by Tod J. Everage

On February 12, 2017, a fishing charter boat, the M/V SUPER STRIKE, carrying several paying customers collided with an offshore service boat, the M/V MISS IDA, during a fishing trip. Claims were asserted by the passengers against both vessels and operators in their respective limitation suits. Recently, dispositive motions were filed against the claims asserted by two passengers – whose only alleged damages were for emotional distress resulting from the collision – claiming they were within the “zone of danger.” See In re TK Boat Rentals, (Civ. No. 14-1545) (E.D. La. March 21, 2018).

According to the US 5th Circuit, the “zone of danger” rule permits a plaintiff to recover for emotional injuries that “result from the witnessing of peril or harm to another if the plaintiff is also threatened with physical harm as a consequence of the defendant’s negligence.” Plaisance v. Texaco, Inc., 966 F.2d 166, 168 (5th Cir. 1992). This rule extends to Jones Act seaman for fear of physical injury to themselves as well. Naquin v. Elevating Boats, LLC, 744 F.3d 927, 938 (5th Cir. 2014). Like many similar issues, the Jones Act extension was borne out of a FELA case from the US Supreme Court. See Consol. Rail Corp. v. Gottshall, 51 US 532, 548 (1994). In order to recover though, the plaintiff must show that he suffered actual injuries.

The US 5th Circuit has not yet recognized recovery under the “zone of danger” rule for passengers under the general maritime law. See Barker v. Hercules Offshore, Inc., 713 F.3d 208, 224 (5th Cir. 2013). In TK Boat Rentals, the district court commented that the “zone of danger” rule was merely a threshold requirement for a plaintiff to recover for emotional injuries. Because the plaintiffs could not prove they suffered any objective injuries, the Court dismissed their claims without having to make the determination of whether the “zone of danger” rule even applied to them.

One plaintiff, Nick Siria, admitted that he did not suffer any personal injuries as a result of the collision and that he had not and did not plan to seek any medical or psychological treatment as a result of the collision. He claimed he had a few “tense” moments and reactions when he returned to the water and later dealt with a car pulling out in front of him, but he did not elaborate any further. The Court found these statements to be too vague and conclusory to demonstrate an emotional injury and dismissed his claims. The second plaintiff, Tracy Edwards, argued he should recover damages because he too was in the “zone of danger” of the collision. Edwards similarly offered a vague affidavit wherein he alleged he suffered emotional and physical injuries, but provided no description of either injury. Looking to his deposition, the Court could only find testimony that Edwards jumped into the river at the time of the collision and that he found the water to be cold. He sought no medical or psychological treatment. Edwards testified that he now has a fear of the water and could not participate in a snorkeling trip because of the collision; he had no problems fishing from a boat though. The Court was not persuaded that Edwards could support his claims with such limited evidence and dismissed his emotional injury claims as well.

The idea of a physical or real manifestation of injuries is a common one among the courts. While a physical injury (in the traditional sense of the word) is not necessarily needed, there must be some evidence that the plaintiff suffered an injury sufficient to be compensated for it. For example, emotional distress may “physically” manifest itself as a psychological disorder or condition – so long as it is capable of objective determination. See, e.g., Haught v. Maceluch, 681 F.2d 291, 299 n.9 (5th Cir. 1982). It seems that a threshold point would be to show that the plaintiff sought some sort of treatment for his complained of “injuries.” Self-serving affidavits and vague testimony will not cut it. Given the fact-intensive question, courts will evaluate these claims on a case-by-case basis.

The US 1st Circuit more recently commented on this issue in Sawyer Brothers, Inc. v. Island Transporter, No. 16-2470 (1st Cir. April 3, 2018). Though the US 5th Circuit hasn’t yet extended the “zone of danger” rule to passengers under the general maritime law, the US 1st Circuit officially took that step. “Given its application to seaman, we see no principled basis for imposing the more restrictive physical impact test upon passengers alleging NIED under the general maritime law.” In so doing, the 1st Circuit joined the 11th Circuit (Chaparro v. Carnival Corp., 693 F.3d 1333, 1338 (11th Cir. 2012) (per curiam) and the 9th Circuit (Stacy v. Rederiet Otto Danielsen, A.S., 609 F.3d 1033, 1035 (9th Cir. 2010), affirmatively allowing such claims. This is not to say that the US 5th Circuit would not join these Circuits, they simply have not yet been forced to pick a side.

The Sawyer Brothers Court dropped a notable footnote in its opinion – the Court would not extend the prohibition of bystander claims set forth in Gottshall to general maritime claims. The Court reasoned that the likelihood of witnessing a death or serious injury of a family member is far greater on the water than on a railroad. In other words, a maritime plaintiff in the 1st Circuit may be allowed to recover if he/she suffered an objective emotional injury as a result of witnessing a death or serious bodily harm to a close family member. Such claims are forbidden under FELA. The 1st Circuit went on to analyze the scope of the “zone of danger” and the provided examples of sufficient physical manifestations of emotional injuries. The plaintiffs in Sawyer Brothers suffered gastrointestinal distress, limb and chest pain, stress-induced shingles, and high fever – all of which were deemed satisfactory to maintain a claim.

While the US 5th and 9th Circuits disagree often on major issues, it remains to be seen if the 5th would disagree with the aforementioned Circuits who have extended “zone of danger” rule to passengers under the general maritime law.

by R. Blake Crohan

The EDLA recently determined that the Insurance Service Office’s (ISO) “Louisiana Changes” endorsement does not expand the scope of Louisiana’s direct action statute. In Menard v. Gibson Applied Technology and Engineering, 2017 WL 6610466 (E.D. La. Dec. 27, 2017), the plaintiff was a senior field technician working offshore in the Gulf of Mexico and was allegedly injured during a personnel basket transfer from a support vessel to a floating, semi-submersible oil-exploration platform. Plaintiff sued several companies along with one of their insurers, ACE American Insurance Company (ACE). ACE filed a motion for summary judgment arguing that the plaintiff could not maintain a direct action against ACE. ACE argued that because its policy was not written or delivered in Louisiana, and neither the accident nor alleged injury occurred in Louisiana, Louisiana’s direct action statute did not apply and the plaintiff could not file a lawsuit directly against ACE.

The parties did not dispute that the policy was not written or delivered in Louisiana – the policy was not issued in Louisiana and the policy was delivered to the insured in Texas. Further, the accident occurred on the Outer Continental Shelf in the Gulf of Mexico. It is well settled in the EDLA that an accident or injury occurring in the Gulf of Mexico or on the Outer Continental Shelf does not occur “within Louisiana” for purposes of Louisiana’s direct action statute. See Signal Oil & Gas Co. v. Barge W-701, 654 F.2d 1164, 1175 (5th Cir. 1981); Joyner v. Ensco Offshore Co., No. 99-3754, 2001 WL 333114, at *2-3 (E.D. La. Apr. 5, 2001).

Nevertheless, the plaintiff argued that the ISO’s “Louisiana Changes” policy endorsement made him a third-party beneficiary and granted him a right to bring a direct action against ACE. The endorsement was entitled “Louisiana Changes – Legal Action Against Us” and was numbered “CG 01 18 12 04.” The court recognized that these ISO endorsements must be attached to all commercial general liability policies covering risk in Louisiana. The endorsement provided: “A person or organization may bring a ‘suit’ against us including, but not limited to a ‘suit’ to recover on an agreed settlement or on a final judgment against an insured. . . .” Plaintiff argued that the endorsement expanded the right of action described in the Louisiana direct action statute; and alternatively, if it is ambiguous, it should be construed against the drafter – ACE. The court held that the endorsement did not make plaintiff a third-party beneficiary because the parties to the contract had no such intent. Rather, the endorsement merely embodied Louisiana’s direct action statute. Therefore, the endorsement did not expand the plaintiff’s right to bring a direct action against ACE, when he could not satisfy the direct action factors themselves. Accordingly, the Court granted ACE’s motion for summary judgment and dismissed the plaintiff’s direct action claims against ACE.

The Eastern District’s decision in Menard reaffirms that all prerequisites to Louisiana’s direct action statute must be satisfied or a plaintiff’s direct action suit will be dismissed. Further, Menard makes clear that insurers including the ISO’s Louisiana Changes – Legal Action Against Us policy endorsement number CG 01 18 12 04 are not contractually expanding their risk to unwanted and unexpected litigation in Louisiana, where the elements of the direct action statute are not met.

By Stephen C. Hanemann

In matters of international trade, a bill of lading often serves as the contract of carriage between a shipper and carrier for transportation of goods. A Himalaya clause is a provision contained in certain bills of lading protecting carrier’s servants, agents, and independent contractors from third-party claims by limiting shipper’s rights to bring suit against carrier only. When courts enforce the Himalaya clause contained in such a bill of lading, carrier’s agents, servants, and independent contractors are generally immune from legal actions brought by the shipper. Global Oil Tools, Inc. v. Expeditors International of Washington, Inc., et al, a recent case out of the Eastern District of Louisiana, illustrates the concept of claim preclusion secondary to Himalaya clause enforcement.

Global Oil Tools, Inc., (“Shipper”) contracted with Expeditors International of Washington, Inc. (“Carrier”) to arrange for the transatlantic shipment of two containers from New Orleans, Louisiana to Constanta, Romania. Carrier booked carriage for the containers aboard the M/V BAVARIA, a ship operated by Hapag-Lloyd. Ports America, a stevedoring company, loaded the containers onto the M/V BAVARIA.

Shipper twice delayed the shipment of goods, but ultimately, due to a miscommunication between Hapag-Lloyd and Ports America, the ship set sail on March 28, 2016 with Shipper’s containers. The containers arrived at Constanta, Romania, on April 23, 2016. On May 27, 2016 Shipper approved Carrier’s issued bill of lading dated March 28, 2016. Shipper had intended to sell its cargo on arrival in Romania, but the sale was never consummated. Shipper filed suit against Carrier, Hapag-Lloyd, and Ports America seeking damages for the allegedly erroneous shipment of goods.

Hapag-Lloyd and Ports America filed motions for summary judgment invoking the application of the Himalaya clause in the bill of lading. While bills of lading are customarily construed against a carrier, the issuing party, contracts for carriage of goods by sea must be interpreted by their terms, consistent with the intent of the parties. In this transaction Carrier’s bill of lading, by inclusion of a clause paramount, incorporated the provisions of COGSA (“Carriage of Goods by Sea Act”). 46 U.S.C. § 30701 note sec., 13. Although COGSA applies of its own force from the time when the goods are loaded on to the ship until the time when they are discharged from the ship, the clause paramount provides that COGSA shall govern before loading as well.

The Himalaya clause in Carrier’s bill of lading stated that Shipper shall make no claim or allegation against any person other than Carrier, including Carrier’s servants, agents, or independent contractors. By approving the bill of lading terms, Shipper entered a covenant not to sue any party involved in the transportation of its containers except for Carrier. Under the simple language of the bill of lading itself, Shipper contractually relinquished any rights it may have had to sue either Hapag-Lloyd or Ports America.

Despite Shipper’s arguments attacking the enforceability of the bill of lading, there exists significant custom under general maritime law in favor of enforcing bills of lading even when executed after the shipment of goods is complete. In holding that the bill of lading and its terms, including the Himalaya clause, applied to Shipper’s shipment, the Court found that the Shipper had sufficient notice of the bill of lading, and that Shipper explicitly approved the bill of lading after the goods arrived in Romania. Following in line with the jurisprudential precedent of the Second Circuit, Fifth Circuit, Ninth Circuit, and U.S. Supreme Court, the Eastern District held that the Himalaya clause in the bill of lading, containing a covenant not to sue Carrier’s subcontractors, was enforceable.  Notwithstanding the inclusion of the Himalaya clause, the Bill of Lading preserved Shipper’s right to sue Carrier, as well as Carrier’s right to sue its subcontractors. Thus, the bill of lading did not violate public policy or any fairness doctrine. Shipper’s covenant not to sue parties other than Carrier precluded Shipper’s right to sue Hapag-Lloyd and Ports America. Thus, Hapag-Lloyd and Ports America were entitled to summary judgment dismissing Shipper’s claims.

by Michael J. O’Brien

In 2016, District Judge Sarah Vance ruled that the heirs of a self-employed commercial fisherman who died while fishing in state territorial waters could recover non-pecuniary damages.  In Re: Marquette Transp., 182 F.Supp. 3d 607 (E.D. La 2016) (citing Yamaha Motor Corp USA v. Calhoun 516 U.S. 1999 (1996)). [Editor’s Note: See blog post on In re Marquette here]. Judge Vance first reiterated that a non-seafarer is someone who is neither a seaman covered by the Jones Act nor a longshore or harbor worker covered by the LHWCA. Based on this reasoning, the In re Marquette decedent was found to be a non-seafarer. Further, his survivors could pursue state law remedies and recover non-pecuniary damages under state law. Two years later, Judge Vance recently revisited Yamaha to address a separate but similar issue:  whether the spouse of an injured non-seafarer can recover damages pursuant to state law claims for loss of society and consortium.

In Van Horn, et al. v. Chubb Ins. Co., et al., No. 1711969, (E.D. La 4/03/18). The injured Plaintiff, Muriel Van Horn, was a race official for sailing regattas on Lake Pontchartrain. On the day in question, Mrs. Van Horn boarded a boat for transport to her official’s position. While traveling on Lake Pontchartrain, the boat operator suddenly accelerated his vessel over the swells of the lake. The boat left the water’s surface, assumed a nearly vertical position in the air, and violently slammed down on the water. As a result, Mrs. Van Horn fractured her right tibial plateau. She required major surgery and ongoing medical care. Mrs. Van Horn and her husband sued the boat operator and others for damages under the General Maritime Law as well as Louisiana Law in supplement to General Maritime Law. Specifically, Mr. Van Horn asserted Louisiana state law claims for loss of consortium and society as a result of his wife’s injuries. Defendants took exception to Plaintiffs’ claims and moved to dismiss all claims for loss of consortium and society.

In support of their claims, the Van Horns argued that claims for loss of consortium and society are available to the spouse of a non-seafarer injured in territorial waters when authorized by state law per Yamaha. Note that Yamaha’s “non-seafarer” and “territorial waters” requirements were met as it was undisputed that Mrs. Van Horn was a non-seafarer injured in Louisiana’s territorial waters. Further, Louisiana law permits the spouse of an injured person to recover damages for loss of consortium and society. As such, the Van Horns alleged that they were well within their rights to maintain these non-pecuniary claims.

Alternatively, the Defendants suggested that Yamaha was limited solely to wrongful death actions.  Defendants cited the Eleventh Circuit’s decision in In Re: Amtrak “Sunset Limited” Train Crash, 121 F.3d 1421 (11th Cir. 1997), where that circuit held that Yamaha does not extend to personal injury actions because state wrongful death actions had a historical basis in admiralty. The Eleventh Circuit’s rationale was that no General Maritime cause of action for wrongful death existed prior to 1970; thus, admiralty courts looked to state law to provide a remedy for the deaths of non-seamen in territorial waters.  By contrast, the General Maritime Law has long recognized a personal injury cause of action, such that admiralty courts did not need to rely on state law for remedies in cases of personal injury.  As such, according to Defendants (and the Eleventh Circuit), Mr. Van Horn should be unable to maintain his loss of consortium and society claims.

While Judge Vance admitted that the Eleventh Circuit’s argument had “some force,” she was not persuaded that the Yamaha Court endorsed separate remedies for personal injuries and wrongful deaths of non-seafarers in territorial waters.  Indeed, given the absence of conflict between state remedies and federal law as well as the “clear trend toward consistent treatment of maritime personal injury and wrongful death actions”, Judge Vance found that Yamaha was applicable to personal injuries within territorial waters. As such, Louisiana laws governing loss of consortium damages may supplement General Maritime Law with regard to personal injuries of non-seafarers in territorial waters. Accordingly, Judge Vance held that Mr. Van Horn claims of loss of consortium and society could proceed.

by Michael J. O’Brien

It is now well settled in the United States Fifth Circuit Court of Appeals that a seaman cannot recover punitive damages on an unseaworthiness claim. McBride v. Estis Well Service, 768 F.3d 382 (5th Cir. 2014) (en banc). Specifically, the U.S. Fifth Circuit has held that punitives are non-pecuniary losses and therefore may not be recovered under the Jones Act or General Maritime Law. However, this opinion is not shared by the Ninth Circuit Court of Appeals.  Indeed, in the matter of Batterton v. Dutra Group, 880 F.3d 1089 (9th Cir. 2018), the Ninth Circuit held that the opposite was true and allowed a seaman to pursue punitive damages on his unseaworthiness claims.

In a prior case, Evich v. Morris, 819 F.2d 256 (9th Cir. 1987), the Ninth Circuit held that punitive damages were available under General Maritime Law for claims of unseaworthiness and for failure to pay maintenance and cure.  Dutra relied on the Fifth Circuit’s line of cases as well as the Supreme Court’s decision in Miles v. Apex Marine Corp. that Evich had been overruled.

The sole question before the Ninth Circuit in Dutra was whether punitive damages were an available remedy for unseaworthiness. While noting that the Fifth Circuit’s leading opinions in McBride are “scholarly and carefully reasoned” the Ninth Circuit found that McBride’s dissenting opinions, which argue that punitive damages are available on unseaworthiness actions, were more persuasive.  In forming its opinion, the Ninth Circuit chose to adopt a broad interpretation of the U.S. Supreme Court’s decisions in Atlantic Sounding Co. v. Townsend, 557 US 404, 129 S.Ct. 2561 (2009).

In Townsend, the Supreme Court held that punitive damages were available to Jones Act seamen for the willful failure to pay maintenance and cure. The Townsend Court held that “historically, punitive damages have been available and awarded in general maritime actions” and “nothing in Miles v. Apex Marine or the Jones Act eliminates that availability.” The Fifth Circuit in McBride interpreted Townsend to only apply to maintenance and cure. The Ninth Circuit in Dutra took a far more expansive interpretation. Relying on the Townsend Court’s notation that punitive damages had historically been available and awarded in general maritime actions, the Ninth Circuit found no persuasive reason to distinguish maintenance and cure actions from unseaworthiness actions with respect to the damages awardable. Accordingly, a seaman may bring a claim for punitive damages if he falls within the jurisdiction of the Ninth Circuit.

This decision has yielded a clear split between the Ninth Circuit and Fifth Circuit on the issue of whether punitive damages are available in an unseaworthy action. Splits in circuit courts of appeals are typically addressed by the United States Supreme Court. As such, it will ultimately fall to the highest court in the land to resolve this compelling issue.

By Tod J. Everage

Recently, the US Fifth Circuit addressed three maritime tenets in the same case: McCorpen defense, unseaworthiness, and regulatory governance. While these issues can be rather straightforward in the typical case, the facts in Thomas v. Hercules Offshore Services, LLC (5th Cir. March 2, 2018) provided an interesting review of each. The specific issues addressed in this case were: (1) whether OSHA regulations are preempted by Coast Guard regulations on an “uninspected” MODU; (2) whether a raised doorsill constituted a negligent or unseaworthy condition by creating a tripping hazard; and (3) whether a McCorpen defense can be made when the employee passed a pre-employment physical.

Plaintiff was a galley hand employed by Hercules on the HERCULES 264, a mobile offshore drilling unit (MODU). She tripped on the raised doorsill leading out of the bathroom, measuring two inches high and approximately three inches wide. Plaintiff sued in the Middle District of Louisiana alleging negligence under the Jones Act, unseaworthiness under general maritime law, and a claim for maintenance and cure benefits. Hercules began paying M&C from the date Plaintiff’s injury was reported. Hercules eventually filed two dispositive motions addressing its liability and asserting a McCorpen defense; the district court granted both motions.

The first issue on appeal was whether the MDLA erred in holding that the HERCULES 264 was an inspected vessel, such that OSHA regs were preempted by the Coast Guard CFR’s. Plaintiff insisted that the MODU was an uninspected vessel. In Chao v. Mallard Bay Drilling, 534 US 235 (2002), the US Supreme Court held that inspected vessels were governed by Coast Guard regulations, which preempt OSHA regulations; on uninspected vessels though, OSHA is not preempted. In 46 USC § 3301(1)-(15), Congress clearly set forth a list of 15 types of vessels that are deemed inspected vessels – MODUs are not on that list. Hercules argued that though the HERCULES 264 was not an inspected vessel under the statute, the Coast Guard had issued a Certificate of Compliance and a Report of Inspection for the HERCULES 264, making it an “inspected” vessel.

Hercules also argued that the Coast Guard regs preempt OSHA regs on the Outer Continental Shelf (OCS), where the HERCULES 264 was drilling. Specifically, the Coast Guard had promulgated regulations respecting the design and equipment standards for MODUs, including the construction of accommodation spaces on those units. See 46 CFR § 108.197. The regs also address design requirements of wash spaces, toilet spaces, and shower spaces. See 46 CFR § 108.205. Citing back to Mallard Bay Drilling, the 5th Circuit was persuaded by the Coast Guard’s promulgation of these regulations as an exercise of the Coast Guard’s authority sufficient to preempt OSHA regulations. Thus, the HERCULES 246 would be treated as an inspected vessel and the Coast Guard regulations would apply.

The second issue was whether the HERCULES 264 was unseaworthy for having raised doorsills, creating tripping hazards. After affirming the district court’s ruling that Plaintiff had failed to present any evidence that the raised doorsill created an unsafe condition, the Court concluded that it also did not make the HERCULES 264 unseaworthy. Notably, the design of the doorsill did not violate any applicable Coast Guard regulation. In fact, certain regulations actually called for higher doorsills than the two-inch one Plaintiff had tripped over. This fact alone was sufficient to dismiss Plaintiff’s negligence and unseaworthy claims.

The last issue addressed Hercules’s successful McCorpen defense. McCorpen is the US 5th Circuit’s longstanding shield against fraudulent claims for Maintenance and Cure. It allows a Jones Act employer to terminate its M&C obligation when the employee has willfully concealed a preexisting medical condition. The three prongs of defense are: (1) the seaman intentionally misrepresented or concealed medical facts; (2) the nondisclosed facts were material to the employer’s decision to hire the seaman; and (3) there is a link between the withheld information and the injury that is the subject of the complaint.

In her hiring process, Plaintiff filled out a medical questionnaire and underwent a pre-employment physical – which she passed with no restrictions. On her forms, she signed that she had never sustained any injury or sought medical attention for a physical problem. She also checked the boxes indicating she had never received treatment for any neck, back, or leg pain, among others. In her deposition though, she admitted to two prior car accidents which required medical treatment for neck, back, and leg pain. This satisfied the first prong of McCorpen.

Next, the 5th Circuit rejected Plaintiff’s argument that passing the pre-employment FCE negated the materiality of her concealment. The 5th Circuit has consistently held that the materiality factor is satisfied if the employer asked specific questions about the relevant pre-existing injury on its application forms. Plaintiff’s ability to perform physical tasks at the time of hiring was irrelevant. As to the third factor, the 5th Circuit found a direct link between the concealed pre-existing injuries and the injuries complained about in this case. A Jones Act employer need not prove that that the prior injuries are the sole causes of the current injuries; nor do the present injuries have to be identical. Here, Hercules showed that Plaintiff had received months of medical treatment for neck, back and leg pain after each of her previous car accidents, and reported pain in those same areas after her fall on the HERCULES 264. Therefore, the 5th Circuit affirmed the district court’s ruling on this issue as well.

Despite this finding, Plaintiff was entitled to keep the more than $44,000 she received in Maintenance benefits prior to the district court’s ruling. Though it may be difficult pre-suit, Jones Act employers should immediate begin investigating their employee’s injury claims with an eye towards supporting a McCorpen defense, if available; especially, if the potential cure exposure is significant.

By Ed Hardin

On April 2, 2018, the United States Supreme Court issued its opinion in Encino Motorcars, LLC v. Navarro.  In a 5-4 decision, the Court ruled that automobile service advisors are not entitled to overtime under the federal Fair Labor Standards Act (“FLSA”).  In the Encino Motorcars case, the Court was asked to decide whether automobile dealership service advisors were exempt from federal overtime requirements based on an FLSA exemption for salesmen, partsmen, or mechanics primarily engaged in selling or servicing automobiles, trucks, or farm implements.  The Supreme Court held that the service advisors in question were exempt employees under the FLSA.  As Fox Business reported, the decision affects more than 18,000 dealerships and more than 100,000 service advisors.  However, the case has much broader implications, well beyond automobile dealerships.  In its decision, the five justice majority stated that pursuant to “a fair reading” of the exemption in question, service advisors were exempt from overtime because the service advisors sell goods or services.  Although the Court’s specific holding is somewhat narrow (applying to automobile service advisors), how the Court arrived at the holding represents a major shift in interpretation of the U.S. Department of Labor Wage and Hour Division’s regulations on the FLSA exemptions.  For decades, exemptions from overtime requirements were narrowly construed to provide overtime coverage under the FLSA.  In the Encino Motorcars case, the Supreme Court expressly rejected a narrow construction of the exemption “as a useful guidepost for interpreting the FLSA” in favor of a fair reading.  As the Court remarked, “We have no license to give the exemption anything but a fair reading.”  The door may now be open for employers and the courts to give less restrictive readings to FLSA exemptions in favor of a more “fair reading” of those exemptions, which may in turn lead to fewer employees being entitled to overtime, but may also certainly lead to more litigation.  For more on the decision see: https://www.foxbusiness.com/markets/supreme-court-rules-for-car-dealerships-in-overtime-case or http://www.latimes.com/politics/la-na-pol-court-autos-overtime-20180402-story.html

 

 

 

By Sam Lumpkin, Rich McConnell, and Esteban Herrera 

On March 13, 2018, the US Court of Federal Claims sided with landowners seeking compensation from the US Army Corps of Engineers for increased flooding caused by the Corps’ management of the Missouri River. In Ideker Farms, Inc., et al. v. The United States, the court found that 44 initial representative plaintiffs had a basis to assert their claim for a taking without just compensation under the Fifth Amendment.

The case arises out of the Corps’ historical management of the Missouri River. In 1917, Congress adopted the Flood Control Act, which placed flood control within the responsibility of the Corps. On the Missouri River, the Corps constructed a series of levees to contain flooding, as well as a series of structures within the river to aid in flood control, including six dams at various points in the river. The Corps’ operation of these dams is governed by a Master Manual created by the Corps to interpret its statutory responsibilities and operating approach.

In 1979, the Corps’ plan for managing the Missouri River specifically provided that flood control was its first priority, and that fish and wildlife were the last priority. According to the US Fish and Wildlife Service (which plainly had a different order of priorities), the construction of river control structures altered the river and harmed wildlife in the Missouri River Basin. To mitigate these harms, in 1986 Congress authorized creation of a project to address the damage, including reconnecting the river to its floodplain and creating and restoring habitat areas. This strategy (and funding) became part of the Corps’ overall program in the Missouri River Basin, and was re-authorized and expanded in 1999 and 2003. But the Corps’ Master Manual continually provided that the Corps’ first priority was flood protection.

Throughout this time, the Corps was repeatedly sued by states and environmental groups in attempts to force the Corps to change its management of the river. And the Fish and Wildlife Service consistently pressured the Corps to take additional steps to protect the Missouri River Basin ecosystem, in part through its authority under the Endangered Species Act. The Corps resisted the suggested steps because of its concern about the effect on flooding, but in 2004 the Corps was finally ordered to revise its 1979 Master Manual to comply with its obligations to the Fish and Wildlife Service to ensure protection of certain species, and to implement changes consistent with prior recommendations of that agency. It did so the same year.

Following the changes to its Master Manual in 2004 the Corps made changes to its operation of the flood control system, including keeping a larger amount of water in reservoirs to benefit fish and wildlife, and to begin releasing water in such a way as to promote more varied river stages. But the consequence of some changes was to destabilize the banks of the river and increase the potential for flooding. These risks became reality from 2007 to 2014, which the court found included some of the worst flooding years in the river’s history. This suit arose from the worst flooding of those years.

In its 259-page ruling with detailed factual findings, the court addressed three threshold issues: causation, foreseeability, and severity. First, the court found that because the Corps’ series of actions were all taken for a single purpose, the collective changes to the Corps’ management of the Missouri River could all be considered a single act in determining causation of the flooding. As to foreseeability, the court required that the plaintiffs must prove the flooding was the “direct, natural, or probable result” of the Corps’ actions, judged on an objective basis. As a result, if the Corps would have foreseen the consequences of its changed management by conducting a reasonable investigation, the flooding could be considered foreseeable. Finally, the court found that a plaintiff could establish that the flooding was severe enough to constitute a taking if the flooding would deprive them of the ordinary use of their property.

Ultimately, the court made findings on the evidence presented by each of the representative plaintiffs on these three points – causation, foreseeability, and severity – accepting some claims and rejecting others. Some claims will move forward to the next phase of the case, where the court will rule on any defenses to the plaintiffs’ claims, as well as any other issues related to proving entitlement to just compensation for the alleged taking. But so far, this case shows a pathway for other plaintiffs who may seek to hold the Corps responsible for flooding related to the Corps’ river management decisions. This case arose due to the Corps’ management of the Missouri River in particular, with a lengthy history of debate over appropriate flood control strategies, but similar circumstances could benefit from a roadmap to claims against the Corps. On the Mississippi River, for example, the Corps has also been responsible for flood protection and maintains a series of levees and river control structures to manage sediment and water levels throughout the year. And the Corps has also been involved for decades in regulation of wetlands, navigation, and coastal activities, with its decisions having ramifications on the effects of land loss in the present day. Those decisions will likely face increasing scrutiny in the near future.

https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2014cv0183-426-0

By Tokesha Collins-Wright

On December 7, 2017, the Environmental Protection Agency (“EPA”) released a memorandum entitled, “New Source Review Preconstruction Permitting Requirements: Enforceability and Use of the Actual-to-Projected-Actual Applicability Test in Determining Major Modification Applicability.”[1] In the NSR memo, EPA announced its intention to drop its long-standing position that the Agency can use its own projections of a facility’s potential future emissions in order to determine whether a major source’s proposed modification triggers Clean Air Act (“CAA”) New Source Review (“NSR”) requirements. Instead, EPA states that now “when a source owner or operator performs a pre-project NSR applicability analysis in accordance with the calculation procedures in the regulations, and follows the applicable recordkeeping and notification requirements in the regulations, [then] that owner or operator has met the pre-project source obligations of the regulations, unless there is clear error (e.g. the source applies the wrong significance threshold).”[2] EPA continues on by stating that the Agency “does not intend to substitute its judgement [sic] for that of the owner or operator by ‘second guessing’ the owner or operator’s emissions projections.”[3] In other words, EPA will now defer to owners and operators’ pre-project NSR applicability analysis as to whether NSR applies to their proposed modification projects. EPA will step in only if there is “clear error” in this analysis.

The NSR memo further indicates that, in cases where a source projects that emissions increases will be less than the NSR thresholds, EPA will focus only on the source’s post-project actual emissions in determining whether to pursue an enforcement action.[4] This means that, even though pertinent case law has confirmed EPA’s authority to pursue NSR enforcement actions based upon a source’s failure either to perform a required pre-project applicability analysis or to correctly follow the calculation requirements of the NSR regulations,[5] EPA now does not intend to pursue new enforcement cases in the absence of actual post-project emission increases that would have triggered NSR requirements.

EPA states that this memo is intended to resolve any “uncertainty” caused by recent appellate court decisions in NSR enforcement proceedings.[6] In fact, this memo is evidence that EPA has changed its stance from the one it previously took in the aforementioned NSR enforcement proceedings. In U.S. v. DTE Energy Co., 711 F.3d 643 (6th Cir. 2013) and U.S. v. DTE Energy Co., 845 F.3d 735 (6th Cir. 2017), Detroit Edison (“DTE”) began modification of a unit, after determining that the project would not trigger NSR requirements. After investigating DTE’s projections, EPA filed an enforcement action, challenging DTE’s NSR calculations and insisting that DTE should have secured a preconstruction permit. After much litigation and back-and-forth, the Sixth Circuit ultimately held that DTE was subject to enforcement for failure to comply with NSR pre-construction requirements, regardless of what actual post-construction emissions data later showed.[7] The Court found that:

…actual post-construction emissions have no bearing on the question of whether DTE’s preconstruction projections complied with the regulations.… [T]he applicability of NSR must be determined before construction commences and [] liability can attach if an operator proceeds to construction without complying with the preconstruction requirements in the regulations. Post-construction emissions data cannot prevent the EPA from challenging DTE’s failure to comply with NSR’s preconstruction requirements.[8]

On July 31, 2017, DTE filed a petition for writ of certiorari with the Supreme Court, challenging the Sixth Circuit’s ruling. On December 11, 2017, the Supreme Court denied the writ, which upholds the Sixth Circuit’s ruling (and the older EPA position) that actual post-construction emissions data does not prevent EPA from challenging a source’s failure to comply with NSR’s preconstruction requirements.

In the NSR memo, EPA states that the guidance document is not legally binding and is not legally enforceable. EPA also notes that, in the CAA scheme of cooperative federalism, state NSR programs may be more stringent than the federal program and states have primacy over the program once approved by EPA. Environmental groups have denounced EPA’s new stance on NSR permitting requirements, announcing that they may consider challenging EPA’s action in issuing the memo in court.[9]

For any owner or operator that intends to rely on the NSR memo to guide future NSR permitting decisions, please keep in mind that, regardless of the memo, citizens could still bring citizen suits for perceived NSR violations if EPA declines to do so. As such, any pre-project NSR applicability analysis should be well-documented and supported and owner/operators should follow the applicable recordkeeping and notification requirements set forth in the CAA regulations.

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[1] A copy of the memorandum is available at https://www.epa.gov/sites/production/files/2017-12/documents/nsr_policy_memo.12.7.17.pdf.

[2] Id. at p. 8.

[3] Id.

[4] See id.

[5] See U.S. v. DTE Energy Co., 711 F.3d 643 (6th Cir. 2013) (“DTE I”); U.S. v. DTE Energy Co., 845 F.3d 735 (6th Cir. 2017), cert. denied, No. 17-170, 2017 WL 3324982 (U.S. Dec. 11, 2017) (”DTE II”).

[6] NSR Memo, at p. 1.

[7] DTE II, 845 F.3d at 741.

[8] DTE II, 845 F.3d at 741 (internal citations omitted).

[9] See, e.g., https://www.nrdc.org/experts/john-walke/trump-epa-abdicates-law-enforcement-gives-polluters-amnesty.

By Erin L. Kilgore

It’s been a busy end of February.  For employers, the past two weeks have included several notable decisions:

Dodd-Frank Does Not Protect In-House Whistleblowers

Last Wednesday, on February 21, 2018, the United States Supreme Court unanimously held that the anti-retaliation provision of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) does not apply to employees who report alleged violations internally.  Relying on the plain language of Dodd-Frank’s definition of “whistleblower,” the Supreme Court found that the statute’s whistleblower protections extend only to those employees who report suspected securities law violations externally, directly to the Securities and Exchange Commission (“SEC”).  Thus, employees who allege that adverse action was taken against them because they reported fraud in-house, such as to a supervisor  – but not to the SEC – are outside the scope of Dodd-Frank and are not protected from retaliation under that statute.

Instead, those alleged whistleblowers must avail themselves of the anti-retaliation provision of Sarbanes Oxley Act, which covers employees who report fraud to outlets including the SEC, other federal agencies, or a supervisor, but includes pre-suit requirements for exhaustion of administrative remedies, a shorter statute of limitations period within which to file suit, and different damages available to a prevailing plaintiff.

Additional information about the Supreme Court’s decision can be found here.  

The NLRB’s Browning-Ferris Joint Employer Standard is Back

On Monday, February 26, the National Labor Relations Board (“NLRB”) reinstated its prior expansive standard for joint-employer liability, previously announced in Browning-Ferris Industries, 362 NLRB Bo. 186 (2015).   In doing so, the Board threw-out its December 2017 decision, Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co., 365 NLRB No. 156 (2017).

In Hy-Brand, the NLRB reinstated a previous test that said companies are “joint employers” only when they exercise direct control over workers.  According to the NLRB’s press release  in the wake of Hy-Brand, “two or more entities will be deemed joint employers under the National Labor Relations Act (NLRA) if there is proof that one entity has exercised control over essential employment terms of another entity’s employees (rather than merely having reserved the right to exercise control) and has done so directly and immediately (rather than indirectly) in a manner that is not limited and routine.”   Businesses welcomed that standard for joint employer liability, but it was short-lived.

Hy-Brand was decided by a 3-2 vote.  But, it was determined that one of the voting members had a conflict of interest because his law firm, prior to his joining the NLRB, had represented one of the companies in the Browning-Ferris case. The NLRB’s Designated Agency Ethics Official determined that member was, and should have been, disqualified from participating in the Hy-Brand proceeding.   Consequently, on February 26, the NLRB issued an Order vacating the Hy-Brand decision.  As explained in the Board’s press release, “Because the Board’s Decision and Order in Hy-Brand has been vacated, the overruling of the Board’s decision in Browning-Ferris Industries, 362 NLRB No. 186 (2015), set forth therein is of no force or effect.”

Consequently, the Browning-Ferris standard is back in effect, and two or more entities are joint employers of a single workforce if:  (1) they are both employers within the meaning of the common law;  and (2) they share or co-determine matters governing the essential terms and conditions of employment.  In assessing  whether an employer possesses sufficient control over employees to qualify as a “joint employer,” the NLRB will (among other factors) evaluate whether an employer has exercised control over the terms and conditions of employment indirectly through an intermediary or whether it reserved the authority to do so.

Additional information can be found here and here.

Title VII Prohibits Discrimination Based on Sexual Orientation, Says the Second Circuit

Also on Monday, February 26, the Second Circuit Court of Appeal (the federal appellate court with jurisdiction over courts in Connecticut, New York, and Vermont) ruled that terminating an employee because of his sexual orientation is unlawful sex discrimination under Title VII of the Civil Rights Act of 1964.

Title VII prohibits workplace discrimination on the basis of several prohibited characteristics, including “sex.”   On Monday, the Second Circuit held that sexual orientation discrimination falls within the scope of unlawful sex discrimination under Title VII, concluding that “sexual orientation discrimination is motivated, at least in part, by sex and thus is a subset of sex discrimination.”

The Second Circuit now joins the Seventh Circuit as the two Courts of Appeal to find that Title VII bars employment discrimination based on sexual orientation.

Employers should stay tuned as standards, laws, and interpretations continue to evolve.  Although the law has been, and shows signs of continuing to be, fluid under this Administration, employers must remain vigilant to ensure that their workplace policies and practices remain current and compliant with applicable law.