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BUSINESS LAW ‘Bad faith’ unnecessary for breach of good faith Breach of the implied covenant of good faith and fair dealing does not require proof of “bad faith,” and the “new business rule” does not preclude an award of damages to an enterprise that has never turned a profit, the 10th U.S. Circuit Court of Appeals held on Nov. 2. The circuit court applied Delaware law to two issues never previously addressed by the Delaware Supreme Court. O’Tool v. Genmar Holdings Inc., No. 033094. A large recreational boat manufacturer, Genmar Holdings, and the as-yet-unprofitable Horizon Marine, made a contract whereby Genmar bought Horizon with cash and “earn-out consideration.” Genmar executives promised that Horizon boats would be the “champion” of the facility. But Genmar quickly made its own brand boats the facility’s priority. Horizon sued, alleging, under Delaware law, breach of contract and breach of implied covenant of good faith and fair dealing. A Kansas federal court ruled that a breach of the implied covenant of good faith was possible without a finding that Genmar had acted in bad faith. The 10th Circuit affirmed, predicting that the Delaware Supreme Court would not apply the “fraud, deceit or misrepresentation” standard of bad faith to a breach of implied covenant claim in the context of a commercial contract dispute. Genmar also espoused the “new business rule,” which prohibits a plaintiff from recovering lost profits for an enterprise- such as Horizon-that had never been profitable. The court predicted Delaware would follow the majority trend, rejecting strict application of that rule. Full text of the decision CIVIL PRACTICE Federal court can’t judge abortion law challenge An abortion provider lacks standing to sue public officials for relief from a statute that makes providers liable for certain costs relating to abortions on minors when parental consent is absent, the 10th U.S. Circuit Court of Appeals held on Nov. 3. Nova Health Systems v. Gandy, No. 02-5094. Nova Health Services, an abortion provider, sued to challenge an Oklahoma law that makes abortion providers liable for any medical costs that may arise from an abortion performed on a minor without parental consent or knowledge. Nova sought injunctive and declaratory relief against various officials who oversee certain public health care facilities, none of whom had as yet sought to recover any costs from Nova under the law. An Oklahoma federal court granted the relief, ruling that the statute imposed an unconstitutional burden on a woman’s ability to obtain an abortion and was excessively vague. The 10th Circuit vacated, holding that Nova lacked standing to bring the suit because it had not shown that the injury it may have suffered due to the statute was caused by the defendants, nor that it would be redressed by a judgment against them. Due to the lack of a genuine case or controversy between the parties, the circuit court held that it is not constitutionally permissible for the federal courts to decide these issues. Full text of the decision No sanctions if there is no finding of bad faith Reversing an award of attorney fees, the Oklahoma Supreme Court determined on Nov. 2 that a finding of bad faith or oppressive conduct on the part of a sanctioned party was necessary for such an award. Walker v. Ferguson, No. 98837. In a negligence action against Floyd Wayne Ferguson, who was alleged to be intoxicated at the time of an auto accident, the trial judge declared a mistrial after the plaintiffs’ attorney referred in his opening statement to the defendant’s subsequent driving under the influence arrest and guilty plea, which had occurred after the date of the accident. The judge sanctioned the plaintiffs, awarding partial attorney fees to the defendant. The plaintiff’s attorney appealed. The Oklahoma Supreme Court reversed, finding that neither the order for sanctions nor the order for partial attorney fees contained any finding of bad faith or oppressive conduct on the part of the plaintiff’s attorney-a finding necessary for an award of fees as a sanction. Full text of the decision CRIMINAL PRACTICE Sentence must be based on drug total expected Where federal postal inspectors removed most of a quantity of cocaine before it was delivered to its intended recipient, a district court erred in basing the recipient’s sentence only on the amount he possessed rather than on the entire amount he was expecting to receive, the 4th U.S. Circuit Court of Appeals held on Nov. 2 in an apparent case of first impression. United States v. Fullilove, No. 04-4032. Federal postal inspectors in South Carolina discovered a package containing 26.71 grams of cocaine base. Law enforcement then conducted a sting operation, removing all but 0.37 grams of the cocaine, and replacing it with a transmitter that would signal when the package was opened. After receiving the package and opening it, Steve Fullilove was arrested and convicted of possession with intent to distribute “a quantity of cocaine base.” The government argued that his sentence should be based on the entire 26.71 grams shipped, which, based on his criminal history, would have resulted in a sentence of between 130 and 162 months. The district court rejected the government’s argument, and sentenced Fullilove to 30 months, based on the 0.37 grams he actually possessed. The reasoning was that no evidence connected Fullilove to the mailing of the package. The government appealed. The 4th Circuit reversed, holding that because Fullilove was expecting the entire package and because he planned to distribute its entire contents, he was “directly involved” with the entire amount under the sentencing guidelines. Full text of the decision EMPLOYMENT Latex liability exists only for allergic-reaction days A nursing home worker with a latex allergy was entitled to compensation only for the two days she experienced symptoms because there was no evidence that the allergy was a gradual injury attributable to her nursing home work, the Maine Supreme Court held on Nov. 3. Sanders v. Seaside Nursing Home, No. 02-56943. After sustaining an allergic reaction to latex in the past, nursing home employee Anna Sanders experienced an allergic reaction to latex while working at Maine’s Seaside Nursing Home. She returned to work two days later, but returned home to allow Seaside to retain a latex allergy specialist to ensure the safety of the workplace. The specialist advised Seaside not to have Sanders return to work before the replacement of its carpets. Stating that such replacement would take several months and that it could not keep Sanders’ position open for that long, Seaside terminated Sanders. Sanders was awarded workers’ compensation after a finding that her allergic reaction was a compensable aggravation of her previous latex allergy. Seaside appealed, arguing that its liability ended when the symptoms disappeared after two days. The Maine Supreme Court reversed, holding that Sanders was entitled only to compensation for the two days. The court ruled that her allergy was not a gradual injury caused by her work. The court said, “Because there is no finding that Sanders had a gradual injury, or that her employment at Seaside exacerbated a gradual injury, it was error for the hearing officer to order the payment of benefits beyond the point that her condition returned to baseline.” Full text of the decision ENVIRONMENTAL LAW Groups can sue city over pollutant discharge The American Canoe Association and the Sierra Club have standing to sue a local water and sewer commission for allegedly failing to meet the requirements of its National Pollutant Discharge Elimination System permit issued pursuant to the Clean Water Act, the 6th U.S. Circuit Court of Appeals ruled on Nov. 1. American Canoe Association Inc. v. City of Louisa Water & Sewer Comm’n, No. 02-6018. Louisa, Ky.’s water and sewer commission held a discharge permit, allowing it to discharge certain amounts of pollutants into the Levisa Fork of the Big Sandy River. The American Canoe Association and the Sierra Club sued, claiming that the governmental entities were not honoring the monitoring and reporting requirements that went along with the permit. The district court dismissed the case for lack of standing. The 6th Circuit reversed, holding that the Sierra Club has representational standing because it can establish through affidavits that at least some of its members would have standing to sue in their own right. The plaintiffs also have informational standing because their organizational missions are stymied by their inability to get information the defendants are supposed to release. Full text of the decision HEALTH LAW Statute of limitations on COBRA claim two years The statute of limitations for a claim under the Consolidated Omnibus Budget Reconciliation Act (COBRA) is two years, the 5th U.S. Circuit Court of Appeals held on Nov. 2. Lopez v. Premium Auto Acceptance Corp., No. 03-11264. In 1997, Premium Auto Acceptance Corp. terminated employee Gloria Gutierrez three days after she returned from surgery for lung cancer. Premium failed to notify her that she could continue insurance coverage under an employee benefit plan, so her insurance ended 30 days after termination. She died a year later, incurring $33,000 of medical bills. Her daughter, June Lopez, requested reimbursement for some of her mother’s medical bills. When the employer refused, she sued under COBRA for failure to notify her mother of her entitlement to continued insurance coverage. A Texas federal court ruled that the claims were barred by the statute of limitations. The 5th Circuit affirmed, holding that since COBRA does not specify a statute of limitations, the unfair insurance practices section of the Texas Insurance Code, Texas Ins. Code art. 21.21 � 16(d)-which allows insureds to bring a claim of unfair insurance practices against insurers who fail “to disclose any matter required by law to be disclosed”-provides the closest state law analog to Lopez’s federal claim. The statute of limitations on this provision is two years. Lopez’s claim, filed five years after the cause of action accrued, was therefore untimely. Full text of the decision NATIVE AMERICAN LAW Tribal police can display lights on nontribal roads A district court erred in granting summary judgment to a California county and its sheriff in a suit brought by an American Indian tribe challenging the county’s ticketing of tribal law enforcement for displaying police lights on non-tribal roads. The county’s application of the California Vehicle Code was discriminatory, the 9th U.S. Circuit Court of Appeals held on Nov. 3. Cabazon Band of Mission Indians v. Smith, No. 02-56943. The Cabazon Band of Mission Indians has a reservation comprised of four noncontiguous sections of land in Riverside County, Calif. When tribal law enforcement officers traveled on nontribal public roads between the different sections of the reservation, county law enforcement ticketed them for displaying police lights in violation of the California Vehicle Code. The tribe sued the county and its sheriff, seeking a declaration that when on official business, tribal law enforcement could display police lights on nontribal roads. After a district court denied the tribe’s summary judgment motion and a 9th Circuit panel affirmed, the Bureau of Indian Affairs (BIA) deputized the tribe’s law enforcement officers as federal agents. The 9th Circuit remanded the case to the district court in light of the officers’ new status. The district court granted summary judgment to the county, holding that the officers’ new status did not make their vehicles “authorized emergency vehicles” under the vehicle code, and that a BIA requirement that tribal police have police lights was not a federal law pre-empting state law. The 9th Circuit reversed, noting that the county allowed out-of-state law enforcement to display police lights, and holding that the county’s actions were a discriminatory application of state law. The court said, “Prohibiting the Tribe’s police vehicles from simply displaying emergency light bars while permitting similarly situated law enforcement agencies much wider latitude to display and to use such bars discriminates against the Tribe and unduly burdens its ability to effectively perform on-reservation law enforcement functions.” Full text of the decision TORTS Bad-credentialing claims fall under med-mal law A claim against a hospital for negligent credentialing is a claim against a health care provider and is governed by the medical malpractice statute, the Texas Supreme Court ruled on Nov. 5. Garland Community Hospital v. Rose, No. 02-0902. Dr. James Fowler performed various cosmetic surgeries on Debi Rose in 1998 and 1999 at Garland Community Hospital. Claiming that the surgeries left her with scarring and permanent injuries, Rose sued the hospital for negligence in credentialing Fowler. Rose submitted an expert’s report in support of her claim, but the trial court granted the hospital’s motion to dismiss, ruling that the report was insufficient under the Medical Liability and Insurance Improvement Act. An appeals court reversed, saying that a claim for negligent credentialing is not a health care liability claim. The Texas Supreme Court reversed, remanding the case to the appeals court for a re-evaluation of the expert’s report under the act. Rose’s claims are health care liability claims because they involve claimed departures from accepted standards of health care. The court rejected the argument that the claim was not health care-related because the hospital’s credentialing occurred before Rose became a patient. Physician credentialing is an ongoing continuous process, not a series of discrete events, the court said. Full text of the decision WORKERS’ COMPENSATION Gradual injury pay isn’t based on last day’s work Where an employee has given notice of a gradually occurring injury, her workers’ compensation benefits should be calculated according to the rate of pay applicable at that time, rather than according to the rate on her last day worked, the Tennessee Supreme Court ruled on Nov. 2. Bone v. Saturn Corp., No. M2004-00195-SC-R3-CV. On Feb. 7, 1997, Denise Bone notified her employer, Saturn Corp., that she had recently been diagnosed with tennis elbow. Bone continued working her assembly line job until March 2002, when she filed for permanent partial disability workers’ compensation benefits. The trial court awarded her benefits, setting the date of injury as the last day Bone worked and calculated the amount of benefits based on the weekly rate of pay she was receiving at that time. Saturn appealed, saying the award should have been based on Bone’s lesser rate of pay as of the date she reported the injury. The Tennessee Supreme Court reversed, ruling that when an employee has given the employer actual notice of the gradually occurring injury prior to missing work due to that injury, that date should be used to calculate benefits instead of the last day worked. The last-day-worked rules applies only when the date of such an injury cannot be readily ascertained. Full text of the decision

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