Thursday, July 10, 2014

Auto Repair Shop Antitrust Actions May Be Consolidated into Multidistrict Litigation

By James M. Burns

Over the course of the last several months, auto body repair shops in five states (Florida, Mississippi, Indiana, Utah and Tennessee) filed antitrust actions against a collection of auto insurers, alleging that the insurers’ direct repair programs violate the antitrust laws. In each case, the plaintiffs alleged that the manner in which the insurers set reimbursement rates for covered repairs artificially depressed the compensation plaintiffs received for their services, and that the insurers also “steered” insureds away from plaintiffs’ businesses to those shops that are participants in the insurers’ direct repair programs.

With all of the cases having been filed by the same Jackson, Mississippi attorney, it was not particularly surprising that, in late May, plaintiffs filed a motion with the Judicial Panel on Multidistrict Litigation seeking to have the cases consolidated and transferred to the Southern District of Mississippi. In support of the request, the plaintiffs noted that the first filed case (Capitol Body Shop v. State Farm Mutual Automobile Insurance) was filed in Mississippi, that the actions all involve “common questions of fact,” and that transfer would “serve the convenience of the parties and witnesses.” Plaintiffs also noted in their motion that “all of the actions are at the same early stage of litigation.”

In June, the insurers filed oppositions to plaintiffs’ request, contending that “while the general theory of liability alleged in each case is the same, the factual allegations underlying each plaintiff’s claims are highly individualized.” The insurers also noted that plaintiffs’ assertion that the cases are all at the same, early stage of litigation was no longer correct, because, subsequent to plaintiffs’ filing of their motion, the court in the Florida action (A&E Auto Body v. 21st Century Centennial Insurance Co.) dismissed plaintiffs’ claims, albeit with leave to amend, finding that plaintiffs’ complaint lacked the necessary factual detail required for plaintiffs’ claims. Perhaps not surprisingly, the insurers also maintained that if the Judicial Panel does consolidate the cases, they should be transferred to the Middle District of Florida, before the judge presiding in the A&E Auto Body case, because it is the “most procedurally advanced case.”

On June 16, the Judicial Panel set plaintiffs’ motion for oral argument on July 31. In the interim, however, the defendants have filed motions to dismiss the Mississippi case, arguing that the allegations in that complaint, like the allegations in the Florida case, are similarly insufficient as a matter of law. While that motion is unlikely to be decided prior to the Judicial Panel’s ruling on the motion for consolidation and transfer, it could have an impact on the Panel’s decision whether to consolidate the cases, and where. The matter is clearly one to watch going forward.

Friday, June 27, 2014

Heads Up: Canada’s Anti-Spam Legislation (CASL) Takes Effect on July 1st

By Wendy G. Hulton

Once CASL takes effect, you will need express or implied consent before you (or your franchisees) can send a commercial electronic message (CEM). While franchisors are well aware of the pending impact of CASL and have been diligently ensuring that their organizations are ready, the bigger question that looms on the horizon is what are they doing to help their franchisees understand and comply with CASL’s requirements. Franchisors will typically be able to rely on implied consent under the B2B CASL provisions to communicate electronically with their franchisees. The bigger concern will be the B2C communications between franchisees and consumers. There is a lot of information on CASL available and while seemingly straightforward, the actual implementation for both franchisors and franchisees may prove to be more difficult. Ask yourself:

1. Do your franchisees send CEMs?

2. Do you know whether they are aware that they need to have consent to send CEMs?

3. Do you know whether they understand the difference between implied or express consent to send CEMs?

4. Do their CEMs satisfy the CASL content requirements?

5. Do they know that the consents need to be recorded, in case they have to prove they had consent to send a CEM?

6. Do you know if they have an unsubscribe mechanism for their CEMs?

Enforcement of CASL will be undertaken jointly by three regulators: the Canadian Radio-Television Commission, the Competition Bureau and the Office of the Privacy Commissioner. These enforcing bodies will have authority to impose a wide variety of sanctions on individuals and businesses that contravene CASL. While the regulators will probably be lenient initially, individuals may be fined up to $1,000,000 per violation and corporations may be fined up to $10,000,000 per violation. CASL also creates a private right of action that takes effect in 2017 that permits an individual to take civil action against anyone who violates CASL. If your franchisees are not prepared for CASL, it is not the risk of significant fines that you should be worried about, but rather the potential backlash through social media.

Thursday, June 19, 2014

The U.S. Supreme Court Holds That Inherited IRAs are not Exempt in Bankruptcy

By Eric Gregory

On June 12, 2014, the United States Supreme Court unanimously held in Clark v. Rameker Trustee that funds in an individual retirement account (“IRA”) inherited from someone other than the bankrupt debtor’s spouse are not “retirement funds” within the meaning of the United States Bankruptcy Code and are, therefore, available to pay creditors of the debtor-heir.

Background

Under the Bankruptcy Code, certain retirement plans are designated as “excluded” from the bankruptcy estate, which means that individuals can keep them. These include “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under Section […] 408 of the Internal Revenue Code.” Internal Revenue Code section 408 relates to IRAs.

Clark Case

The issue in Clark was whether the debtor could protect her mother’s IRA that she had inherited upon her mother’s death. The Internal Revenue Code treats IRAs inherited from a non-spouse differently from IRAs inherited from a spouse.

Justice Sonia Sotomayor, writing for the Supreme Court, upheld a 7th Circuit Court of Appeals decision, holding that the change in status of the account to a non-spouse inherited IRA makes it less like a “retirement fund” and more like a pool of money that could be used for any purpose. In summary, there was nothing preventing an individual who has emerged from bankruptcy from using the IRA assets “on a vacation home or a sports car immediately after the bankruptcy proceedings are complete.”

Inherited IRAs lack many attributes common in retirement accounts. For example, the beneficiary of an inherited IRA is prohibited from rolling funds over to their own IRA and from adding their own funds to the IRA.

Takeaway

This holding creates the risk that IRA money left to heirs will not be protected from creditors if the beneficiaries have financial difficulty.

It is important to remember that inherited IRAs may be subject to claims in non-bankruptcy proceedings as well. Under laws in states like Arizona, Texas and Florida, inherited IRAs are specifically protected from creditors. Most states, however, are silent on this issue.

Thursday, May 22, 2014

Cyber-Coverage: Clarity or Confusion

By Autumn L. Gentry

As the number of data breaches and disclosure of personally identifiable information (“PII”) increases, courts are being asked to decide whether such claims for data breach and disclosure of PII are covered by traditional commercial general liability (CGL) policies. Most often, companies who have only traditional CGL policies, argue that such claims should fall under their policies’ coverage for “personal and advertising injury,” which is typically defined as injuries arising out of the oral or written publication of material that violates a person’s right of privacy.

Sony made this same argument in the recent case of Zurich American Insurance v. Sony Corporation of America. Sony argued that coverage for a consumer class action filed against Sony for a 2011 data breach of Sony’s Playstation network should fall under its CGL policy’s coverage for “personal and advertising injury” which included the typical definition. A New York trial judge disagreed, finding that the definition required “some kind of act or conduct by the policyholder in order for coverage to be present.” Because the data breach was committed by third-party hackers who broke into Sony’s security system, rather than by an “act or conduct perpetuated by Sony,” the trial court held that the policy did not provide coverage for the data breach claims against Sony.

Courts in other jurisdictions have held otherwise, finding that coverage under a CGL policy extended to claims for data breach and disclosure of PII based upon each policy’s definition of “personal injury.” See e.g. Netscape Communications Corp. v. Federal Ins. Co., 343 Fed.Appx. 271 (9th Cir. 2009); Tamm v. Hartford Fire Ins. Co., 16 Mass.L.Rptr. 535, 2003 Mass. Super. LEXIS 214 (Mass. Super. Ct. 2003).

In response to the rising number of claims for data breach and cyber coverage being filed, Insurance Services Offices, Inc. (ISO) filed in many jurisdictions a new set of exclusionary endorsements. These exclusionary endorsements, which effect provisions under a CGL’s policy for “Bodily Injury and Property Damage” (Coverage A) and “Personal and Advertising Injury Liability” (Coverage B), are scheduled to take effect this month.

Insurers who issue these exclusionary endorsements will likely argue that these provisions apply to and, therefore, exclude coverage for any cyber liability or data breach claims. However, insurers will have to prove that they do so. If insurers do not issue these exclusionary endorsements, policyholders will likely argue that their traditional CGL policies cover such claims; otherwise their insurers would have issued the exclusionary endorsements based upon the ISO’s guidance. Only time will tell how the varying jurisdictions will decide these issues.

 

Thursday, May 8, 2014

Indiana Auto Repair Shops Bring Antitrust Action Against Auto Insurers




An Indiana trade association of auto repair shops, together with a group of its members, have filed an antitrust action against over twenty five auto insurers in Indiana, alleging that the insurers’ direct repair programs violate the antitrust laws by artificially depressing repair rates for the services plaintiffs offer and by “steering” insureds away from plaintiffs’ businesses. The action, Indiana AutoBody Association v. State Farm Mutual Automobile Insurance, was commenced on April 2 in the United States District Court for the Southern District of Indiana. Notably, the case follows a similar action filed by a collection of Florida repair shops against many of the same insurers only two months ago, including State Farm, entitled A & E Auto Body v. 21st Century Centennial Insurance.

As in the Florida case, the Indiana plaintiffs allege that State Farm’s vendor agreement requires shops that desire to participate in its direct repair program to accept the “market rate” for such services, and that State Farm calculates the “market rate” in a manner that keeps them artificially low and not representative of the “true” market rate. Plaintiffs also allege that the other insurer defendants have all advised plaintiffs that they will pay no more than State Farm pays for their services. As in the Florida case, plaintiffs allege that the defendants’ conduct constitutes a conspiracy to restrain their repair rates, in violation of Section 1 of the Sherman Act, and that the alleged “steering” conduct constitutes an unlawful “group boycott” of plaintiffs’ services. The defendant insurers have not yet responded to plaintiffs’ complaint.

Meanwhile, in the Florida action, on March 26 the insurers filed a motion seeking to have plaintiffs’ antitrust claims dismissed for failure to state a claim. They maintain that the Florida shops have not adequately alleged any anticompetitive agreement, and have at most alleged “consciously parallel” conduct by the defendants, insufficient to plead conspiracy under the Supreme Court’s Twombly decision. Specifically, the insurers assert that “plaintiffs’ core allegation is simply the self-defeating generalization that after State Farm, the purported market leader, ‘unilaterally’ adopted a price structure for labor rates, the other defendants asked plaintiffs to give them the same prices given to State Farm. Following a price leader, however, does not suffice to prove the existence of agreement.” As to plaintiffs’ boycott claim, the insurers maintain that “not only have [plaintiffs] failed properly to allege concerted action, but do not allege that any defendant cut off business from any plaintiff or refused to reimburse insureds who patronized a plaintiff, much less that all defendants refused to deal with any particular body shop.”

Plaintiffs filed a response to the defendants’ motion on April 17, contending that defendants’ motions fail because they do not acknowledge other allegations in the plaintiffs’ complaint, and that in any event dismissal of their claims at this juncture, prior to discovery, would be premature. The Court has not yet ruled on the insurers’ motion.

Turning back to Indiana, given the similarity between the two cases, the defendants in Indiana are likely to file a motion similar to the motion filed in Florida, seeking to have that case dismissed as well. As we move into the summer, both matters are now “cases to watch” for the auto insurance industry. Stay tuned.

Wednesday, April 9, 2014

Significant Changes Made by ROC to its Complaint and Hearing Process

By J. Gregory Cahill

For the last 25 years, the Arizona Registrar of Contractors’ enforcement procedures have been best described as “complainant driven.” That is, the ROC typically deferred to the claimant (usually a homeowner) as to whether a citation should be issued (even if the agency’s own investigation found the complaint to be without merit) as well as whether to request a formal hearing. The ROC was less a regulator and more a referee between the complainant and the contractor.

Under the ROC’s new procedures, instituted in late 2013, citations will not be issued solely at the request of the person filing the complaint. Rather, the ROC will first determine whether the evidence provided by the complainant and gathered by the ROC investigator supports a finding that there has likely been a substantial violation of law by the contractor. This procedure will place the ROC in line with other regulatory agencies both inside and outside Arizona. It will also likely result in fewer citations being issued. The intent of these changes is to allow the ROC to focus its regulatory efforts on “problem contractors” rather than on minor violations of law.

The ROC investigators are now charged with gathering all facts and making an initial determination as to whether the allegations in the complaint are substantiated. If the investigation reveals no substantial violations of law, the investigator will close the file with no further action. Notably, the complainant will have no recourse if the ROC determines that there has been no substantial violation of law.

If however, the investigator determines that there is a substantial violation of law, the ROC will have the option as to what type of discipline to pursue. Under its new graduated disciplinary scheme, if the ROC determines that there has likely been a substantial violation of law, it can choose to issue: (1) a Letter of Concern, (2) a Written Directive or (3) a Citation.

A Letter of Concern is a written warning that advises the contractor of the ROC’s concerns and that the case is closed. In its warning, the ROC can also inform the contractors that it reserves the right to reopen the matter or that it may use it as an aggravating factor in the event of future complaints. A Letter of Concern is not considered discipline and, therefore, the contractor has no right to seek a hearing on the appropriateness of its issuance.

A Written Directive is similar to the old “Corrective Work Order.” In the directive, the ROC instructs the contractor to address or rectify a claimed deficiency. The matter remains open until the ROC determines that the contractor has complied with the directive. If the contractor complies, the case is closed. If not, the ROC may proceed to issue a citation.

A Citation involves a formal complaint by the ROC charging the contractor with a substantial violation of law and the matter is referred to an Administrative Hearing. The ROC is the named complainant and it has the burden to prove the alleged violation of law. Prosecution is performed by the Arizona Attorney General’s office. In response, the contractor can choose to defend the claim or, alternatively, request a settlement conference to attempt to resolve the matter.

These changes make it even more imperative that a contractor provide the ROC with its position on the claim, preferably in writing. Contractors need to prepare to aggressively defend any claim at the outset.

Wednesday, February 5, 2014

Inside the World of Trademarks with John Blattner

John Blattner knows brands for a living. In particular, he knows what is trademarked, what can be trademarked, and how to stop another brand from infringing on your trademark. Why is this important? Because trademarks can protect a brand’s recognition and equity and that’s where trademark attorneys like John come into play.

John is a Member in Dickinson Wright’s Ann Arbor office. He practices brand creation and protection law, including trademark counseling, clearance, registration, maintenance, and enforcement both in the U.S. and overseas. He went into law after an 18 year career in publishing, marketing and nonprofit development which exposed him to his fair share of marketing and trademark issues.

“It was kind of a natural outgrowth [becoming a lawyer] of my publishing career,” John says. “I bumped into a fair amount of trademark issues that enable me to bring real-world business experience into my practice, including the fashion, financial services, cosmetics, sporting goods, automotive, technology, pharma, publishing and other industries.”

How can companies protect their brands? John says first to get clear on what trademarks you actually have. “I frequently look at a client’s web site and find names, slogans, designs, or other things that are functioning as trademarks but that the client isn’t fully aware of,” John says. The next step – especially when choosing a new trademark – is to do a clearance search to make sure someone else doesn’t already have rights: “There’s no sense setting yourself up for a cease-and-desist letter.” Then apply to register the trademark, not just in the U.S. but also in other countries where the business is or will be active. Finally, monitor the marketplace to make sure third parties aren’t infringing your rights.

All of these questions will form the answers to what John can do to help you protect your brand, especially if you feel another company or person is infringing on your brand. Trademark infringement can lead to confusion among consumers and dilute the strength of your brand in the marketplace. Proper protections need to be in place to combat trademark infringement.

John has extensive experience in IP enforcement, including a wide range of patent, trademark, copyright, and antitrust litigation in state and federal courts; appellate litigation in state and federal courts of appeals, including the Federal Circuit; and opposition and cancellation proceedings before the Trademark Trial and Appeal Board. All of this experience has led to an adjunct professorship at the Michigan State University College of Law where he focuses on trademarks and unfair competition.

“I teach my courses from a practitioner’s point of view,” says John. “You inevitably have to cover a lot of ground throughout the semester and I choose certain areas of law based on my experience. What I try to impart on my students is when you are learning an area of trademark law, to not only think about it from a lawyer’s point of view but to think about it as if you are the business owner as well.”

His prior career and his practical views on trademark law make John a valuable commodity to his clients. He hopes in the end, that his real-world experience and his passion for brand awareness will help his clients think about the legal implications first when trying to launch a new product/program rather than having to scramble afterwards when that inevitable cease-and-desist letter shows up on his client’s doorstep.

To learn more about John and his practice, please click here and to learn more about John’s insights into branding and trademark, check out his newsletter, Brandmarking.