports, Inc. v. Traxxas, LP, recognizing that it had jurisdiction to review a district court’s denial of a motion for summary judgment on a legal issue. This ruling was the first of its kind in the 5th Circuit, who now joins the 1st, 4th and 8th Circuits to acknowledge this exception to the general rule.

The case involved a fight over allegedly unpaid royalties in a licensing agreement between a monster truck show promoter and an RC car maker. During the case, both parties filed motions for summary judgment advancing their own interpretations of the subject licensing agreement. The district court denied both motions, concluding that the contract was ambiguous and the case proceeded to trial. After a seven-day trial, the jury found Traxxis owed FMS the unpaid royalties. Traxxas then filed a combined renewed motion for summary judgment as a matter of law under Rule 50(b), motion for new trial under Rule 59, or alternative motion to modify the judgment. The district court denied the motions and Traxxas appealed. FMS argued that the 5th Circuit did not have jurisdiction to hear Traxxas’s appeal, among other things.

The 5th Circuit analyzed its recent jurisprudence on the issue of jurisdiction and Rule 50 motions. In 2014, the Court recognized the long-standing general rule that “an interlocutory order denying summary judgment is not to be reviewed when final judgment adverse to the movant is rendered on the basis of a full trial on the merits.” See Blessey Marine Services, Inc. v. Jeffboat, LLC, 771 F.3d 894, 897 (5th Cir. 2014) (quoting Black v. J.I. Case Co., 22 F.3d 568, 570 (5th Cir. 1994)). Before now, the 5th Circuit had recognized only one exception to that rule. In Becker v. Tidewater, Inc., the Court held that it could review “the district court’s legal conclusions in denying summary judgment,” but only when “the case was a bench trial.” 586 F.3d 358, 365 n.4 (5th Cir. 2009). The Court reasoned in Becker that “because Rule 50 motions are not required to be made following a bench trial, it is appropriate to review the court’s denial of summary judgment in this context.” In Blessey, the 5th Circuit noted (in dicta) that it may have jurisdiction to hear an appeal of the district court’s legal conclusions following a jury trial, but only if the party restated its objection in a Rule 50 motion.

For clarification, Rule 50 governs motions for a judgment as a matter of law in a jury trial. Rule 50(a) allows a party (usually the defendant) to move for a judgment as a matter of law in a jury trial against the other party if the other party has been fully heard on an issue, arguing that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue. If the Court denies the Rule 50(a) motion, a defendant has 28 days after entry of judgment to renew its motion under Rule 50(b).

Here, the 5th Circuit held that “following a jury trial on the merits, this court has jurisdiction to hear an appeal of the district court’s legal conclusions in denying summary judgment, but only if it is sufficiently preserved in a Rule 50 motion.” In doing so, the Court joined the 1st, 4th, and 8th Circuits.

While technically plowing new ground, the 5th Circuit very directly reminded practitioners to make sure to renew their Rule 50(b) motion for judgment as matter of law after an adverse jury verdict or risk waiving their right to appeal the Court’s adverse legal finding. This issue is much more prevalent in contractual interpretation disputes, but can arise in casualty litigation should a defendant be unsuccessful asserting a legal defense on a dispositive motion or Rule 50(a) motion at the close of Plaintiff’s case.

By Claire E. Juneau

The United States Supreme Court recently issued an opinion which significantly limits the ability of a state court to assert personal jurisdiction over non-resident defendants. This ruling is hardly a surprise and is consistent with the Court’s recent decisions in BNSF Railway Co. v. Tyrrell, 137 S. Ct. 1549 (2017) which reaffirmed the court’s commitment to the limitations on state-court jurisdiction set forth a few years ago in Daimler AG v. Bauman, 134 S. Ct. 746, 187 L.Ed. 2d 624 (2014)(Due process did not permit exercise of general jurisdiction over German corporation in California based on services performed there by its United States subsidiary that were “important” to it).

In Bristol-Myers Squibb Company v. Superior Court of California, San Francisco County, et al., 137 S. Ct. 1773 (2017), the Supreme Court held that the due process clause of the United States Constitution did not permit exercise of specific personal jurisdiction by a California Court over non-resident consumer claims. The plaintiffs in Bristol were a group of 600 consumers, most of whom were not California residents. The plaintiffs had filed suit in California state court against Bristol-Myers Squibb (“BMS”) asserting a variety of state law claims, all based on injuries purportedly caused by a BMS drug, Plavix. The facts relied upon by the courts to analyze jurisdiction were as follows:

  • BMS is a large pharmaceutical company incorporated in Delaware with its principal place of business in New York.
  • BMS’s business activities in California are comprised of five research and laboratory facilities, 160 employees, 250 sales representatives, and a small state governmental advocacy office.
  • Plavix was not developed, manufactured, labeled, or packaged in California. BMS did not create a marketing strategy or work on regulatory approval in California. All of these activities occurred in New York or New Jersey.
  • Plavix is sold in California – approximately 187 million pills which amount to more than $900 million in revenue, a little over one percent of the company’s nationwide revenue.

After suit was filed in California, BMS moved to quash summons on the non-resident plaintiffs’ claims asserting that California did not have personal jurisdiction over those claims. The case made its way to the California Supreme Court who agreed with BMS that its contacts with California were insufficient for general personal jurisdiction under the United States Supreme Court’s decision in Daimler AG. However, in adoptiong a “sliding scale” test, the court found that specific personal jurisdiction could be established. The California court held that “[a] claim need not arise directly from the defendant’s forum contacts in order to be sufficiently related to the contact to warrant the exercise of specific jurisdiction.” The court found that BMS, through its national advertising and distribution scheme and business conducted in California, had sufficient contacts with the forum for California to exercise specific personal jurisdiction over all Plavix claims. Therefore, California courts could hear the claim of every Plavix plaintiff nationwide, even those non-California plaintiffs whose injuries were not caused by conduct within California.

In a near unanimous decision, with Justice Sotomayor as the lone dissenting voice, the United States Supreme Court reversed California’s decision holding that the due process clause of the Fourteenth Amendment precluded California’s sliding-scale test. The Court re-affirmed prior precedent: to invoke specific personal jurisdiction, a claim must “arise out of” defendant’s conduct within the state. Quoting directly from World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980), the Court reasoned that the “primary concern” in determining personal jurisdiction is “the burden on the defendant.” Thus, a State can only invoke specific personal jurisdiction over claims that arise from the defendant’s activities within the forum state. This jurisdiction does not extend to claims arising from defendants’ identical activities in other states. California’s “sliding scale approach,” the Court wrote, “resembles a loose and spurious form of general jurisdiction” that does not comport with the Due Process Clause of the Fourteenth Amendment.

The Court further found that the Due Process Clause protects interstate federalism by divesting the state court’s power to hear claims that do not “arise out of or relate to” the defendant’s forum contacts. While the burden placed on the defendant remains the primary focus, a related concern is the “territorial limitations on the power of the respective States.” The “sovereignty of each state … implies a limitation on the sovereignty of other states.” Therefore, the facts that the defendant suffers no additional burden by litigating in the forum and that the forum state has a strong interest in applying its law to the controversy or is the most convenient forum does not circumvent the protections of the Due Process Clause.

By Tyler Moore Kostal

The Texas Supreme Court recently handed down a decision in Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 14-0979, 2017 WL 1541086 (Tex. Apr. 28, 2017), that at first glance, is reminiscent of the landmark Louisiana legacy cases Corbello and Magnolia Coal. Forest Oil, like Corbello, supports the landowner’s right to a judicial setting to resolve its claims while minimizing the role of the relevant state agency. And like Magnolia Coal, Forest Oil dispenses with the presumed exclusive or primary jurisdiction of the Texas Railroad Commission (RRC) over oilfield contamination claims by landowners. However, what is still to be considered by Texas courts is the viability of the claim and certain Louisiana legacy defenses. Since Corbello, the Louisiana Supreme Court has issued rulings on prescription (Marin) and subsequent purchaser (Eagle Pipe) that have reduced the force of legacy litigation. Further, similar to Louisiana’s Act 312, the Texas legislature will have an opportunity to enact legislative and regulatory changes. The bottom line is that the long-term impact of Forest Oil and the future of Texas oilfield litigation are far from certain.

In this case, Forest Oil (now known as Sabine Oil & Gas) produced natural gas on a 27,000-acre ranch in Hidalgo County, Texas, for over 30 years. Forest’s oil and gas leases covered about 1,500 acres, and Forest operated a gas processing plant on a 5-acre tract. In 2004, one of the landowners learned (from a former Forest employee) that Forest had contaminated the property. In 2005, the landowners filed suit alleging soil and groundwater contamination from various oilfield wastes, including naturally occurring radioactive material (NORM). One of the landowners also alleged that tubing, donated by Forest and used in the construction of rhinoceros pens, contained NORM that caused a cancerous growth resulting in amputation of his leg.

Forest eventually compelled arbitration pursuant to a 1999 settlement agreement signed by the landowners in a separate lawsuit over oil and gas royalties. See Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008) (holding that the arbitration clause in the settlement agreement was enforceable). That agreement also provided for the ongoing care and remediation of the surface estate by Forest. After a 17-day hearing, the arbitration panel awarded the landowners $15 million in property damages, $500,000 in personal injury damages (NORM cancer claim), $500,000 in punitive damages, and $5 million in attorney fees. The panel also granted declaratory relief for remediation under the 1999 agreement and ordered Forest to provide the landowners with a $10 million bond to assure its performance of a prior remediation agreement.

The landowners filed a motion to confirm the award in state court. Forest moved to vacate the award on several grounds, namely on the basis that the RRC had exclusive or primary jurisdiction over the landowners’ claims. Forest also argued that the damage awards violated Texas law. The trial court vacated the panel’s $10 million bond requirement but otherwise denied Forest’s motion. See Forest Oil Corp. v. EL Rucio Land, 2012 WL 10170451 (Tex. 55th Dist.). In confirming the award, the trial court incorporated the actual and punitive damages and awarded the landowners $6.7 million in attorney fees. The appellate court affirmed. See Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 446 S.W.3d 58 (Tex. App. 1st Dist. 2014). The Texas Supreme Court granted Forest’s petition for review.

First, the court considered whether the RRC has exclusive jurisdiction over the landowners’ claims. Forest argued that the legislature intended the RRC to have exclusive jurisdiction over environmental oilfield disputes, such that the arbitration panel lacked jurisdiction to enter the award and the trial court lacked jurisdiction to confirm it. The court disagreed concluding that the legislature did not express a clear intent to abrogate a landowner’s common-law rights in favor of a statutory remedy.

Forest also argued that public policy necessitated the RRC’s exclusive jurisdiction over these matters. It argued that if landowners seek remediation both from the RRC and through the courts, they could recover twice for the same injury. Forest further argued that if a landowner does not spend a damage award on remediation, the RRC remains responsible to the public to order cleanup. The court rejected Forest’s policy considerations stating that it was “an argument for the Legislature.” Instead, the court offered a solution for Forest and other defendant operators: “By seeking an RRC determination of contamination allegations and complying with RRC cleanup orders, an operator can reduce or eliminate the landowners’ damages.”

Next, the court considered whether the RRC has primary jurisdiction over the claims. Forest argued that the RRC has primary jurisdiction because only the RRC can determine what the law requires for remediation. Forest argued that the parties’ 1999 settlement agreement, which required that Forest remove hazardous material only “if, as and when required by law,” obligated Forest to remediate only if required by the RRC. The court disagreed and stated: “But while RRC regulations and orders certainly inform the extent to which remediation of contamination is required by law, they do not supplant Forest’s common law duties, which are also required by law.” The court reasoned that the doctrine of primary jurisdiction does not apply to claims that are “inherently judicial in nature,” like trespass, negligence, fraud, and breach of contract—all claims brought by the landowners and all inherently judicial in nature. Because the landowners’ claims are inherently judicial and not dependent on the standards of regulatory compliance, the court concluded that the doctrine of primary jurisdiction does not apply.

Ultimately, the court concluded that the RRC has neither exclusive nor primary jurisdiction over the landowners’ claims. Therefore, the landowners were free to bring common law claims like negligence, trespass, and breach of contract in a judicial forum against Forest.

It is important to note that the Texas Supreme Court did not address the amount of the damages award. However, the appellate court found that, contrary to Forest’s claims, the arbitration panel’s view of the evidence, application of the law to the evidence, and ultimate decision, did not rise to the level of “gross mistake.” The landowners offered expert testimony valuing the ranch, “unimpaired by environmental contamination,” at $65.5 million. That expert determined that the diminished value of the ranch was $45.85 million. Therefore, he claimed that because of the environmental contamination, the value of the ranch had been diminished by $19.65 million. Recall that the arbitration panel awarded the landowners $15 million in property damages, and the appellate court affirmed.