In a decision holding that surety bonds are not executory contracts, the Fifth Circuit signaled that courts may in the future utilize the functional approach to determine if multiparty contracts are executory in nature. The case, filed in the United States Bankruptcy Court for the Middle District of Louisiana as In re Falcon V, L.L.C., concerned a $10.5 million surety agreement between the Debtor, Falcon V, L.L.C., and Argonaut Insurance Company (“Argonaut”).

The Debtor and its affiliates were involved in oil and gas exploration and development and the Debtor entered into an agreement for Argonaut to post four irrevocable performance bonds, which guaranteed the Debtor’s obligations to third parties related to plugging and abandonment and restoration of wells. If the Debtor failed to perform its obligations, Argonaut was obligated to pay the third-party obligee the amount of the obligation or to perform the obligation, up to the amount of the performance bond.

The bonds provided that regardless of whether the Debtor paid the premiums owed, Argonaut’s obligations continued and would not be discharged by the Debtor’s failure to pay such premiums. The Debtor agreed to make premium payments to Argonaut and to indemnify it for any payments made under the bonds. After filing its Chapter 11 case, the Debtor sought and received permission from the Bankruptcy Court to continue meeting its obligations to Argonaut under the bond program (referred to as the “Surety Bond Program”).

Argonaut filed a proof of claim in the bankruptcy case that included a statement that the Surety Bond Program could not be assumed and assigned because it was a “financial accommodation,” but reserved all rights in the event the Surety Bond Program was deemed an executory contract. The Debtor’s Plan, as approved, provided that all executory contracts not specifically rejected were assumed. The Surety Bond Program was not included on the list of rejected executory contracts.

After the Debtor was discharged, Argonaut requested that the Debtor provide an additional $7.3 million in collateral to secure the performance bonds. The Debtor refused. The Debtor argued that Argonaut’s claim had been discharged through the bankruptcy process. Argonaut claimed that the Surety Bond Program was an executory contract that was assumed, or alternatively, the Surety Bond Program “rode through” the bankruptcy case.

The Bankruptcy Court (Dodd, J.) determined that the Surety Bond Program was not an executory contract assumed by the approved Plan because Argonaut owed no continuing performance to the Debtor. Even if it was an executory contract, the Bankruptcy Court ruled that it was a non-assumable financial accommodation. The District Court (Jackson, J.) affirmed the Bankruptcy Court’s ruling. Argonaut subsequently appealed to the Fifth Circuit, arguing that the Surety Bond Program was assumed as an executory contract, or alternatively that it rode through the bankruptcy case.

In determining whether the Surety Bond Program was an executory contract, the Fifth Circuit first looked to the Countryman Test, which looks at whether each side to a contract has at least one material unperformed obligations as of the date the bankruptcy petition is filed and if a party’s failure to perform a material obligation would excuse compliance by the counterparty. The Bankruptcy Court and District Court both found there were not material obligations remaining on both sides on the petition date; the Debtor owed obligations to Argonaut, but Argonaut owed no obligations to the Debtor.

Argonaut pointed out that it still owed obligations to the third-party obligees under the Surety Bond Program, and argued that this multiparty contractual relationship justified a departure from the Countryman Test. The Fifth Circuit rejected this proposed approach, stating that it “seems designed simply to elevate the rights of sureties above those of other creditors.”

However, the Fifth Circuit agreed that the Countryman Test should be applied flexibly to account for obligations owed to all parties in multiparty agreements. Nonetheless, the Court found that even if the obligations owed by Argonaut to the third-party obligees would meet the material obligations portion of the Countryman Test, it failed the second requirement, as the performance bonds were irrevocable and the Debtor’s failure to perform its obligations would not excuse Argonaut from its obligations under the agreements.

In an important footnote, the Court noted that in future cases courts may be called upon to modify the Countryman Test and apply and adopt a more “functional approach” for multiparty contracts. The functional approach looks at the benefits that assuming or rejecting a contract would produce for the bankruptcy estate to determine if the contract at issue is executory in nature. This opens the door for a more flexible approach in determining whether multiparty contracts are executory and will have implications beyond the realm of surety contracts.

The 19th Judicial District Court in Baton Rouge, Louisiana issued a decision on September 14, 2022, vacating a proposed industrial facility’s permit issued by the Louisiana Department of Environmental Quality (“LDEQ”) and finding that LDEQ violated the federal Clean Air Act and its duty under the Public Trust Doctrine.[1] Although the decision concerns permitting for a specific facility in St. James Parish, FG LA’s planned ethylene and propylene complex, the decision has far-reaching effects for air permitting in Louisiana under the Prevention of Significant Deterioration (“PSD”) program. In the nearly 40-page decision, the Court holds on several issues including disapproval of the use of Significant Impact Levels (“SIL”) in the PSD analysis, requirements for Environmental Justice reviews and implementation of the U.S. Environmental Protection Agency’s EJSCREEN tool,[2] review of air modeling conclusions, and analysis under Louisiana’s so called “IT Factors.”[3] The opinion also states that the LDEQ failed to perform a cumulative impact analysis for potential air toxics emissions from the planned facility such as ethylene oxide and benzene.[4]

The Court notes that environmental justice issues are “at the heart of” this case. Environmental justice issues have been elevated by the Biden administration’s efforts to highlight and advance policies to address and support underserved communities. In January of 2021 President Biden signed Executive Orders (“E.O.”) 13985 and 14008, which concern environmental justice issues. In connection with these E.O.s, EPA published a guidance document entitled “EPA Legal Tools to Advance Environmental Justice” in May of 2022. The document includes lengthy discussions on cumulative impacts of air toxics and analyzes the current EPA regulatory frameworks and statutory authority to implement cumulative impacts analysis as it relates to overburdened communities. Still, programs at both the federal and state level designed to control and mitigate toxic air pollutants often address cumulative impacts only indirectly and leave open practical questions about applying a cumulative impact analysis to review of a stationary source air permit or permit modification.[5]

For instance, EPA regulates over 150 hazardous air pollutants and provides control technology standards (National Emission Standards for Hazardous Air Pollutants, “NESHAP”) for individual industries. But other than vague “other impact analysis” requirements in the PSD program (which the Court did not reference here), there is no regulatory framework or specific guidance for considering the cumulative impact of emissions of multiple hazardous or toxic pollutants. The difficulty grows exponentially upon consideration of the cumulative impacts from multiple commercial and industrial facilities. Although some states (like Louisiana) have regulated beyond EPA’s list of hazardous air pollutants through the development of state-only toxic air pollutant ambient standards, these also generally consider a single pollutant’s environmental and health effects rather than aggregate impacts.[6]

As acknowledged by the EPA, there are significant research gaps and deficient data areas that need to be addressed to inform a proper cumulative impact assessment.[7] Even more so, a cumulative risk assessment will require more refined biological and chemical data and methods that are not currently developed.

The Court here did not address these issues with performing a cumulative impacts analysis and rejected LDEQ’s more qualitative analysis of potential air toxics emissions at the proposed facility. The Court found instead that:

…LDEQ cannot determine [the community’s] full risk for cancer from exposure to toxic air pollutants if the agency does not consider FG LA’s ethylene oxide and benzene emissions in combination with such emissions from other facilities that the agency itself says drives EPA’s cancer risk data for the area [referencing the EPA EJSCREEN].

Thus, the Court held that LDEQ’s conclusion about air toxics was arbitrary and capricious and not supported by a preponderance of the evidence in the record. And because LDEQ relied on this conclusion in its Public Trust Doctrine analysis, the agency failed to meet that duty as well.

There remains time to appeal this decision to the Louisiana First Circuit. But the opinion signals at least a shift towards cumulative impact analysis requirements in air permitting in Louisiana, considering that the 19th Judicial District is venue for all LDEQ permit challenges. Environmental justice issues, and especially air toxics issues, are becoming a battle ground for air permitting application challenges. In the meantime, stakeholders and permittees should consider performing at least a qualitative analysis of the effects of air toxics from the project and surrounding areas for the record.

[1] The Public Trust Doctrine is established under the Louisiana Constitution. It requires that the natural resources of the state and the quality of the environment must be protected and conserved consistent with the health, safety, and welfare of the people. See La. Const. art. IX §1.

[2] The EPA’s EJSCREEN tool has emerged as a standard for the environmental justice analysis in air permitting and otherwise. But the EJSCREEN does not analyze or produce cumulative impact information. Rather, the EJSCREEN produces a series of indices that combine demographic indicators with one single environmental factor.

[3] In Save Ourselves, Inc. v. La. Env’t Control Comm’n, 452 So. 2d 1152 (La. 1984), the Louisiana Supreme Court interpreted the Public Trust Doctrine to require LDEQ to address certain factors before issuing a permit. These are referred to as the “IT Factors” after the name of the permittee in the case.

[4] The case is Rise St. James, et. al. v. Louisiana Department of Environmental Quality, Docket No. 694,029, 19th Judicial District Court Parish of East Baton Rouge (Sept. 14, 2022).

[5] See Rucinski, Addressing Cumulative Impacts of Air Toxics in Air Permitting, Air & Waste Management Association’s 115th Annual Conference & Exhibition, held June 27-30, 2022 in San Francisco, CA (providing a full discussion of current EPA regulatory frameworks for addressing cumulative impacts and discussion of state and federal guidance on practicalities of implementing such reviews in air permitting).

[6] See e.g., Louisiana Administrative Code – LAC 33:III.Chapter 51, Tables 51.1 – 51.3; see also California Air Resources Board (CARB), Airborne Toxic Control Measures. In 1989 Louisiana enacted Louisiana Revised Statute 30:2060 which called for (among other mandates) the establishment of a toxic air pollutant (“TAP”) emissions control program, the development of a baseline for TAP emissions, and a 50% reduction of statewide TAP from that base line level within 20 years. The LDEQ promulgated regulations that, in addition to incorporating MACT standards, establishes reporting requirements for all major sources of TAPs and sets ambient air standards for each TAP. Louisiana’s list of TAPs includes all of the federal HAPs and adds others that are of particular concern in Louisiana, including ammonia and hydrogen sulfide.

[7] See Cumulative Impacts, Recommendations for ORD Research, EPA, January 2022 (available at: https://www.epa.gov/system/files/documents/2022-01/ord-cumulative-impacts-white-paper_externalreviewdraft-_508-tagged_0.pdf) (last accessed 05/13/2022).

We’ve all seen the commercials: “Call before you dig.” But how does calling 811 before you dig help, and what’s required for underground facility owners and contractors performing excavation work? Continue reading for a brief summary of the Louisiana Underground Utilities and Facilities Damage Prevention Law (La. R.S. 40:1749.11, et seq.) (“Dig Law”).

The stated purpose of the Dig Law is the “protection of property, workmen, and citizens in the immediate vicinity of an underground facility or utility from damage, death, or injury and to promote the health and well-being of the community by preventing the interruption of essential services which may result from the destruction of, or damage to, underground facilities or utilities.”[1] Interestingly, protection of the underground facility or utility itself is not expressly included as a stated purpose. Generally, the Dig Law makes it illegal for any person to perform any excavation or demolition without first ascertaining the location of all underground utilities and facilities by providing telephonic or electronic notice to the regional notification center (i.e., 811) at least 48 hours (excluding weekends and holidays) before starting any excavation or demolition.[2] The requirement to “call before you dig” does not apply to activities by operators or land owners excavating their own underground facilities or utilities on their own property.[3]

Conversely, each operator of underground facilities in the state must participate in and share the cost of the regional notification center, including providing the center with the general location of its underground facilities.[4] When the regional notification center receives a notice of intent to excavate, it notifies each member operator having utilities or facilities near the site of the proposed excavation. Once notified, the operator of the utility or facility must provide the excavator with the specific location and type of all its underground utilities or facilities. This information is most commonly provided via visible marks on the ground of various shapes and colors, commonly including paint and flags, which denote the location and type of facilities present in the area. The Dig Law requires that the location provided be within 18 inches of either side of the actual facility location.[5] Many utility owners and operators contract with locating companies to provide the required information.

Although the operator of the underground facility or utility must provide information concerning the location, an excavator must take additional precautions to prevent damage, including planning the excavation to avoid damage, maintaining a safe clearance from the facilities, providing support for the facilities, and digging test pits or “potholing” to determine the actual location of certain facilities or utilities.[6] In the event of any damage to an underground facility or utility, the excavator must immediately notify the owner or operator of the facility of the location and nature of the damage.[7] The excavator must provide additional notices and take further action if the damage permits the escape of any flammable, toxic, or corrosive fluids or gases, including alerting appropriate emergency response personnel.[8]

An excavator is liable for any damage to a utility or facility caused by its negligence, and in the event of a lawsuit between an owner or operator and an excavator involving damage to underground facilities or utilities, the prevailing party is entitled to recover its attorneys’ fees.[9] In addition to lawsuits between the parties, both excavators and utility owners may be subject to additional penalties for violations of the Dig Law.[10] The Dig Law may be enforced by the Department of Public Safety and Corrections or any local law enforcement agency via administrative proceedings.[11]

If you have any questions or need assistance with any Dig Law issues, please visit the Louisiana 811 website (https://www.louisiana811.com/) or reach out to our construction team for help (https://www.keanmiller.com/construction.html).

[1] La. R.S. 40:1749.11(B).

[2] La. R.S. 40:1749.13.

[3] Id.

[4] La. R.S. 40:1749.14.

[5] Id.

[6] La. R.S. 40:1749.16.

[7] La. R.S. 40:1749.17.

[8] Id.

[9] La. R.S. 40:1749.14(F).

[10] La. R.S. 40:1749.20.

[11] La. R.S. 40:1749.27.

The property tax “open rolls” period is here for Louisiana taxpayers. This annual inspection period is important in any year, but this year early and appropriate action is critical in light of recent legislation that affects the process of appealing a valuation determination by a parish assessor.

The “open rolls” period in any Louisiana parish is the annual opportunity for taxpayers to check property tax assessments and determine whether they are correct. More importantly, it is a time to act quickly or lose your rights to contest property tax valuations. The property tax rolls are scheduled to be “open” for public inspection in selected Louisiana parishes as follows:

PARISH OPEN ROLLS DATES
Caddo 08/18-09/01/2022
Calcasieu 08/31-09/15/2022
East Baton Rouge 08/25-09/09/2022
Jefferson 08/22-09/06/2022
Lafayette 08/15-8/30/2022
Lafourche 08/31-09/15/2022
Orleans 07/15-08/17/2022
Plaquemines 08/15-08/30/2022
St Bernard 08/15-09/02/2022
St Charles 08/15-08/29/2022
St Mary 08/15-08/29/2022
St Tammany 08/15-08/29/2022
Terrebonne 08/29-09/13/2022
Washington 08/15-09/07/2022

Open rolls dates for other parishes can be found on the Louisiana Tax Commission website. The current property tax year for Orleans Parish is 2023. For all other Louisiana parishes, the current property tax year is 2022.

In evaluating a property tax assessment during “open rolls,” information for prior tax years can be useful in determining whether there has been a change, and this information may be included on a parish assessor’s website. However, note that some parishes may not have current or accurate information online, and in those cases it will be necessary to contact or meet with the assessor’s office for updated information. The compressed “open rolls” time window  requires diligence and quick work. In addition, the property tax assessments in some parishes can be viewed through the Louisiana Tax Commission website. The website for Orleans Parish is: www.nolaassessor.com.

The important thing to know is that, if you or your client wishes to challenge the correctness (i.e. dispute the value) of a property tax assessment and preserve rights to challenge it, the “open rolls” period is your only chance to do so. During this time (if not earlier), it’s important to review the assessor’s data and conclusions, discuss the assessor’s stance on valuation, and provide all available information to the assessor that supports the correct value. Under recent statutory changes (La. Acts 2021, No. 343, eff. January 1, 2022), a taxpayer must furnish the assessor with all information that supports the taxpayer’s valuation prior to the deadline for filing an appeal with the local Board of Review. That deadline date varies by parish but is typically just a few days after the “open rolls” period closes. Beware of this very short time frame! Under the new law that is applicable to property tax appeals filed on or after January 1, 2022, while the Tax Commission can allow additional evidence that was not provided to the assessor to be presented at the property tax hearing before the Commission, the recommended course is to provide the assessor all available evidence to support the correct value during, or prior to, the open rolls inspection period.

In short, August brings a different kind of heat to Louisiana property taxpayers. If you or your clients have questions or need assistance with these and other property tax matters, contact Kyle Polozola, Jaye Calhoun, or Phyllis Sims of the Kean Miller SALT group.

The Louisiana Public Works Act (“LPWA”), La. R.S. 38:2241, et seq., protects the rights of contractors and others relating to the construction of public works projects for the state, any of its boards, agencies, and political subdivisions. August 1, 2022 not only marks the beginning of the end of summer 2022, but also the effective date of several important changes to the LPWA from the most recent Louisiana Legislative Session. All contractors working on Louisiana public projects should take note of these key revisions concerning time periods under the LPWA detailed below:

Punchlists and Substantial Completion

Act No. 756 makes an important revision relative to punch lists for public works contracts. The amendment to La. R.S. 38:2248(B) provides if a public entity occupies or uses the public works, then the punch list must be provided to the contractor within ten (10) days of substantial completion (see La. R.S. 38:2248(B)(2)(a)) and the punch list may be amended by the design professional or the public entity within fourteen (14) days of providing it to the contractor (see La. R.S. 38:2248(B)(2)(b)). According to La. R.S. 38:2248(B)(3), these provisions are not subject to waiver and are inapplicable to the Department of Transportation and Development. See 2022 La. Sess. Law Serv. Act 756 (S.B. 429) (WEST).

No Response To A Submittal Of A Particular Product After Seven (7) Working Days Means Approval

Act No. 424 amends and reenacts La. R.S. 38:2295(C)(1) relating to plans and specifications for public works in order to clarify the requirements for prior approval and provide for an adjustment of time to respond to the submittal of a particular product other than a product specified in the contract documents. Under the revision to La. R.S. 38:2295(C)(1), if a potential supplier of a particular product other than a product specified in the contract documents submits a request for the approval of the product no later than seven (7) working days prior to the opening of bids, the prime design profession must furnish both the public entity and the potential supplier a written approval or denial of the project submitted. Failure by the prime design professional to respond in the seven (7) working days results in approval of the submitted product. See 2022 La. Sess. Law Serv. Act 424 (S.B. 423) (WEST).

Working Days Defined and Time Limits For Bidders’ Information

Act No. 774 amends and reenacts La. R.S. 38:2212(B)(2) and (H) and enacts La. R.S. 38:2211(A)(15) relating to certain public works projects bidding requirements. Revisions of interest include the definition of “working days” for purposes of the Section concerning the bid process to mean “the days Monday through Friday, excluding recognized holidays and declared emergencies.” La. R.S. 38:2211(A)(15).  Further, the revision to La. R.S. 38:2212(B)(2) provides if a public entity advertising for public work adds additional requirements for information beyond what the statute mandates, then those additional “requirements shall be void and not considered in the award of the contract.” La. R.S. 38:2212(B)(2) (Emphasis added). Finally, the revision to La. R.S. 38:2212(H) changes the time from fourteen (14) days to nine (9) working days for any and all of the bidders’ information to be available upon request following the bid opening or after the recommendation of the award by the public entity or design professional, whichever occurs first. See 2022 La. Sess. Law Serv. Act 774 (S.B. 271) (WEST).

On June 15, 2022, Governor John Bel Edwards signed into law Act No. 425, S.B. 426, named the “Allen Toussaint Legacy Act.”[1] The Act is named after the late Allen Toussaint, a famous New Orleans musician, songwriter, and producer. Toussaint was known for hits such as “Java,” “Fortune Teller,” “Southern Nights,” “Working in the Coal Mine” and “Mother-in-Law.”

After seeing drink koozies featuring Toussaint’s image sold by vendors outside of the Jazz Fest months after the artist died, Tim Kappel, an entertainment law professor at the Loyola University New Orleans, began pushing for a bill protecting the right to publicity in Louisiana.[2] Before the Act, despite the clear commercial benefit from products featuring Toussaint and other New Orleans legends like Fats Domino and Professor Longhair, the deceased musicians’ estates received no benefit from the sales nor had any power to stop the commercialization.

Act No. 425

The right of publicity is not a new concept in the United States. New York and California are leading examples of the right of publicity, particularly because those states are dense with famous individuals, who are more likely to be affected by right of publicity laws. For example, in the 1990s, the Ninth Circuit U.S. Court of Appeals found Vanna White could seek damages from Samsung for an advertisement involving a futuristic female robot turning the letters on a game show board.[3] Although the advertisement did not mention Vanna White by name, or use her actual image, the court held Samsung may have violated the law by “attempt[ing] to capitalize on White’s fame to enhance their fortune.”[4]

Act 425 creates a property right in the use of Louisiana residents’ identity for commercial purposes. The Act prohibits third party commercial use of an individual’s identity in Louisiana without written consent from the individual or the individual’s authorized representative or, if the individual is deceased, by more than 50% of the authorized representatives currently holding the right to commercialize. The Act defines an “individual” as “a living natural person domiciled in Louisiana or a deceased natural person who was domiciled in Louisiana at the time of the individual’s death.” “Identity” includes “an individual’s name, voice, signature, photograph, image, likeness, or digital replica.”

Violations can carry hefty penalties. Successful plaintiffs may recover the greater of $1,000 and the actual damages in compensatory damages, and (to the extent not duplicative of compensatory damages) payment of all profits earned from the violation. Similar to copyright infringement claims, plaintiffs must only prove the gross revenue attributable to the unauthorized use, and the defendant must prove any deductible expenses. A court may also award attorneys’ fees, costs, and expenses to the successful party, as well as equitable relief (e.g., injunctions or temporary restraining orders).

The Act carves out several exceptions, which include the “fair use” exceptions found in the Copyright Act, first amendment exceptions, and protections for works of creative expression. The Act also provides exceptions for advertisers, publishers, speakers, and others who passively transmit or distribute the commercialized material created by the third party.

The granted rights are not perpetual. Termination occurs either: (a) after 3 consecutive years of non-use by the authorized representative after the individual’s death; or (b) 50 years after the individual’s death. The Act is retroactive and will apply to individuals who died on or before the effective date of August 1, 2022. However, the Act will not apply to any alleged violations committed before August 1, 2022; also exempt are works created before this time, even if they are republished or distributed after that date. Any claim under the Act must be filed within 2 years of the alleged violation.

Future Considerations

Several interesting issues arise in response to this passage. Although Louisiana may not be dense with popstars and movie stars like New York, Louisiana does have its fair share of talented athletes. Considering the NCAA’s recent move toward permitting college athletes to profit off their name, image, and likeness, this Act will be instrumental in restricting commercialization of the Louisiana-domiciled athletes to only those authorized by the athlete themselves.

But the Act is not limited to persons in the public eye. It applies to any person domiciled in Louisiana or a deceased person that was domiciled in Louisiana at the time of death. Ordinary persons captured in videos that later go viral on social media often find their likeness plastered onto commercial products. The Act could provide some avenue to capture the monies made off of their “15 minutes of fame.” However, the Act does not provide for statutory damages and attorney fees are within the discretion of the court, which may complicate or discourage recovery by persons with limited means against unprofitable violations.

Legal scholars have expressed concern about defining identity as a property right that is “heritable, licensable, assignable, and transferrable.” Professor Jennifer Rothman at the University of Pennsylvania Carey Law School identified problematic potential for parents’ ability to transfer their children’s identity to third parties, as well as record labels, movie producers, sports leagues, and others who may pressure young, aspiring athletes and performers to assign rights to them in perpetuity.[5] Professor Rothman also questions whether identity being a property right could incur property-based liabilities. The Act specifically prohibits its property rights being subject to a security interest, material property distribution, or debt collection. However, other liabilities could compel commercialization against an individual or heir’s wishes.

Concluding Remarks

Commercialization of individual identities presents a compelling new right for Louisiana residents. How the Act operates in practice remains to be seen. The opportunity to “sign your name away” may be profitable in the short term, but could have long-standing implications if an exclusive license omits favorable termination or sunset clauses. Potential commercial licensees should further ensure that they actually have the right to make commercial use of an individual’s likeness—even if that person is an employee, a student, or has signed a general photograph release.

[1] https://legis.la.gov/legis/ViewDocument.aspx?d=1289308.

[2] James A. Smith, “An Allen Toussaint law? Attempting to ban koozies, unlicensed merchandise using likeness”, The Advocate (April 30, 2019) (available at https://www.theadvocate.com/baton_rouge/news/politics/legislature/article_5ec7233c-6bab-11e9-8279-fb05c40acaea.html).

[3] White v. Samsung Elecs. Am., Inc., 971 F.2d 1395 (9th Cir.1992), as amended (Aug. 19, 1992).

[4] Id. at 1396.

[5] Jennifer E. Rothman, “Louisiana’s Allen Toussaint Legacy Act Heads to Governor’s Desk”, Rothman’s Roadmap to the Right of Publicity (Jun. 6, 2022) (https://rightofpublicityroadmap.com/news_commentary/louisianas-allen-toussaint-legacy-act-heads-to-governors-desk/).

On June 1, 2022, the United States District Court for the Eastern District of Louisiana reminded insureds of the importance of providing early notice to their insurers of claims that may trigger coverage.

In Nucor Steel Louisiana, LLC v. HDI Glob. Ins. Co., CV 21-1904, 2022 WL 1773866, at *1 (E.D. La. June 1, 2022), at issue was whether, under Louisiana law, an insurer of a commercial general liability policy (“CGL policy”) has a duty to reimburse its additional insured’s “pre-tender” defense costs when: (a) the insurer agreed to defend the additional insured under a reservation of rights; (b) the insurer did not expressly state in its communications to the additional insured that it would not reimburse the pre-tender defense costs; and (c) the insurer learned of a potential duty to defend its additional insured from a source other than the additional insured. The Court found that the insurer was not responsible for the additional insured’s “pre-tender” defense costs.

The ruling was significant for the parties, as the additional insured’s post-tender defense costs totaled $37,067.47, while its pre-tender defense costs totaled $135,950.75. Although it appears that there may have been additional arguments to be made by the insured which were not made, the ruling serves as a stark reminder to all insureds to provide prompt notice to their insurers of claims made against them – even if the claim has not yet resulted in a lawsuit, even if the insurer has already obtained notice by other means, and even if the claim has been tendered to an indemnitor.

Insurance coverage is a highly-specialized area of the law with many nuances, and you should not navigate those waters alone. If you need assistance in reporting claims, obtaining coverage opinions, analyzing reservation of rights letters, or challenging denials of coverage, Kean Miller’s Insurance Coverage and Recovery Team is here to help. Kean Miller protects our clients’ coverage positions prior to and during the claims process by reviewing insurance policies, negotiating coverage enhancements, satisfying policy notice requirements, complying with policy terms and conditions, and documenting claims – all important steps that can avoid loss or denial of coverage and maximize your chances of insurance recovery.

In recent years many employers have implemented mandatory arbitration agreements to require that legal disputes with employees be decided by a neutral arbitrator, rather than by jury trial.  Arbitration agreements are coming under scrutiny as unfairly preventing employees from having their “day in court” and having access to jury trials – most recently with the passage of the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021,” which took effect March 3, 2022 and now prohibits pre-dispute agreements to arbitrate sexual harassment and sexual assault claims (unless the employee – after the claim arises – voluntarily elects to participate in arbitration).  Other legislative attempts to broadly bar the use of mandatory arbitration agreements with respect to all employment claims have been proposed in Congress but, to this point, have not gained much traction.

But it is not all doom and gloom for employers with mandatory arbitration programs – as federal Courts continue to uphold their use.  One area where arbitration agreements have been especially effective is in precluding employees from pursuing class action claims against employers, and in particular, collective action claims seeking unpaid minimum wages and overtime pursuant to the federal Fair Labor Standards Act (“FLSA”).  In FLSA cases a single employee who claims violations can bring a collective action and be granted permission by the Court to send written notice inviting past and current employees of the employer (which can number in the dozens, hundreds or even thousands – depending on the size of the employer) to join the lawsuit.  Collective action FLSA claims present significant exposure and litigation costs for employers.  However, federal Courts, including the Fifth Circuit Court of Appeals (which governs Louisiana, Texas and Mississippi) have held that mandatory arbitration agreements can be used to require one-on-one resolution of legal claims in private, single plaintiff arbitration, thereby barring the collective action strategy often favored by plaintiff attorneys in FLSA cases.

In the recent case of In re A&D Interests, Inc. 2022 WL 1315465 (5th Cir. 5/3/22), the Fifth Circuit demonstrated continued support of these principles.  A panel of the Fifth Circuit issued a writ of mandamus reversing a lower federal district court decision that permitted the plaintiffs in the case (exotic dancers who were suing the employer for minimum wage and overtime violations) to move forward with sending notices of a collective action – even though many of the claimants in the case had signed mandatory arbitration agreements that required single claimant arbitration of legal claims.  The district court ruled against the company on a technicality – finding that while the arbitration agreements explicitly precluded dancers from joining “class action” lawsuits, it did not expressly prohibit them from participating in “opt in” collective action claims brought under the federal Fair Labor Standards Act. The district court did not address the issue of whether the plaintiffs who signed the arbitration agreements would be required to arbitrate their claims, but ruled that the case could proceed as collective action in the preliminary phase of the litigation. This would have almost certainly resulted in more claimants joining the case as the result of a court approved collective action notice being sent to several current and former dancers.

By granting this relief and reversing the district court at an early stage in the litigation, the Fifth Circuit nipped the collective action in the bud by preventing notices from being sent to other current and former dancers – thereby sparing the company from the high stakes consequences and expense of litigation that might otherwise have involved scores of additional claimants.

A writ of mandamus is a remedy that is rarely granted, and is reserved for situations in which the Court of Appeals finds not only that the lower court committed an abuse of its discretion, but also concludes that special relief is required before an appeal following a final judgment in the case.   According to the Fifth Circuit:

“[i]ssuing notice [of a collective action] to those who will not ultimately be able to participate “merely stirs up litigation,’…In sum, the district court apparently recognized that the arbitration agreement would prevent the opt-in plaintiffs from ultimately participating in the collective action, but approved class notice anyways. This was not merely an erroneous exercise of discretion…it was wrong as a matter of law. Because the district court clearly and indisputably erred, mandamus relief is appropriate.”

The Fifth Circuit’s timely decision in this case re-affirms that the Court will aggressively protect the use of arbitration agreements as a means for avoiding the exposure and expense associated with collective action claims – and is certainly a boon for employers that use arbitration agreements.  However, the In re A&D Interests case also reinforces the importance of carefully worded arbitration agreements that specifically preclude employees from participating in class action and collective action claims.  Employers that want to utilize the still-valuable tool of mandatory arbitration agreements should work with closely with their legal counsel to carefully craft an effective and enforceable agreement.  Had the company in this case done so, it might not have needed the rescue that the Fifth Circuit provided.

In the recent unanimous United States Supreme Court opinion, Morgan v. Sundance, Inc., No. 21-328, 2022 WL 1611788 (2022), issued May 23, 2022, the Court abrogated existing case law and held that prejudice is not a condition of finding that a party, by litigating too long, waived its rights to stay litigation or compel arbitration under the Federal Arbitration Act (“FAA”), 9 U.S.C.A. § 1, et seq.  Morgan establishes a showing of prejudice is not required to argue that a party by its actions in either litigation or mediation has waived its rights under an arbitration agreement overruling Fifth Circuit precedent in Miller Brewing Co. v. Fort Worth Distributing Co., Inc., 781 F.2d 494 (5th Cir. 1986).  This ruling may have vast implications in the construction industry given the prevalence of arbitration agreements in most commercial construction projects.

Morgan arose in the context of an agreement to arbitrate an employment dispute when Sundance initially defended the lawsuit acting as though no arbitration existed:  Sundance filed an unsuccessful motion to dismiss and participated in an unsuccessful mediation.  Eight months after initiation of the suit, Sundance moved to stay the case and compel arbitration under the FAA.  Morgan opposed arguing Sundance waived its rights to arbitration by its inconsistent actions and had been prejudiced by those inconsistent actions.  The Supreme Court held that “[t]he Eight Circuit erred in conditioning a waiver of the right to arbitrate on a showing of prejudice.”   Morgan, 2022 WL 1611788, at *1.  The Morgan case has been remanded for the appellate court to resolve whether Sundance knowingly relinquished its right to arbitrate by acting inconsistently with that right or “determine whether a different procedural framework (such as forfeiture) is appropriate.”  Morgan, 2022 WL 1611788 at *5.

21-328 Morgan v. Sundance, Inc. (05/23/2022) (supremecourt.gov)

Defendants who delay can lose their chance to arbitrate, court rules in 9-0 decision – SCOTUSblog

U.S. Supreme Court Rejects Prejudice Requirement for Waiver of Arbitration Rights – State Bar of Texas Alternative Dispute Resolution Section Newsstand – Powered by Lexology

Supreme Court Holds that Prejudice Is Not Required to Find Waiver of Right to Arbitration – State Bar of Texas Alternative Dispute Resolution Section Newsstand – Powered by Lexology

In Helix Energy Solutions Group Inc v. Hewitt, an en banc U.S. Fifth Circuit Court of Appeals issued a 12-6 ruling last year finding that a highly paid offshore supervisor (who was paid more than $200,000 per year on a day rate basis) was entitled to overtime premium pay because he was not paid on a “salary basis” consistent with long-standing Department of Labor Regulations.

Helix Energy, with the support of amicus curiae briefing by the American Petroleum Institute, filed a petition for certiorari seeking further review of the issue, which the United States Supreme Court recently granted.

Helix, along with the API, other trade energy industry trade groups and the Attorneys General of six Republican states, argued that paying offshore supervisors on a day rate basis has been common practice in the oil and gas industry for several years, and that invalidating this practice as a method of compensating overtime exempt personnel would result in catastrophic litigation exposure for the offshore energy industry.  Under the Fair Labor Standards Act (“FLSA”) employees can sue to recover unpaid overtime premium, an equal amount of liquidated damages and attorney’s fees.  Worse yet for employers, individual employees can pursue FLSA overtime pay claims on a “collective action” basis, which, if approved by a district court, could result in a few plaintiffs and their attorneys being authorized to send notice inviting current and former employees of the employer to join (opt in) the FLSA class.

While the grant of certiorari alone does not necessarily mean that the Fifth Circuit’s decision will be overturned, the odds of that occurring appear significant. The results of the Supreme Court’s certiorari votes are not published, but under the Court’s protocols, certiorari is only granted if at least four out of the nine Justices voted in favor of Supreme court review (known as the “rule of four”).  The rule of four is an informal internal rule, and is not dictated by federal statute, formal court rules of the United States Constitution.  The court can grant review and hear oral argument even in cases where five of the nine Justices are not in favor of granting review.  So it remains possible that five of the Justices on the Court might yet vote to affirm the Fifth Circuit’s decision.

The Court’s three liberal Justices almost certainly did not vote in favor of certiorari given that the employee prevailed at the Fifth Circuit on the basis of the literal application of long-standing Department of Labor regulations that plainly require the payment of an exempt supervisor on a guaranteed salary basis (in order for them to qualify as overtime exempt).  Accordingly, it is likely that the votes to grant certiorari were cast by at least four out of the Court’s six conservative Justices – the question is whether or not five or more of these conservative Justices favor reversal of the Fifth Circuit’s decision or not.

It will be interesting to see how the Court’s conservative Justices might find a way to overturn a Fifth Circuit decision that was based on a strict construction and literal application of regulations that were issued by the Department of Labor defining the requirements of this overtime exemption –principles that are typically the hallmark of conservative jurists.

The outcome of the Hewitt case will be important to follow, as the Court’s holding will have important ramifications for employers in the oilfield and other industries that pay their highly compensated supervisors (and other overtime exempt employees) using methods other than the traditional salary basis.