Legal Updates 2018
Program Moderator: Day One: Susan Damron, Director of Educational Programs (OKC), Susan Carey (Tulsa) and Day Two: Jim Calloway, Director, Management Assistance Programs
OBA/CLE DEPARTMENT Susan Damron, Esq., Director of Educational Programs Jennifer Wynne, Program Manager Mark Schneidewent, Online Manager Renee Montgomery, Registrar Gary Berger, Production Specialist
Table of Contents
Legal Updates 2018 Day 1
A. Bar Ad
B. General Seminar Information
C. Biographies
D. Bankruptcy Law Update Sam G. Bratton, II, Doerner Saunders Daniel & Anderson, Tulsa
E. Labor and Employment Law Update Tulsa Program: Courtney Bru, McAfee & Taft, Tulsa Oklahoma City Program: Josh Solberg, McAfee & Taft, Oklahoma City
F. Health Law Update Tulsa Program: David Hyman, Tulsa Oklahoma City Program: Karen S. Rieger, Crowe & Dunlevy, Oklahoma City
G. Criminal Law Update Barry L. Derryberry, Assistant Federal Public Defender, Tulsa
H. Oklahoma Tax Law Update Tulsa Program: Sheppard Miers, Gable Gotwals, Tulsa Oklahoma City Program: Kevin Ratliff, Ratliff Law Firm, Oklahoma City
I. Insurance Law Update Rex Travis, Travis Law Office, Oklahoma City
Legal Updates 2018
Tulsa Oklahoma City DATES & Thurs., Nov. 29 & Fri., Nov. 30, 2018 Thurs., Dec. 13 & Fri., Dec. 14, 2018 LOCATIONS: DoubleTree by Hilton Tulsa Warren Place Oklahoma Bar Center 6110 S Yale Ave, Tulsa, OK 74136 1901 N. Lincoln Blvd., OKC, OK 73105
CLE CREDIT: 12/1 Both Days: 6/0 Day One: 6/1 Day Two 5/0 Texas MCLE Day One: 5/.75 Texas MCLE Day Two
DAY ONE
Program Moderator Susan Carey, Tulsa Susan Damron, Director of Educational Programs, Oklahoma Bar Association (OKC)
8:30 a.m. Registration and Continental Breakfast
9:00 Bankruptcy Law Update Sam G. Bratton, II, Doerner Saunders Daniel & Anderson, Tulsa
9:50 Break
10:00 Labor and Employment Law Update Tulsa Program Courtney Bru, McAfee & Taft, Tulsa Oklahoma City Program Josh Solberg, McAfee & Taft, Oklahoma City
10:50 Health Law Update Tulsa Program David Hyman, Tulsa Oklahoma City Program Karen S. Rieger, Crowe & Dunlevy, Oklahoma City
11:40 Networking lunch (included in registration)
12:30 p.m. Criminal Law Update Barry L. Derryberry, Assistant Federal Public Defender, Tulsa
1:20 Break
1:30 Oklahoma Tax Law Update Tulsa Program Sheppard Miers, Gable Gotwals, Tulsa Oklahoma City Program Kevin Ratliff, Ratliff Law Firm, Oklahoma City
2:20 Insurance Law Update Rex Travis, Travis Law Office
3:10 Adjourn
Legal Updates 2018
DAY TWO
Program Moderator Jim Calloway, Director of Management Assistance Program, Oklahoma Bar Association
8:30 a.m. Registration and Continental Breakfast
9:00 Business and Corporate Law Update Gary Derrick, Derrick and Briggs, LLP, Oklahoma City
9:50 Break
10:00 Family Law Update Professor Robert Spector, University of Oklahoma College of Law, Norman
10:50 Real Property Update Kraettli Epperson, Mee Mee Hoge & Epperson, PLLP, Oklahoma City
11:40 Networking lunch (included in registration)
12:30 p.m. Estate Planning & Probate Law Update Donna J. Jackson, Donna J. Jackson & Associates, PLLC, Oklahoma City
1:20 Break
1:30 Law Office Management and Technology Update Jim Calloway, Director of Management Assistance Program, OBA, Oklahoma City
2:20 Ethics Update Joe Balkenbush, Ethics Counsel, OBA, Oklahoma City
3:10 Adjourn
LEGAL UPDATES 2018
BANKRUPTCY LAW UPDATE
Sponsored by: Oklahoma Bar Association
November 29 & 30, 2018 December 13 & 14, 2018 Doubletree Warren Place Oklahoma Bar Center Tulsa, Oklahoma Oklahoma City, Oklahoma
SAM G.BRATTON II SIDNEY K. SWINSON Doerner, Saunders, Daniel & Anderson, L.L.P. GableGotwals
Two W.Second Street, Suite 700 1100 ONEOK Plaza Tulsa, Oklahoma 74103-3117 100 W.Fifth Street Tulsa, Oklahoma 74103
104 N. Hudson Avenue, Suite 1000 One Leadership Square, 15th Floor Oklahoma City, Oklahoma 73102-4802 211 N. Robinson Oklahoma City, Oklahoma 73102
(918)582-1211 (918)595-4800 sbratton(&dsda.com sswins(on gablelaw.com
4845144.1 BANKRUPTCY LAW UPDATE
TABLE OF CONTENTS
U.S. SUPREME COURT 1
1. Merit Management Group, LP v FTI Consulting, Inc., 138 S.Ct. 883, 200 L.Ed. 2d 183 (February 27, 2018 1
2. U.S. Bank National Association v. The Village at Lakeridge, LLC, 138 S.Ct. 960, 200 L.Ed. 2d 218(March 5, 2018) 2
3. Lamar Archer & Cofrin, LLP v. Appling, 138 S.Ct. 1752, 201 L.Ed. 2d 102 (June 4, 2018 3
CERT GRANTED 4
4. Mission Product Holdings, Inc. v. Tempnology,LLC., Dkt. No. 17-1657 4
TENTH CIRCUIT 4
5. Peeples v. McCardle, Trustee (In re: Peeples), 880 F.3d 1207 (10th Cir., January 26, 2018) 4
6. Sandoval Irrevocable Trust v. Taylor(In re: Taylor), 899 F.3d 1126 (10th Cir., 2018) 5
7. Davis v. Tyson Prepared Foods, Inc. (In re: Garcia), Case No. 17-3247 (10th Cir., October 17, 2018) 5
TENTH CIRCUIT BANKRUPTCY APELLATE PANEL 6
8. The Slovak Republic v. Loveridge, et al. (In re: EuroGas, Inc.), 576 B.R. 648 (10th Cir. BAP, November 21, 2017) 6
9. lubber, et aL v. Bird, et al..(In re: Bird), 577 B.R. 365 (10th Cir. BAP, November 30, 2017) 7
10. Mineral Technologies, Inc., et al. v. Novinda Corp. (In re: Novinda Corp.), 585 B.R. 145 (10th Cir. BAP, May 16, 2018) 8
BANKRUPTCY COURT, WESTERN DISTRICT OF OKLAHOMA 8
1 1. In re: Gill, 284 B.R. 63 (Bankr. WD Okla., January 22, 1018 8
12. Soriano v. Wells Fargo Bank (In re: Soriano), 587 B.R. 371 (Bankr. WD Okla., June 18, 2018) 9
i 13. Manchester, et al. v. Kretchmar, et al. (In re: Kretchmar), 579 B.R. 924 (Bankr. WD Okla., February 5, 2018) 10
14. Hatfield v. Thompson (In re: Thompson), 585 B.R. 890(Bankr. WD Okla., December 21, 2017) 12
15. In re: Koonce, 582 B.R. 239 (Bankr. WD Okla., March 26, 2018 12
16. In re: Funchal Minerals Limited, Case No. 18-12988-SAH, in the United States Bankruptcy Court for the Western District of Oklahoma, entered October 2, 2018 13
BANKRUPTCY COURT, NORTHERN DISTRICT OF OKLAHOMA 14
17. Quiroz v. USA ex rel. Internal Revenue Service (In re Quiroz), 2018 WL 1773905 (Bankr. ND Okla., April 10, 2018)(Rasure, J.) 14
18. In re Wright, et al., 2018 WL 4211570 (Bankr. ND Okla., September 4, 2018) (Michael, J.) 15
19. In Re Hill, 2018 WL 1448750 (Bankr. ND Okla., March 22, 2018 (Michael, J.) 16
20. Armstrong v. Oslin (In re: Oslin), 584 B.R. 363 (Bankr. ND Okla., January 24, 2018) 16
ii
4845497.1 BANKRUPTCY LAW UPDATE
Oklahoma Bar Association November 29 & 30, 2018 - December 13 & 14, 2018
U.S. SUPREME COURT
1. Merit Management Group, LP v FTI Consulting, Inc., 138 S.Ct. 883, 200 L.Ed. 2d 183 (February 27, 2018)
Headnote: Defining the "transfer" to be avoided under § 548(a), fraudulent conveyance involving a financial institution in a securities transaction.
Facts: Prior to bankruptcy, the Debtor had deposited funds into an escrow account for the purpose of acquiring securities (stock in a racetrack). Conditions to close the escrow were satisfied and the escrow agent, a bank, delivered the stock to the Debtor and the money to the seller. Subsequently, the debtor filed a bankruptcy case and a litigation trustee was appointed. The litigation trustee sought to avoid the transfer of the purchase price to the seller as a fraudulent transfer under § 548(a). The seller-defendant asserted that the transfer was not avoidable because it fell within the securities safe harbor, i.e., "The Trustee may not avoid a transfer that is a . . . settlement payment . . . made by or to (or for the benefit of) a . . . financial institution . . . or that is a transfer made by or to (or for the benefit of) a . . . financial institution . . . in connection with a securities contract. § 546(e). The amount of the transfer to the seller was $16.5 million. The district court granted the seller's motion for judgment on the pleadings relying on the § 546(e) safe harbor. The Seventh Circuit reversed and the Supreme Court granted certiorari.
Issue: Does the securities settlement safe harbor provision of § 546(e) cover the over- arching transaction or just the transfer from the financial institution to the transferees-defendant?
Holding: The Supreme Court, in a unanimous opinion, undertook a detailed examination of § 546(e) and its components. It relied on the textual provisions saving a transfer from avoidance "that is" (not one that involves) a securities transaction covered under § 546(e). In other words, to qualify for the protection under the securities safe harbor of § 546(e), the transfer itself, meaning the pre-petition payment by the debtor to a transferee, must itself qualify for the exception rather than looking to see whether the payment merely "involves" a financial institution. The Court found that it is the "over-arching transfer" to which the Court must look to see whether it meets the safe harbor criteria. In the case before the Court, neither the transferor (the debtor) nor the ultimate transferee (the seller) was a covered entity, and thus the transfer fell outside of the § 546(e) safe harbor. The case also answers the question "What is a `racino'?"
1 2. U.S. Bank National Association v. The Village at Lakeridge, LLC, 138 S.Ct. 960, 200 L.Ed. 2d 218 (March 5, 2018)
Headnote: Standard of review of a mixed question of law and fact.
Facts: A party acquired a claim in a bankruptcy case for the purpose of voting to accept a plan and qualify as a class of impaired creditors voting to accept the plan for cram down purposes. Opponents of the plan objected to the transferee's qualification as an accepting class alleging the transferee was an insider of the debtor which does not count for cram down purposes. The objectors argued that the transferee was a non-statutory insider because he had a "romantic" relation with a principal of the debtor because the purchase was not an arms length transaction. The Bankruptcy Court rejected the objection and the Ninth Circuit affirmed. In affirming, the Ninth Circuit held that the finding of the Bankruptcy Court as to insider status was a mixed question of fact and law entitled to clear-error review, and the decision could not be reversed under that deferential standard.
Issue: What is the proper standard of review for a mixed question of fact and law?
Holding: All parties agreed that the Bankruptcy Court's finding of non-statutory insider status was a mixed question of fact and law. The Supreme Court defined a mixed question of law as one which asks "whether the historical facts . . . satisfy the statutory standard, or to put it another way, whether the rule of law as applied to the established facts is or is not violated." The Court summarized thus, "In short, the standard of review for a mixed question depends on whether answering it entails primarily legal or factual work." Under the facts of the present case, the Court found that establishing the nature of the relationship between the transferor and transferee was "about as factual sounding as any mixed question gets." Arriving at the same conclusion on the issue of whether the transaction was arms length, the Court found that "one can arrive at the same point by asking how much legal work applying the arms length test requires. It is precious little — as shown by judicial opinions applying the familiar legal term without further elaboration."
On the insider question, which relied on the "romantic relationship" between the principal of the transferor and the transferee, Rabkin, Justice Kagen excerpted the following from the transcript:
Q. "Ok. And I think the term has been a romantic relationship — you have a romantic relationship?
A. I guess.
Q. Why do you say I guess?
A. Well, no — yes."
Justice Kagen: "One hopes Rabkin was not listening."
2 The opinion, although having no dissents, contains several concurring opinions which may limit the effect of this case to the facts or open the door for a different interpretation under different circumstances.
3. Lamar Archer & Cofrin, LLP v. Appling, 138 S.Ct. 1752, 201 L.Ed. 2d 102 (June 4, 2018)
Headnote: A statement about a single asset can be a statement respecting the debtor's financial condition within the meaning of the fraud discharge exception of 11 U.S.C. § 523(a).
Facts: Prior to bankruptcy, a client induced his law firm to continue to provide services on a representation that a tax refund was forthcoming which he would use to pay for the legal services. The tax refund turned out to be far less than represented and, in any event, the client did not use the refund to pay legal fees. Law firm sued the client and obtained a judgment. Thereafter, the client filed a Chapter 7 bankruptcy case. Law firm initiated an adversary proceeding objecting to the dischargeability of the debt pursuant to 11 U.S.C. § 523(a)(2)(A) which bars a discharge of debts arising from "false pretenses, a false representation or actual fraud other than a statement respecting the debto'r s . . . financial condition." A "statement respecting the debtor's . . . financial condition is required to be in writing." § 523(a)(2)(B). Client moved to dismiss the dischargeability complaint because his statement as to the tax refund was a statement respecting his financial condition and was not in writing and thus could not be relied upon to bar discharge. The law firm argued that the statement about the tax refund was not a statement respecting the debtor's financial condition because it was a statement only respecting a single asset and did not contain any description of the debtor's overall financial condition. The Bankruptcy Court agreed with the law firm. The Eleventh Circuit reversed, holding that a statement respecting financial condition may include a statement about a single asset.
Issue: Can a statement respecting a single asset constitute a statement respecting the debtor's financial condition for purposes of the discharge provisions of § 523(a)(2)(B)?
Holding: The Supreme Court held that a statement about a single asset can be a "statement respecting the debtor's financial condition under § 523(a)(2)." The Court engaged in a review of the statutory history and particularly Congress' use of the materially same language in other sections, and concluded that had Congress intended § 523(a)(2)(B) to encompass only statements expressing the balance of a debtor's assets and liabilities it could have so specified, for example, by using a statement "of the debtor's financial condition." Since the language in § 523(a)(2)(B) only requires the statement to be "respecting" the debtor's financial condition, rather than "of' the debtor's financial condition the Court agreed with the Circuit and found that a representation about a single asset fell within the definition and was required to be in writing for dischargeability purposes.
3 CERT GRANTED
4. Mission Product Holdings, Inc. v. Tempnology, LLC, Dkt. No. 17-1657
Issue Presented: This case raises the issue of whether the Bankruptcy Code can be used to terminate a licensee's rights under a license using the rejection powers of § 365 of the Bankruptcy Code. In other words, when a trademark licensor files for bankruptcy, can the licensees of the trademarks continue using those marks or does the licensor have the right under the Bankruptcy Code to prohibit their continued use? Cert was granted to resolve a Circuit split.
TENTH CIRCUIT
5. Peeples v. McCardle, Trustee (In re: Peeples), 880 F.3d 1207 (10th Cir., January 26, 2018)
Headnote: Defines and applies the "zone of interests" test for appeals from Bankruptcy Court orders.
Facts: Prior to bankruptcy a creditor obtained a judgment against two individuals (the Peeples). The Peeples were beneficiaries of a trust, wherein McCardle was the trustee. The judgment creditor garnished Peeples' beneficial interest in the trust which yielded no payment on the claim. The judgment creditor then sued the Peeples Trust trustee in state court, both individually and in his trustee capacity, alleging that the trustee's undue influence over the trustor prompted the trustor to disinherit the judgment debtor. The state court indicated it was going to dismiss the suit and enter attorney fees orders against the judgment creditor. One week before the final judgment was entered in the state court, the judgment debtor filed his bankruptcy case. The judgment creditor (Lee) initiated an adversary proceeding against McCardle, the trustee of the Peeples Trust, seeking (1) a declaratory judgment confirming that the automatic stay (§ 362) applied to the state court lawsuit barring proceedings against him for fees and (2) damages from the trustee for willfully violating the automatic stay. The Bankruptcy Court held that the automatic stay did not apply to the state court lawsuit because Lee had asserted claims against the trustee, not the debtor. The District Court affirmed.
Holding: On appeal, the Tenth Circuit affirmed the judgments below finding that Lee's claims did not fall within the "zone of interests" sought to be protected by § 362. The Circuit distinguished between the traditional requirements of prudential or statutory standing, defining the zone of interest as questioning whether the particular federal cause of action encompasses the particular plaintiffs claim, i.e., is a particular litigant a member of a class that Congress has authorized to sue? Congress is presumed to legislate against the background of the zone of interest limitation which applies unless it is expressly negated. Noting that there is no single test to determine whether a cause of action falls within a statute's zone of interest, the Court turns to the facts of the case. Here, Lee sought enforcement of the automatic stay under § 362(a) and damages for McCardle's breach of the automatic stay under § 362(k). The Circuit imposed a "stringent zone of interest" requirement (although noting that it had previously referred to it as simply a standing requirement.) "Generally, appellants must show that the order appealed from diminishes their property, increases their burdens or impairs their rights." In this case, the automatic stay, being for the sole benefit of the debtor's estate could not be enforced by a
4 creditor. Although Lee is a creditor, he did not allege that he had been harmed in his capacity as a creditor, only in his capacity as a litigant in the state court litigation. Regarding his claim for damages under § 362(k), the Court held again that Lee's claims fell outside of the zone of interest. Although § 362(k) creates a cause of action for debtors and creditors, when a creditor alleges an injury in some capacity other than as a creditor, the automatic stay's goal of ensuring equal creditor treatment is not implicated. Although McCardles' alleged stay violation may have harmed Lee, it did not harm Lee in his capacity as a creditor.
6. Sandoval Irrevocable Trust v. Taylor (In re: Taylor), 899 F.3d 1126(10 th Cir., 2018)
Headnote: Calculation of lien impairment for homestead lien avoidance.
Facts and Issue: Debtor sought to avoid judicial liens on his homestead property. Debtor owned a one-half interest in the property but sought to avoid the entire liens under § 522(0(2)(A) which provides that a "debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption." § 522(f). Section 522(f)(1) states that a lien impairs an exemption to the extent that the total of the lien and all of the liens in the property plus the maximum exemption that the debtor could claim if there were no liens on the property exceeds the value that the debtor's interest in the property would have in the absence of any liens. The Court summarized the question as whether the term "all other liens on the property" refers to the total lien amounts as to the entire property or only the lien amounts corresponding to the debtor's proportional interest in the property.
Holding: The Court concluded that the latter approach (the proportional interest approach) best effectuated Congressional intent. The Court examined the statutory language and particularly considered Congress' intent in protecting the debtor's exempt property. Of interest, the Court stated that the proper method of statutory construction, such as in this case, involves methods applicable to ambiguous statutes. The Court noted that several courts, in construing § 522(f) relied on the "absurdity doctrine" which the Tenth Circuit said should not be confused with a useful technique in resolving ambiguities in statutory language. "When statutory language reasonably admits of alternative constructions, there is nothing remarkable about resolving the textual ambiguity against the alternate meaning that produces a result the framers are highly unlikely to have intended." The Circuit found that § 522 was capable of alternate constructions and applied the construction the Court felt most in line with Congressional intent without reaching the absurdity doctrine, which admits the statute to be unambiguous, but which would compel an absurd result.
7. Davis v. Tyson Prepared Foods, Inc. (In re: Garcia), Case No. 17-3247 (10th Cir., October 17, 2018)
Headnote: Reconsideration of established precedent by a panel of the Circuit.
Facts: A subrogation lien in favor of Tyson and against property of the estate arose, post- petition, solely by operation of law. The bankruptcy trustee requested the Bankruptcy Court avoid the lien and a violation of the automatic stay. The Bankruptcy Court concluded that Tyson's subrogation lien was both valid and enforceable and not in violation of the automatic stay because the subrogation lien did not arise by virtue of any affirmative act of Tyson but
5 merely as a matter of law. The bankruptcy trustee appealed to the Circuit asking the Circuit Court to reconsider WD Equip., LLC v. Cowen, 849 F.3d 943 (10th Cir. 2017) holding that the meaning of"act" for the purpose of § 362 is limited to affirmative conduct.
Holding: Absent en banc review or intervening Supreme Court precedent it is well settled that one panel of the Tenth Circuit cannot overturn the work of another. Since the trustee only argued that Cowen was wrongly decided "this principle marks both the beginning and end of our inquiry." Since it was undisputed that Cowen controlled, the Circuit Panel held that it was bound by Cowen and affirmed the finding that no violation of the automatic stay occurred.
TENTH CIRCUIT BANKRUPTCY APPELLATE PANEL
8. The Slovak Republic v. Loveridge, et al. (In re: EuroGas, Inc.), 576 B.R. 648 (10th Cir. BAP, November 21, 2017)
Headnote: Constitutional standing and prudential standing discussed and distinguished
Facts: A previously closed bankruptcy case was reopened to administer an alleged unadministered asset, that being a claim of the debtor of an interest in a foreign entity. The foreign entity was involved in an arbitration before the International Centre for Settlement of Investments in Paris, France. Other parties to the arbitration included other owners of the foreign corporation being Austrian companies, Slovakian corporations as well as the Slovak Republic. The bankruptcy trustee negotiated a settlement agreement with EuroGas Corp. (an entity which had purchased the trustee's large claim against the debtor), that provided for the trustee's abandonment of the estate's interest in the arbitration claim in exchange for a payment of (effectively) $250,000. The settlement also provided for EuroGas Corp. to release its substantial bankruptcy claim in the estate. The Slovak Republic objected to the settlement on, among other grounds that the settlement was effectively a sale under § 363, not a settlement to be considered under Bankruptcy Rule 9019. The Bankruptcy Court reviewed the agreement and approved it under the standards of Rule 9019 finding that the settlement allowed the trustee to abandon expensive and problematic litigation yielding a material amount of funds for the estate and eliminated a large claim, notwithstanding that the Slovak Republic had offered to buy the trustee's claim in the arbitration proceeding for $250,000. The Slovak Republic appealed.
Holding: The trustee filed a motion to dismiss the appeal based on the lack of standing of the Slovak Republic to appeal the settlement approval decision. The BAP examined the Slovak Republic's constitutional standing, summarizing that constitutional standing requires an injury, a causal relationship between the injury and the challenged conduct and the likelihood that the injury will be redressed by the Court's review, i.e., the constitutional requirement of case and controversy under Article III. Where the existence of a case or controversy is not an issue, the Court's may impose a judicially created set of principles that, like constitutional standing, places limits on the class of persons who may invoke the Court's remedial powers, this being known as "prudential standing." To establish prudential standing, a party must be asserting its own rights rather than those belonging to third parties, the claim must not be a generalized grievance shared in substantially equal measures by a large class, and a plaintiff's grievance must arguably fall within the zone of interest protected or regulated by the statute in question. The limitations on bankruptcy appeals imposed by prudential standing are a judicially created doctrine
6 notwithstanding that the Bankruptcy Code does not contain explicit grant or limitation on appellate standing. Basically, only a "person aggrieved" may appeal. A person aggrieved is a person whose rights or interests are directly and adversely affected pecuniarily by the decree or the order of the Bankruptcy Court. The "person aggrieved" is meant to be a limitation on appellate standing. Here, the Slovak Republic complained of the settlement, asserting its standing as a creditor holding an acquired claim. The Court found that the Slovak Republic's claim would be enhanced by the settlement in that the withdrawal of the large judgment claim by EuroGas Corp. substantially increased the dividend to unsecured creditors such as the Slovak Republic, thus, the Slovak Republic lacked prudential standing and the appeal was dismissed.
9. Jubber, et al. v. Bird, et al. (In re: Bird), 577 B.R. 365 (10th Cir. BAP, November 30, 2017)
Issue: Bankruptcy sale of fully encumbered assets and professional compensation for facilitating the sale.
Facts: In the debtor's Chapter 7 bankruptcy case, the debtor claimed an interest in homestead which was burdened by mortgages, tax liens and a judgment substantially in excess of the scheduled value of the property. The trustee negotiated a deal with the IRS for a "carve out" of $10,000 of the proceeds of the sale of the homestead "for the benefit of the bankruptcy estate and to be distributed in accordance with the priorities of the Bankruptcy Code." The trustee arranged for a sale which, notwithstanding the carve out, would yield no distribution to the unsecured creditors nor any payment to the debtor for his homestead interest. Before the sale could be approved or consummated, the debtor converted to a Chapter 13 case mooting the sale motion and the carve out agreement. The Chapter 7 trustee and his counsel filed fee applications requesting that their professional compensation and statutory fee be allowed as administrative expense claims under § 503(c) entitled to a priority under § 507. (i.e., required to be paid in full under the debtor's Chapter 13 plan.) The Bankruptcy Court denied the fee applications in toto finding that where the homestead had no equity value in excess of the liens, the trustee had no obligation to seek carve outs from secured creditors to sell encumbered property. The Bankruptcy Court also concluded that the services provided were not reasonably likely to benefit the debtor's estate, i.e., to result in a meaningful distribution to unsecured creditors. The trustee appealed.
Holding: After setting forth a general discussion of compensation for bankruptcy professionals, the BAP affirmed the decision of the Bankruptcy Court. In assessing the necessity for administration of the bankruptcy estates, the BAP concluded that the purpose of liquidating the estate's asset is so that the proceeds may distributed to the creditors. "In certain situations, such as when liquidation will result in little or no payment to the unsecured creditors, the proper course of action is for a trustee to abandon the property pursuant to § 554." The BAP referred to the Trustee Handbook prepared by the Executive Office of the U.S. Trustee Program which was created to "promote the integrity and efficiency of the bankruptcy system for the benefit of all stake-holders, debtors, creditors and the public." The Trustee Handbook states that where property is fully encumbered, the trustee must immediately abandon the asset. The BAP referred to a multitude of reported cases "universally recognizing" that the sale of a fully encumbered asset is generally prohibited. As to the carve out agreement, the Court noted that they are only permitted if they result in a meaningful distribution to creditors. In this case, the carve out was
7 ultimately only going to be paid to the trustee and the professionals. None of it would inure to the benefit of the debtor or the creditors.
10. Mineral Technologies, Inc. et al. v. Novinda Corp. (In re: Novinda Corp.), 585 B.R. 145(10 th Cir. BAP, May 16, 2018)
Headnote: Creditor classifications under a Chapter 11 plan.
Facts: In a Chapter 11 case a debtor filed an amended plan containing twelve different classifications of claims. Certain creditors objected to confirmation arguing, among other things, that the classifications were unfairly discriminatory and were improperly classified for purposes of gerrymandering the voting, and generally that the plan was not proposed in good faith. The Bankruptcy Court overruled the objections and entered an order confirming the plan. The objecting creditors appealed.
Holding: The BAP observed that there is no clear Tenth Circuit authority on the appropriate standard for review of claims classification and that other Circuits have reached divergent conclusions on this point. Section 1122(a) of the Code provides that "a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interest of such class." However, § 1122(a) does not require the converse, that similar claims be placed in the same class. While separate classifications are permitted, most Courts impose the additional requirement that there be a reasonable basis or legitimate business or economic reason for the separate classification. The BAP found on the facts before it that the debtor had justification for the separate classifications. The Court acknowledged that separate classification of a claim whose holder's vote would likely be cast for ulterior motives is permissible, particularly when the creditor was a litigation target. In this case, the classifications set forth separately the claim of objecting creditors whom the bankruptcy court found had demonstrated that they had not been pursuing a legitimate interest in maximizing their recovery as a creditor and thus separate classification of their claims was warranted. The Bankruptcy Court found, and the BAP affirmed, that the legal conclusion that a creditor voting a non-creditor interest may be separately classified, and that appellants were not voting their creditor interests. Moreover, the debtor articulated a concern that by placing the objecting creditors in a larger class, it might waive its claim for equitable subordination of the creditors' claims. The BAP found that placing the appellants in the same classes of the other creditors would likely create a waiver issue and thus there was additional justification for the separate classification.
BANKRUPTCY COURT, WESTERN DISTRICT OF OKLAHOMA
1 1. In re: Gill, 284 B.R. 63 (Bankr. WD Okla., January 22, 2018)
Headnote: Filing a bankruptcy case within 180 days after a prior case involving a motion for relief from the automatic stay was voluntarily dismissed.
Facts: A debtor filed a Chapter 13 case. In the Chapter 13 case a creditor filed a motion for relief from the automatic stay which was resolved by a stipulated agreement between the debtor and the creditor. Thereafter, the debtor filed a voluntary dismissal of the Chapter 13 case which was granted. Within 180 days after the dismissal of the Chapter 13 case, the debtor filed another Chapter 13 case. A creditor moved to dismiss the second case pursuant to § 109(g)(2) of
8 the Code which provides that no individual may be a debtor who has been a debtor in a prior case wherein the debtor requested voluntary dismissal of the case following the filing of a request for relief from the automatic stay.
Issue. Whether the 180 day bar to refiling following a request for relief from the automatic stay and subsequent dismissal of the bankruptcy case applies when the request for relief from stay was not pending at the time of the dismissal of the case.
Holding: The Court found a split in authority, with some Courts holding that the statute applies only if the motion for relief from stay is pending at the time the debtor requests voluntary dismissal, others holding that it is the mere filing of a motion for relief from the stay which triggers the 180 bar, and a third line applying a discretionary approach. The Court in Gill applied the literal meaning finding the statute to be plain and unambiguous and that the language "following the filing of a request for an automatic stay" carried with it no connotation that the stay motion must be pending at the time of the voluntary dismissal. The Court found that language to be more consistent with congressional intent to prohibit repetitive dismissals and refiling in order to avoid the impact of stay relief Otherwise, the Court found, Congress could have amended § 109(g)(2) by adding the words "pending" or "unresolved" or adding the phrase "unless the Court, in its discretion, orders otherwise." The Court distinguished the small number of cases holding that the motion for relief from stay be pending at the time of filing as "bad law," undermining the policy rationale for the rule. In sum, the Court found that the language of § 109(g)(2) is mandatory barring a debtor from refiling a petition for 180 days after the voluntary dismissal of the prior case wherein a motion for relief from the automatic stay was filed.
12. Soriano v. Wells Fargo Bank (In re: Soriano), 587 B.R. 371 (Bankr. WD Okla., June 18, 2018)
Headnote: 1) Holder of a note/standing to enforce. 2) Secured claims generally pass through bankruptcy unaffected. 3)Rooker -Feldman Doctrine application to a default judgment.
Facts: A Chapter 11 debtor-mortgagor brought an adversary proceeding seeking to disallow a mortgage lender's proof of claim based on an underlying state court foreclosure judgment, alleging that the judgment was unenforceable and requested damages for violation of the automatic stay in pursuing the foreclosure. Among the other grounds for alleged unenforceability was the allegation that the originating lender which filed the proof of claim had assigned the note and mortgage.
Issue: Whether a lender which assigned a note and mortgage which retained possession of the note and mortgage as servicing agent had standing to file a proof of claim. Also, Rooker- Feldman doctrine as applied to default judgments, and effect of failure to file a secured claim on the underlying debt.
Holding: The Bankruptcy Court sustained the mortgage lender's summary judgment in part, denying summary judgment only as to that portion which involved calculation of post- petition charges. After a succession of Chapter 13 plans in prior years, the debtor filed a Chapter 1 1 plan which treated the secured creditor's claim by providing monthly payments. The secured creditor, Wells Fargo, objected to the Chapter 13 plan on the basis that it failed to provide for
9 payment of the mortgage according to the existing obligations. Debtor moved to dismiss the objection of Wells Fargo for lack of standing because Wells Fargo was not the owner of the note and mortgage, based upon Well Fargo's transfer of the mortgage note to Freddie Mac. However, the Court found that even though Wells Fargo was no longer the owner of the note, possession gave Wells Fargo holder status sufficient to enforce the note and have standing under the Oklahoma U.C.C. "Whether or not Wells Fargo owns the note is irrelevant to its standing to file a proof of claim" as long as it is the holder of the note. Debtor's focus on whether the assignee, Freddie Mac, is the owner of the note is irrelevant as to whether or not Wells Fargo as the servicer and/or holder of the note is entitled to enforce it.
As further grounds to dismiss Wells Fargo's objection, debtor asserted that an objection to Wells Fargo's claim was sustained in one of the debtor's prior Chapter 13 cases. Wells Fargo had failed to file a proof of claim in the prior bankruptcy case and the bankruptcy plan generally provided that all unfiled claims were denied. However, the Court found that by failing to file a proof of claim in the prior bankruptcy case, the bank had only waived its right to receive a payment under the plan in that case but it did not result in the waiver of its rights to receive payment on the debt in accordance with the note and mortgage. Disallowance of Wells Fargo claim in a prior bankruptcy case still would not change the fact that its mortgage lien would pass through the bankruptcy unaffected regardless of whether it ignored the bankruptcy case, or filed an unsecured claim rather than a secured claim or filed an untimely claim after the bar date had passed. The United States Supreme Court has repeatedly held that liens pass through Chapter 7 bankruptcy unaffected and the debt secured by the lien continues to exist and is enforceable against property securing the debt, citing Farrey v. Sanderfoot, 500 U.S. 291 (1991).
Wells Fargo also objected to debtor's challenge to its standing asserting that the foreclosure judgment entered by the state court precluded the Bankruptcy Court from re- examining Wells Fargo's standing under the Rooker-Feldman Doctrine. The prior foreclosure judgment was entered by default. The Court found the Rooker-Feldman doctrine is not limited to the preclusion of claims actually litigated and decided on the merits by the state court, but it also precludes claims which are inextricably entwined with the state court judgment. The Tenth Circuit has held that proceedings are final for the purposes of Rooker-Feldman when granting the requested relief would completely undo the foreclosure and eviction proceedings of the state court. Here, the Bankruptcy Court had no trouble finding that the Debtor's challenge to Wells Fargo's standing would effectively undo the prior judgment. This, notwithstanding that the judgment was entered by default, the Court found that Rooker-Feldman applied to the judgment.
13. Manchester, et al. v. Kretchmar, et al. (In re: Kretchmar), 579 B.R. 924 (Bankr. WD Okla., February 5, 2018)
Headnote: Substantive consolidation of non-debtor individuals with an individual bankruptcy case.
Facts: The Debtor, an individual, operated a farm in close association with his parents who also conducted farming operations as a general partnership and/or joint venture or occasionally individually. The Chapter 7 trustee and a creditor, Farm Credit of Enid, PCA, brought an adversary proceeding seeking the substantive consolidation of the non-debtor parents and family farm operation into the bankruptcy estate of the individual debtor. The parents
10 moved to dismiss arguing that substantive consolidation of non-debtors circumvents the procedures and protections relative to involuntary bankruptcy cases and that the Court lacked jurisdiction over the state law claims against the non-debtor entities.
Issue: Whether or not substantive consolidation of a non-debtor individual into an individual debtor bankruptcy case can be ordered.
Holding: The Bankruptcy Court, in its initial ruling, held that the Court did have authority to order substantive consolidation and that such a remedy did not have to be pursued through the filing of an involuntary bankruptcy petition under § 303. The Court found that the majority of circuits, including the Tenth Circuit, recognized that Bankruptcy Courts have the authority to substantively consolidate bankruptcy cases, including non-debtor entities, and that such an action is not totally dependent upon an alter ego theory where the debtor has intermingled control and assets with the non-debtors. The Court cautioned that in general, the power to consolidate should be used sparingly because of the potential harm to creditors in a substantive consolidation. However, the Court drew the line at substantive consolidation of an individual debtor with individual non-debtors holding that as a matter of law the Court could not order such consolidation. The concept of substantive consolidation generally involves control of a debtor over a non-debtor and where the non-debtors do not have an economic interest independent from the debtor which the Court found difficult to reach in consolidating individuals. The Court refused to extend the doctrine of substantive consolidation to include the consolidation of a non-debtor individual into an individual bankruptcy case.
Motion to Reconsider: Farm Credit brought a motion to reconsider a portion of the Court's dismissal order, that portion being the request of Farm Credit to liquidate its debt against the debtor. The prior order dismissing the action had also dismissed and Farm Credit's claim for liquidation of its judgment. In granting reconsideration, the Bankruptcy Court found that despite a long history of conflicting authorities, there now appears to be virtual unanimity among Courts that Bankruptcy Courts have subject matter jurisdiction and constitutional authority to liquidate debts in the context of dischargeability actions and have the jurisdiction to award money damages in a § 523(a) proceeding. Finding that the Court had jurisdiction to liquidate Farm Credit's claim, the Court treated the parents' objection to jurisdiction as a request for permissive abstention, which the Court denied. The Court discussed the twelve controlling factors governing abstention set forth in Commercial Financial Services, Inc. v. Bartmann, 251 B.R. 414 (Bankr. ND Okla. 2000), and in balancing factor found no compelling reason to have the state court liquidate the Farm Credit claim. In the motion to reconsider, the Court also allowed the Farm Credit and the trustee to proceed with a claim for substantive consolidation of the Kretchmar Farms entity finding that there are fact issues as to whether that substantive consolidation target was an entity or an individual, thus reinstating the plaintiff's claim for substantive consolidation of the debtor and Kretchmar Farms, but not disturbing its ruling pertaining to consolidation of individuals.
11 14. Hatfield v. Thompson (In re: Thompson), 585 B.R. 890 (Bankr. WD Okla., December 21, 2017)
Headnote: Non-dischargeability for false representations.
Facts: Prior to bankruptcy, the debtor (Thompson) owned a limited liability company which was licensed to operate a nursing home. Also prior to bankruptcy, a resident of the nursing home died as a result of sub-standard care. The decedent's representative filed suit in state district court against the nursing home limited liability company, joining Thompson individually as a defendant. Shortly prior to trial, Thompson filed a Chapter 7 bankruptcy petition. Subsequently the plaintiff secured a $1 million uncontested judgment in the state case against the limited liability company only. The judgment creditor (Hatfield) filed an adversary proceeding in Thompson's bankruptcy case seeking to hold Thompson personally liable on the nursing home judgment debt and to have the debt determined non-dischargeable pursuant to § 523(a)(2) based on Thompson's misrepresentation or actual fraud. Section 523(a)(2)(A) provides that debts may be excepted from discharge if they were obtained by a debtor's false pretenses, false representations, or actual fraud. The basis for Hatfield's claim for actual fraud was that Thompson had represented to the Oklahoma Department of Health that he would operate the nursing home when in fact he retained another person to do so. Hatfield alleged other wrongful acts by Thompson in diverting money from the nursing home.
Holding: The Court held that Thompson's misrepresentation to the Oklahoma Department of Health was not fraudulent as to Hatfield. Under state law, the Oklahoma Supreme Court made it clear that it is not the breach of a promise, but the intent of the promisor at the time of the promise not to perform it which renders it to be fraudulent. There was no allegation that Thompson intended that the promised oversight would not occur or that he intended or could foresee as a natural consequence the death of the decedent. In other words, fraud must be actual or positive fraud, not merely fraud implied in law. The debtor must be guilty of intent to defraud in a manner involving moral turpitude or intentional wrong. "In a fraud action, damages are rooted in the natural and probable consequence of the acts charged not by the stand alone fact that the fraud was perpetrated." The Court noted that the pain suffered by Mrs. Hatfield as a result of the nursing center's substandard care is real and the angst undoubtedly suffered by her family are very regrettable. However, the conduct did not meet the definition of fraud for non-dischargeability purposes.
15. In re: Koonce, 582 B.R. 239 (Bankr. WD Okla., March 26, 2018)
Headnote: Statutory trustee fees and attorney fees assessed against the proceeds of sale of property of the estate.
Facts: In a Chapter 7 case, the trustee filed a motion to sell the estate's interest in certain real property in which the debtor was a one-half co-owner. The property was encumbered by a first mortgage, ad valorem taxes and two judgment liens. The property was sold and the first mortgage, ad valorem taxes and closing costs were paid, leaving a net to the estate of $127,103 to which the remaining judgment liens and the non-debtor's one-half interest attached leaving no equity for the estate. The trustee filed an application for trustee's fees based on the minimum statutory commission under § 326 and the trustee's counsel filed an application for interim
12 allowance of fees and reimbursement of expenses. Both applications sought to be paid from the net sales proceeds. One of the judgment lien creditors objected, making no objection to the amounts of requested fees and expenses, but objecting to the payment of any fees and expenses out of the sales proceeds to which its liens attached.
Holding: The Court acknowledged the general rule that expenses of administration of a Chapter 7 case may not be surcharged against secured collateral, holding "it is universally recognized that the sale of a fully encumbered asset is generally prohibited." The Court also cited to the Official Handbook for Chapter 7 Trustees to that effect. Because the sale of the property in this case resulted in no equity for a distribution for the unsecured creditors after payment of the liens and expenses, the objecting creditor urged that the trustee is not entitled to any commission out of its cash collateral. The Court found the secured creditor failed to object to the motion to sell in the first place. Also, the trustee's actions taken in objecting to secured claims (unsuccessfully) and procuring a sale of the property seemed reasonable at the time and, if successful, would have yielded a dividend to unsecured creditors. Section 506(c) authorizes an assessment against a secured party's collateral as reimbursement for a particular benefit to the secured creditor. The Court found a benefit in this case because the price was good, the trustee secured the release of another judgment lien on the property which was ahead of the objecting creditor and had the trustee abandoned the property there would have been no recovery for the secured creditor. However, the Court found that there was no authority for the trustee to recover his statutory trustee's fees under § 506(c), but that § 506(c) only authorized a surcharge for costs and expenses of preserving or disposing of the property.
16. In re: Funchal Minerals Limited, Case No. 18-12988-SAH, in the United States Bankruptcy Court for the Western District of Oklahoma, entered October 2, 2018.
Headnote: Assessment of costs and expenses in preparing required filings in an involuntary case ordered to be paid by the petitioning creditors.
Facts: Prior to bankruptcy, parties were involved in extensive litigation, the debtor employing numerous litigation tactics to delay or forestall an Oklahoma foreclosure litigation. Petitioning creditors filed an involuntary bankruptcy case against the property owner to preempt further litigation moves by the debtor in California. Relief was ordered. None of the required filings such as schedules of assets and liabilities, statement of financial affairs and other initial documents were filed.
Holding: The Court directed the trustee, with the assistance and cooperation of the debtor and the petitioning creditors, to prepare and file the required filings. The Court ordered the costs of preparing the required filings to be paid by the petitioning creditors. On a motion for rehearing, the Court cited to Tenth Circuit authority emphasizing the importance to the bankruptcy system of full disclosure and that a Chapter 7 proceeding should not be an arena in which players engage in obfuscation in order to obtain an outcome. "Competitive gamesmanship is inappropriate to the bankruptcy system." In this case it was the petitioning creditors rather than the debtor who invoked the jurisdiction of the Court. Bankruptcy Rule 1007(k) provides that a Court may order the trustee, a petitioning creditor, committee or other party to prepare and file any of the required initial papers. Finding authority to require the petitioning creditors to prepare the schedules, the Court found that it had authority to order the trustee to prepare the
13 required filings and for the petitioning creditors to reimburse the trustee for such expense. "One of the potential expenses that petitioning creditors should be leery of is the cost of preparing and filing schedules, statement of financial affairs and the list of creditors for the involuntary debtor under Rule 1007(k) . . ." Because the Court had no idea at that stage of the case whether the bankruptcy estate would have any recoverable assets from which the trustee can seek payment of its fees and expenses incurred in preparing the required filings, it seemed appropriate that the petitioning creditors who invoked the jurisdiction of the Bankruptcy Code to protect themselves and their positions, bear the risk of non-payment rather than the trustee who was randomly assigned to the case. The Court saw no difference in authorizing the trustee to prepare the schedules with the petitioning creditors to pay the cost of the same and ordering the petitioning creditors to prepare the required filings directly, other than impartiality offered and fiduciary duty owed by the trustee to all the creditors. The Court did leave it open for the petitioning creditors to subsequently file an application to have their costs and expenses reimbursed as an administrative expense.
BANKRUPTCY COURT, NORTHERN DISTRICT OF OKLAHOMA
17. Quiroz v. USA ex rel. Internal Revenue Service (In re Quiroz), 2018 WL 1773905 (Bankr. ND Okla., April 10, 2018)(Rasure, J.)
Headnote: Dischargeability of income taxes under 11 U.S.C. § 523(a)(1)(B) for willfully attempting to evade or defeat the payment of taxes.
Facts: Debtor immigrated to United States at the age of 14 and ultimately started his own painting and masonry business. His customers were homebuilders, many of whom ceased doing business in 2007 which caused the Debtor's business to suffer. Debtor filed chapter 7 bankruptcy and sued IRS for determination of dischargeability of income taxes for tax years 2005, 2006 and 2009, the returns for which were filed timely. The IRS contended that the Debtor was not entitled to discharge the taxes because he did not keep adequate records, he understated his income on his tax returns, understated the value of his residence in an offer in compromise, refused to sell or mortgage his residence to pay taxes and failed to make a meaningful attempt to pay the taxes.
Holding: Under Section 523(a)(1)(C) a tax debt is excepted from discharge "with respect to which the debtor . . . willfully attempted in any manner to evade or defeat such tax." The court noted that to render the taxes nondischargeable, the IRS must prove by a preponderance of the evidence a conduct component (the conduct employed to evade or defeat the taxes) and a willfulness component (whether the debtor acted voluntarily, consciously or knowingly, and intentionally). To establish the willfulness component the court explained: "Intent may be inferred from the debtor's words and deeds, sophistication, knowledge of certain facts and circumstances, timing of questionable conduct, and the probability that such conduct could defeat or obstruct assessment, collection or payment of taxes, among other things." The IRS contended that the debtor's subjective intend is irrelevant based upon language in Dalton v. IRS, 77 F.3d 1297 (10th Cir. 1996): "§ 523(a)(1)(C)'s mental state requirement is generally satisfied `where the government shows the following three elements: 1) the debtor had a duty under the law; 2) the debtor knew he had a duty; and 3) the debtor voluntarily and intentionally violated that duty." In dismissing the notion that this language made the debtor's subjective intent
14 irrelevant, the court said: "Evidence must be sufficient to infer that the debtor engaged in conduct that resulted in the non-payment of taxes with intent to violate the duty to report and/or pay taxes. Anything less renders the test meaningless." Upon a thorough review of the evidence the court concluded that the debtor did not willfully attempt to evade the payment of the tax.
18. In re Wright, et al., 2018 WL 4211570 (Bankr. ND Okla., September 4, 2018)(Michael, J.)
Headnote: Attorney sanctions for failure to disclose compensation and for erroneous disclosures under 11 U.S.C. § 329.
Facts: A rural consumer bankruptcy attorney entered into a factoring agreement with BK Billing, LLC to factor his post-bankruptcy accounts receivable in fourteen Chapter 7 debtor cases. Under this arrangement, which the attorney claimed allowed him to promptly file "bare bones" petitions for debtors who needed immediate relief, the attorney entered into two agreements with the debtor: a pre-petition agreement for services necessary to get the petition filed, and a post-petition agreement for services to complete the bankruptcy case. The attorney assigned the fee for post-petition services to BK Billing, LLC in exchange for approximately 70% of the fee.
The prepetition agreement gave the debtor the option to pay the filing fee in installments, and to either retain the attorney for post-petition services (for a specified fee), hire another attorney, or represent themselves pro se. Attached to the post-petition agreement was an authorization for a "independent billing company" to charge the debtor's debit card a set amount each month until the post-petition fee was paid in full, and authorized the attorney to factor or sell the receivable. Among the documents filed by the attorney with the bankruptcy court was a Statement of Attorneys Compensation, required by Section 329 and Rule 2014(b). In each instance the attorney checked the box next to the statement "I have not agreed to share the above-disclosed compensation with any other person unless they are members and associates of my law firm." The court, noticing that the Statement of Attorneys Compensation excluded some services which the court had previously ruled could not be excluded (In re Minardi, 399 B.R. 841, 849-850 (Bankr. N.D. Okla. 2009)), and that the attorney had filed an unusually large number of applications to pay filing fees in installments, set the installment payment request for hearing. Following an evidentiary hearing, the court sanctioned the attorney by requiring him to refund to each debtor the amount paid to BK Billing, LLC, based upon the following: Failure to disclose factoring arrangement; grossly misleading errors in the Statement of Attorneys Compensation; filing Amended Statements of Attorneys Compensation indicating that "counsel may receive financing from a third party" when he had already received the financing; violating Rule 3.3 of the Oklahoma Rules of Professional Conduct (candor to the tribunal); charging a higher fee to clients who use the BK Filing, LLC model; doing substandard work by deferring until after the case is filed to review essential information about the debtor's financial condition, and the pre-petition fee was based upon how much the debtors could pay, not the value of the services. The court also noted, but did not sanction the attorney for it, that he filed applications to pay filing fee in installments and misrepresented that no fee had been paid to him, and as a debt relief agency, may have violated Section 526(c)(5) by his conduct.
15 19. In re Hill, 2018 WL 1448750 (Bankr. ND Okla., March 22, 2018)(Michael, J.)
Headnote: Funds held by a chapter 13 trustee after conversion of the case to chapter 7 are not property of the bankruptcy estate available for payment of allowed chapter 13 administrative expenses.
Facts: Attorney who represented the debtor in a chapter 13 case which was converted to chapter 7, filed a fee application for services performed while the case was pending under chapter 13. The fee application was approved but the court refused to allow the fees to be paid from funds held by the chapter 13 trustee which had not yet been refunded to the debtor.
Holding: Even though the attorney fees were allowed under §§ 330(a)(4)(B) and 503(b), the allowed administrative expense could not be paid from funds held by the chapter 13 trustee despite Section 1326(a)(2): "If a plan is not confirmed, the trustee shall return any such payments not previously paid and not yet due and owing the creditors pursuant to paragraph 3 to the debtor, after deducting any unpaid claim allowed under section 503(b)." Once the case is converted to chapter 7, Section 1326 no longer applies to the case. Moreover, under Section 348(f), when a case is converted from chapter 13 to another chapter "property of the estate in the converted case shall consist of property of the estate, as of the date of the filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion." Post-petition earnings in the possession of the chapter 13 trustee upon conversion are not property of the bankruptcy estate. Therefore, the funds weren't available to pay the allowed administrative expense. The administrative expense could be paid from property of the chapter 7 bankruptcy estate, but unfortunately the vast majority are no asset cases with no funds available to pay.
20. Armstrong v. Oslin (In re Oslin), 584 B.R. 363 (Bankr. ND Okla.)(Rasure, J.)
Headnote: Creditor who obtained judgment against debtor on negligence theory and under dram shop law who owned an establishment that sold liquor to a minor who was involved in an accident which resulted in serious injuries to the creditor's son, was not collaterally estopped from asserting that debt was nondischargeable due to the willful and malicious conduct of debtor. For debt to be excepted from discharge due to willful and malicious injury, the debtor must have actually intended to cause injury, mere recklessness or negligence is insufficient. Willful and malicious injury requires a deliberate or intentional injury, not merely a deliberate or intentional act that causes injury.
Facts: The debtor owned and operated a bar where the plaintiff's son, a minor, was allowed to consume alcoholic beverages. The debtor did not serve the alcohol and was not present in the bar at the time. The plaintiff's son was seriously injured when the debtor ran a red light and struck a vehicle in which the son as a passenger. Plaintiff recovered a $23 million judgment following a bench trial in state court due to the negligence of the debtor and her employees. When the debtor filed bankruptcy, the plaintiff filed a complaint to except the debt from discharge based upon "willful and malicious injury" under Section 523(a)(6) and for personal injury caused by a drunk driver under Section 523(a)(9). The debtor filed a motion to dismiss claiming that the plaintiff was collaterally estopped from asserting that the debtor acted willfully and maliciously (essential to except the debt from discharge) since the state court
16 judgment was based upon mere negligence. Relying on Brown v. Felsen, 442 U.S. 127 (1979), the court denied the motion based upon collateral estoppel because: "[A] plaintiff bringing a claim under state law is entitled to pursue the path of least resistance to reduce the claim to judgment." The court nevertheless carefully reviewed the complaint and determined that the plaintiff failed to state a claim since, under the circumstances, the debtor clearly did not act willfully and maliciously. Following the analysis provided by the Supreme Court in Kawaauhau v. Geiger, 523 U.S. 57 (1998), decided in the context of a medical practice claim, the court pointed out that willful requires a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury. Although the debtor may have intentionally failed to properly supervise her employees, she did not intend to injure the plaintiff's son. The plaintiff contended that the mental state component is not completely subjective and advocated for a position adopted by the Fifth Circuit that willful and malicious can be met by either "an objective substantial certainty of harm or a subjective motive to cause harm" which the Tenth Circuit has rejected.
4845492.1
17 2018 Labor and Employment Law Update Courtney Bru, McAfee & Taft, P.C. (Tulsa) Josh Solberg, McAfee & Taft, P.C. (Oklahoma City)
1. Epic Systems Corp. v. Lewis, 584 U.S. ___ (2018)
Three cases from three different circuit courts of appeal were consolidated and argued before the U.S. Supreme Court in October 2017. In all three cases, an employer and employee had entered into a written agreement authorizing individualized arbitration proceedings to resolve employment-related disputes. Each employee subsequently sought to litigate wage-related issues in federal court as part of a class or collective action. The employees acknowledged the general enforceability of written arbitration agreements under the Federal Arbitration Act, but argued (1) the Act’s “savings clause” allowed for federal litigation if the agreement violated some other federal law, and (2) the agreements at issue violated the National Labor Relations Act by prohibiting protected “concerted activities” allowed under Section 7 of the NLRA.
The FAA’s savings clause allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” i.e., “generally applicable contract defenses, such as fraud, duress, or unconscionability.” The Supreme Court held that the savings clause does not allow for refusal of enforcement due to defenses “targeting arbitration either by name or by more subtle methods, such as by ‘interfer[ing] with fundamental attributes of arbitration.’” The Court found that the challenges to the arbitration agreements on the grounds that they required individualized arbitration as opposed to class or collective proceedings constituted an attempt to interfere with a fundamental attribute of arbitration.
The Supreme Court further held that while Section 7 of the NLRA addresses collective bargaining activities, it does not address class or collective action procedures or otherwise indicate an intent to contradict the FAA. The agreements in question were held enforceable against the employees.
2. Encino Motorcars LLC, v. Navarro, 584 U. S. ____ (2018)
In Encino Motorcars, the U.S. Supreme Court considered whether auto service advisers fall within the exemption set forth in 213(b)(10)(A) of the FLSA, which exempts “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” While this exemption is limited in scope, rendering much of the opinion of limited utility, the Court also addressed the long-standing, judicially-created principle that exemptions from the overtime requirement of the FLSA should be “narrowly construed.” This principle has been regularly invoked to find employees are not exempt under the FLSA.
In Navarro, the majority dismissed this principle with just one paragraph of analysis, reasoning as follows:
1
We reject this principle as a useful guidepost for interpreting the FLSA. Because the FLSA gives no “textual indication” that its exemptions should be construed narrowly, “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.” Scalia, Reading Law, at 363. The narrow- construction principle relies on the flawed premise that the FLSA “‘pursues’” its remedial purpose “‘at all costs.’” American Express Co. v. Italian Colors Restaurant, 570 U. S. 228, 234 (2013) (quoting Rodriguez v. United States, 480 U. S. 522, 525–526 (1987) (per curiam)); see also Henson v. Santander Consumer USA Inc., 582 U. S. ___, ___ (2017) (slip op., at 9) (“[I]t is quite mistaken to assume . . . that whatever might appear to further the statute’s primary objective must be the law” (internal quotation marks and alterations omitted)).
3. DOL Field Assistance Bulletin 2018-4 (July 13, 2018)
U.S. Department of Labor Field Assistance Bulletin 2018-4, “Determining Whether Nurse or Caregiver Registries are Employers of the caregiver,” addresses whether these registries are “employers” of caregivers. These registries facilitate matches between clients and caregivers. Many of the principles discussed in this Bulletin are generally applicable.
According to the Bulletin, the Wage and Hour Division will continue to consider the totality of the circumstances to evaluate whether an employment relationship exists. While the factors considered in the Bulletin are specific to the caregiver registry context, they may be applicable to a variety of employers. Factors considered included whether the registry (1) conducted (subjective) background and reference checks, (2) was involved in hiring and firing, or scheduling and assigning work, (3) controlled the caregiver’s work, (4) established the pay rate, (5) received continuous payments for the caregivers’ services, (6) paid wages to the caregivers, (7) tracked caregivers’ hours of work, and (8) purchased equipment and supplies to be used by caregivers. Individuals or entities who engage in these types of activities will be more likely to be considered “employers.”
4. Continuation of the U.S. Department of Labor PAID program
The Payroll Audit Independent Determination (PAID) pilot program began in March of 2018. It provides a mechanism for employers to proactively resolve potential FLSA wage and hour claims. In a nutshell, employers may self-report potential violations to the U.S. DOL and may attempt to resolve the issues efficiently under the agency’s supervision.
On October 9, 2018, the U.S. Department of Labor announced a 6-month extension of the PAID program.
2
5. Wage and Hour Division returns to opinion letters
In summer 2017, the Trump administration announced it would reinstate the U.S. Department of Labor, Wage and Hour Division’s practice of issuing opinion letters. The practice was halted under the Obama Administration.
As of November 8, 2018, the U.S. Department of Labor, Wage and Hour Division, has issued 27 “new” opinion letters. The majority of these letters had been previously issued during the Obama administration, but subsequently withdrawn by the Obama administration with a promise to “provide a further response in the near future.” On December 18, 2017 and January 5, 2018, the Acting Administrator re-released re-numbered versions of these previously withdrawn letters as “an official statement of WHD policy.” Additional opinion letters were issued on April 12, 2018, August 28, 2018 and November 8, 2018.
The following is a brief summary of the “new” opinion letters:
FLSA2018-01 Ambulance personnel on-call hours not compensable under 29 C.F.R. § 785.17 because employees are not required to remain on the employer’s premises and are free to utilize their on-call time to engage in their own personal pursuits
FLSA2018-02 Compensation based upon percentage of charges and sales to customers supports application of retail or service establishment exemption under Section 7(i) of the FLSA
FLSA2018-03 Civilian helicopter pilots do not qualify for administrative, executive or professional exemptions
FLSA2018-04 Construction project superintendents qualify for administrative exemption
FLSA2018-05 Application of FLSA to terms of collective bargaining agreement between municipality and its firefighters and alarm operators
FLSA2018-06 Community members who coach athletic teams for public schools are exempt
FLSA2018-07 Hospital may take deductions from the salary of a registered nurse for absences of one or more full days based on the number of hours worked
FLSA2018-08 Insurance company client service managers qualify for administrative exemption
FLSA2018-09 Whether year-end discretionary bonuses comply with 29 C.F.R. § 778.210
3
FLSA2018-10 Construction project supervisor qualifies for administrative exemption
FLSA2018-11 Whether daily “bonuses” must be included within the regular rate
FLSA2018-12 Whether consultants, clinical coordinators, coordinators and business development managers who support temporary medical professionals assigned to client facilities are exempt
FLSA2018-13 Whether insurance industry Field Information Analysts, Supervisory Special Agents, Analysts and Special Agents qualify for administrative exemption
FLSA2018-14 Whether salary deductions are permissible when an exempt employee is absent for a full day but does not have enough leave time in his or her leave bank to cover the entire absence
FLSA2018-15 Whether out-of-town coordinators of a product-demonstration company qualify for administrative exemption
FLSA2018-16 Application of FLSA to volunteers of a Volunteer Fire Company
FLSA2018-17 Whether construction supervisors qualify for administrative exemption
FLSA2018-18 Compensability of travel time for hourly technicians who repair, inspect and test cranes
FLSA2018-19 Compensability of 15-minute rest breaks certified by a health care provider as required and covered under the FMLA
FLSA2018-20 Time spent voluntarily participating in wellness activities, biometric screenings and benefits fairs, some of which may result in decreases in monthly insurance premiums, is not compensable because it is optional and predominately benefits the employee
FLSA2018-21 Section 7(i) “retail or service establishment” exemption applies even where the product is generally available to commercial entities as opposed to individual consumers and sold primarily online
FLSA2018-22 Compensability of time spent traveling and working internationally in a volunteer capacity
4
FLSA2018-23 Application of Section 13(b)(27) motion picture theater exemption to food service operations of motion picture theaters that provide full- service, on-site restaurants
FLSA2018-24 Application of Section 7(k) exemption to private, volunteer fire departments that contract with governmental or municipal entities to provide services
FLSA2018-25 Whether a ratio of 1.8:1 between employees’ usual weekly earnings and employees’ guaranteed weekly salary is “reasonably related” for purposes of 29 C.F.R. § 541.604(b)
FLSA2018-26 Whether company that operates swimming pools at hotels, apartments, condominiums is an “amusement or recreational establishment” under Section 13(a)(3)
FLSA2018-27 Application of tip credit to employees in “dual job” positions, where only one of the positions is tipped (reissues previously withdrawn FLSA2009- 23)
Several of these letters are notable in that the Division found construction industry supervisors qualified for the administrative exemption, despite the fact that the Division has been notoriously stingy with its application. With slight variation, the employees at issue were charged with overseeing a project from start to finish, directing subcontractors, ensuring compliance with safety regulations, ensuring work was performed appropriately and in accordance with plans or specifications, ensuring quality control, and keeping the work on schedule. The supervisors worked largely independently when performing these tasks. The Division found these tasks “directly related to management or business operations” within the following functional departments: budgeting, auditing, quality control, purchasing, procurement, safety and health, personnel management, human resources, labor relations, public relations, government relations, legal and regulatory compliance. The Division also found these employees served as the “sole representative at the worksite and must deal with any issues, concerns, unforeseen events, or problems that may arise during the entire homebuilding process,” indicating they had “authority to formulate, affect, interpret, and implement management policies and operating practices.” According to the Division, their primary duties appear “to relate directly to the management or general business operation of [the employer], i.e., they are responsible for overseeing a commercial construction project from start to finish.” As a result, they have “functional rather than departmental authority” and help administer “business operations,” and therefore qualify for the administrative exemption.
FLSA2008-11 addresses an issue not uncommon in Oklahoma. An oilfield services company paid “bonuses” of $100 per day to its equipment operators. These “bonuses” were paid for each day worked, and were not conditioned upon any other factor. The Division ruled they must be
5 included within the regular rate when calculating overtime compensation because they did not fall within any of the exclusions set forth in 29 U.S.C. § 207(e)(1) – (7).
FLSA2008-7 addressed the question of whether full-day deductions for full-day absences, authorized under 29 C.F.R. § 541.602(b), may be based on the number of work hours missed as a result of the absence. The employees at issue, registered nurses, worked variable-hour schedules – some days were longer than others. The DOL cited 29 C.F.R. § 541.602(c), which states that “[w]hen calculating the amount of a deduction from pay allowed under paragraph (b) of this section, the employer may use the hourly or daily equivalent of the employee’s full weekly salary or any other amount proportional to the time actually missed by the employee.” As a result, according to the Division, an employer may calculate a deduction for a full-day absence based on the number of hours actually missed.
FLSA2008-14 provides that when an exempt employee is absent for a full day but does not have enough time in his or her leave bank to cover the entire absence, the employer may deduct an amount equal to the portion of the full-day absence not accounted for by the leave bank.
The Wage and Hour Division also addressed the compensability of travel time. Travel time away from the home community is compensable when it cuts across an employee’s regular work hours. FLSA2018-18 addresses several questions regarding travel time, and is particularly noteworthy for the guidance provided as to how employers may determine the compensability of travel time when the employees do not work a regular workday due to fluctuating schedules and/or hours of work. See 29 C.F.R. § 785.39.
The Division began by indicating that it “carefully scrutinizes claims that employees have no regular or normal working hours” and noted it can typically discern “work patterns sufficient to establish regular work hours.” It encouraged employers to ascertain regular work hours based on time records during the most recent month. If a discernable pattern exists, employers should use this going forward unless there is a “subsequent material change.” Employers may also “choose the average start and end times for the employee’s workdays.’ If an employee’s hours of work are truly variable, the employer and employee must “negotiate and agree to a reasonable amount of time or timeframe in which travel outside of employees’ home communities is compensable.” The employer should then pay for travel time that cuts across these work hours.
The Division also stated that if an employee requests and is granted permission to drive a vehicle instead of taking public transportation, the employer may count as hours worked either the time spent driving or the time the employer would have had to count as hours worked had the employee used public transportation. See 29 C.F.R. § 785.40
FLSA2018-19 addresses the compensability of a non-exempt employee’s 15-minute rest breaks certified by a health care provider as required each hour because of the employee’s serious health condition under the FMLA. The Division cited its regulation providing that rest breaks of up to 20 minutes in length are generally compensable because they benefit the employer. 29
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C.F.R. § 785.18. However, where, as here, the breaks primarily benefit the employee, they are not compensable. The Division noted that the FMLA provides for unpaid leave and makes no exception for breaks of up to 20 minutes in length.
FLSA2018-25 discussed 29 C.F.R. § 541.604(b), which provides that an employee may be paid “on an hourly, daily or shift basis, without losing the exemption or violating the salary basis requirement” if she receives a guaranteed weekly salary of at least the standard salary level and a “reasonable relationship exists between the guaranteed amount and the amount actually earned.” A “reasonable relationship exists when “the weekly guarantee is roughly equivalent to the employee’s actual earnings at the assigned…hourly rate for the employee’s normal scheduled workweek.” The regulation provides that a guaranteed weekly salary for $500 is roughly equivalent and thus reasonably related to usual weekly earnings of $600-$750. In other words, a 1.5:1 ratio will be “reasonably related.” The DOL opined that usual weekly earnings of 1.8 times the guaranteed salary materially exceed this 1.5:1 ratio, while at the same time noting that 1.5:1 is not the maximum ratio allowed under the regulation.
6. 2018-2019 Regulatory Agenda
The DOL has repeatedly stated that it will revise the definition of regular rate, the wage that forms the basis for overtime computations by amending existing regulations. The Fair Labor Standards Act mandates that employers calculate the regular rate for overtime purposes and there are many scenarios in which bonuses and other incentives are required to be included when determining what the regular rate is for a particular week. If these bonuses and other incentives did not need to be included, that would be a watershed development in how overtime is calculated and would reduce employer overtime liability significantly. In its fall 2018 regulatory agenda, the Department indicated it would issue proposed rulemaking in December 2018.
Another proposal in the agenda, rather controversial, is to expand apprenticeship and job opportunities minors under eighteen by softening the rules that forbid minors from working in so-called hazardous occupations or working around machinery that is prohibited.
In July 2017, the DOL issued a request for information for a white-color exemption rule and accepted comments through September. After the comment period closed, the DOL announced that it planned to propose a new overtime rule by the end of October 2018. This didn’t happen. (Leading commentators speculated that the delay was due to the delayed confirmation of Patrick Pizzella as deputy DOL secretary, and the continued delay of debate and/or confirmation of Cheryl Stanton as wage and hour administrator, both of which may have left Labor Secretary Alex Acosta without leadership needed to revise the rule.) In the DOL’s fall 2018 regulatory report, it indicated it will issue new rulemaking in March of 2019. If the Department of Labor (DOL) fails to issue a new final rule before the 2020 elections, and if the Democrats retake the presidency, the rule that was struck down in 2016 could come back to life.
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7. Continuation of circuit split regarding sexual orientation, transgender and/or transitioning employees
As of the end of 2017, there existed a circuit split among the U.S. Courts of Appeal regarding whether Title VII protects employees on the basis of sexual orientation, sexual identity, transgender status, etc. The Seventh Circuit, en banc, has held that “a person who alleges that she experienced employment discrimination on the basis of her sexual orientation has put forth a case of sex discrimination for Title VII purposes.” See Hively v. Ivy Tech Community College of Indiana, Case No. 15-1720 (7th Cir. Apr. 4, 2017). The Eleventh Circuit has held that “there is no sexual orientation action under Title VII.” See Evans v. Georgia Regional Hospital et al., Case No. 15-15234 (11th Cir. Mar. 10, 2017).
The split extends to federal agencies. On July 26, 2017, the U.S. Department of Justice filed an amicus brief in Zarda v. Altitude Express, Case No. 15-3775, then pending in the U.S. Court of Appeals for the Second Circuit. Zarda alleged he was terminated because of his sexual orientation. In its brief, the Department of Justice states: “The sole question here is whether, as a matter of law, Title VII reaches sexual orientation discrimination. It does not, as has been settled for decades. Any efforts to amend Title VII’s scope should be directed to Congress rather than the courts.” Zarda involved a dispute between an employee and his former employer over whether his sexual orientation was the reason behind the termination of his employment. The DOJ’s briefing is notable because the U.S. EEOC had previously filed a brief in the case arguing that Title VII prohibits the conduct alleged, arguing that sexual orientation discrimination claims from employees “fall squarely within Title VII’s prohibition against discrimination on the basis of sex.”. The DOJ’s brief stated the EEOC was “not speaking for the United States.”
On February 26, 2018, the Second Circuit held that employment discrimination on the basis of sexual orientation violates Title VII. See Zarda et al. v. Altitude Express, dba Skydive Long Island, et al., Case No. 15-3775 (2d Cir. Feb. 26, 2018).
On March 7, 2018, the Sixth Circuit announced its decision in Equal Employment Opportunity Comm’n v. R.G. & G.R. Harris Funeral Homes, Inc., finding that federal anti-discrimination laws protect transgender and transitioning employees. The plaintiff was terminated after notifying her employer that she planned to transition from male to female. The Sixth Circuit not only found the employee protected under Title VII, but also rejected the employer’s Religious Freedom Restoration Act (RFRA) defense. The employer had claimed that, because of his Christian religious beliefs, he could not be required to employ the plaintiff. See No. 16-2424, 2018 WL 1177669 (6th Cir. Mar. 7, 2018).
It seems likely that this issue will reach the U.S. Supreme Court.
8. NLRB Issues Guidance Regarding Its Review of Handbook Rules
In June 2018, the General Counsel of the National Labor Relations Board issued Memorandum GC-18-04 – “Guidance on Handbook Rules Post-Boeing.” In The Boeing Company, 365 NLRB 154
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(2017), the NLRB overruled its prior decision in Lutheran Heritage Village-Lithonia, 343 NLRB 646 (2004), which articled the prior standard governing facially neutral workplace policies, including handbook provisions. The Memorandum provides specific examples of policies that would fall into each of these three categories:
Category 1/Generally Lawful Civility; no-photography; no-recording; prohibition of insubordination; non-cooperation; on-the-job conduct that adversely affects operations; disruptive behavior; rules protecting confidential, propriety and/or customer information; defamation; misrepresentation; use of employer logos or intellectual property; requiring authorization to speak for the employer; prohibiting disloyalty, nepotism or self- enrichment.
Category 2/Individual Scrutiny Broad conflict-of-interest rules that fail to specifically target fraud or self-enrichment (and do not restrict voting for or membership in a union); broad rules requiring confidentiality of “employer business” or “employee information;” non- disparagement; regulating use of employer’s name; restrictions on communications with media or third-parties; banning off-duty conduct that might harm employer; prohibiting false or inaccurate statements.
Category 3/Generally Unlawful Rules requiring confidentiality of wages, benefits or working conditions; prohibitions on joining outside organizations or voting on matters concerning the employer.
The language in the Memorandum can be incorporated by employers into their policies.
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2018 Labor and Employment Update Presented by Courtney Bru November 29, 2018
1 Recent USSC Decisions
Epic Systems Corp. v. Lewis, 584 U. S. ____ (2018) ▪ Whether individualized, employment-related arbitration agreements are enforceable under the FAA ▪ Whether Section 7 of the National Labor Relations Act prohibits arbitration agreements that prohibit class or collective actions
2 Recent USSC Decisions
Epic Systems Corp. v. Lewis, 584 U. S. ____ (2018) ▪ The FAA “savings clause” allows for traditional contract defenses, i.e., fraud, duress, unconscionability, etc., but does not allow for defenses which seek to “interfere with fundamental attributes of arbitration.’” ▪ Section 7 of the NLRA addresses collective bargaining activities but does not address class or collective action procedures or otherwise indicate an intent to contradict the FAA.
3 Recent USSC Decisions
Encino Motorcars LLC, v. Navarro, 584 U. S. ____ (2018) ▪ Whether auto service advisers fall within the 213(b)(10(A) exemption ▪ Addressed long-standing, judicially-created principle that exemptions from the overtime requirement of the FLSA should be “narrowly construed”
4 Recent USSC Decisions
Encino Motorcars LLC, v. Navarro, 584 U. S. ____ (2018) ▪ Court: “We reject this principle as a useful guidepost for interpreting the FLSA. Because the FLSA gives no “textual indication” that its exemptions should be construed narrowly, “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.”
5 More on Arbitration Agreements
▪ Dish Network LLC v. Matthew Ray (Aug. 21, 2018) – Tenth Circuit ruled that arbitrator could determine whether class or collective action claims in arbitration were permissible when arbitration agreement was silent.
▪ Varela v. Lamps Plus, Inc. (9th Cir. 2017) – Supreme Court will decide whether workers can arbitrate on a class-wide basis where the agreement is silent on class arbitration
6 New U.S. DOL Field Assistance Bulletin
Determining Whether Nurse or Caregiver Registries are Employers of the caregiver (2018-4) ▪ Confirms totality of circumstances approach when determining existence of employment relationships ▪ Identifies factors suggesting existence of employment relationships, including role in hiring and firing, scheduling and assigning work, establishing pay rate, and paying wages
7 U.S. DOL “PAID” Program
▪ Payroll Audit Independent Determination (PAID)
▪ Pilot program to provide framework for employers to proactively resolve potential FLSA claims
▪ Self-report violations and pay 100% of backpay without liquidated damages
8 U.S. DOL “PAID” Program
▪ To participate:
– No active litigation/investigation for potential violation – No specific recent complaints by employees – Conduct self-audit and generate supporting documentation and methodology for backpay calculations for specific violations and employees – Report/provide everything to the DOL – If accepted, work with DOL on scope of release
9 U.S. DOL “PAID” Program
▪ Can DOL investigate other violations outside the scope of the employer’s proposal? YES
▪ Do employees have to participate in program? NO
▪ Initial run of approximately six months; recently extended for another six months (through April 2019).
10 Return to WHD opinion letters
▪ Obama Administration issued, then withdrew, multiple opinion letters ▪ Obama Administration halted practice ▪ January 5, 2018 – re-issued 17 previously withdrawn opinion letters ▪ Issued additional opinion letters periodically ▪ Support a “good faith” defense
11 Opinion: Administrative Exemption
Extension of Administrative Exemption to construction superintendents: ▪ Duties: oversee project from start to finish, direct subcontractors, ensure compliance with safety regulations, ensure work performed appropriately/according to specifications, quality control, etc. ▪ Largely independent
12 Opinion: Administrative Exemption
▪ Duties “directly related to management or business operations” within several functional departments: budgeting, auditing, quality control, purchasing, procurement, safety and health, personnel management, government relations, legal and regulatory compliance. ▪ Because they served as “sole representative at the worksite and must deal with any issues, concerns, unforeseen events, or problems that may arise during the entire homebuilding process,” they had “authority to formulate, affect, interpret, and implement management policies and operating practices.”
13 Opinion: Full-day Deductions
How to calculate full-day deductions from salary: ▪ Can be based on number of hours of work missed due to the absence ▪ See 29 C.F.R. § 541.602(c): “[w]hen calculating the amount of a deduction from pay allowed under [541.602(b)], the employer may use the hourly or daily equivalent of the employee’s full weekly salary or any other amount proportional to the time actually missed by the employee”
14 Opinion: Exhausted Leave Bank
Impact of exhausted leave bank ▪ When an exempt employee is absent for a full day but does not have enough time in his or her leave bank to cover the entire absence, the employer may deduct an amount equal to the portion of the full-day absence not accounted for by the leave bank
15 Opinion: Travel Time
Compensability of travel time for employees with variable hours: ▪ General rule: Travel time away from the home community is compensable when it cuts across an employee’s regular work hours ▪ Employers are to attempt to discern “work patterns sufficient to establish regular work hours:” – 1) ascertain regular work hours based on most recent month and use these hours going forward unless a “subsequent material change;” – 2) “choose the average start and end times for the employee’s workdays”
16 Opinion: Travel Time
▪ If truly variable, must “negotiate and agree to a reasonable amount of time or timeframe in which travel outside of employees’ home communities is compensable,” and pay for travel time that cuts across these hours
17 Opinion: Intermittent Rest Breaks
Compensability of intermittent rest breaks: ▪ Non-exempt employee submitted FMLA certification requiring 15-minute rest break each hour due to employee’s serious health condition ▪ See 29 C.F.R. § 785.18: Rest breaks of up to 20 minutes in length are generally compensable because they benefit the employer ▪ But here, where the breaks primarily benefit the employee, they are not compensable
18 DOL’s 2018/2019 Regulatory Agenda
▪ July 2017: DOL issued request for information and comments on a new overtime rules – Received over 200,000 comments ▪ Fall 2018: public “listening sessions” ▪ Alexander Passantino, acting WHD Administrator, gave “rough prediction” of $34,000 - $38,000 as new salary threshold ▪ October 2018: DOL identifies March 2019 as date for issuing proposed rule
19 DOL’s 2018/2019 Regulatory Agenda
▪ Proposed clarifications and revisions to the definition of “regular rate” – Stated proposed rule will issue in December 2018 – Possible changes include clarifications on when bonuses, vacation, holiday pay, travel reimbursements, and other incentives are to be included
▪ Proposed expansion of apprenticeship and job opportunities for minors – Could soften the rules on prohibiting minors working in so-called hazardous occupations or working around machinery that is prohibited
20 Circuit Split regarding Title VII
▪ Title VII prohibits discrimination, harassment and retaliation on the basis of sexual orientation, transgender status, gender identity ➢ Seventh Circuit (2017), Second Circuit (2018), Sixth Circuit (2018) ▪ Title VII does not prohibit discrimination, harassment and retaliation on the basis of sexual orientation, transgender status, gender identity ➢ Eleventh Circuit (2017)
21 Questions?
Courtney Bru McAfee & Taft
Williams Center Tower II Two W Second Street, Suite 1100 Tulsa, OK 74103
(918) 574-3052 [email protected]
22
OKLAHOMA BAR ASSOCIATION
2018 YEAR-IN-REVIEW - HEALTH LAW UPDATE November 29 and December 14, 2018
Karen S. Rieger David J. Hyman Crowe & Dunlevy, P.C.1 Tulsa Oklahoma City
I. KEY OKLAHOMA LEGISLATIVE AND REGULATORY DEVELOPMENTS
A. Opioid Pain Management, Pill Counts and Disciplinary Actions (SB 1446) (Effective Nov. 1, 2018). Requires the Board of Medical Licensure to require a licensee to receive not less than one hour of education in pain management or opioid use and addiction each year preceding an application for renewal of a license, unless the licensee has demonstrated to the satisfaction of the board that the licensee does not currently hold a valid federal Drug Enforcement Administration registration number. The failure of a registrant to access and check the central repository is grounds for disciplinary action. The legislation allows Oklahoma Bureau of Narcotics and Dangerous Drugs to make unsolicited notifications to the licensing boards of a pharmacist or practitioner. The bill restricts initial prescriptions for opioids limited to a seven-day supply. A second 7 day prescription may be issued if considered medically necessary and documented by the physician. If a third prescription is medically necessary, the physician and patient must enter into a pain management agreement. Prior to initial and subsequent prescriptions, the physician must discuss with the patient the risks of opioid use. Before prescribing any opioid, the physician must (i) conduct a physical examination (in person); (ii) document the patient's substance abuse history and response to non- pharmacological pain management therapies; (iii) develop a treatment plan; (iv) check the PMP -- Prescription Monitoring Program database; (v) enter into a pain management agreement with the parent(s) or guardians if the patient is younger than 18; and (vi) enter into a pain management agreement if the patient is pregnant. If any opioids are required for three months or longer, the physician must (i) review the patient's progress towards treatment goals at least every 3 months and add any new information regarding causes of pain; (ii) assess the patient for signs of dependence or abuse; (iii) check the PMP before each prescription renewal; (iv) periodically make reasonable attempts to wean the patient from the medication; and (v) monitor compliance with the pain management agreement.
B. Mandatory Electronic Prescribing for Scheduled Drugs (HB 2931) (Effective Jan. 1, 2020). The bill requires the use of electronic prescribing for all scheduled II, III, and IV drugs. HB 2931 exempts from mandatory electronic prescribing: (1) licensed veterinarians; (2) practitioners who experience a temporary technological or electrical
1 The authors would like to acknowledge the assistance of Rachel Jordan in the preparation of this paper.
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failure or other extenuating circumstance that prevents the prescription from being transmitted electronically; (3) a practitioner, other than a pharmacist, who dispenses directly to an ultimate user; (4) a practitioner who orders a controlled dangerous substance dispensed in an on-site pharmacy to be administered in a state-certified and recognized hospital, nursing home, hospice facility, outpatient dialysis facility, a continuum of care facility, or penal institution; (5) a practitioner who writes a prescription to be dispensed by a pharmacy located on federal property; or (6) a prescriber that has received a waiver or extension from their licensure board.
The bill requires all practitioners to register with the Oklahoma Bureau of Narcotics and Dangerous Drugs (OBNDD) by Jan. 1, 2020. All prescriptions are to be issued on official prescription forms from OBNDD. Practitioners must immediately notify OBNDD if they are aware of diversion of drugs from theft or loss of prescriptions. The legislation provides that a Schedule V controlled substance may not be filled or refilled more than six months after the prescription date or more than five times. Prior to HB 2931, compliance with electronic prescribing was voluntary.
C. Pain Management Clinic Registration (HB 2795) (Effective Nov. 1, 2018). The bill directs medical facilities that prescribe, distribute, manufacture, dispense or administer controlled dangerous substances to register with the Oklahoma State Bureau of Narcotics and Dangerous Drugs Control annually and pay a registration fee.
D. Opioid Overdose Fatality Review Board (HB 2798) (Effective Nov. 1, 2018). The bill creates the Opioid Overdose Fatality Review Board within the Department of Mental Health and Substance Abuse Services.
E. Expanding PMTC Scholarships to Physician Assistants (HB 2987) (Effective Nov. 1, 2018). The bill expands eligibility for the Oklahoma Medical Loan Repayment Program to physician assistants. The bill also removes a condition for funding for new or expanded primary care residency program and allows the Physician Manpower Training Commission (PMTC) to waive the maximum rural population criteria specified. It authorizes the commission to establish and administer cost-sharing programs for internship and residency physician training.
F. 3-D Mammography (SB 1103) (Effective Nov. 1, 2018). The bill requires all health benefit plans to include coverage for a low-dose mammography (3-D) screening and defines related terms.
G. Medical Liens and Itemized Statements (SB 1118) (Effective May 3, 2018). The bill modifies language related to liens for hospitals, physicians and ambulance service providers by removing the statutory requirement for itemized statements to be filed with the lien.
H. Medicaid Work Requirements for Enrollees (HB 2932) (Effective Nov. 1, 2018). The legislation requires the Oklahoma Health Care Authority (OHCA) to seek Medicaid
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waiver authority to pursue modifications to Medicaid eligibility criteria so that receipt of SoonerCare coverage for certain Medicaid populations is conditional upon documentation of specific education, skills, training, work or job activities. The bill requires the SoonerCare eligibility modifications to include criteria for work or job activities as required for the Supplemental Nutrition Assistance Program (SNAP) and for a SoonerCare enrollee to comply with the work requirements in order to remain eligible for SoonerCare. See also Executive Order from Gov. Fallin EO 2018-05, issued Mar. 5, 2018, which was broader than HB 2932.
I. Creates the Defunding Human Trafficking Act (SB 1267) (Effective Nov. 1, 2018). The legislation prohibits a provider or its affiliates from being eligible for reimbursement through Medicaid or any other federal or state program, directly or by subcontract with any other party, if that provider, or any affiliate of that provider, has been found by a court of law, either civilly or criminally to have violated 42 U.S.C., Section 289g-2 (2010) or any other federal or state law prohibiting trafficking in fetal body parts. It provides any provider found to be ineligible for reimbursement will be able to reapply after a period of five years and a showing that they and their affiliates no longer participate in the trafficking of fetal body parts. The bill also requires the Oklahoma Health Care Authority to publish findings of violations.
J. Omnibus Pharmacy Act (SB 956) (Effective Nov. 1, 2018). Modifies the definition of the terms "distribute" and "distribution" under the Oklahoma Pharmacy Act to specify the terms do not mean taking actual physical possession of a product or title. It permits pharmacists to dispense prescriptions for non-controlled prescription drugs authorized by an advanced practice nurse or physician assistant, not located in Oklahoma, provided that they are licensed in the state in which they are actively prescribing, and only to dispense prescriptions for controlled dangerous substances when prescribed by an advanced practice nurse or physician assistant licensed in the state of Oklahoma and supervised by an Oklahoma-licensed practitioner. The bill permits the board to approve pilot projects designed to utilize new or expanded technology or processes and provide patients with better pharmacy products or provide pharmacy services in a more safe and efficient manner. The bill provides those approvals may include provisions granting exemptions to any rule adopted by the board. It allows that any provider prescribing or administering an opiate antagonist in a manner consistent with addressing opiate overdose will be covered under the Good Samaritan Act.
K. Broadening the Scope of Government Tort Claims to Mental Health Providers (SB 1116) (Effective Nov 1, 2018). The bill includes mental health providers in the definitions of employees of the state when relating to the Governmental Tort Claims Act.
L. Hospice Contract Services (SB 1228) (Effective Nov. 1, 2018). The bill requires a facility that provides hospice services through contractual arrangements with hospice providers but does not contract with at least five entities providing hospice services within a 50-
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mile radius of the facility, upon the request of a current facility resident, to contract with additional hospice providers within a 50-mile radius as necessary to provide the resident with a choice of five providers. The bill provides that the requirement ceases to exist when the requesting resident is no longer living in the facility.
M. Mandatory Reporting of Cancer Conditions (HB 2843) (Effective Nov. 1, 2018). The bill requires any hospital, clinic, laboratory, pathologist, physician, dentist or any facility providing diagnostic or treatment services for cancerous diseases and precancerous conditions to report to the State Department of Health any or all data and information necessary for the purposes therein. Reporting was voluntary prior to passage of this bill.
N. Reporting of Drug Endangered Children (HB 3104) (Effective May 8, 2018). The bill modifies the definition of "drug endangered child" by removing newborns who test positive for a controlled dangerous substance. The bill clarifies that health care professionals, including midwives, must report to the Department of Human Services any infants diagnosed with Neonatal Abstinence Syndrome or Fetal Alcohol Spectrum Disorder.
O. Omnibus Board of Nursing (HB 2518) (Effective Nov. 1, 2018). The bill allows the Board of Nursing to send material to an individual's address of record with the board for any proceeding in which the board is required to serve an order. It requires an applicant for any type of multistate license to submit to a criminal background check. It exempts any individual continuously enrolled in the Federal Bureau of Investigation's Rap Back Service since issuance of an initial multistate license.
P. Modifications to the Speech-Language Pathology and Audiology Licensing Act (SB 1074) (Effective May 7, 2018). The bill modifies definitions and establishes a definition for tele-practice. The bill requires anyone not holding credentials for independent practice to hold the designation of assistant and be required to work under supervision.
Q. Medical Marijuana Control Program -- Emergency Regulations at OAC 310:681-1-1 et seq. These revised emergency regulations went into effect on August 6, 2018, after substantial revisions were made to the regulations initially proposed by the Oklahoma State Department of Health ("OSDH"). The revised regulations contain the basic requirements and processes for (i) persons who want to obtain a medical marijuana license, (ii) physicians who want to serve as the recommending physician for an applicant, (iii) dispensaries, (iv) growers, (v) processors and other commercial establishments. The regulations also contain packaging and labeling requirements, product handling requirements and other requirements.
II. KEY FEDERAL LEGISLATIVE AND REGULATORY DEVELOPMENTS
OIG's 2018-19 Enforcement Priorities. The Office of Inspector General ("OIG") in the Department of Health and Human Services ("DHHS") is responsible for investigating
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compliance with Medicare and Medicaid laws, and taking actions to rectify deficiencies and non-compliance. The OIG periodically announces areas of concern and/or increased scrutiny and enforcement. The OIG recently announced the following areas of focus:
• Preventing and treating opioid misuse
• Inpatient hospital billing
• Involuntary transfer and discharge in nursing facilities
• Adverse hospital events
• Nursing facility staffing levels
• Physician billing for critical care evaluation and management services
• Recent HHS OIG Advisory Opinion (No. 18-14, Nov. 13, 2018) indicates the federal government’s piercing scrutiny of a complex but seemingly benign scheme by a drug manufacturer to cloak a kickback arrangement in the clothing of an offer of free medications. The government showed unwillingness to overlook a drug manufacturer’s offer to hospital of “free” but otherwise very costly drug when it appeared that the manufacturer’s ulterior motive was to lock patients and providers (hospital and physicians) into use of the drug when it becomes no longer “free”. Government saw this as an unlawful inducement to create a referral stream that would be costly to the government healthcare system and to individual patients.
III. SELECT FEDERAL AND OKLAHOMA HEALTH CARE CASES
1. Leiser v. Moore, 903 F.3d 1137 (10th Cir. 2018). The issue in this decision is the privacy of an incarcerated patient’s healthcare information. Kansas penitentiary officials released to prisoner’s family test results that indicated possible cancer. The prisoner sued officials under 42 U.S.C. §1983 asserting a violation of a constitutional right to privacy, which should have prevented the disclosure of the information. The appellate court held that the defendant officials had a qualified immunity from damages for any violation of the plaintiff’s right to privacy of his personal health information, reasoning that, although there is a constitutional right to privacy of health information, not all health information is protected. Here the court saw a “plausible positive purpose” in the information release “to encourage the support of [the prisoner’s] family and friends — as opposed to the hostile purposes” the court had seen in other cases in which the information release tended to publicly shame the individual or harm him in some other way. The decision did not include any discussion of HIPAA, the federal health information privacy law. Because there is no private cause of action under HIPAA, the plaintiff’s only possible recourse was to sue under 42 USC §1983 for the deprivation of a right by the government.
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2. Gibby v. Hobby Lobby Stores, 217 OK 78, 404 P.3d 44 (Okla. 2017). The plaintiff-employee sued his employer for tort damages arising out of an on-the-job injury. Pursuant to the Oklahoma Administrative Workers Compensation Act, 85A OS. §57, he had been deemed to have forfeited his workers compensation benefits because he had missed two scheduled medical appointments without a valid excuse. The Supreme Court held that having been denied the benefit of the no-fault workers compensation scheme the employee had no “adequate remedy” for his injury, as mandated by Article II, section 6 of the Oklahoma Constitution. Specifically, the Court held that an action in tort is not an adequate substitution for the remedy provided by state’s the workers compensation scheme. The Court therefore struck the forfeiture provision of the Act.
3. John v. St. Francis, 2017 OK 81, 405 P.3d 681 (Okla. 2017). Once again, the Oklahoma Supreme court invalidated a legislative attempt to create a hurdle for medical malpractice plaintiffs. In this case, the defendants (hospital and surgeon) asserted that the trial court should have dismissed the plaintiff’s medical malpractice claim because the plaintiff had failed to present an “affidavit of merit” pursuant to the requirement of 12 O.S. §19.1. That statute requires a medical malpractice plaintiff, as a condition of proceeding with his action, to present a medical expert’s affidavit stating his opinion that the defendant had acted negligently and that that in his opinion the plaintiff’s claim had merits. The Supreme Court held that this requirement violated the Oklahoma Constitution’s guarantee of access to the courts as well as its prohibition of special laws. The Court held that the statute violated the “access to courts” guarantee because it erected costly and time-consuming impediments in the plaintiff’s path to a judicial remedy. The Court also determined that the affidavit requirement, being unique in its application to medical malpractice claims, was a n unconstitutional “special law” because plaintiffs other than those asserting medical malpractice did not have to present such an expert opinion as a condition of pursuing a tort claim. The Court therefore struck the statute.
4. OSU-AJ Homestead Med. Clinic v. Okla. Health Care Auth., 2018 OK CIV APP 30, 416 P.3d 1082 (Okla. Civ. App. 2018). This case presents a primer on the necessity that agency rules, regulations or pronouncements that “implement, interpret or prescribe law, policy, procedure or agency practice that applies to the public” must be properly promulgated under the Oklahoma Administrative Procedures Act (“APA”), 75 O.S. §250.3. In this case, a medical clinic that provides services for which it bills the state Medicaid agency challenged the agency’s audit procedures and the agency’s demand that the clinic repay money it had been paid for treating Medicaid patients. The clinic claimed that the audit and recoupment were unauthorized because the agency’s audit procedures should have been, but were not, promulgated as “rules” under the APA. The Court of Civil Appeals held that the audit procedures fell within the APA’s concept of a “rule” and so should have been promulgated under the APA. The court observed that, “the Legislature defined ‘rule’ broadly so as to prevent an agency from circumventing the procedural requirements of the APA by using labels such as ‘bulletins’ or ‘guides’ which amount to rules in legal operation and effect.”
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5. Planned Parenthood of Kansas v. Anderson, 882 F.3d 1205 (10th Cir. 2018). The State of Kansas terminated Planned Parenthood organizations operating in Kansas from the state’s Medicaid program. The Kansas Planned Parenthood organizations were affiliated with the national Planned Parenthood organization but were entirely separate organizations from the national organization. The Kansas organization operated clinics that provided health examinations for women, contraceptives and counseling on contraception, breast and cervical cancer examinations, and treatment, screening and treatment for sexually transmitted diseases, HPV vaccinations, pregnancy testing and counselling, and other health services, but not abortions. In 2015, an anti-abortion group released videos that purported to show representatives of the national Planned Parenthood organization engaged in transactions for the sale for profit of aborted fetal tissue. At about the same time, Kansas Gov. Brownback announced that Kansas would stop taxpayer funding of Planned Parenthood and that “the time had come to finish the job.” Soon after, the state Medicaid agency terminated the Kansas Planned Parenthood organizations from the Medicaid Program on the grounds that they were fatally tainted by the national organization’s alleged unethical and unlawful effort to sell fetal tissue. The State of Kansas alleged that the national organization had such control over the Kansas affiliates that the national organization’s actions were attributable to the Kansas organizations. The Kansas Planned Parenthood organizations and several patients then sued for an injunction to prevent exclusion from the Medicaid program. The court observed that although states have the authority to determine the qualifications of Medicaid providers, that authority is limited only to assuring that providers are competent to provide safe and effective patient care. States cannot, held the court, use that authority “however they wish for any purpose.” The court then determined both that the Kansas affiliates’ could challenge the state’s dismissal action as an improper exercise of Kansas’ regulatory authority over Medicaid providers, and that the individual plaintiffs had the right to sue in order to preserve their own access to Kansas Planned Parenthood’s facilities. The court determined that the Kansas had overreached its authority when it based the exclusion of the Kansas Planned Parenthood organization on the national organization’s purported (albeit unproven) “unlawful or unethical activities. The court held that even if the national Planned Parenthood organization had engaged in the alleged misdeeds, its actions could not be attributed to the Kansas affiliates the national organization did not exert any ownership or control over the Kansas organizations. The court entered its injunction against the State of Kansas’ exclusion of the Planned Parenthood affiliates from the Kansas Medicaid program.
6. Sanchez v. White County Med. Center, 730 Fed.Appx. 686 (10th Cir. 2018). This case addresses the issue of an Oklahoma court’s personal jurisdiction over a medical provider in another state who provides services to an Oklahoma resident. Here, the Oklahoma resident had obtained a prescription from an Arkansas medical clinic; the plaintiff alleged that the clinic was negligent in refilling a prescription and that the medication resulted in injury. When sued in Oklahoma, the clinic alleged that the court did not have jurisdiction over it because it did not have requisite contacts with Oklahoma. Specifically, the clinic showed that the patient had been an Arkansas resident throughout the time he was the clinic’s patient and had moved to
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Oklahoma only shortly before requesting the prescription refill. Although he was an Oklahoma resident when he requested the refill, the patient did not inform the clinic that he had relocated to Oklahoma and so the clinic did not know that the patient was no longer an Arkansas resident. Moreover, the court noted that the clinic did not hold itself out to Oklahoma residents, did not advertise in Oklahoma, and did not otherwise seek to practice in Oklahoma. Accordingly, the court held that jurisdiction over the Arkansas clinic was not proper in an Oklahoma court because the Arkansas clinic did not have requisite contacts with Oklahoma.
7. Tulsa Adjustment Bureau v. Calnan, 2018 WL 3132807 (Okla. 2018). This case stands for the proposition that unless a party actually prevails by obtaining a judgment in his favor he cannot be a “prevailing party” under 12 Okla. Stat. §936 and thereby qualify for attorney fees in a collection action. Here, a collection agency filed an action to collect a debt to its client physician. However, before he was served with the petition, the debtor defendant paid the medical provider’s bill in full. Once the petition was actually served, however, the plaintiff collection agency moved for summary judgment on the debt and for an order awarding it attorney fees as the “prevailing party” under 12 Okla. Stat. §936. The district court granted both motions. On appeal, the Supreme Court held that the Plaintiff could not be a “prevailing party” because the defendant had paid the money before the action was joined; as a result, observed the Supreme Court, “there was nothing left for the court to do — no ‘judgment’ or ‘judicial decree’ was necessary to make defendant pay the money; [the Defendant] had already done that.” Therefore, the Supreme Court reversed the district court’s grant of the motions and remanded the case for consistent further action.
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Oklahoma Bar Association
2018 Year-In-Review Health Law Update
Karen Rieger David J. Hyman Oklahoma City Tulsa December 13, 2018 November 29, 2018
3394378 Oklahoma Legislative Developments
2 Opioid Control Measures
SB 1446 – (effective Nov. 1, 2018) – Violations can result in licensure actions against physicians – Prescription limits: • Initial 7 day prescription limit ❖Requires in-person examination, prior check of PMP; documentation of patient’s substance abuse history; discussion of opioid risks; development of treatment plan; Patient/Physician Agreement if patient is <18 or pregnant • Second 7 day prescription if medically necessary
3 Opioid Control Measures
SB 1446 – Third prescription requires a Pain Management Agreement containing certain required elements – Chronic pain patients (prescriptions of 3 months or longer) – physician must review progress every 3 months and assess for signs of dependence or abuse; check PMP before every prescription renewal; attempt to wean patient and monitor compliance with Agreement – One hour pain management/opioid CME requirement for physicians as a condition to license renewal 4 Opioid Control Measures
HB 2931 (effective January 1, 2020) – Will require use of electronic prescribing for Schedule II, III and IV drugs; some exceptions – Mandatory registration with OBNDD; use of specific OBNDD prescription form HB 2795 (effective Nov. 1, 2018) – Mandatory registration of pain management clinics with OBNDD 5 Medical Marijuana
Emergency OSDH Regulations at OAC 310:681-1-1 through 310:681-7-2 Key patient requirements: – Must file license application form and fee; initial license good for 2 years – Must submit proof of identity, Oklahoma residency – Certification and recommendation by qualified Oklahoma physician
6 Medical Marijuana – Physician Issues
Participating physicians must register with the OSDH – Physicians are not required to participate – Can physician employer prohibit participation by physician? Questions regarding which professionals qualify as “physicians” Questions regarding “board certification” requirements for physicians 7 Medical Marijuana – Physician Standards
Physician must apply standards a reasonable and prudent physician would follow for recommending or approving any medication – Limited comprehensive research Physician must attest: – Physician has established a medical record and has a bona fide relationship with the patient – Physician has determined the presence of a medical condition for which the patient/applicant is likely to receive therapeutic or palliative benefit from the use of marijuana 8 Medical Marijuana
Other issues – – Marijuana still illegal at Federal level; Congressional budget amendments have prohibited use of federal funds to penalize hospitals and physicians who comply with state medical marijuana laws – Potential loss of Medicare/Medicaid funding to hospitals and physicians – Potential loss of hospital accreditation 9 Other Oklahoma Healthcare Legislation
HB 2987 – Expands Okla. medical loan repayment program to physician assistants SB 1103 –Requires insurers to cover low dose 3-D mammography screening SB 1118 –Modifies language related to hospital/physician/ambulance liens for services provided HB 2932 – Modifies work requirements for Medicaid recipients SB 956 – Permits Oklahoma pharmacies to fill prescriptions for non-controlled substances written by Nurse Practitioners and PAs in other states so long as they are qualified to prescribe in the state where they are licensed
10 Other Oklahoma Healthcare Legislation
SB 1116 – Mental health providers included in definition of employees of the state under the GTCA SB 1228 – Requires nursing facilities to offer at least 5 hospice options when requested by a resident HB 2843 – Requires hospitals, physicians and other facilities to report certain information about cancer diagnosis and treatment to the OSDH SB 1267 – Measures to reduce trafficking in fetal body parts
11 Other Oklahoma Healthcare Legislative Developments
HB 3104 – Changes the reporting requirements for newborns diagnosed with Neonatal Abstinence Syndrome or Fetal Alcohol Spectrum Disorder HB 2518 – Requires nursing applicants for any multistate license to submit to criminal background check SB 1074 – Permits tele-practice by certain speech-language pathologists and audiologists and imposes certain supervision requirements 12 Federal Legislative and Regulatory Developments
13 OIG Healthcare Priorities
Preventing and Treating Opioid Misuse – Toolkit to identify at-risk patients – Results from State grants Inpatient hospital billing Involuntary transfer and discharge in nursing facilities Adverse hospital events Nursing facility staffing levels Physician billing for critical care evaluation and management services HHS-OIG Advisory Opinions (in particular No. 18-14, 11/13/2018) 14 Federal Healthcare Cases affecting Oklahoma
Planned Parenthood of Kansas v. Anderson, 882 F.3d 1205 (10th Cir. 2018)
Sanchez v. White County Med. Center, 730 Fed.Appx. 686 (10th Cir. 2018).
Leiser v. Moore, 903 F.3d 1137 (10th Cir. 2018).
15 FEDERAL CASE UPDATE
Barry L. Derryberry Assistant Federal Public Defender Federal Public Defender Northern & Eastern Districts of Oklahoma (918) 581-7656 [email protected]
LEGAL UPDATES 2018 UNITED STATES SUPREME COURT
APPEAL
Class v. United States, 138 S. Ct. 798 (Feb. 21, 2018) (6-3, Breyer Op.) After guilty plea, defendant can appeal constitutionality of statute Defendant entered unconditional guilty plea in federal court, then sought to appeal the issue of whether the statute of conviction was unconstitutional on its face. Established SCt law confirms that the guilty plea did not waive the right to appeal that issue. The court strongly suggests that if waiver of the right to appeal constitutionality had been part of a plea agreement, the waiver would be enforceable. One limitation is notable: the constitutional challenge to the face of the statute was allowed in part because it didn’t contradict the terms of the indictment or Class’ admission that he did what the indictment alleged. Class also observes that no factual development beyond the indictment was necessary. Footnote 4 of Alito’s dissent explains why “It is difficult to see how that can be true.” This goes to the question whether one can raise an “as applied” challenge to a statute after pleading guilty--which Class doesn’t discuss.
Rosales-Mirales v. United States, 138 S. Ct. 1897 (June 18, 2018) (7-2; Alito, Thomas dissent) Erroneous Sentencing Guideline range meets fourth plain error standard. Under plain error doctrine, four prongs must be satisfied before reversal is due. The fourth is involved here--whether the error seriously affects the fairness, integrity, or public reputation of the judicial proceedings. In petitioner’s appeal to the Fifth Circuit, the Circuit found that the guideline range was erroneous. Applying the fourth plain error prong, the court denied relief because the error purportedly “shock the conscience.” Ruling: The error readily satisfies the fourth prong.“The risk of unnecessary deprivation of liberty particularly undermines the fairness, integrity, or public reputation of judicial proceedings in the context of a plain Guidelines error because of the role the district court plays in calculating the range and the relative ease of correcting the error.”Since the Fifth Circuit’s shocks-the-conscience standard is unduly restrictive, it’s ruling is reversed.
CRIMES
Marinello v. United States, 138 S. Ct. 1101 (Mar. 21, 2018) (7-2) Obstruction of IRS requires knowledge of investigation or audit Section 7212(a) of USC Title 26 forbids “corruptly or by force or threats of force . . . obstruct[ing] or imped[ing], or endeavor[ing] to obstruct or impede, the due administration of [the Internal Revenue Code].” Commission of this offense requires that the defendant possess an awareness of a particular IRS action or investigation at the time of the alleged interference. The government must prove that there was a nexus between the defendant’s conduct and a particular administrative proceeding, such as an investigation, an audit, or other targeted administrative action. The required nexus does not apply to routine, day-to-day work carried out in the ordinary course by the IRS, such as tax return reviews Failure to correctly instruct the jury is reversible error.
DOUBLE JEOPARDY
Currier v. West Virginia, 138 S. Ct. 2144 (June 22, 2018) (5-4) Defendant’s consent to second trial overcomes double jeopardy claim Currier was charged with multiple counts, only one of which--felon in possession of a gun after felony conviction--required proof of a prior conviction for conviction. To avoid the possibility that evidence of the prior conviction might prejudice the jury’s consideration of the other charges, Mr. Currier and the government agreed to a severance and asked the court to try the alternate charges first, followed by a second trial on the felon-in-possession charge. Holding: consenting to a second trial when one trial would have avoided a double jeopardy problem precluded any constitutional violation associated with holding a second trial because, in those circumstances, the defendant won a potential benefit and experienced none of the prosecutorial oppression the Double Jeopardy Clause existed to prevent.
FEDERAL SENTENCING
Hughes v. United States, No. 17-155, 2018 U.S. LEXIS 3385 (June 4, 2018) (6-3, Kennedy Op.) Sentence reduction after retro guideline available despite 11(c)(1)(C) agreement When an amended Sentencing Guideline is issued, and the Sentencing Commission declares it retroactive, previously sentenced defendants can file requests for sentence reductions under 18 U.S.C. § 3582(c)(2). To win a reduction, they have to meet the statute’s requirement that their sentence was based on a guideline range that has been reduced by the amendment. Controversy has existed about whether this requirement can be met where the sentencing court accepted a “Type-C” plea agreement. That is an agreement under Fed. R. Crim. P. 11(c)(1)(C) in which the court, if it accepts the agreement, is bound to impose the sentence or Sentencing Guidelines computation (such as guideline range) agreed to by the parties. Ruling: a sentence imposed pursuant to a Type-C agreement is “based on” the defendant’s Guidelines range so long as that range was part of the framework the district court relied on in imposing the sentence or accepting the agreement. The Sentencing Guidelines prohibit district courts from accepting Type-C agreements without first evaluating the recommended sentence in light of the guideline range. In the usual case the court’s acceptance of a Type-C agreement and the sentence to be imposed pursuant to that agreement are “based on” the guideline range.
2 Koons v. United States, No. 17-5716, 2018 U.S. LEXIS 3382 (June 4, 2018) (Unan.) Sentence reduction after retro guideline not available for snitches Under sentence reduction statute (see Hughes), a defendant must show his sentence was based on a Sentencing Guideline range was has been lowered as a result of a guideline amendment. Where a defendant faces a statutory minimum sentence, but received a lower sentence because he “cooperated” (snitched), authorizing the court to sentence below the statutory minimum, the sentence was not based on the guideline range.
Lagos v. United States, No. 16-1519, 2018 U.S. LEXIS 3209 (May 29, 2018) (Unan.) Restitution doesn’t cover victim’s investigation and civil proceedings Under the Mandatory Victims Restitution Act (18 U.S.C. § 3663A(b)(4)), a defendant convicted of particular crimes must reimburse the victim for “expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.” This applies to government investigations and criminal proceedings. Under this language Lagos, who was convicted for defrauding a lender, was not obligated to reimburse the victim for private investigations and civil (bankruptcy) proceedings.
Sessions v. Dimaya, 138 S. Ct. 1204 (Apr. 17, 2018) (5-4, Kagan Op.) Residual clause of 18 U.S.C. § 16(b) is unconstitutionally vague
HABEAS CORPUS/2255
Ayestas v. Davis, 138 S. Ct. 1080 (Mar. 21, 2018) (Unan.) High threshold for funds to develop § 2254 claim rejected Title 18 U.S.C. § 3599(f) provides, in relevant part, that a district court “may authorize” funding for “investigative, expert, or other services . . . reasonably necessary for the representation of the defendant.” Fifth Circuit precedent attempted to make it especially difficult to receive funding, requiring a showing of a “substantial need”, and a viable constitutional claim that is not procedurally barred. Both are impermissible readings of § 3599(f). Under § 3599(f), the standard is “reasonably necessary”, and district courts have broad discretion in applying it. This includes consideration of whether the petitioner could win in the long run. “A natural consideration informing the exercise of that discretion is the likelihood that the contemplated services will help the applicant win relief... Proper application of the ‘reasonably necessary’ standard thus requires courts to consider the potential merit of the claims that the applicant wants to pursue, the likelihood that the services will generate useful and admissible evidence, and the prospect that the applicant will be able to clear any procedural hurdles standing in the way.” “[A] funding applicant must not be expected to prove that he will be able to win relief if given the services he seeks. But the ‘reasonably necessary’ test requires an assessment of the likely utility of the
3 services requested, and §3599(f ) cannot be read to guarantee that an applicant will have enough money to turn over every stone.” In cases where funding stands a credible chance of enabling a habeas petitioner to overcome the procedural default obstacle, it may be error to refuse funding. The Fifth Circuit’s viability standard ignored the potential that the requested “investigation might enable a petitioner . . . to overcome the obstacle of procedural default.”
Wilson v. Sellers, 138 S. Ct. 1188 (Apr. 17, 2018) (6-3) Review of state summary opinions in § 2254 cases looks to earlier opinions Under “look through” presumption, when a federal habeas court is reviewing an unexplained state court decision, it should consider the last related state court decision that provides a relevant rationale and presume that the unexplained decision adopted the same reasoning. (This looks through the unexplained decision in the sense of looking past or beyond it, but the term’s connotation of looking around in something creates a confusing and avoidable ambiguity). Here, the state supreme court declined to issue a certificate for appeal in a summary order. The reviewing court should look back to the opinion of the lower appellate court and assume that the higher court relied on it. A federal court may find the presumption is rebutted where counsel identifies convincing alternative arguments for affirmance that were made to the State’s highest court, or equivalent evidence such as an alternative ground that is obvious in the state-court record.
SEARCH & SEIZURE
Byrd v. United States, 200 L. ed. 2d 805 (May 14, 2018) (Unan., Kennedy Op.) Standing to protest bad vehicle stop is available for rider not on rental contract Facts: woman rented a car and signed an agreement that warned that permitting an unauthorized driver to drive the car would violate the agreement and void insurance coverage. She gave the keys to Byrd, who she did not list on the rental form. Byrd put his possessions in the trunk and headed out of town, alone. After stopping Byrd for a traffic infraction, state troopers learned that the car was rented, that Byrd was not listed as an authorized driver. Byrd admitted he had a joint in the car. The troopers searched the car, finding body armor and 49 bricks of heroin in the trunk. Byrd was charged with federal drug and other crimes. The district and appellate courts concluded that, because Byrd was not listed on the rental agreement, he lacked a reasonable expectation of privacy in the car. Ruling: a driver in lawful possession of a rental car has a reasonable expectation of privacy, regardless of whether he is named in the contract. The answer to whether Byrd had a legitimate privacy interest is informed by a principle of property law: “one who owns or lawfully possesses or controls property will in all likelihood have a legitimate expectation of privacy by virtue of the right to exclude [others].” A driver who is unauthorized by the rental company, in sole possession of a rental car, would be permitted to exclude third parties from it, such as a carjacker. Breach of the rental contract doesn’t matter.
4 Lawful possession does matter. The expectation of privacy must be reasonable, and would not exist for a car thief. “...[I]t may be that there is no reason that the law should distinguish between one who obtains a vehicle through subterfuge of the type the Government alleges occurred here and one who steals the car outright.” Case is remanded for determination of lawfulness.
Carpenter v. United States, 138 S. Ct. 2206 (June 22, 2018) (Roberts Op., 5-4) Search warrant is required for location information from cell phone carrier. Pursuant to a federal statute requiring less than probable cause, federal agents acquired a court order that authorized them to obtain records from suspects’ cell phone carriers that revealed location of the phone users. The agents obtained records that showed where Carpenter’s phone, and thus where Carpenter himself, had been located for the previous 127 days. Ruling: a person maintains a legitimate expectation of privacy in the records of his physical movements as captured through a cell phone. Obtaining that information by court order in this case was a search, requiring probable cause and a warrant. The government’s argument that privacy was surrendered because Carpenter allowed his service provider to have the information (the third party doctrine) is rejected. In the balance, privacy and the indispensable nature of cell phones in modern life prevails over the notion that the information is shared without an “affirmative act on the part of the user beyond powering up.” An exception to the warrant requirement may exist if there is an exigent circumstance, such as the need to pursue a fleeing suspect, protect individuals who are threatened with imminent harm, or prevent the imminent destruction of evidence. The 6th Circuit’s denial of suppression is reversed. This abrogates the Tenth Circuit’s incorrect ruling in United States v. Thompson, 866 F.3d 1149 (2017).
Collins v. Virginia, No. 16-1027, 2018 U.S. LEXIS 3210 (May 29, 2018) (8-1, Sotomayor Op.) Entry of curtilage to search motorcycle requires search warrant Facts: twice, a suspect outran police officers on an orange and black motorcycle when they tried to stop him for traffic infractions. They figured out that the motorcycle was probably stolen, and found pictures on Collins’ Facebook page that showed an orange and black cycle parked at the “top” of a driveway where Collins lived. A cop went to the house, walked up the driveway, pulled the tarp off the orange and black motorcycle, and took pictures of it. He waited in his car until Collins arrived. Collins admitted that the motorcycle was his and he bought it without a title. He was arrested. No warrant was ever obtained. Dueling Doctrines: in 1925 the SCt created the “automobile exception” to the requirement of a search warrant. Where a vehicle is readily mobile, a warrant is not required as long as there is probable cause to search. Carroll v. U.S., 267 U.S. 132 (1925). The curtilage doctrine extends the 4th Amendment warrant protection of the home to curtilage
5 outside the home. Given a choice between the two...answering whether a cop can search a vehicle on curtilage without a warrant, the Virginia Supreme Court sided with the automobile exception. Ruling: the curtilage rule prevails, and a search warrant was required. A 4th Amendment violation occurred when the cop entered the curtilage intending to search. “When a law enforcement officer physically intrudes on the curtilage to gather evidence, a search within the meaning of the Fourth Amendment has occurred... Such conduct thus is presumptively unreasonable absent a warrant.” (Citing Florida v. Jardines, 569 U.S. 1, 11 (2013)). Ruling No. 2: “the part of the driveway where Collins’ motorcycle was parked and subsequently searched is curtilage.” The motorcycle was on a driveway on the side of a house. That part of the driveway was enclosed on one side by the house, and on two sides by a brick wall about the height of a car. A visitor heading to the front door would leave the driveway before getting to the enclosed area. The driveway was “‘an area adjacent to the home, and ‘to which the activity of home life extends,’ and so is properly considered curtilage.[.]” The Court reminds us that curtilage typically also includes a front porch, side garden, and the area outside the front window. Final word: Justice Sotomayor, perhaps not motorcycle-minded, left out one of the most important facts of the case--what kind of motorcycle was it? The Virginia Supreme Court’s opinion tells us that Collins outran one cop by going over 140 mph. On a Suzuki. Practice pointer: OCCA’s most recent significant curtilage decision is Dale v. State, 2002 OK CR 1 (“...the agents' [warrantless] entry of Appellant's property... by climbing over the locked driveway gate, which was part of a secure perimeter fence, and proceeding between the two residential structures in order to confront Appellant was an unlawful entry onto the curtilage of the home...”)
Dahda v. United States, 200 L. Ed. 2d 842 (May 14, 2018) (Unan.) Wiretap order without jurisdiction doesn’t trigger suppression A federal statute allows judges to issue wiretap orders authorizing the interception of communications based on probable cause. 18 U.S.C.S. § 2518. Suppression is authorized if 1) the communication was unlawfully intercepted; 2) the order of . . . approval under which it was intercepted is insufficient on its face; or 3) the interception was not made in conformity with the order of authorization or approval. Issue: is the second ground for suppression applicable where wiretap orders authorized interception outside the territorial jurisdiction of the judge, even though the statute normally allows a judge to authorize wiretaps only within the judge’s territorial jurisdiction. Ruling: suppression is not required. Since the authorization extending outside the jurisdiction is surplus language, that is, it’s in addition to what is required for a valid order, its erroneous presence doesn’t make the order facially insufficient. Moreover, no extra- jurisdictional wiretaps were admitted at trial.
6 District of Columbia v. Wesby, 138 S. Ct. 577 (2018) (9-0, Thomas Op.) Probable cause confirmed for arrest of partiers in vacant house Cops are called by neighbors concerned about an apparent party at a house that was supposed to be vacant. When the cops arrived, the occupants said they thought they were allowed to be there by “Peaches”, who rented the house. But Peaches told the cops that she hadn’t rented the place. Cops then contacted the owner, who confirmed that no one had permission to be in the house. All 21 partygoers were arrested for unlawful entry. Ruling: the arrest was valid (there was a “substantial chance of criminal activity.”) This is, as Justice Sotomayor’s concurrence says, “a heavily factbound” case on probable cause. It doesn’t break any new ground. It was apparently picked up by the Court because the D.C. Circuit, in a precedental opinion, denied lawsuit immunity for the cops. Another reason may have been so Justice Thomas could detail--twice--the gratuitous facts of a “makeshift strip club”(“Several women were wearing only bras and thongs, with cash tucked into their garter belts. The women were giving lap dances while other[s] watched.”). Or perhaps Thomas thought the gist of the crime of unlawful entry was the “debauchery” found upstairs--a mattress, a naked woman, and several men, plus “a used condom on the windowsill.” You gotta wonder...did Roberts assign the drafting job to Thomas because he knew it was in Thomas’ grindhouse, um, wheelhouse, or did Thomas volunteer?
TRIAL
McCoy v Louisiana, 200 L. Ed. 2d 821 (May 14, 2018) (6-3, Ginsburg Op.) Defense counsel’s concession of guilt, over client’s protest, is reversible error. Facts: In death penalty trial, defense counsel argued to the jury that McCoy committed the charged murders, but did not have the specific intent required for conviction. McCoy complained to the trial judge that counsel was “selling him out.” He wanted to present an alibi defense. Counsel thought the evidence of guilt was overwhelming. The trial judge told McCoy that he was represented by counsel, and there would be no more outbursts. Ruling: the trial court committed reversible error by allowing counsel to concede guilt over the client’s express opposition. Since the decision whether to plead guilty belongs to a defendant, this autonomy includes the right to insist that innocence be maintained in the guilt stage of trial. “When a client expressly asserts that the objective of ‘his defence’ is to maintain innocence of the charged criminal acts, his lawyer must abide by that objective and may not override it by conceding guilt.” While counsel might reasonably conclude that conceding guilt is the best way to avoid the death penalty, when the client “expressly asserts that the objective of ‘his defence’ is to maintain innocence”, the lawyer may not override that decision. Who decides what? McCoy recaps which decisions belong to the client. The client decides whether to plead guilty, to waive the right to trial, to testify on his own behalf, and to appeal.
7 Client perjury: in finding no error, the Louisiana Supreme Court held that counsel was free to concede guilt because counsel disbelieved his client’s alibi in light of the prosecution’s evidence. According to Justice Ginsberg, this did not fall within ethical rules forbidding counsel from assisting the client in committing criminal or fraudulent conduct. McCoy didn’t say that he intended to lie at trial. Counsel did not “know” perjury was involved. Besides, counsel’s stated reason was not avoidance of perjury; it was to win life. Practice pointers: 1) the Louisiana court’s use of the don’t-sponsor-perjury ethic brings to mind an unpublished OCCA case which modified an LWOP sentence to life because defense counsel, believing his client was innocent, would not let the client plead guilty and accept a 10 year offer. Williams v. State, No. F-2000-1247 (Okl. Cr. Feb. 18, 2013). See also Williams v. Jones, 571 F.3d 1086, 1091 (10th Cir. 2009) (“The deficient performance was counsel's advice concerning the plea agreement--advising Mr. Williams he would be committing perjury by accepting the plea offer and insisting that Mr. Williams proceed to trial or find new counsel if he wanted to accept it.”) 2) OCCA held that conceding guilt in the guilt stage of a capital trial may be “clearly acceptable trial strategy”, but before doing so, counsel must obtain the client’s “consent or acquiescence”, and failure to do so is ineffective assistance of counsel. Jackson v. State, 2001 OK CR 37 (authored by Judge Lile). “[I]f counsel chooses this strategy the trial court shall be informed before trial, or at least prior to the concessions being announced to the jury, and the trial court shall determine from counsel and the defendant, on the record, whether this strategy is one in which the client has consented or acquiesced. If the client does not consent to or acquiesce in the strategy, then counsel shall follow the client's wishes.” 3) McCoy doesn’t address concession of one element, and OCCA has not applied the rules in Jackson to such a concession.
COURT OF CRIMINAL APPEALS (Some entries contributed by Stuart Southerland, First Assistant Public Defender, Tulsa County)
APPEAL
Mitchell v. State, 2018 OK CR 24 (June 28, 2018) Arguments that don’t claim error aren’t welcome A tip for appellate lawyers: if you have to concede that no prejudice resulted from an error, you have no viable argument. Counsel argued on appeal that in voir dire the prosecutor wrongly implied that a defendant with a life sentence would be paroled after 37 years. OCCA held that there was no error because the prosecutor didn’t imply that parole was automatic. Footnote 6 revealed that appellate counsel conceded that no prejudice existed (apparently because the defendant, convicted of Murder 1, received the minimum possible sentence of life with parole). The court wagged its finger: “The absence of any injury to Mitchell should have resulted in the removal of this claim from the appeal.”
8 CONFRONTATION/CROSS-EXAMINATION
Johnson v. State, F-2016-658 (Okl.Cr. Mar. 8, 2018) Right to confront witness lost due to forfeiture by wrongdoing This case discusses forfeiture by wrongdoing pursuant to 12 O.S.Supp.2014, § 2804(B)(5). Forfeiture by wrongdoing is a well-established doctrine which articulates the common sense notion that a defendant who takes part in a scheme to prevent a witness from testifying “forfeits” his right to confront that witness in court. He cannot claim a violation of the confrontation clause on appeal. The lower court found that the State had established: “Appellant's conduct, ‘pressure and influence, both explicit and implicit on all three of these witnesses, wrongfully caused or through those means he wrongfully acquiesced in wrongfully causing all three witnesses or declarant's unavailability as witnesses.’” OCCA also found that a child witness was not “unavailable” for the purpose of offering child hearsay simply because the witness had recanted and therefore “refused” to testify as the State wanted. However, the child testimony was admissible pursuant to 12 O.S.2011, § 2803.1, because the child testified for the defense. This case also repeats (in a footnote) Judge Lumpkin's position that issues addressed in footnotes are dicta and not holding of the Court. See Bosse v. State, 2015 OK CR 14, 360 P.3d 1203, 1240 (Lumpkin, V.P.J., concurring in part/dissenting in part).
DEATH PENALTY
Bench v. State, 2018 OK CR 31 (Oct. 4, 2018) Change of venire due to publicity not required. On this issue, the main takeaway is that a motion for change of venue must be renewed during voir dire. Here, defense counsel filed a pretrial motion, and the jury was questioned about publicity. But failure to renew the motion limited reversibility to plain error. Looking at whether the publicity was an inflammatory barrage immediately before trial, or demonized Bench, demanded swift justice, or stoked the emotional climate, the OCCA found no basis for presuming prejudice. Moving on to the totality of circumstances, the jurors’ answers did not show general partiality or an inflammatory atmosphere. *Bench’s incriminating statements to during booking and at other times were volunteered and not in response to interrogation, making them admissible. *Trial court’s failure to instruct on depraved mind murder was not error under Beck v. Alabama. Evidence was insufficient to permit a rational jury to find Bench guilty of the lesser degree of offense. No rational jury would have acquitted on the premeditated murder count. *State’s forensic psychologist (Terese Hall) did not vouch for credibility of state’s witnesses or dismiss the credibility of defense witnesses. (Reviewed for plain error). *Evidence was sufficient to establish the aggravating circumstances of continuing threat and heinous, atrocious, or cruel.
9 *Prosecutor committed error in closing argument when he told the jury he had run a business before and had seen clerks do things like the defendant had done. This injected facts not in the record. But defense counsel did not object, which forfeited Bench’s right to a favorable standard on appeal, and plain error was not fulfilled. *Defense counsel was not ineffective at trial, and the threshold for supplementing the record with evidence to support ineffectiveness was not reached. The death sentence imposed in Stephens County was affirmed.
DEFENSES
Lewis v. State, F-2017-355 (Okla.Cr. May 24, 2018) Claiming innocence waives interest in being convicted on applicable lesser offense There is no right to a lesser-included instruction if innocence is claimed. Comment: Owens v. State, 2010 OK CR 1, 229 P.3d 1261, held that a defendant who asserted an alibi defense was entitled to an instruction on second degree robbery in a first degree robbery prosecution. Note that the government has a right to plead alternative charges and thus can argue multiple theories of guilt as to a single count. Equal treatment should be part of a defendant’s argument.
McNeely v. State, 2018 OK CR 18 (May 24, 2018) No more writs to appeal stand your ground. In a 3-2 decision the OCCA reversed the three year-old Ramos stand your ground decision and concluded that it was up to the Legislature to establish a interlocutory right of appeal from an adverse decision on a stand your ground motion for pretrial immunity from prosecution. So a defendant must wait for a conviction to find out if he was immune from prosecution. Judge Kuehn states in her vigorous dissent that the State can only appeal the granting of a motion to dismiss on a reserved question of law. Judge Lewis filed a separate dissent.
State v. Miller, S-2016-1126 (Okl.Cr. Mar. 22, 2018) Stand your ground immunity upheld. District judge in Tulsa County granted immunity to a defendant in an assault and battery with a dangerous weapon prosecution. According to the motion filed by defense counsel, the defendant was the lawful owner of the residence which was entered by the alleged victim without the defendant's permission. The judge granted immunity after a hearing and the State appealed. Not only did OCCA deny relief to the State, it dismissed the appeal. The court suggested that if the State had a legal issue it could have proceeded on a reserved question of law, but since the substance of the State's argument was simply to claim that the judge had “disregarded the State's evidence” the Court found that the State had not even proceeded on a legitimate statutory basis for an appeal.
10 DOUBLE JEOPARDY/PUNISHMENT
Crandall v. State, F-2017-08 (May 10, 2018) Two gun convictions violate § 11. Convictions for knowingly concealing a stolen firearm and felon in possession of the same firearm violate 21 O.S.2011, § 11 when the State failed to prove that the defendant's possession was not a continuous act. Defense counsel failed to object and the court found plain error. This is one area where the CCA refuses to permit the state to break up possession crimes into arbitrary periods of time in order to justify multiple counts based upon a single, ongoing, act of possession.
Irwin v. State, 2018 OK CR 21 (June 14, 2018) Convictions for stalking and violation of protective order violate § 11. “The State concedes that Appellant's convictions for stalking and violating the protective order arise from the same criminal acts under Davis. We agree. Appellant feloniously stalked the victim by willfully, maliciously, and repeatedly harassing her in violation of the protective order. Punishment of Appellant by terms of imprisonment and fines totaling $2,000.00 for violating the protective order plainly violates section 11. Counts 4 through 7 are therefore reversed and remanded with instructions to dismiss.” This is a commendable win for OIDS attorney Ricki J. Walterscheid, who raised an issue that trial counsel missed.
EVIDENCE
Mitchell v. State, 2018 OK CR 24 (June 28, 2018) Requirement of corroboration of accomplice testimony applies when accomplice is a conspirator. This case attempts to unravel confusion about the rules applicable to accomplices and conspirators. A conviction can’t be based on an accomplice’s testimony unless the testimony is corroborated by evidence that connects the defendant with the crime. 22 O.S. § 2011, § 742. This rule applies where the charge is conspiracy and/or the witness may be characterized as a co-conspirator, as long as the witness meets the definition of an accomplice “An accomplice is one who is or could be charged for the offense for which the accused is being tried.” The OCCA had previously messed up how this rule applied to co- conspirators in Pink v. State, 2004 OK CR 37, which is overruled.
FOURTH AMENDMENT
State v. Stark, 2018 OK CR 16 (May 24, 2018) Fourth Amendment-based suppression order reversed. Fitting the recent trend of results in State appeals, the OCCA reverses a suppression that was granted in Comanche County. OCCA finds that the initial entry into a home by
11 officers “was reasonable under the circumstances, but that even were this not so, the evidence was ultimately seized pursuant to a search warrant supported by probable cause obtained entirely independent of the contested entry.” Judge Lewis dissents.
State v. Strawn, 2018 OK CR 2 (Feb. 8, 2018) Encounter between trooper and Strawed was consensual State appealed from adverse ruling on motion to suppress. The evidence in this drug case was obtained by a state trooper during a traffic stop along I-40. Judge Adair granted the defense motion to suppress, but the OCCA reversed, holding that the encounter and subsequent dog alert were consensual.
PLEA
Anderson v. State, 2018 OK CR 13 (May 17, 2018) Motion to withdraw plea requires hearing. OCCA Rule 4.2(B) states that "trial court shall hold an evidentiary hearing within (30) days." This means what it says and a hearing must be held (although the 30 day part is not jurisdictional).
Banks v. State, C-2017-33 (May 24, 2018) Breach of plea agreement by State. The decision compares plea agreements to contracts which the State must honor. The State agreed to dismiss an application to revoke in exchange for the plea. The defendant pled, but then he filed an application to withdraw his plea. The State immediately refiled the application. OCCA held that the State "jumped the gun" as there was no breach of the agreement on the defendant's part until a judge permitted him to withdraw the plea. This ended up adding 12 years to his sentence, which the OCCA found to be prejudicial. The Court solved the prejudice by ordering the sentences to run concurrently.
Dunn v. State, 2018 OK CR 35 (Nov. 8, 2018) Right to be present attaches to hearing on motion to withdraw plea (or, don’t plead blind in Muskogee!). Dunn pled no contest, without a plea agreement, at the threshold of trial in Muskogee County. The judge gave him two life sentences plus 35 years, all running consecutively. (No one was killed). A motion to withdraw plea was filed, alleging the plea wasn’t knowing and voluntary, and double punishment was violated. After Dunn had been shipped to DOC the court held a hearing. Defense counsel said he had talked with Dunn and was “comfortable” proceeding without him. Counsel argued that three counts should be merged, and “renounced” Dunn’s request to withdraw his plea. Ruling: “[A] defendant has a due process right to be present at an evidentiary hearing held on his or her motion to withdraw plea.” Dunn’s presence would have been of material benefit because he could have testified about whether the plea was knowing and voluntary,
12 and even without testifying, his familiarity with the circumstances would have been beneficial to counsel. The right to be present could be waived, but waiver must be knowing and voluntary, and that was not accomplished by “counsel’s announcement of his feelings[.]” The constitutional error was not harmless beyond a reasonable doubt. To remedy the error, the case was remanded to district court for a hearing done right. This opinion is by Judge Lumpkin, joined by everyone except Judge Lewis, who says: “The procedural right to be present is not a license to trifle with the court, or for appellate counsel to revoke every ostensibly disadvantageous act or declaration made by trial counsel in the defendant’s absence.” High praise is due Ricki J. Waltersheid, OIDS counsel, for establishing a new fundamental right.
PRESERVATION OF ERROR
Thompson v. State, 2018 OK CR 5 (Feb. 15, 2018) Plea at district court waived claim of insufficient proof of priors at prelim. Thompson filed motion at the time of trial to quash an information which charged him with prior convictions. His argument was insufficient evidence to prove the prior convictions at preliminary hearing. OCCA held that he waived this issue because he failed to timely assert it before he entered a plea at arraignment. The discussion notes that the issue is not jurisdictional, signalling that jurisdictional issues can be raised after plea.
REVOCATION
Martin v. State, RE-2016-929 (Okl.Cr. Feb. 15, 2018) J&S’s used to revoke must be final Revocation order was reversed because the State introduced judgments and sentences of other crimes as the basis to revoke without proving that those judgments and sentences were final.
SELF-REPRESENTATION
Brown v. State, 2018 OK CR 3 (Feb. 15, 2018) Waiver of counsel at death penalty stage is defective. This was a capital case where OCCA affirmed the convictions, but vacated the death penalty where there was a sufficient knowing and voluntary waiver of counsel at first stage, but an insufficient waiver at second/penalty phase. OCCA found no error as to 1) restrictions on specific pro se requests (about subpoenas and witnesses); 2) a Brady claim (a mental health report of a witness was not material to the case); 3) an odd claim about a coercive "pizza lecture" by the trial judge that compelled a quick verdict; and 4) cumulative error.
13 SENTENCE
Bivens v. State, 2018 OK CR 33 (Oct. 11, 2018) Trafficking: Title 21 sentence and Title 63 fine can be combined. Since Bivens had prior convictions that included drug and non-drug crimes, the state was free to rely on the enhancement availed by 21 O.S. § 51.1. But § 51.1 does not provide for a fine. Title 63 O.S.2011, § 2-415(D) does. Bivens was sentenced to 50 years in custody and was fined $500,000. OCCA’s precedents prohibit combining of punishment statutes and require reliance on one statute only. See Coates v. State, 2006 OK CR 24, and Gaines v. State, 1977 OK CR 259. Ruling: “To the extent Coates and its predecessors prohibit the imposition of a statutorily authorized fine in the sentencing of a habitual offender under § 51.1, those cases are hereby overruled.” Statutory amendments have made the Coates rule “unworkable[.]” The trafficking statute now says that the term of imprisonment shall be “in addition to any fines” described in subsection 2-415(D). This provision is not rendered inapplicable when sentencing occurs under § 51.1. On another issue, the OCCA held that the jury need not be instructed that as a consequence of conviction, Bivens would have to register under the Oklahoma Methamphetamine Registry Act. The Act is a regulatory scheme, and is separate and distinct from the punishment range.
Stevens v. State, 2018 OK CR 11 (May 10, 2018) Special procedures for sentencing juvenile offenders to LWOP. OCCA approved a second application for post-conviction relief based upon the retroactive application of Miller v. Alabama (SCt) and Luna. The court set up some specific rules, beyond those articulated in Luna, for how these cases should be handled. The State must place a notice on the information (in bold letters) that: The State is seeking the punishment of life without the possibility of parole for the offense of Murder in the First Degree, as Defendant (state last name here) is irreparably corrupt and permanently incorrigible. Finally, the Court added a form jury instruction for these cases that had not been addressed in Luna.
Thompson v. State, 2018 OK CR 5 (Feb. 15, 2018) Second page need not be refiled with amended informations Thompson claimed he was surprised at jury trial when the trial court recognized a “second page” information, alleging prior convictions for enhancements, which was not filed with amended informations. In other words, it had been initially filed, but was dropped from subsequent refilings of informations. Precedent forecloses this claim.
14 TRIAL
Bivens v. State, 2018 OK CR 33 (Oct. 11, 2018) Possession of drugs with intent is not a lesser offense of trafficking. Whether to instruct a jury on a lesser included/related offense is answered by a two- part standard. (1) does the crime constitute a lesser included offense of the charged crime? (2) has prima facie evidence of the lesser offense been presented? Bivens was convicted of trafficking in illegal drugs. On appeal he claimed that the jury should have been instructed on possession with intent to deliver. Ruling: Bivens fails at the first analytical step. Possession with intent is not a lesser included or lesser related offense of trafficking, which was the holding in Dufries v. State, 2006 OK CR 13, ¶ 20. Judges Hudson and Kuehn say, in separate concurrences in result, that the first step applied by the majority is inconsistent with Shrum v. State, 1999 OK CR 41, and the requested instruction should be available if warranted by the evidence. This controversy among the judges should prompt any appellate lawyer raising lesser offense issues to be very fastidious about applying Shrum and insisting that Bivens strayed from the path.
Bramlett v. State, 2018 OK CR 19 (May 31, 2018) Lee v. State, 2018 OK CR 14, (May 31, 2018) Prosecutor misstatement of the 85% rule in closing. In an unusual 1-2 punch, OCCA sent a message to the Tulsa County District Attorney's Office to stop telling jurors that after a defendant has served 38 years and 3 months of a life sentence, he will be released. LIFE IS LIFE. All the 38 year 3 month instruction means is that the defendant will not even be eligible for a parole hearing until he has served 85% of 45 years. Also, it is misstatement of the law for prosecutors to tell juries that a life sentence means 45 years. The only reason that the jury instruction mentions 45 years is because it is necessary to have a number in order to calculate the minimum 85% term. Both cases were remanded for resentencing.
J.M.F. v. State, 2018 OK CR 29 (Aug. 2, 2018) Deliberating jury can’t go home, even in juvenile delinquency adjudications. In Oklahoma County, a jury retired to deliberate a petition for juvenile delinquency. When the jury hung at 10:43 p.m., the judge released them, to reconvene the next morning. Defense counsel (Jarrod Stevenson and Thomas Griesedieck) objected. The court overruled, stating that the Rule of Sequestration didn’t apply to delinquency cases. Ruling: juvenile adjudicative hearings must be conducted according to the rules of evidence. 10A O.S. § 2011, § 2-2-402(A). Thus, 22 O.S. § 2011, § 857 applies. It provides that after a jury retires for deliberation, “one or more officers must be sworn to keep them together in some private and convenient place, and not to permit any person to speak to or communicate with them...”
15 Since the trial court allowed the Rule of Sequestration to be violated over defense objection, prejudice is presumed, and the State has the burden to overcome the presumption. An admonition to the jury not to discuss the case doesn’t cut it. J.M.F. says that the only way to overcome the presumption is to quiz the jurors when they return. “Absent inquiries made of the jurors upon their return the next morning, there can be no showing the error was harmless.” Case is reversed. Good work, Danny Joseph and Sarah MacNiven of OIDS.
Mack v. State, 2018 OK CR 30 (Aug. 16, 2018) “Imperfect self defense” is no defense. Mack, convicted of premeditated murder, argued on appeal that the Tulsa court should have instructed the jury on imperfect self defense. OCCA rejects this, finding that imperfect self defense is not “a separate legal doctrine in Oklahoma.” Cases have mentioned or alluded to it, but did so in the context of acknowledging that a defendant had a flawed self-defense claim, “which might reduce the grade of offense to manslaughter.” But the issue is whether conditions exist which may satisfy the elements of manslaughter and warrant a jury instruction on that option. In other words, “some form of manslaughter instruction may be appropriate where a self-defense claim fails.” Affirmed.
Nicholson v. State, 2018 OK CR 10 (Apr. 26, 2018) Statute requiring jury questions to be answered in court disregarded. Title 22 O.S.2011, § 894 states that if the jury has a question “on a point of law arising in the cause, they must require the officer to conduct them into court. Upon their being brought into court, the information required must be given in the presence of, or after notice to the district attorney and the defendant or his counsel, or after they have been called.” Earlier decisions held that a presumption of prejudice arises when a judge fails to bring a deliberating jury into the courtroom when it has a question. In this case, the presumption of prejudice was formally jettisoned “when the trial court communicates with the jury in writing after affording counsel with notice and an opportunity to be heard.”
Runnels v. State, 2018 OK CR 27 (Aug. 9, 2018) Transferred intent doctrine inapplicable in cases of mistaken identity of victim. An odd wrinkle in this case is that one error by the Tulsa judge nullified the impact of another error. First, the court presiding over a murder trial erred by not choosing the applicable options in the OUJI instruction on transferred intent before instructing the jury. Bolded terms divided by slashes signify that the judge is to choose the term that most accurately fits the case. Instead of choosing between kill/injure/assault, the judge put all three in the jury instruction. The logic of the given instruction told the jury that based on pre-existing intent to injure or assault a particular person, the jury could find intent to kill another person. This was not the “Rule of Law” on transferred intent. However, the instruction shouldn’t have been given anyway. The defendant intended to kill the driver of a car, but he was mistaken about who the driver was. Transferred intent is inapplicable to
16 “mistake of fact as to the victim’s identity.” Further, any error was harmless because there was direct evidence of intent to kill (from Runnels’ own mouth) and the jury was instructed on the requirement of malice aforethought. Prosecutors can tell juries “Life with the possibility of parole means 45 years.” In closing argument, the prosecutor said “Life with the possibility of parole means 45 years. Forty-Five years is the determination because the State determined many years ago that somebody sentenced to life has the right to ask for parole at some point, so they had to attach a number to it. Life in the State of Oklahoma means 45, which means that you are eligible for consideration of parole after 38 years and three months.” While OCCA called this “borderline” and “inartful”, it did not find error. So this is what DAs can and will say. Compare Lee v. State, 2018 OK CR 14 (“Telling the jury that a life sentence is forty-five (45) years in prison is a misstatement of law.”). In response to similar inartfulness by defense counsel, OCCA added this to the end of the OUJI on life sentences (10-13B): “However, if a person is not granted parole, he or she will be imprisoned for the remainder of his or her natural life while serving a sentence of life imprisonment.” To resolve a claim that defense counsel’s statements were ineffective assistance, the OCCA found no prejudice, pointing to Runnels’ brazen threats to murder his intended target, which led to killing the wrong person after Runnels had time to change his mind, combined with a prior conviction, all of which supported the LWOP sentence. Judge Kuehn dissented, and would reverse because of what both attorneys said about parole.
Smith v. State, 2018 OK CR 4 (Feb. 15, 2018) Single stage trial for misdemeanors and enhanced felonies is OK. The court refused to address the question of whether bifurcation of a misdemeanor was necessary when a defendant was charged AFCF on accompanying felony offenses. In spite of the fact that the appellant in Smith received the maximum sentence for possession of paraphernalia, the CCA found no plain error. Which means there is no precedent against it. The issue is ripe for a lawyer willing to object and appeal.
Terrell v. State, 2018 OK CR 22 (June 28, 2018) To prove prior convictions, evidence of deferred/suspended sentence, & revocation, is OK; prosecutor can ask for higher a sentence to punish defendant for past crimes. Ruling: proof of a prior conviction properly includes a judgment and sentence. Whatever the J&S says is admissible. “[T]he relevant proof of a prior conviction includ[es] any evidence that a defendant previously received probation, suspension, or deferral of a sentence and any acceleration or revocation of such a sentence.” Both parties have “wide latitude to discuss this evidence and make recommendation as to punishment in the second stage of a trial.” OCCA says that a prosecutor’s closing argument is limited by the relevance/prejudice balancing standard in 12 O.S. 2011 § 2403. Argument about something like past receipt of a suspended sentence may not invoke societal alarm, sympathy, sentiment or prejudice. Here, J&S’s showing suspended sentences and revocations were admissible, and the prosecutor properly argued that “He’s been given chance after chance after chance.” Overrules Hunter v. State, 2009 OK CR 17.
17 In a concurrence in result Judge Kuehn favors an instruction telling the jury not to consider the type of sentence given in a past conviction when determining the punishment for the crime charged. She calls the balancing standard adopted by the court “vague and broad[.]” She has no problem with the J&S’s being admitted, but thought the prosecutor’s statement was error (signifying that her opinion was actually a dissent in part). Judge Kuehn made this effort to even the playing field: In order to rebut the “wide latitude” of the State, the defense will want to present evidence of why the plea was a probationary term, what the defendant had to complete in order to finish probation, how the defendant completed the probation, etc. The second stage will become an aggravation and mitigation spectacle leaving the unguided trial judge with no choice but to sit back and watch the show. The Court is stirring up a hornet's nest without more guidance to the parties and the trial courts. Comment: in Judge Kuehn’s one can foresee that a trial judge would allow the J&S in, citing Terrell, but not allow the defense evidence of why the defendant got probation (i.e. because the DA pea bargained for it). Still, if evidence that the DA agreed to probation is kept out and the DA argues at trial that the defendant got leniency, an objection could be grounded on making an argument that the prosecutor knows is untrue and lacks a good faith basis. Judge Lewis’ dissent has more to say about leniency being an inaccurate depiction of plea agreements. Anyone interested in the Double Jeopardy Clause’s role in this issue should read the dissent in Gipson v. Jordan, 376 F.3d 1193 (10th Cir. 2004).
Thompson v. State, 2018 OK CR 32 (Aug. 30, 2018) No such crime as assault with a deadly weapon. Lincoln County jury convicted Thompson of four counts, including “assault with a deadly weapon.” On appeal, Sarah MacNiven argued that the applicable statute required a battery. The OCCA unanimously agreed. Section 652(C) of Title 21 prohibits an “assault and battery upon another...by means of any deadly weapon[.]” OCCA precedent established long ago that assault with a deadly weapon is not a separate crime under § 652(C). Since trial counsel didn’t object, only plain error is available to Thompson. The error here is plain. Thompson’s § 652(C) conviction is an 85% crime (no parole eligibility until 85% served). A § 645 conviction is not, and allows parole eligibility after a slightly shorter time period. Section 645 is assault with a dangerous weapon. Finding that the error prejudiced Thompson’s parole eligibility, but also that his guilt was overwhelmingly established, OCCA modified the conviction to a § 645 offense. The life sentence was affirmed, which is not subject to the 85% rule. OCCA also found no double punishment error (21 O.S. § 11) where the crimes of assault with a dangerous weapon, possession of firearm after felon conviction, and possession of a firearm during commission of a felony occurred during a single car burglary incident which erupted in a shootout with the victim, and each crime was separate and distinct.
18 Warrior v. State, F-2016-519 (Okl.Cr. Jan. 24, 2018) Motion for new trial is successful. After conviction for first degree murder, defendant filed a motion for new trial in OCCA based on newly discovered evidence. OCCA remanded for a hearing in district court. Tulsa prosecutors agreed to a post-trial ballistics test, which indicated that a bullet recovered from the victim had been fired by a gun recovered from someone other than Warrior.
Williamson v. State, 2018 OK CR 15 (May 17, 2018) Flight instruction more widely available to assist the prosecution. Court permits use of flight instruction without explanation of departure: According to the OCCA “[t]he instruction protected Appellant from the inappropriate assumption that he was presumed guilty for leaving the scene. The instruction, in fact, limits the fact of his leaving as another circumstance that the jury may consider in deciding guilt.” In so holding the CCA overrules a long line of cases, starting with Mitchell v. State, 1993 OK CR 56, 876 P.2d 682. Comment: if a flight instruction assisted a defendant, then it would be something defense counsel would ask for. They don’t. Ever. They fight it because it is a way that the trial court emphasizes evidence of merely leaving a place where a crime occurred and depicts it as powerful evidence of guilt, without also stating that it’s equally possible that an innocent person would do the same thing.
YOUTHFUL OFFENDERS
J.T.A v. State, 2018 OK CR 12 (May 24, 2018) Motions to sentence YO as adult and a proper record. OCCA reversed ruling classifying defendant as a YO due to insufficient evidence or inadequate record. The comments in the opinion suggest that the court is tired of the way YO hearings are being handled. In Tulsa, where most YO motions by the State are in robbery cases, the hearings usually involved stipulations - to the psychological evaluation and YO study. There was some testimony in this case but the Court was very disappointed that the YO study had “no specifics as to an appropriate plan of treatment unique to Appellant.” The district judge’s findings of fact and conclusions of law said virtually nothing. OCCA seems to be announcing that this will not fly anymore, and the district court is going to have to make appropriate findings, based upon evidence presented by the State, which shows by clear and convincing evidence that the YO should not be sentenced as a YO.
19 TENTH CIRCUIT
APPEAL
United States v. Fykes, 733 Fed. Appx. 950 (May 15, 2018) (Unpub.) Research, research, research. Anders brief counsel said he did not find any precedent on an issue in the case (he didn’t say no precedent existed), but the court found a precedent. Language about counsel (a highly capable AFPD in Denver) was harsh (fn. 2). Before saying “counsel has found no precedent” or “there is no precedent,” research twice.
ATTORNEYS
United States v. Benitez, 720 Fed. Appx. 509 (Apr. 24, 2018) (Unpub.) District court has no post-sentencing authority to order file to be given to defendant After being sentenced, defendant filed a motion to compel defense counsel to furnish his case file. He appealed the district court’s denial. The district court had no jurisdiction over the motion and should have dismissed it. See also United States v. James, 728 Fed. Appx. 818 (Mar. 29, 2018) (Unpub.) (where defendant requested Assistant Federal Public Defender’s time sheets, the district court had no authority to rule on the merits of the request.)
CRIMES- 18 U.S.C. § 924(c) (possessing gun during crime of violence (“COV”)).
United States v. Cravens, 719 Fed. Appx. 810 (Dec. 19, 2017) (Unpub.) Federal bank robbery is a COV.
United States v. Kundo, No. 16-4128, 2018 U. S. App. LEXIS 21252 (10th Cir. July 27, 2018) (Unpub.) Carjacking is a COV.
United States v. Melgar-Cabrera, 892 F.3d 1053 (June 8, 2018) Hobbs Act robbery is a COV.
United States v. Rinker, No. 18-1227, 2018 U.S. App. LEXIS 23291 (10th Cir. Aug. 21, 2018) (Unpub.). Armed Bank Robbery is a COV.
United States v. Salas, 889 F.3d 1053 (May 4, 2018) Residual clause in § 924(c) (possessing gun during crime of violence) is unconstitutional. Applying Sessions v. Dimaya, which held that the residual clause in 18 U.S.C. §
20 16(b) is unconstitutionally vague, the Tenth Circuit finds that the identically-worded residual clause in § 924(c)(3)(B) is invalid. In future cases, determinations that crimes qualify under § 924(c) are based on the element clause in § 924(c)(3)(A).
United States v. Wing, 730 Fed. Appx. 592 (10th Cir. 2018) (Unpub.) Assault on a federal officer with a deadly/dangerous weapon is a COV.
FOURTH/FIFTH AMENDMENT
United States v. Bagley, 877 F.3d 1151 (Dec. 18, 2017) Protective sweep invalid Cops conducted a protective sweep of a house incident to the arrest of one of its occupants, Mr. Bagley. Protective sweeps are confined to the area immediately adjacent to the place of arrest in the absence of specific, articulable information that a dangerous person remains in the house. Here, the cops conducted a protective sweep of the entire house without any information suggesting that someone else remained inside.
United States v. Banks, 884 F.3d 998 (Mar. 6, 2018) Arrest warrant and “ping order” found valid Circuit rejects defendant’s arguments that (1) the state court issued his arrest warrant without probable cause, (2) the state court issued the ping order without probable cause, and (3) law enforcement performed an unjustified protective sweep of the Spencer house after arresting him. Also, the court has no problem with a government “overview witness” regarding the defendant’s membership and role in a gang; three convictions for drug crimes were admissible to show knowledge or mistake of fact, particularly where the primary theory of defense at trial was lack of knowledge.
United States v. Chambers, 882 F.3d 1305 (Feb. 27, 2018) Good faith rescues search warrant This is a factbound case where the affidavit arguably did not sufficiently identify the residence in which evidence of crime was believed to be. The “residence identified” section of the affidavit failed to include an address. Court finds enough in a holistic manner: “(1) in Deputy Tucker's experience, methamphetamine dealers—like the Pair—keep items at their residences related to distributing the drug; (2) the Pair resided in Mr. Chambers's home; and (3) Mr. Chambers's home was located at 11470 S. 4210 Road.”
United States v. Dunn, 719 F. App’x 746 (Dec. 12, 2017) (Unpub.) Search warrant invalid for lack of particularity of scope of search Suppression should have been granted because Fourth Amendment requirement of particularity was violated. The warrant included the phrase "not limited to" in connection with entire warrant, not just particular categories. Good-faith exception did not apply because warrant was facially deficient in failing to particularize things to be seized.
21 United States v. Hammond, 890 F.3d 901 (May 15, 2018) Terry frisk is proper in traffic stop of known and dressed member of feuding gang After seeing a brake light out, cop checked police records and learned that the registered owner--Hammond--had been arrested for weapon possession earlier in the year, and the car had been seized in connection with that case. Hammond was a registered gang member. After a traffic stop occurred, Hammond, being a passenger, was found to be wearing colors which loudly displayed his affiliation with a gang involved in an ongoing feud. He was frisked, exposing a gun he was carrying. Ruling: During a valid investigative detention, a cop may conduct a frisk if the officer harbors an articulable and reasonable suspicion that the person is armed and dangerous. A frisk was justified by the particular facts of this case. “Our holding today is not to suggest that Mr. Hammond, or any other person suspected or convicted of an armed crime in the past, may be indiscriminately stopped and frisked on the basis of his criminal history and gang affiliations.” The Supreme Court has granted the government’s petition for certiorari review of this case. Oral argument is pending.
United States v. Ingram, 721 Fed. Appx. 811 (Feb. 2, 2018) (Unpub.) Traffic stop in OKC for remaining right of center was valid District court correctly concluded that the police officers had a full basis to stop the driver for a traffic violation because the driver failed to remain right of the center of the roadway, in violation of Okla. City, Okla., Mun. Code ch. 32, art. V § 32-192 (1980).
United States v. Knox, 883 F.3d 1262 (Feb. 27, 2018) Good faith rescues search warrant; ev. outside affidavit irrelevant to good faith Circuit rules that the good-faith exception precluded suppression where the district court found probable cause lacking. In light of the informant's reliability, the timeliness of the information in the affidavit, and the nexus the affidavit created between defendant's firearms and the location where the firearm at issue was found, it could not be said that the affidavit was so lacking in indicia of probable cause as to render official belief in its existence entirely unreasonable. Significantly, the court rules that facts outside the affidavit for search warrant are ordinarily inadmissible to establish good. faith. “[B]ased on the plain text of Leon, we hold that a suppression court's assessment of an officer's good faith is confined to reviewing the four corners of the sworn affidavit and any other pertinent information actually shared with the issuing judge under oath prior to the issuance of the warrant, as well as information relating to the warrant application process.”
United States v. Pacheco, 884 F.3d 1031 (Mar. 7, 2018) Seizure of cell phone justified by arrest of parolee District court did not err in denying defendant's motion to suppress evidence gleaned from a cell phone recovered by officers at the scene of his arrest because the cell phone was
22 legally seized pursuant to the totality-of-the-circumstances parolee exception to the warrant requirement.
U.S. v. Saulsberry, 878 F.3d 946 (Dec. 28, 2017); appeal from W. Dist. Okla. Removing stacked cards from bag in car required probable cause Cop stopped Saulsberry based on a tip, and had reasonable suspicion to investigate. Cop developed probable cause to search the car for marijuana. During the search he opened a bag and saw a stack of about 15 cards. He took the cards and saw they were credit cards. Ruling: “a police officer's observation that a suspect possesses a number of cards (about 15) does not provide probable cause to believe that the suspect has been or is committing a crime.” Cop’s testimony about when he determined that the cards were credit cards was unclear and did not establish that he determined they were credit cards before seizing them. “Defendant's suspicious movements toward the bag while Eastwood was questioning him are not sufficiently probative to raise the evidence to the level of probable cause.”
United States v. Shrum, No. 17-3059, 2018 U.S. App. LEXIS 32343 (10th Cir. Nov. 15, 2018) (Pub.) (Eid concurs/dissents in part) Facts: Shrum reported via 911 call that his wife was not breathing. She was transported from Shrum’s home to a hospital where she died. A cop asked Shrum to go to the station for questioning. Shrum agreed. The cop said he was going to “hold on” to Shrum’s house for a day to investigate, to which Shrum said “Anything that I can do to help.” The cop also said he needed to get the wife’s medication from the house to assist the autopsy. Shrum signed a form allowing search of the house for medication. Cops were in the house 10-15 minutes. They took 56 photographs and saw ammunition in plain view. Later they learned that Shrum was a felon. This provided enough for a search warrant, and what was found led to convictions for being a felon in possession of firearms and ammunition, plus meth possession. The Kansas court denied a motion to suppress. Ruling 1: The initial securing of Defendant's home constituted an unreasonable seizure in violation of the 4th Amendment. While the house was secured from the outside, without entry being made, the 10th Circuit saw “little difference between a perimeter stakeout and internal securing of a home from the standpoint of a Fourth Amendment seizure.” Shrum had a right to retreat into his home following the death of a loved one, which the cops denied to him. This was a seizure. To support it the government did not claim probable cause or reasonable suspicion. The seizure was unreasonable “No such thing as a ‘crime scene exception,’ let alone an ‘unexplained death scene exception,’ to the Fourth Amendment exists.” Ruling 2: The improper seizure tainted the incriminating evidence ultimately seized in the warrant search of the home. Shrum’s consent “was the direct result of the illegal seizure of his home rather than an act of free will sufficient to purge its taint.” The search of the home was unlawful, and the seizure of contraband thereafter was the fruit. Although the cops got a search warrant and only then seized evidence, the primary taint of unlawfulness was not purged by events in the causal chain.
23 United States v. Thomas, 730 Fed. Appx. 700 (Apr. 16, 2018) (Unpub.) Arrest properly based on cop’s 1-week-old memory of arrest warrant Cop encountered Thomas and later discovered he had an outstanding arrest warrant. She didn’t return to arrest him. One week later she saw him and arrested him without verifying that the warrant was still active. The facts and circumstances within Officer Martinez's knowledge were sufficient for a prudent person to believe there was an active warrant for Thomas' arrest.
HABEAS CORPUS/2254/2255
United States v. Washington, 890 F.3d 891 (May 15, 2018) Movant’s burden in § 2255 motion is preponderance; no Johnson error To win remedy in a § 2255 motion, defendant must establish his claim by a preponderance of evidence. Since Washington was challenging his Armed Career Criminal Act sentence using Johnson (which struck down the residual clause for vagueness), he carried the burden of showing by a preponderance of the evidence (that it is more likely than not) his claim relies on Johnson. Where the district court did not say what clause it relied on in finding the convictions of burglary and pointing a weapon were qualified, the background legal environment is key. Washington failed to meet his burden.
PRESERVATION OF ERROR
United States v. Vance, 893 F.3d 763 Failure to protest basis for stop at district court waives the claim. The defendant was not entitled to raise his appellate argument that he did not violate a New Mexico traffic statute, which requires a safety risk or affect on traffic. He failed to raise the issue in his motion to suppress or in any of his arguments at the trial court
SENTENCING - GUIDELINES
United States v. Beierle, 716 Fed. Appx. 782 (Nov. 29, 2017) (Unpub.) Three or more gun enhancement in 2K2.1 must heed revised definition of possession Constructive possession standard was changed in United States v. Little, 829 F.3d 1177 (10th Cir. 2016), to require intent to exercise control over the object. Now constructive possession requires both power to control an object and intent to exercise that control. This applies to the number-of-firearms-guideline (USSG 2K2.1(b)(1)(A)). Affirmed on plain error review.
United States v. Francis, 891 F.3d 888 (June 5, 2018) Trafficking in firearms adjustment inapplicable The district court erred in applying the USSG § 2K2.1(b)(5) firearms trafficking enhancement. The guideline requires that the defendant knew or had reason to believe that
24 his conduct would result in the transport, transfer, or disposal of a firearm to an individual who would illegally possess dispose of it. A preponderance of proof did not establish that defendant had reason to believe that the CI fell into the narrow category of prohibited possessors, including those with a felony crime-of-violence conviction. “[T]he government cannot support this enhancement by simply noting that a percentage of Francis's expected customer base might have a qualifying crime-of-violence conviction. This ‘there's a chance’ method runs counter to the commentary's language, which speaks to firearm transfers to "an individual" whose possession would be unlawful.”
United States v. Johnson, 731 Fed. Appx. 638 (Apr. 19, 2018) (Unpub.) Guideline enhancement for million dollar loss to bank unsupported by proof Defendant was convicted for making a false statement. USSG § 2B1.1(b)(16)(A) applies if a "defendant derived more than $1,000,000 in gross receipts from one or more financial institutions as a result of the offense." A two offense level increase under this section was error because there was no evidence that the funds were released because of defendant's false statements. The guideline requires that the money be derived as a result of the violation of the statute. And in the context of the false statement offense, that means the enhancement applies only if the victim released funds because of Johnson's false statements. The government doesn't dispute that it failed to present any evidence that would indicate that the victim received or relied on Johnson's false statements.
SENTENCING-ID FRAUD
United States v. Lara, 733 Fed. Appx. 433 (May 4, 2018) (Unpub.) Aggravated ID theft mandatory minimum could not mitigate bank fraud sentence Lara was convicted of aggravated identify theft, bank fraud, possession of a counterfeit postal key, and mail theft. Aggravated ID theft required a mandatory 2 year term due to § 1028A(a)(1). The statute says “in determining any term of imprisonment to be imposed for the felony during which the means of identification was transferred, possessed, or used, a court shall not in any way reduce the term to be imposed for such crime so as to compensate for, or otherwise take into account, any separate term of imprisonment imposed or to be imposed for a violation of this section”. Ruling: district court erred by considering the two-year sentence in determining defendant's sentences for bank fraud. But district court could consider the mandatory two-year term in crafting Lara's sentences for possession of a counterfeit postal key and mail theft. Remanded for resentencing.
SENTENCING-PRESENTENCE INVESTIGATION REPORT
United States v. Fykes, 733 Fed. Appx. 950 (May 15, 2018) (Unpub.) PSR can’t be amended after sentencing After Fykes got to BOP to serve a sentence for being a felon with a gun, he found out that he had a higher security point assessment because the PSR said he was involved
25 with sex trafficking. He filed a motion in district court asking that the reference be taken out of the PSR. The district court denied it, saying there was no reason to conclude that the information was improperly in the PSR. On appeal, counsel filed an Anders brief, contending that the court’s ruling couldn’t be challenged. Ruling: district court had no jurisdiction to address a post-sentencing motion to amend the PSR, per United States v. Warner, 23 F.3d 287 (10th Cir. 1994) (construing Fed.R.Crim.P 32). In United States v. Grigsby, 630 F. App'x 838 (10th Cir. 2015), the court affirmed a denial of such a motion, instead of dismissing (which is the outcome if there was no jurisdiction). The court somewhat implies Grigsby was wrong, and bluntly dismisses defense counsel’s reliance on Grigsby as indicative of jurisdiction. Case is remanded with instructions to vacate the order denying the motion, and to enter an order dismissing for lack of jurisdiction. Compare United States v. Swearingen, 506 Fed. Appx. 804 (10th Cir. 2013) (Unpub.). Correction of record post-conviction (Rule 36) applicable to PSR.
SENTENCING-PRIOR CONVICTIONS
United States v. Degeare, 884 F.3d 1241 (Mar. 13, 2018) Oklahoma forcible sodomy is invalid for Armed Career Criminal Act Conviction under 21 O.S. § 888 is overbroad for purposes of the element clause. Under Mathis, modified categorical analysis is unavailable because statutory options are means (facts), not elements.
United States v. Deiter, 890 F.3d 1203 (10th Cir. 2018) Aiding and abetting bank robbery is valid for the Armed Career Criminal Act
United States v. Driscoll, 892 F.3d 1127 (10th Cir. 2018) Nebraska burglary is invalid for Armed Career Criminal Act.
United States v. Garcia, 877 F.3d 944 (10th Cir. 2017) New Mexico robbery/attempted robbery are valid for Armed Career Criminal Act Robbery under N.M. Stat. § 30-16-2 is a violent felony under the ACCA's element clause because it "has as an element the use or threatened use of physical force against another person. An armed robbery conviction under New Mexico law requires a finding that the defendant "commit[ed] robbery while armed with a deadly weapon." N.M. Stat. § 30-16-2. See also United States v. Dean, 724 Fed. Appx. 681 (May 29, 2018) (Unpub.) “Because robbery under New Mexico law qualifies as a violent felony under the ACCA's elements clause, it follows that attempted armed robbery under New Mexico law also qualifies. See § 924(e)(2)(B)(i) (defining "violent felony" to include felonies that have ‘as an element the use, attempted use, or threatened use of physical force against the person of another’”.
26 United States v. Gieswein, 887 F.3d 1054 (10th Cir. 2018) Oklahoma lewd molestation is not a crime of violence under USSG §4B1.2.
United States v. Hamilton, 889 F.3d 688 (May 4, 2018); appeal from N. Dist. Okla. Oklahoma burglary 2 is invalid predicate for Armed Career Criminal Act Under Mathis v. United States, 136 S. Ct. 2243 (2017), which enables the court to identify what are elements of a statute (not means or facts), Oklahoma Second Degree burglary is overbroad compared to the crime of generic burglary (as enumerated by the ACCA and defined by the Supreme Court). Gov. loses appeal, and Judge Kern’s order is affirmed.
United States v. Hill, 722 Fed. Appx. 814 (10th Cir. 2018) (Unpub.) Oklahoma assault and battery with dangerous weapon and Oklahoma robbery with firearm valid for Armed Career Criminal Act.
United States v. Leaverton, 895 F.3d 1251 (10th Cir. 2018) appeal from N.D. Okla. Oklahoma first-degree manslaughter is not a serious violent felony under “Three Strikes” statute (18 U.S.C. § 3559(c)). The Oklahoma offense lacks the requisite mens rea for generic voluntary manslaughter. A conviction requires that heat of passion be so great as to destroy intent to kill, and the generic definition of manslaughter requires an element of intent to kill. Life sentence reversed.
United States v. Mason, 709 Fed. Appx. 898 (10th Cir. 2017) (Unpub.) appeal from E.D. Okla. Oklahoma offense of assault and battery upon a police officer invalid for Armed Career Criminal Act.
United States v. McCranie, 889 F.3d 677 (May 3, 2018) Federal bank robbery valid predicate for Career Offender sentence (element clause)
United States v. McKibbon, 878 F.3d 967 (10th Cir. 2018) Colorado unlawful distribution, manufacture, dispensing, or sale of a controlled substance is invalid under USSG §4B1.2 (controlled substance offense).
United States v. Pacheco, 730 Fed. Appx. 604 (10th Cir. 2018) New Mexico crimes of aggravated assault with deadly weapon and aggravated battery against a household member are valid for Armed Career Criminal Act.
United States v. Thompson, 720 Fed. Appx. 492 (10th Cir. 2018) (Unpub.) New Mexico convictions for attempted first-degree murder with firearm were valid for Armed Career Criminal Act.
27 United States v. Turrieta, 875 F.3d 2017 (Nov. 28, 2017) New Mexico residential burglary is valid predicate for Armed Career Criminal Act
United States v. Williams, 888 F.3d 1126 (Apr. 20, 2018) Kansas aggravated battery is valid predicate for Armed Career Criminal Act Aggravated battery under Kan. Stat. Ann. § 21-5413(b)(1)(B) required knowing conduct, which entailed general criminal intent, and required the use or threatened use of physical force.
United States v. Ybarra, 730 Fed. Appx. 660 (10th Cir. 2018) (Unpub.) Federal bank robbery is valid predicate for Armed Career Criminal Act.
SENTENCING-REASONABLENESS
United States v. Barnes, 890 F.3d 910 (May 16, 2018); appeal from E. Dist. Okla. Downward variance upheld as reasonable Gov. appealed sentence for conviction of deprivation of rights under color of law and conspiracy. Guideline range was 70-87 months, but district court gave 12 month sentence to one defendant, and 24 months to the other. The district court “did not abuse its discretion in applying the relevant sentencing factors as reflected in its explanation of the sentences based on defendant-specific facts and circumstances.”
TRIAL
United States v. Miller, 891 F.3d 1220 (June 6, 2018) Constructive amendment of indictment warrants new trial Small town Colorado doctor was convicted of several drug distribution counts and one count of making a false statement to the DEA; sentenced to 41 months in BOP. 1) Expert testimony: government’s expert testified that he had reviewed several of Miller's medical files and concluded, based on his training and experience, that the prescriptions relating to each of the charges were outside the scope of usual professional practice and not for a legitimate medical purpose. This was admissible under Rule 702. 2) Constructive amendment (variance): on plain error review, court finds that a constructive amendment occurred when the trial evidence, together with the jury instructions, raised the possibility that Miller was convicted of an offense other than that charged in the indictment. Miller lied in a form about whether his medical license had ever been suspended, the indictment charged. In trial the government's witnesses testified that he had also made a second false statement on the form by answering "no" to a similar question about the surrender or suspension of a federal controlled-substance registration. The legal instructions didn’t focus on the charged statement. And the prosecution’s closing argument indicated that Miller could be found guilty on the uncharged basis. The false statement count was reversed for new trial.
28 United States v. Silva, 889 F.3d 704 (May 8, 2018) Gov. not required to stipulate that defendant is a prohibited person in felon-with-gun trial Old Chief v. United States, 519 U.S. 172 (1997), applying Fed.R.Evid. 403 to trials for the crime of felon in possession of a firearm, requires the government to accept the defendant’s offer to stipulate that the defendant has a prior felony conviction. Here the defendant tried to eliminate that remaining character smear, by offering to stipulate that the defendant was a “prohibited person” who could not possess a firearm. Declining to do so, the court addresses unfair prejudice by focusing on how bad the prejudice would be without an Old Chief stipulation, instead of acknowledging the prejudice associated with disclosure to the jury that the defendant is a convicted felon. We are also told, on the subject of confusion, that juries might not convict if told the defendant is a prohibited person, because they would ask why he is on trial. This is perhaps a precedental expansion of Rule 403, and creation of an exception to the rule that juries are presumed to follow instructions (to convict if the elements are proved beyond a reasonable doubt).
MOST SHOCKING CASE OF THE YEAR
Farrell v. Montoya, 878 F.3d 933 (Dec. 27, 2017) (Unan. panel) Cop can’t be sued for shooting at children Minivan-driving mom was stopped for speeding near Taos, but after cop spoke to her, she drove away at normal speed. She stopped again. The cop approached, yelled at her to get out of the vehicle, and started to grab her. Several of her five kids began to scream. One kid exited the van, having no weapon, and the cop aimed a Taser at the kid. For the next four minutes chaos ensued, during which the cop tried to pull mom out again, and the kids yelled “Get off of her.” Mom said she was worried that the cop wouldn’t be peaceful. The cop continued to escalate the situation and keep the family in panic, until a backup cop drew his gun, threatened to shoot, and tried to break the windows with a baton. Mom took off in the van. The cop who set everything in motion shot three bullets at the van, but missed. Because the family could not show that they were seized, the cops were immune from suit. Apparently, as long as they do it before they have you in custody, cops can kill you. “In short, when Montoya fired at the van, the Farrells were fleeing. Though they had been seized moments before, that seizure ended when they no longer submitted to the officers' authority. And Montoya's shots themselves did not effect a seizure because the van continued its departure. The Farrells' alleged intent to submit when they could reach a police station was irrelevant because their conduct—the flight from the officers—did not manifest submission. As there was no seizure, there could be no unreasonable seizure, even if Montoya was using deadly force. The Farrells' claims against Montoya fail for lack of any violation of the Fourth Amendment.
29 OKLAHOMA BAR ASSOCIATION LEGAL UPDATES
2018 OKLAHOMA TAX DEVELOPMENTS
NOVEMBER 29, 2018 (Tulsa) DECEMBER 13, 2018 (Oklahoma City)
Kevin B. Ratliff Ratliff Law Firm 1403 Classen Drive Oklahoma City, OK 73106 (405) 228-2017 [email protected]
Sheppard F. Miers, Jr. GableGotwals 100 W. 5th Street Suite 1100 Tulsa, OK 74103-4217 (918) 595-4800 Fax: (918) 595-4990 [email protected]
(Distribution of copies of all or portions of this outline for noncommercial use is permitted provided it is made clear that the outline was prepared by the authors) INDEX
I. OKLAHOMA TAX LEGISLATION ...... 1
A. Income Tax ...... 2
B. Sales and Use Tax ...... 5
C. Ad Valorem Tax ...... 6
D. Gross Production Tax...... 7
E. Tobacco Tax...... 8
F. Motor Fuel Tax ...... 8
G. Banking Privilege Tax...... 9
H. Aircraft Excise Tax...... 9
I. Tax Administration, Practice and Procedure...... 10
J. Economic Development and Tax Incentives...... 11
K. Federal Tax Legislation...... 12
II. COURT CASES...... 13
A. United States Supreme Court – Sales Tax – United States Constitution...... 14
B. Oklahoma Supreme Court - Workers Compensation Rebates...... 15
C. Oklahoma Court of Civil Appeals - Apportionment of Motor Vehicle Tax, Fees and Penalties...... 17
D. Oklahoma Court of Civil Appeals – Oklahoma Capital Gains Deduction...... 19
III. ATTORNEY GENERAL OPINIONS. None of the Attorney General Opinions Issued in 2018 involve tax law...... 19
IV. OTC ORDERS ...... 19
A. Income Tax ...... 20
B. Sales Tax...... 20
V. LETTER RULINGS ...... 23
A. Withholding Tax...... 23
B. Sales Tax ...... 23
VI. OTHER PUBLICATION, PRESS RELEASES AND ACTIVITY ...... 24
A. Informational Notice - Wednesday, April 4, 2018 - Oklahoma W-4...... 24
B. Press Release - Thursday, June 21, 2018 - New Online Option Available in Time for Boat Renewal Deadline...... 24
C. Informational Notice - Thursday, July 5, 2018 - Information for Medical Marijuana Sales Tax Permits...... 24
D. Press Release - Friday, August 31, 2018 - Remote Sellers Information...... 24
E. Press Release - Monday, October 15, 2018 - Simplified Remote Seller Registration Now Available...... 24
VII. NEW OTC ADMINISTRATIVE RULES...... 25
A. Administrative Operations...... 25
B. Ad Valorem Tax...... 25
C. Gross Production Tax...... 25
D. Income Tax...... 25
E. Sales and Use Tax...... 26
OKLAHOMA BAR ASSOCIATION
LEGAL UPDATES
OKLAHOMA TAX DEVELOPMENTS
Kevin B. Ratliff Ratliff Law Firm 1403 Classen Drive Oklahoma City, OK 73106 (405) 228-2017 [email protected]
Sheppard F. Miers, Jr. Gable Gotwals 100 W. 5th Street Suite 1100 Tulsa, OK 74103-4217 (918) 595-4800 / Fax: (918) 595-4990 [email protected]
November 29, 2018 (Tulsa) December 13, 2018 (Oklahoma City)
(Caution, may cause drowsiness)
Attached as Exhibit “A” are the Revenue and Taxation 2018 Session Review prepared by the Research Division of the Oklahoma House of Representatives.
We have summarized some of the new Oklahoma tax law changes by bill because of the different topics covered within each bill and different effective dates. We have tried to cite the statutes which were changed. These changes will be in the 2018 pocket-parts to the annotated statutes which are published in November 2018. Many have been reported in CCH Oklahoma Tax Reporter.
Although we have provided more detail than the 2018 Session Highlights report, our outline provides only a summary of the changes. There may be additional requirements or exceptions. Therefore, you should review the statute if one of the changes applies to you or your client.
I. OKLAHOMA TAX LEGISLATION
Legislation enacted in the 2018 regular session, and earlier called special sessions, of the Oklahoma Legislature included the changes in the laws summarized below, which are some of the new Oklahoma state tax laws on taxation.
1 A. Income Tax
1. Limit of Itemized Deductions.
a. The Oklahoma Income Tax Act was amended to provide that the net amount of itemized deductions allowable on an Oklahoma individual income tax return shall not exceed $17,000.
b. Charitable contributions and medical expenses deductible for federal income tax purposes shall be excluded from the $17,000 limit.
c. HB 1011XX, amending 68 O. S. Supp. 2017, §2358; effective Jan. 1, 2018.
2. Vehicle Manufacturing Credits.
a. Oklahoma income tax credits were enacted that will be allowed to a qualified employer and a qualified employee involved in vehicle manufacturing in Oklahoma.
b. A “qualified employer” is defined as a business entity whose principal business activity involves vehicle manufacturing in Oklahoma.
c. For the credits “vehicle manufacturing” is defined to mean a company placed in operation in Oklahoma after Nov. 1, 2018, engaged in the research, development, design and manufacture of motor vehicles which may be driven on the avenues of public access, with specified exceptions.
d. A qualified employer shall be allowed a credit for tuition reimbursed to a qualified employee and for compensation paid to a qualified employee. A qualified employee shall also be allowed an individual income tax credit annually.
e. A “qualified employee” for purposes of the credits is defined to mean a person first employed as a full-time engineer in vehicle manufacturing in Oklahoma by or contracting in Oklahoma with a qualified employer on or after Jan. 1, 2018, who has been awarded an undergraduate or graduate degree from a program that has been accredited by the Engineering Accreditation Commission of the Accreditation Board for Engineering and Technology.
f. A qualified employer shall be allowed a tuition credit that shall be 50 percent of the tuition reimbursed to a qualified employee, if the employee has been awarded an undergraduate or graduate degree within one year of commencing employment with the qualified employer.
g. A qualified employer shall be allowed a credit for 10 percent of compensation paid for the first five years of the qualified employee’s employment in vehicle manufacturing if the employee graduated from an
2 accredited college or university in Oklahoma, and 5 percent if the employee graduated from an accredited college located outside Oklahoma, subject to a maximum compensation credit of $12,500 for each qualified employee annually.
h. A qualified employee shall be allowed an individual income tax credit of up to $5,000 per year for a period of 5 years, with a carryover of any credit claimed but not used for the 5 subsequent taxable years.
i. The total amount of credits allowed to qualified employers shall be adjusted annually to limit the annual amount of credits to $3 million.
j. The total amount of credits allowed to qualified employees shall be adjusted annually to limit the annual amount of credits to $2 million.
k. The credits will be allowed for taxable years beginning after Dec. 31, 2018, and ending before Jan. 1, 2026.
l. SB 1585, adding 68 O. S. Supp. 2018, §2357.404; effective Nov. 1, 2018.
3. Zero-Emission Electricity Generation Facility Credit Limit.
a. The Oklahoma income tax credit for production of electricity from renewable resources and zero-emission facilities was amended to limit the credit for electricity generated by moving water, sun or geothermal energy to tax years ending not later than 2021
b. For tax years beginning on or after Jan. 1, 2019, there is to be a limit of the total amount of credits of $500,000 per year.
c. SB 893, amending 68 O. S. Supp. 2017, §2357.32A, effective Jan. 1, 2019.
4. Railroad Reconstruction/Replacement Credit Limit.
a. For tax years beginning on or after Jan. 1, 2018, the total amount of railroad reconstruction/replacement credits shall be adjusted annually to limit the annual amount of credits to $2 million per year.
b. HB 1036XX, amending 68 O. S. Supp. 2017, §2357.104; effective Jan. 1, 2018.
5. Coal Production Credit.
a. The income tax credit allowed for every person in the state furnishing water, heat, light or power to the state or its citizens, or for every person in the state burning coal to generate heat, light or power for use in manufacturing operations located in the state was amended to provide a limit for tax years beginning on or after Jan. 1, 2018.
3 b. The total amount of credits authorized to be used to offset tax or paid as a refund shall be adjusted annually to limit the annual amount of credits to $5 million per year.
c. HB 1034XX, amending 68 O. S. Supp. 2017, §2357.11; effective Jan. 1, 2018.
6. Oklahoma Tax Installment Payment on Repatriated Foreign Income.
a. The Oklahoma income tax was amended to take into account federal income tax changes enacted by the Tax Cuts and Jobs Act on foreign source income.
b. For tax years ending after Jan. 1, 2017, if a taxpayer elects to make installment payments of tax due pursuant to the provisions of section 965(h) of the Internal Revenue Code, the election may also apply to the payment of Oklahoma income tax, attributable to the income upon which such installment payments are based.
c. HB 3715, amending 68 O. S. Supp. 2017, §2368; effective Aug. 2, 2018.
7. Pet Overpopulation Fund Refund Contribution.
a. The income tax checkoff refund contribution to the Oklahoma Pet Overpopulation Fund was reauthorized effective Jan.1, 2019.
b. HB 2716, amending 68 O. S. Supp. 2017, §2368.13; effective Nov. 1, 2018.
8. Court Appointed Advocates Refund Contribution.
a. The income tax checkoff refund contribution for programs for Court Appointed Special Advocates was reauthorized effective Jan. 1, 2018.
b. SB 1166, amending 68 O. S. Supp. 2017, §2368.12; effective Nov. 1, 2018.
9. Public School Classroom Support Revolving Fund Contribution.
a. The income tax checkoff refund contribution for programs for the Public School Classroom Support Revolving Fund was reauthorized effective Jan. 1, 2019.
b. SB 1198, amending 70 O. S. 2011, §1-122, effective July 1, 2018.
10. Oklahoma AIDS Care Revolving Fund Contribution.
a. An income tax checkoff refund contribution for an Oklahoma AIDS Care Revolving Fund was enacted.
b. SB 943, adding 68 O. S. Supp. 2018, §2368.31, effective Nov. 1, 2018.
4 11. Reporting and Electronic Data.
a. The requirements for withholding tax were amended.
b. The law was amended to provide that every employer required under 68 O. S. §2385.2 to deduct and withhold a tax from the wages paid an employee shall furnish to the Oklahoma Tax Commission, on or before January 31 of the succeeding year, an annual reconciliation and such other information as the Tax Commission may require pursuant to the Tax Commission's electronic data interchange program.
c. HB 3156, amending 68 O. S. Supp. 2017, §2385.3; effective July 1, 2018.
B. Sales and Use Tax
1. New Remote Sellers Sales and Use Tax Compliance Requirements.
a. Legislation was enacted providing for new requirements for collection and payment of Oklahoma sales and use tax by remote sellers for sales of tangible personal property through the Internet.
b. Persons that come within definitions in the law of “remote seller,” “marketplace facilitator,” or “referrer” will be required on or before July 1, 2018 (and each June 1 thereafter) to file an election with the Oklahoma Tax Commission to either:
(1) collect and remit sales and use tax on sales and deliveries to purchasers in Oklahoma and obtain a sales tax permit, or
(2) comply with specified notice and reporting requirements to inform purchasers that sales or use tax may be due, and to file a report with the Oklahoma Tax Commission with respect to sales or deliveries of tangible personal property to purchasers in Oklahoma.
c. The requirements apply to a remote seller, marketplace facilitator, or referrer that during the immediately preceding twelve-calendar-month period:
(1) had aggregate taxable sales of tangible personal property within Oklahoma, or
(2) delivered tangible personal property to locations within Oklahoma,
(3) worth at least $10,000.
5 d. The legislation enacted provides for penalties to be imposed for failure to comply with an election to collect and remit tax, or failure to follow the notice and reporting requirements if those are elected.
e. HB 1019XX, adding 68 O. S. Supp. 2018, §§1391-1397; effective April 10, 2018.
C. Ad Valorem Tax
1. Ad Valorem Tax Definitions.
a. The definitions applicable to the Ad Valorem Tax Code were amended to change and clarify the definitions of “assessed valuation”, “fair cash value” or “market value” and “taxable value” and to add a definition of “assessment percentage,” as related to county assessor notices to taxpayers of changes in assessment and value of property.
b. SB 1059, amending 68 O. S. 2011, §2802, effective Nov. 1, 2018.
2. Amendment of Procedures on Notification of Increased Valuation and Taxpayer Protests.
a. The statute providing for notification by the county assessor to taxpayers of increased valuation of property, taxpayer protests of such increased valuation, county assessor informal hearings on protests, and county assessor decisions on protests and notification thereof to the taxpayer was amended.
b. The notification as to increases of valuation of personal property must provide specified details. It is to be sent to the "taxpayer" with respect to the property.
c. The county assessor is to issue and send written decision on an informal hearing of a taxpayer protest. A copy of the written decision is to be provided by regular or electronic mail to the taxpayer.
d. SB 1059, amending 68 O. S. Supp. 2017, §2876, effective Nov. 1, 2018.
3. Amendments to Assessment Mapping and Appraisal Procedures.
a. The requirements for county assessor accreditation were amended to provide for completion of academic units in cadastral mapping. The Oklahoma State University Center for Local Government Technology (OSU/CLGT) shall provide accreditation support for study and completion of courses.
b. A County Government Educational-Technical Revolving Fund was created. The OSU/CLCT, in cooperation with the County Assessors' Association,
6 shall provide the administration, support, training and implementation of the OSU/CLGT-sponsored computer-assisted mass appraisal computer software system to any county using the services provided by the Ad Valorem Division of the Oklahoma Tax Commission and other counties upon request.
c. All powers, duties, responsibilities, property, assets, liabilities, fund balances, encumbrances and obligations of the Ad Valorem Division of the Oklahoma Tax Commission for this are transferred to the OSU/CLGT. A Computer-Assisted Mass Appraisal Implementation Revolving Fund was created.
d. HB 3372, amending 68 O. S. 2011, §§2816, 2947, 3201, 3204, and adding 68 O. S. Supp. 2018, §§2947.1, 2947.2 and 2947.3; effective July 1, 2019.
D. Gross Production Tax.
1. Gross Production Tax Rate Increase.
a. The gross production tax was amended to levy gross production tax at a higher rate on certain production.
b. The gross production tax rate on the production of oil, gas or oil and gas from wells spudded prior to the effective date of the bill, and on or after such date, at a rate of five percent (5%) commencing with the month of first production for a period of 36 months.
c. The legislation amended provisions for apportionment of revenue from the tax.
d. Previously enacted gross production tax incentive provisions were removed.
e. HB 1010XX, amending 68 O. S. Supp. 2017, §§1001, 1004; effective June 28, 2018.
2. Prior Incentive Rate Change Enacted in 2017.
a. For production commenced on or after July 1, 2011, and prior to July 1, 2015, on the production of oil, gas or oil and gas from a horizontally drilled well any reduced rate provided shall not apply to production occurring during or after the first full month following the effective date of HB 1085X.
b. For tax levied on the production of oil, gas or oil and gas from wells spudded between July 1, 2011, and July 1, 2015, that are deep wells drilled to specified depths, the reduced rate that was provided shall not apply to production occurring during or after the first full month following the effective date of HB 1085X.
7 c. This change was enacted during the first extraordinary session of the Legislature for 2017.
d. HB 1085X, amending 68 O. S. Supp. 2017, §1001; effective Nov. 17, 2017.
E. Tobacco Tax
1. Additional Cigarette/Little Cigar Tax.
a. An additional tax is levied on the sale, use, possession or consumption of cigarettes at the rate of 50 mills per cigarette ($1 per pack of 20 cigarettes).
b. A tax at the same rate as is levied on cigarettes is levied upon little cigars.
c. HB 1010XX, adding 68 O. S. Supp. 2018, §302-7; and amending 68 O. S. 2011, §402; effective June 28, 2018.
2. Seizure of Contraband Cigarettes; Hearing Procedure.
a. The procedures governing Tax Commission seizure of contraband cigarettes and tobacco products were amended to provide that within 60 days of seizure, the person from whom the property was seized may file a request for hearing with the Tax Commission or the Attorney General to show why the seized property should not be forfeited and destroyed.
b. If a hearing is requested, the owner of the cigarettes shall be given at least 10 days' notice of the hearing.
c. If no request for hearing is filed within the time provided, the property seized will be forfeited and destroyed.
d. HB 3156, amending 68 O. S. Supp. 2017, §305, and 68 O. S. 2011, §§360.7, 417; effective July 1, 2018.
3. Excise Tax Stamps.
a. The Oklahoma Tax Commission shall not sell cigarette excise tax stamps to any wholesaler in excess of the amount of the monthly average amount of such excise tax stamps sold to such wholesaler during the preceding calendar year.
b. However, a wholesaler may purchase in excess of the monthly average purchased during the preceding calendar year upon documentation, to the Tax Commission's satisfaction, of probable sales greater than the wholesaler's sales in the preceding calendar year.
c. HB 1018XX, non-codified; effective April 3, 2018.
F. Motor Fuel Tax
8 1. Increase of Gasoline, Diesel Tax.
a. A new additional tax of three cents per gallon is to be levied on all gasoline used or consumed in the state.
b. A new additional tax of six cents per gallon is to be levied on all diesel fuel used or consumed in the state.
c. HB 1010XX, adding 68 O. S. Supp. 2018, §500.4B; effective June 28, 2018.
2. Importer Rate Amendment.
a. The statutory provision that in consideration of the use of the highways of the state, and in addition to all other taxes levied for such purposes, all persons who import gasoline and diesel fuel into the state in the fuel supply tank or tanks of motor vehicles or in any other containers for use in propelling such vehicles on the highways for commercial purposes, shall report and pay to the Corporation Commission a tax for such use of the highways was amended.
b. The provision was amended to provide that the tax shall be levied and imposed for gasoline and diesel fuel and shall be tax equal to the rate otherwise applicable at the time under the Motor Fuel Tax Code upon a gallon of gasoline and diesel fuel used or consumed in the state.
c. HB 3713, amending 68 O. S. 2011, §603, effective May 7, 2018.
3. Conforming Exemption Amendment.
a. The provision allowing specified exemptions from tax on motor fuel was amended to apply to the additional taxes on motor fuel imposed by changes enacted by HB 1010XX.
b. HB 1015XX, amending 68 O. S. 2011, §500.10; effective June 28, 2018.
G. Banking Privilege Tax.
1. Credit for Small Business Administration Fee Extended.
a. The credit allowed against the 6 percent tax imposed on banks and credit unions for the privilege of doing business within Oklahoma for the amount of the guaranty fee paid to the U. S. Small Business Administration pursuant to the “7(a)” loan guaranty program was extended until Dec. 31, 2021.
b. SB 883, amending 68 O. S. Supp. 2017, §2370.1, effective Nov. 1, 2018.
H. Aircraft Excise Tax.
1. Commercial Airlines Exemption.
9 a. The exemption from the Oklahoma aircraft excise tax for aircraft purchased or used by commercial airlines was amended to provide that if the operations of an aircraft are not at least 50 percent commercial operations annually, the Oklahoma aircraft excise tax levied shall be due and payable.
b. An aircraft owner shall provide a report to the Oklahoma Tax Commission on an annual basis detailing the operations of the aircraft and any supporting flight, maintenance or charter log books required by the Tax Commission.
c. For purposes of satisfying this requirement, such operations may not include those chartered by the aircraft owner as an individual or as a business entity in which the aircraft owner owns a majority interest.
d. HB 2253, amending 68 O. S. 2011, §6001, and 68 O. S. Supp. 2017, §6003; effective May 10, 2018.
I. Tax Administration, Practice and Procedure.
1. Tax Commission Settlements; District Court Approval.
a. The requirement that no Tax Commission agreement to compound, settle or compromise any controversy relating to tax liability shall be effective until the settlement has been approved by judgment of one of the judges of the district court of Oklahoma County, after a full hearing thereon, was amended to be applicable if the settlement exceeds $25,000.
b. This requirement previously applied to require district court approval of any Tax Commission settlement that exceeded $10,000.
c. HB 3156, amending 68 O. S. 2011, §219; effective July 1, 2018.
2. Tax Commission Abatement; District Court Approval.
a. The Tax Commission authority to abate all or any portion of tax liability and interest and penalties accruing thereto, pursuant to a settlement agreement entered into with a taxpayer was amended.
b. The tax abatement relief can apply upon finding that collection of the tax liability and interest and penalties accruing thereto would reasonably result in the taxpayer declaring bankruptcy; the tax is uncollectible due to insolvency of the taxpayer resulting from factors beyond the control of the taxpayer or for other similar cause beyond the control of the taxpayer; the tax liability is attributable to actions of a person other than the taxpayer and it would be inequitable to hold the taxpayer liable for the tax liability; or in cases of nonpayment of trust fund taxes, the taxes were not collected by the taxpayer from its customer.
10 c. The abatement relief is subject to approval by the district court of Oklahoma County which requirement was amended.
d. Such abatement shall require district court approval if the amount of the tax liability exceeds $25,000. This requirement previously required district court approval of any abatement of tax liability that exceeded $10,000.
e. HB 3156, amending 68 O. S. 2011, §219.1; effective July 1, 2018.
3. Tax Commission Tax Credit Data Access Website.
a. The Oklahoma Tax Commission is authorized and directed to make tax credit data available on its website.
b. Data shall be made available in an open-structured data format that may be downloaded by the public and that allows the user to systematically sort, search and access all data without any fee or charge for access.
c. As used in this in the law, "tax credit" means a credit pursuant to the Oklahoma Income Tax Act against tax liability which is taken by a taxpayer.
d. The website shall also include, but not be limited to, a brief explanation of the credit, including the year the credit was first allowed to taxpayer; and for 2013 and each year thereafter for each credit, the amount of credits claimed, the amount of credits used to reduce tax liability or refunded to taxpayers, the amount of credits carried over to a future tax year, if available, the number of taxpayers claiming the credit, and the annual growth rate in the number and amount of credits claimed.
e. The Tax Commission is authorized to provide this regardless of the number of taxpayers claiming a credit notwithstanding the confidentiality of taxpayer information limits of 68 O. S. §205.
f. The Tax Commission shall make the data available on its website on or before Jan. 1, 2020.
g. HB 3225 adding 68 O. S. Supp. 2018, §295; effective Nov. 1, 2018.
J. Economic Development and Tax Incentives.
1. Transfers to Oklahoma Quick Action Closing Fund.
a. The provisions for incentive payments pursuant to the Oklahoma Quality Jobs Program Act, the 21st Century Quality Jobs Incentive Act, the Small Employer Quality Jobs Act were amended.
11 b. Transfers of five percent of the quarterly incentive payment amount shall be transferred by the Oklahoma Tax Commission to an Oklahoma Quick Action Closing Fund.
c. HB 3324, amending 62 O. S. Supp. 2017, §48.2, 68 O. S. Supp. 2017, §§3604, 3904, 3914; effective Aug. 2, 2018.
2. Oklahoma Quality Jobs Program Act.
a. The Oklahoma Quality Jobs Program Act was amended to change the duty of the Incentive Approval Committee under the act.
b. SB 897, amending 68 O. S. Supp. 2017, §3603; effective Nov. 1, 2018.
3. Saving Quality Jobs Act.
a. The Saving Quality Jobs Act under 68 O. S. 2011, §§3701-3712 was repealed.
b. SB 897, repealing 68 O. S. 2011, §§3701-3712; effective Nov. 1, 2018.
4. Small Employer Quality Jobs Act.
a. The provisions of the Small Employer Quality Jobs Act with respect to the maximum number of full-time employees and the requirements for receiving incentive payments related to projected new direct jobs and employment were amended.
b. SB 923, amending 68 O. S. Supp. 2017, §3904; effective Nov. 1, 2018.
5. Oklahoma Quality Events Incentive Act.
a. The Oklahoma Quality Events Incentive Act was amended with respect to the definitions, determination of incremental sales tax revenue, state sales tax revenue, vendors making taxable sales, and procedures for determinations to be made under the act.
b. SB 1252, amending 68 O. S. Supp. 2017, §§4301, 4303-4305, 4309; effective July 1, 2018.
K. Federal Tax Legislation.
1. Tax Cuts and Jobs Act.
a. The Tax Cuts and Jobs Act (P. L. 115-97) enacted December 22, 2017, and generally effective for tax years beginning in 2018, made substantial changes in federal income and other taxes.
12 b. A change made by the Tax Cuts and Jobs Act is a limit on an individual federal income tax itemized deduction for state and local tax.
i. For tax years beginning in 2018 through 2025, an individual may claim an itemized deduction up to only $10,000 ($5,000 if married filing separately) for: state and local real property taxes, state and local personal property taxes; and state and local income taxes, as well as state and local general sales taxes deducted in lieu of state and local income taxes. Internal Revenue Code §164(b)(6), as added by the Tax Cuts and Jobs Act.
c. The Tax Cuts and Jobs Act enacted numerous other changes in the Internal Revenue Code with respect to federal income tax that could affect Oklahoma income tax imposed on a taxpayer.
i. The Oklahoma Income Tax Act provides that the term "Internal Revenue Code" means the United States Internal Revenue Code, as the same may be amended or adopted from time to time applicable to the taxable year; and other provisions of the laws of the United States relating to federal income taxes, as the same may be or become effective at any time or from time to time applicable to the taxable year. 68 O. S. Supp. 2017, §2353(2).
ii. Any term used in the Oklahoma Income Tax Act shall have the same meaning as when used in a comparable context in the Internal Revenue Code, unless a different meaning is clearly required. For all taxable periods covered by the Oklahoma Income Tax Act, the tax status and all elections of all taxpayers covered by the Oklahoma Income Tax Act shall be the same for all material purposes as they are for federal income tax purposes except when the Oklahoma Income Tax Act specifically provides otherwise. 68 O. S. Supp. 2017, §2353(3).
iii. The terms “taxable income,” “adjusted gross income,” “Oklahoma taxable income” and “Oklahoma adjusted gross income” are generally defined in the Oklahoma Income Tax by reference to the meaning and application of those terms under the Internal Revenue Code, subject to certain additional provisions of the Act. 68 O. S. Supp. 2017, §2353(10), (11), (12), (13).
II. COURT CASES
Citations to cases are provided in the Oklahoma Supreme Court official citation form and to the Pacific Reporter. The court designation for the Oklahoma Supreme Court is “OK.” The designation for the Oklahoma Court of Civil Appeals is “OK CIV APP.” Published decisions can be found on the Internet at the Oklahoma Supreme Court site www.oscn.net or the Oklahoma Public Legal Research System sponsored by the University of Oklahoma, College of Law, at
13 http://oklegal.onenet.net/. Unpublished Court of Appeals decisions can also be found at http://oklegal.onenet.net/. To get the full text of an unpublished Court of Appeals decision, click on Oklahoma Court Decisions, at Database Menu select Court of Appeals Opinions (1968- Current), then in the Search For box type in the case number including commas.
An important United States Supreme Court opinion on sales tax is also included within this outline.
A. United States Supreme Court – Sales Tax – United States Constitution.
1. South Dakota v. Wayfair, 585 U.S. ___ (2018).
a. This case dealt with the extent to which a state can require an out-of-state vendor to collect and remit sales tax on sales to customers within its state under the Commerce Clause of the United States Constitution.
b. In Wayfair, the United States Supreme Court overturned over 50 years of precedent.
c. Prior Law.
i. Prior to the Wayfair opinion, a state could only require a vendor to collect and remit sales tax if the vendor had substantial nexus with the taxing jurisdiction which required a physical presence within the state where the sale was made. National Bellas Hess, Inc. v Department of Revenue of Ill., 386 U.S. 753 (1967); Quill Corp. v. North Dalota, 504 U.S. 298 (1992). Under the point-of-sale rules, a sale is made where the property is delivered.
ii. Example.
• A customer in Oklahoma goes on-line and purchased items from an Alaskan vendor and has them shipped to Oklahoma. If the Alaskan vendor did not have a physical presence in Oklahoma (warehouse, employees, sales people, delivery trucks, etc.) and its only contact with Oklahoma is that its website can be accessed in Oklahoma and it ships the items to Oklahoma by common carrier, then the Alaskan vendor would not have to register to do business in Oklahoma, charge Oklahoma's sales tax, collect it from the Oklahoma customer and remit it to the State of Oklahoma.
• Under Oklahoma law, the customer would have to pay use tax on any items it purchases from out-of-state which corresponds to the sales tax it would have paid if it made the purchase from an in-state vendor.
14 iii. The problem with this structure is that use tax is one of the most underpaid taxes. Use tax is difficult to administer and it is not cost effective to enforce against individuals. Usually businesses and significantly large purchases were the only ones the state could effectively pursue.
d. South Dakota Legislation and Challenge.
i. The South Dakota Legislature enacted a law that any out-of-state retailer with more than $100,000 in sales in South Dakota would be deemed an in-state vendor.
ii. Companies meeting the requirement filed suit challenging the law, their motion for summary judgment was granted and affirmed by the South Dakota Supreme Court.
e. United States Supreme Court Holding.
i. The South Dakota law did not violate the Commerce Clause. The physical presence test of National Bellas Hess and Quill is overturned.
ii. The test is still whether the out-of-state vendor has substantial nexus with the taxing jurisdiction, which the court found is satisfied based upon the $100,000 in annual sales requirement of the South Dakota law.
iii. The Court did not reach the question of whether smaller retailers would have "substantial nexus" without a physical presence, leaving the question to be decided in future cases where "a sensitive, case by case analysis of purpose and effects" can be employed.
iv. How has the Oklahoma Tax Commission Reacted? Most states, including Oklahoma, have laws which impose sales tax to the extent allowed under the Due Process and Commerce Clause. The Tax Commission believes that under the Wayfair opinion, all vendors large or small who make sales to Oklahomans have substantial nexus and are required to register, report, collect and remit sales tax. The Tax Commission has an on-line registration procedure. The original Press Release from the Tax Commission stated that it requires vendors with over $10,000 in sales to report and remit sales tax pursuant to 68 O.S. §§ 1391-1397 (those statutes require remote sellers with more than $10,000 in Oklahoma annually to elect between collecting and remitting sales tax, or conspicuously notifying the purchaser that they have to pay use tax). However, the Tax Commission changed its position as described above.
B. Oklahoma Supreme Court - Workers Compensation Rebates.
15 1. CompSource Mutual Insur. Co. v. State ex rel. Okla. Tax Comm. and Okla. Assoc. Of Electric Self Insurers Fund v. State Of Okla. Tax Comm., 2018 OK 54.
a. This case involves assessments made against workers compensation insurance carriers, CompSource, and self-insurers ("Insurance Carriers") that are paid to the Multiple Injury Trust Fund, and rebates of such assessments paid from Oklahoma income tax collections.
b. In 2001, the Legislature imposed annual assessments on the Insurance Carriers. 85 O.S. § 173. At the time, there was also a corresponding tax credit program under 68 O.S. § 2357.44.
c. In 2002, Section 173 was amended to provide that the Insurance Carriers could not pass through 2/3 of the assessments through to their customers.
d. Also in 2002, the Legislature repealed the income tax credit and replaced it with a rebate program. Under the rebate program, the Insurance carriers would receive a rebate equal to 2/3 of the assessments paid pursuant to Section 173 to be paid from Oklahoma income tax collections. 68 O.S. § 6101-6102.
e. In 2011, Section 173 was repealed and re-codified as 85 O.S. § 403, and continued to provide that the Insurance Carriers could not pass through 2/3 of the assessments through to their customers.
f. In 2014, Section 403 was repealed and re-codified as 85A O.S. § 31, and continued to provide that the Insurance Carriers could not pass through 2/3 of the assessments through to their customers.
g. From 2002 through 2014, the rebates provided in 68 O.S. § 6101-6102 were granted by the Tax Commission.
h. In 2015, the Legislature amended Section 31 removing the restriction on passing through 2/3 of the costs of the assessments on to the insurance carriers customers.
i. The Legislature did not expressly repeal or change the rebate provided under 68 O.S. § 6101-6102.
ii. However, when the change to Section 31 was enacted, the Governor issued an Executive Order stating that the rebate under 68 O.S. § 6101-6102 was repealed by implication.
i. The Insurance Carriers requested rebates which the Tax Commission denied. The Insurance Carriers protested, the Administrative Law Judge recommended that the Insurance Carrier's rebates should be paid; however, the Commissioners did not follow the ALJ's recommendations and denied
16 the rebates. The Insurance Carriers appealed to the Oklahoma Supreme Court.
j. The OTC argued that the rebates statute "specifically incorporated" Section 173 and when it was repealed the rebates were repealed.
k. The Insurance Carriers argued that the reference to Section 173 assessments in the rebate statute was a general reference which carried over when Section 173 was repealed and replaced. Therefore, since the assessments are still in place, the rebates are still claimable under 68 O.S. § 6101-6102.
l. Oklahoma Supreme Court Holding. The Court held in favor of the Insurance Carriers and granted the rebates. The rebates were not expressly repealed by the Legislature, and the reference to Section 173 assessments in the rebate statute was a general reference which carried over to the re- codified statutes. The Court pointed to the fact that the Tax Commission was still paying rebates even after Section 173 was repealed and replaced. It was only after the 2015 changes which lifted the restrictions on passing on the costs of the assessments when the Tax Commission and the Governor took the position that the rebates were repealed by implication. However, the rebate statute was not expressly or impliedly repealed.
C. Oklahoma Court of Civil Appeals - Apportionment of Motor Vehicle Tax, Fees and Penalties.
1. Independent School Dist. No. 2 Tulsa County v. Oklahoma Tax Commissioner, 2018 OK CIV APP 49, 419 P.3d 1281.
a. Several Oklahoma School Districts sued the Oklahoma Tax Commissioners in their official capacity in Oklahoma County District Court for a declaratory judgment and injunction. The dispute stems from the apportionment of motor vehicle taxes, fees and penalties to school districts.
b. Since 1985 the Legislature enacted the Motor Vehicle License and Registration Act, under which a fraction of the taxes, fees and penalties would be allocated among school districts. In 2015 this percentage was 36.2%.
c. In 2015, the statutes were amended, and the school districts believed that the funds were wrongfully apportioned following the amendments.
d. Statute prior to 2015 amendments provided:
i. Each month the school district will receive at least as much as it received in the same month of the preceding year. 47 O.S. § 1104(B)(2)(a).
17 ii. In months where there is an excess, then the districts first get repaid for any deficits in previous months, and then any excess is apportioned among the school districts based upon the average daily attendance in the school districts. 47 O.S. § 1104(B)(2)(b).
iii. In deficit months, the amounts distributed will be reduced proportionately based upon the amounts received in the same month of the previous year. 47 O.S. § 1104(B)(2)(c).
iv. If there is a deficit for the fiscal year, then each school district would be apportioned enough to ensure they receive the same amount as the previous year from the motor vehicle taxes and fees allocated to the general revenue fund. 47 O.S. § 1104(M). e. In 2015, the Legislature repealed the last two - 47 O.S. § 1104(B)(2)(c) and (M). f. The Tax Commission started apportioning as follows:
i. In months where there was a deficit, the fees and taxes would be apportioned among the school districts based upon the average daily attendance in the school districts.
ii. If there was a surplus, school districts would receive as much as they did in the same month of the previous year, with the excess apportioned among the school districts based upon the average daily attendance in the school districts. g. The Tax Commission argued that without the apportionment language for deficits formerly found in Subsection (2)(c), the make-up provision in Subsection (2)(B) was ineffective. h. The school districts argued that there was no change to the apportionment in Subsections (2)(a) and 2(b), and since Subsection (2)(b) still provided for a make-up from when there were previous deficits, they are still entitled to as much as they received the previous year, unless there is a deficit for the entire year. i. The school districts were granted summary judgment and the Tax Commissioners appealed. j. In 2017, the Legislature amended the statute eliminating Subsections (2)(a) and 2(b), and simply providing that the fees and taxes would be apportioned among the school districts based upon the average daily attendance in the school districts without regard to what they received the prior year. k. Oklahoma COCA Holding. Affirmed the District Court granting summary judgment to the school districts. The Tax Commission was directed to
18 recalculate the apportionments for 2015 and 2016. However, since the school districts did not ask for a monetary judgment, only declarative and injunctive relief, they would receive no money based upon the recalculation. Further, since the law changed in 2017 the order would not have any substantive effect moving forward.
D. Oklahoma Court of Civil Appeals – Oklahoma Capital Gains Deduction.
1. Baskins V. Oklahoma Tax Commission, Oklahoma Court of Civil Appeals, Case No. 115,947 (2018) (Unpublished).
a. This case challenges the headquarters requirement of the Oklahoma Capital Gain Deduction under the Commerce Clause of the United States Constitution.
b. To claim the deduction the company sold must have had its headquarters in Oklahoma for three years prior to the sale. 68 O.S. § 2358(F).
c. The company at issue had its headquarters in the state of Washington.
d. A similar case was decided 4 years ago. CDR Systems Corp. v. Oklahoma Tax Commission, 2014 OK 31, 339 P.3d 848.
i. In CDR case, the COCA held that the headquarters requirement violated the Commerce Clause and the Tax Commission requested certiorari to the Oklahoma Supreme Court.
ii. The Oklahoma Supreme Court granted certiorari and reversed holding that the headquarters requirement was not discriminatory against interstate commerce and did not violate the Commerce Clause.
iii. CDR was petitioning for certiorari before the United States Supreme Court when the Tax Commission paid the refund making the case moot.
e. Court of Civil Appeals Holding. The CDR case is binding precedent and the statute does not violate the Commerce Clause. The author is unaware whether the Taxpayer in Baskins is seeking certiorari, or if the Tax Commission conceded the liability rendering this case moot.
III. ATTORNEY GENERAL OPINIONS. None of the Attorney General Opinions Issued in 2018 involve tax law.
IV. OTC ORDERS
OTC Orders are either precedential or non-precedential; if non-precedential, the legal conclusions are not generally applicable or are limited in time and/or effect. Non-precedential
19 decisions are not binding on the OTC. Most orders are classified by the OTC as non-precedential. The first number of an OTC Order refers to the year, the second number refers to the month, the third number refers to the day, and the fourth number to the order decided on that day.
Most of the precedential orders can also be found in the second volume of the Oklahoma CCH Tax Reporter. Since 1998, OTC Orders have been posted at the OTC website. To view the OTC Orders, go to www.oktax.state.ok.us and click on the link for rules and decisions. However, the OTC has not posted any OTC orders in 2018. The following orders are either on appeal or are within the personal knowledge of the author.
If the OTC rules in favor of a taxpayer, no appeal can be taken by the OTC general counsel’s office. If the OTC rules against a taxpayer, the taxpayer can appeal to the Oklahoma Supreme Court, and under certain circumstances District Court.
A. Income Tax
1. Aerospace Income Tax Credit. OTC Order No. 2018-08-07-06.
a. Taxpayer claimed the $5,000 Aerospace credit for the 2015 tax year. The Compliance Division denied the credit because the taxpayer did not receive his degree from an institution accredited by the "Accreditation Board for Engineering and Technology."
b. The taxpayer received his Bachelor of Aeronautical Engineering degree from Cairo University, Egypt and his Masters of Engineering degree from Concordia University, Montreal Canada.
c. Protest Denied: The statute requires that the institution from which the degree was attained be accredited.
d. Taxpayer is appealing pro se.
B. Sales Tax.
1. Bad Debt Deduction. OTC Order No. 2018-05-17-21.
a. This case was pending at the Tax Commission for over a decade. Lowe's was notified of a sales tax audit in 2007, with the audit period of November 1, 2004 through October 31, 2007. In 2009, the Tax Commission assessed sales tax by disallowing the bad debt deductions taken for private label credit card ("PLCC") charges that had been written-off.
b. A PLLC is a credit card that can only be used at the specified retailor. In this case Lowe's. Lowe's contracted with banks to issue and administer the credit cards.
c. The sales tax law requires the vendor to report and remit sales tax at the time a sale is made on credit, even though the consumer (who owes the tax)
20 has not yet paid for the merchandise. Under 68 O.S. § 1366, the vendor can deduct bad debts and, thus, get reimbursed for the sales tax it remitted when the customer fails to pay.
d. Under the PLCC agreements with the banks, Lowe's guaranteed the debts of its PLCC customers. As such, when the debts became worthless Lowe's was able to take a bad debt deduction. The Tax Commission ruled in 2013 that Section 1366 bad debt deductions were available to Lowe's for charged- off PLCC accounts; however, the amount of the deductions had yet to be determined.
e. Under the PLCC agreements, payments were applied in the following order: (1) debt cancellation insurance, (2) fees (such as late fees), (3) interest, and (4) principal.
f. Under PLLC agreements between the Banks and Lowe's, the Banks provided Lowe's with monthly charged-off principal on a statewide basis.
g. Lowe's would then deduct the bad debts on its sales tax reports for each of its locations based on a ratio of total sales at each location.
h. Compliance Division Arguments.
i. The Compliance Division took the position that since Section 1366 does not allow charges other than principal to be deducted, that the cardholder payments must be applied to principal first before interest and other fees.
ii. The Compliance Division further argued that the use of a ratio was not authorized by statute and Lowe's needed to provide the detail of where each written-off sale occurred.
i. ALJ's Recommendations. It appears that the ALJ agreed with Lowe's finding that the remaining principal was determined under the PLLC agreements, and the use of a ratio was proper.
j. Commissioner's Order: The Commissioners did not adopt the ALJ's recommendations and issued its own Order denying the deductions. The Tax Commission found that payments on the credit cards should be applied to principal first, and Lowe's could not use a ratio to source where the sales that were charged-off occurred.
k. Lowe's appealed.
2. Rental With Operator. OTC Order No. 2018-10-25-08.
a. Facts:
21 i. Taxpayer organizes parties and corporate events. These events can include carnival rides, carnival games, bouncy houses, photographs, food, bands and any number of activities.
ii. When the Taxpayer operated and maintained possession and control of a ride or activity throughout an event, it did not charge sales tax. If tangible personal property did transfer, the Taxpayer charged sales tax.
iii. The Compliance Division took the position that if there was a separate charge for an item, then it was rented without an operator.
• Example. If a customer wanted cotton candy served at an event the Taxpayer would charge for the cotton candy machine and an event technician to operate the machine and would not charge sales tax. The Taxpayer would charge sales tax on the sugar, sticks, packaging and whatever else was transferred to the customer's guests with the cotton candy. b. Taxpayer Position. Where title and possession never transferred, no sales tax was due. The items were operated, and the customers would not have rented the items for the events without an operator. Thus, what the taxpayer provided were nontaxable services. c. Protest Denied in Part and Granted in Part. Sales tax was appropriate because possession did pass if the item was listed on the invoice and it was taken to the event, regardless of whether the item was actually operated by the Taxpayer. The ruling made the following exceptions:
i. If an operator was required by law (e.g., carnival rides);
ii. Separately stated service charges (e.g., poster design is nontaxable, the cost of the printed poster is taxable); and
iii. Where there is a specific OTC rule stating tangible personal property used with a type of service is not taxable (e.g., hair styling and similar services have specific rules – the taxpayer provided stylists for hair parties with temporary hair color, applying temporary tattoos, and face painting). d. This decision was reached after three and a half years, several revisions to the proposed assessment, two hearings and three sets of Recommendations from the ALJ. It was simply not cost effective for the Taxpayer to challenge it further.
22 V. LETTER RULINGS
The OTC posts letter rulings on its website. “Tax Policy and Research Division and the Office of the General Counsel draft and issue letter rulings, which are informal written statements of policy or treatment of specific fact situations under Oklahoma tax law. Such a letter ruling may generally be relied upon only by the taxpayer to whom it is issued, provided that all facts have been accurately and completely stated, and that there has been no change in applicable law.” OTC Rule 710:1-3-73(e).
To view all OTC Letter Rulings, go to www.ok.gov/tax. Then go to "Tax Professionals," then beneath it click "Letter Rulings." Some of the OTC Letter Rulings issued in 2017, included the following:
A. Withholding Tax.
1. Letter Ruling No. 18-001, May 18, 2018 - Wages Earned Outside State.
a. The requesting party is a Texas resident working for an Oklahoma company, but performs most of his work in Texas and other states. The Company is withholding Oklahoma income tax because Texas does not have an income tax and would not change their policy unless the employee received a letter ruling from the Oklahoma Tax Commission.
b. Ruled the Oklahoma company should not withhold Oklahoma income tax on work performed by a Texas resident in Texas.
B. Sales Tax
1. Letter Ruling No. 18-004, May 3, 2018 - Hotel Space Rental.
a. An OTC letter ruling states that the rental of a hotel facility space alone is not subject to Oklahoma sales tax in Oklahoma. The taxpayer requested a ruling as to rental of a hotel meeting room or ballroom for a wedding.
b. The OTC stated that furnishing of rooms, except meeting rooms, by a hotel, apartment, hotel, cottage camp, or public lodging house is subject to sales tax in Oklahoma; although the rental of the hotel facility space alone is not subject to sales tax.
c. The OTC indicated the information provided by the taxpayer did not indicate specific items included in the price quote, such that a specific determination could not be made as to whether sales tax should be charged.
2. Letter Ruling No. 17-018, May 3, 2018 - Tax Compliance Software: Bundled Transaction.
a. The OTC has issued a letter ruling regarding sales tax treatment of tax compliance software supplied by the taxpayer to the telecommunications
23 industry. The items provided included a video conference meeting with various enhanced features.
b. The OTC stated that while one product involved did not constitute tangible personal property the sale of which is subject to sales tax, another product constituted an ancillary service and subject to sales tax, and the total gross receipts of a “bundled transaction” is subject to sales tax without any deduction for nontaxable items.
3. Letter Ruling No. 17-015, April 18, 2018 - Sales Tax and Income Tax Nexus; Texas Single Member LLC.
a. The OTC has issued a letter ruling to the owner of a single member limited liability company that maintains and has no offices, employees, or assets in Oklahoma. The taxpayer would from time to time solicit business in Oklahoma at events held in the state.
b. The OTC advised the taxpayer to fill out and submit to the OTC a questionnaire as to income tax nexus. The OTC stated that based on the facts presented the taxpayer would have sales tax nexus in Oklahoma.
VI. OTHER PUBLICATION, PRESS RELEASES AND ACTIVITY
A. Informational Notice - Wednesday, April 4, 2018 - Oklahoma W-4. Oklahoma now has its own Form W-4. Last year, in anticipation of federal tax cuts, the Oklahoma Legislature adopted its own standard deduction. With the federal government adopting the Federal Tax Cuts and Jobs Act, using the federal Form W-4 may not result in the correct Oklahoma withholding.
B. Press Release - Thursday, June 21, 2018 - New Online Option Available in Time for Boat Renewal Deadline.
C. Informational Notice - Thursday, July 5, 2018 - Information for Medical Marijuana Sales Tax Permits. Licensed commercial growers, processors, or dispensaries must have a permit from the Health Department before applying for a sales tax permit.
D. Press Release - Friday, August 31, 2018 - Remote Sellers Information and FAQs. Remote sellers with more than $10,000 annually in the state of Oklahoma must register, report, collect and remit sales tax.
E. Press Release - Monday, October 15, 2018 - Simplified Remote Seller Registration Now Available. All remote sellers of tangible personal property into the state of Oklahoma must register, report, collect and remit sales tax. The Tax Commission has an on-line registration procedure.
24 VII. NEW OTC ADMINISTRATIVE RULES
Most OTC administrative rules are proposed in the beginning of each calendar year. Most rules are adopted and effective in May and June of each year. To view all OTC rules, go to www.ok.gov/tax, then go to "Tax Professionals," then beneath it to click on "Rules." The rules adopted in this year would normally be under Proposed Rules and Impact Statements and under Emergency Rules.
Some of the OTC rules proposed and that became effective in 2017 were:
A. Administrative Operations.
1. Business Compliance Proceedings. The OTC administrative rules were amended to implement new legislation providing that a noncompliant taxpayer's sales tax permit operating business may be closed if the noncompliant taxpayer fails to remit tax due or file a report three (3) times within any consecutive twenty-four-month period as required under the provisions of any tax law except nonpayment of income taxes. OAC Title 710, Subchapter 5, Part 10, Business Compliance Proceedings.
B. Ad Valorem Tax.
1. New Manufacturing Facilities in Tax Incentive Districts; Delay of General Five- Year Ad Valorem Tax Exemption. The OTC Rules were amended consistent with the passage of legislation providing a mechanism to allow new manufacturing facilities meeting all qualification requirements in 68 O.S. § 2902, in addition to the ones outlined in the new Section 2902.5, to delay the initiation of the five-year ad valorem exemption. A delay can be allowed to January 1st following the expiration or termination of an ad valorem exemption, abatement or other incentive provided to the facility through a tax incentive district. OAC §710:10-7-2.3.
C. Gross Production Tax.
1. Amendment of Rules; Gross Production Tax Exemptions. The OTC Rules on gross production tax were amended to implement the provisions of House Bill 2377 which changed the sunset date for the qualification of various gross production tax incentive exemptions to July 1, 2017. The legislation also permanently suspended the remaining term periods for such incentives for production on or after July 1, 2017. Under the legislation, incentive rebates that have qualified for production periods prior to July 1, 2017, can be claimed no later than eighteen (18) months from the first day of the fiscal year in which the refund is first available, or September 30, 2017, whichever is earlier. These Rules were also amended by changing the sunset date for the qualification of the economically at-risk rebate ending with calendar year 2016. OAC Title 710, Chapter 45, Subchapter 9, Exemptions and Exclusions.
D. Income Tax.
25 1. Oklahoma Standard Deduction Freeze. The OTC Rules on Oklahoma income tax were amended to implement the provisions of legislation that freezes the amount of the Oklahoma standard deduction to the amount of tax year 2017 federal standard deduction and implemented new filing requirements for tax year 2017 and subsequent years. OAC §§710:50-3-1,710:50-15-50.
2. Withholding of Payments of Royalties. The OTC Rules were amended to implement the provisions of legislation that made changes to exempt certain entities from the income tax withholding requirement to deduct and withhold from payments made to royalty interest owners in respect to production of oil and gas in Oklahoma. OAC §710:50-3-53.
3. Scholarship Granting Organizations Credit. The OTC Rules on the income tax credit for contributions to scholarship grant organizations and educational improvement grant organizations, were amended to implement the provisions of legislation modifying the allocation of the annual cap and providing for the carryover of capped credits. OAC §§710:50-15-114, 710:50-15-115.
4. OTC Rules on 2018 Income Tax Deduction, Credits Amendments. The OTC issued emergency Rules on Oklahoma income tax effective October 17, 2018, to implement administration of legislation enacted in 2018 to limit itemized deductions to $17,000, with exceptions for charitable contributions and medical expenses; for the $5,000,000 cap on Oklahoma coal credits; and for the $2,000,000 cap on the credit for railroad reconstruction and replacement expenditures. OAC §§710:50-15-50, 710:50-15-76, 710:50-15-103.
E. Sales and Use Tax.
1. Vendor Reimbursement Repeal. The OTC Rules on sales and use tax were revised to comply with the repeal of Oklahoma Sales Tax Code statutory provisions which allowed vendors to retain one percent (1%) of monthly sales/use taxes due for record maintenance and the timely filing and remittance of sales and use tax. OAC §§ 710:65-3-4, 710:65-9-8, 710:65-21-7 and 710:65-9-10.
2. Sales Tax on Motor Vehicle Sales. The OTC Rules on sales tax were amended to implement the passage of legislation which modified the sales tax exemption for vehicle transfers to provide that a portion of the state sales tax levy (1.25%) will apply to certain vehicle sales. OAC §§710:65-19-215, 710:65-7-14,710:65-13-30.
3. SQ 788; Marijuana Sales for Medical Purposes. In connection with passing of SQ 788, on June 26, 2018, authorizing the cultivation, processing, sale and use of marijuana for medical purposes, an emergency OTC Rule was adopted effective September 11, 2018. The Rule sets forth definitions, general permitting requirements and information regarding the computation, collection and remittance of sales tax. OAC §710:65-19-216.
26 Oklahoma Bar Association November 29, 2018, Tulsa December 13, 2018, Oklahoma City 2018 Oklahoma Tax Developments
Kevin B. Ratliff Ratliff Law Firm 1403 Classen Drive Oklahoma City, OK 73106 (405) 228-2017 [email protected]
Sheppard F. Miers, Jr. Gable & Gotwals 100 W. 5th Street Suite 1100 Tulsa, OK 74103-4217 (918) 595-4800 Fax: (918) 595-4990 [email protected] Oklahoma Bar Association 2018 Oklahoma Tax Developments
Oklahoma Tax Legislation Oklahoma Case Law Oklahoma Tax Commission Decisions Private Letter Rulings Other Publication, Press Releases And Activity New Oklahoma Tax Commission Rules
2 Oklahoma Taxation Overview ▪ Oklahoma Constitution - Revenue and Taxation – Article 10 ▪ Oklahoma Statutes - Revenue and Taxation -Title 68 ➢ Uniform Tax Procedure ➢ Income Tax ➢ Sales and Use Tax ➢ Ad Valorem Tax ➢ Gross Production Tax ▪ Oklahoma Tax Commission ➢ Rules - OAC Title 710 ➢ Administrative Decisions - 68 O.S. § 221-228 ▪ Judicial Decisions - 68 O. S. §§ 225, 226 ▪ Attorney General Opinions
3 Oklahoma Income Tax
4 Income Tax
Limit of Itemized Deductions Outline Page 2
The Oklahoma Income Tax Act was amended to provide that the net amount of itemized deductions allowable on an Oklahoma individual income tax return shall not exceed $17,000. Charitable contributions and medical expenses deductible for federal income tax purposes shall be excluded from the $17,000 limit.
HB 1011XX, amending 68 O. S. Supp. 2017, §2358; effective Jan. 1, 2018 5 Income Tax Vehicle Manufacturing Credits Outline Pages 2-3 Oklahoma income tax credits for qualified employer and qualified employee in vehicle manufacturing in Oklahoma. “Vehicle manufacturing” is: ➢ a company placed in operation in Oklahoma after Nov. 1, 2018, ➢ engaged in the research, development, design and manufacture of motor vehicles to be driven on public roads. A “qualified employer” is a business entity whose principal business activity involves vehicle manufacturing in Oklahoma.
SB 1585, adding 68 O. S. Supp. 2018, §2357.404; effective Nov. 1, 2018 6 Income Tax Vehicle Manufacturing Credits Continued: A “qualified employee” is: ➢ a person first employed as a full-time engineer in vehicle manufacturing in Oklahoma by a qualified employer on or after Jan. 1, 2018, ➢ who has an undergraduate or graduate degree from a program accredited by the Engineering Accreditation Commission of the Accreditation Board for Engineering and Technology. A qualified employee shall be allowed: ➢ an individual income tax credit of up to $5,000 per year for a period of 5 years. ➢ The total amount of credits allowed to qualified employees shall be adjusted annually to limit the annual amount of credits to $2 million.
SB 1585, adding 68 O. S. Supp. 2018, §2357.404; effective Nov. 1, 2018 7 Income Tax Vehicle Manufacturing Credits Continued: A qualified employer shall be allowed: ➢ Tax credit equal to 50% of the tuition reimbursed to a qualified employee who receives the required degree within 1 year of commencing employment. ➢ Tax credit equal to 10% of compensation paid for the first 5 years to a qualified employee if they receive the required degree from an Oklahoma school. ➢ Tax credit equal to 5% if they receive the required degree from outside Oklahoma. ➢ Compensation credits are limited $12,500 for each qualified employee annually. ➢ The total amount of credits to qualified employers shall be adjusted annually to limit the annual amount of credits to $3 million. Credits available after Dec. 31, 2018, and before Jan. 1, 2026.
SB 1585, adding 68 O. S. Supp. 2018, §2357.404; effective Nov. 1, 2018 8 Income Tax
Zero-Emission Electricity Generation Facility Credit Limit Outline Page 3
The Oklahoma income tax credit for production of electricity from renewable resources and zero-emission facilities was amended: ➢ The credit for electricity generated by moving water, sun or geothermal energy is limited to tax years ending not later than 2021. ➢ For tax years beginning on or after Jan. 1, 2019, there is to be a limit of the total amount of credits of $500,000 per year.
SB 893, amending 68 O. S. Supp. 2017, §2357.32A, effective Jan. 1, 2019 9 Income Tax
Railroad Reconstruction/Replacement Credit Limit Outline Page 3
For tax years beginning on or after Jan. 1, 2018, the total amount of railroad reconstruction/replacement credits shall be adjusted annually to limit the annual amount of credits to $2 million per year.
HB 1036XX, amending 68 O. S. Supp. 2017, §2357.104; effective Jan. 1, 2018 10 Income Tax
Coal Production Credit Outline Pages 3-4
The income tax credit limited for tax years beginning on or after Jan. 1, 2018. The total amount of credits shall be adjusted annually to limit the annual amount of credits to $5 million per year.
HB 1034XX, amending 68 O. S. Supp. 2017, §2357.11; effective Jan. 1, 2018
11 Income Tax
Oklahoma Tax Installment Payment on Repatriated Foreign Income Outline Page 4
■ The Tax Cuts and Jobs Act requires repatriation of foreign source income. ■ Taxpayer election to pay federal income tax on repatriated income in annual installments over eight (8) years will apply to Oklahoma income tax payment on that income.
HB 3715, amending 68 O. S. Supp. 2017, §2368; effective Aug. 2, 2018
12 Income Tax
Income Tax Return Refund Contributions Outline Page 4
Oklahoma Pet Overpopulation Fund was reauthorized effective Jan.1, 2019. Programs for Court Appointed Special Advocates was reauthorized effective Jan. 1, 2018. Programs for the Public School Classroom Support Revolving Fund was reauthorized effective Jan. 1, 2019.
Oklahoma AIDS Care Revolving Fund was enacted.
HB 2716, amending 68 O. S. Supp. 2017, §2368.13; effective Nov. 1, 2018; SB 1166, amending 68 O. S. Supp. 2017, §2368.12; effective Nov. 1, 2018; SB 1198, amending 70 O. S. 2011, §1-122, effective July 1, 2018; SB 943, adding 68 O. S. Supp. 2018, §2368.31, effective Nov. 1, 2018 13 Oklahoma Sales and Use Tax
14 Sales and Use Tax Remote Sellers Sales and Use Tax Compliance Requirements Outline Pages 5-6 Requirements for collection and payment of Oklahoma sales and use tax by remote sellers for sales through the Internet. A “remote seller,” “marketplace facilitator,” or “referrer” would be required on or before July 1 of each year to file an election with the Tax Commission to either: ➢ collect and remit sales and use tax on sales to purchasers in Oklahoma, or ➢ comply with specified notice requirements to inform purchasers that sales or use tax may be due, and to file a report with the Tax Commission with respect to Oklahoma sales.
HB 1019XX, adding 68 O. S. Supp. 2018, §§1391-1397; effective April 10, 2018 15 Sales and Use Tax Remote Sellers Continued: REMOTE INTERNET SELLER REQUIREMENTS (1) Elect to collect and remit Oklahoma sales tax, or (2) Send notice to Oklahoma purchaser, and report sale to the Oklahoma Tax Commission
HB 1019XX, adding 68 O. S. Supp. 2018, §§1391-1397; effective April 10, 2018 16 Sales and Use Tax Remote Sellers Continued: The requirements apply to a remote seller, marketplace facilitator, or referrer that for the prior year: ➢ had aggregate taxable sales of tangible personal property within Oklahoma, or ➢ delivered tangible personal property to locations within Oklahoma, ➢ worth at least $10,000. Penalties imposed for failure to comply. Author’s Note: The Legislation was passed prior to the U.S. Supreme Court’s opinion in South Dakota v. Wayfair, (discussed below). The Tax Commission now believes that all remote sellers are required to report and remit sales tax.
HB 1019XX, adding 68 O. S. Supp. 2018, §§1391-1397; effective April 10, 2018 17 Sales and Use Tax Remote Sellers Continued: REMOTE INTERNET SELLER NEXUS (1) Aggregate 12-month sales of tangible personal property within Oklahoma of $10,000, or (2) Deliveries in 12 months to Oklahoma locations of tangible personal property worth $10,000
HB 1019XX, adding 68 O. S. Supp. 2018, §§1391-1397; effective April 10, 2018 18 Ad Valorem Tax
19 Ad Valorem Tax Amendments to Assessment and Protest Procedures Outline Pages 6 ■ County assessor notifications of increase in value of personal property must now contain specific items and provisions to accurately describe the property, the value, assessment percentage and assessed value. ▪ The county assessor must now issue a written decision (rather than take final action) on a county assessor informal hearing of a taxpayer protest, within 5 working days of the hearing. The county assessor is authorized and required to provide a copy of the written decision to the taxpayer by regular or electronic mail, marked with date mailed. ▪ The taxpayer has 10 working days from the date the written decision is mailed (via regular or electronic mail) to file an appeal to the county board of equalization. SB 1059, amending 68 O. S. Supp. 2017, §2876, effective Nov. 1, 2018 20 Ad Valorem Tax Amendments to Assessment and Protest Procedures Outline Pages 6
■ Defined terms “assessed valuation,” “assessment percentage,” “fair cash value,” and “taxable value,” related to county assessor notification to taxpayers of assessment and valuation of property, were amended.
▪ The notification provisions, as amended, require a county assessor notification be sent to “the taxpayer” (rather than person in whose name the property listed [owned]).
SB 1059, amending 68 O. S. 2011, §2802, effective Nov. 1, 2018 21 Ad Valorem Tax Amendments to Assessment Mapping and Appraisal Procedures Outline Pages 6-7 ■ County assessor accreditation now requires completion of academic units in cadastral mapping. ➢ The Oklahoma State University Center for Local Government Technology (OSU/CLGT) shall provide accreditation courses. ▪ A County Government Educational-Technical Revolving Fund was created. ➢ The OSU/CLCT, and the County Assessors' Association, shall implement the OSU/CLGT-sponsored computer-assisted mass appraisal computer software system.
HB 3372, amending 68 O. S. 2011, §§2816, 2947, 3201, 3204, and adding 68 O. S. Supp. 2018, §§2947.1, 2947.2 and 2947.3; effective July 1, 2019 22 Ad Valorem Tax Assessment Mapping and Appraisal Procedures Continued:
All responsibilities, assets, and liabilities of the Ad Valorem Division of the Oklahoma Tax Commission for the mass appraisal system are transferred to the OSU/CLGT. A Computer-Assisted Mass Appraisal Implementation Revolving Fund was created.
HB 3372, amending 68 O. S. 2011, §§2816, 2947, 3201, 3204, and adding 68 O. S. Supp. 2018, §§2947.1, 2947.2 and 2947.3; effective July 1, 2019 23 Oklahoma Gross Production Tax
24 Gross Production Tax Gross Production Tax Rate Increase Outline Page 7
The gross production tax rate on initial production of oil and gas was increased to 5% commencing with the month of first production for a period of 36 months. ➢ Thereafter, at the standard rate of 7%. Previously enacted gross production tax incentive provisions were removed.
HB 1010XX, amending 68 O. S. Supp. 2017, §§1001, 1004; effective June 28, 2018 25 Oklahoma Tobacco Tax
26 Tobacco Tax Additional Cigarette/Little Cigar Tax Outline Pages 7-8
An additional $1.00 per pack tax on cigarettes was enacted. ➢ Cigarette tax rate as increased is $ $2.03 per pack Additional $1.00 per pack tax also applies to little cigars.
HB 1010XX, adding 68 O. S. Supp. 2018, §302-7; and amending 68 O. S. 2011, §402; effective June 28, 2018 27 Tobacco Tax
Seizure of Contraband Cigarettes; Hearing Procedure Outline Page 8 ▪ The procedures governing Tax Commission seizure of contraband cigarettes and tobacco products were amended: ➢ Within 60 days of seizure, the owner of the cigarettes may request a hearing with the Tax Commission or the Attorney General. ➢ If a hearing is requested, the owner of the cigarettes shall be given at least 10 days' notice of the hearing. ➢ If no request for hearing is filed within the time provided, the property seized will be forfeited and destroyed.
HB 3156, amending 68 O. S. Supp. 2017, §305, and 68 O. S. 2011, §§360.7, 417; effective July 1, 2018 28 Tobacco Tax
Excise Tax Stamps Outline Page 8
▪ Cigarette excise tax stamps a wholesaler can purchase are limited to prior year sales. ▪ However, a wholesaler may purchase more by documenting to the Tax Commission probable sales greater the preceding year.
HB 1018XX, non-codified; effective April 3, 2018 29 Oklahoma Motor Fuel Tax
30 Motor Fuel Tax Increase of Gasoline, Diesel Tax Outline Pages 8-9
Gasoline tax increased by $0.03 per gallon. Current total rate: $0.19 per gallon.
Diesel fuel tax increased by $0.06 per gallon. Current total rate: $0.19 per gallon.
HB 1010XX, adding 68 O. S. Supp. 2018, §500.4B; effective June 28, 2018 31 Oklahoma Aircraft Excise Tax
32 Aircraft Excise Tax Commercial Airlines Exemption Outline Pages 9-10
The commercial airline exemption from Oklahoma aircraft excise tax was amended. Operations of aircraft must be at least 50% “commercial” to be exempted. Aircraft owner must provide report to Tax Commission annually on flights, operations. Use by owner or entity of owner cannot be used to satisfy “commercial” operation requirement for exemption.
HB 2253, amending 68 O. S. 2011, §6001, and 68 O. S. Supp. 2017, §6003; effective May 10, 2018 33 Tax Administration Practice and Procedure
34 Tax Administration
Tax Commission Settlements; District Court Approval Outline Page 10
Tax Commission settlement of tax assessments and controversies will require approval of district court of Oklahoma county if settlement exceeds $25,000. ➢ amount previously requiring district court approval was $10,000.
HB 3156, amending 68 O. S. 2011, §219; effective July 1, 2018 35 Tax Administration Tax Commission Abatement of Tax Liability; District Court Approval Outline Pages 10-11
Tax Commission abatement of liability for tax, interest and penalties in certain cases will require approval of district court of Oklahoma county if settlement exceeds $25,000. ➢ amount previously requiring district court approval was $10,000.
HB 3156, amending 68 O. S. 2011, §219.1; effective July 1, 2018. 36 Tax Administration Tax Commission Tax Credit Data Access Website Outline Page 11
A Tax Credit Data Website of the Tax Commission is now required and authorized. Must publish and disclose: ➢ amount of credits claimed, ➢ used to reduce tax liability or refunded to taxpayers, ➢ amount of credit carryovers, ➢ number of taxpayers claiming credit, ➢ annual growth rate in number and amount of credits claimed Data must be made available on website by Jan. 1, 2020
HB 3225 adding 68 O. S. Supp. 2018, §295; effective Nov. 1, 2018 37 Economic Development Tax Incentives
38 Economic Development Transfers to Oklahoma Quick Action Closing Fund Outline Page 11
Oklahoma Quality Jobs Program Act, 21st Century Quality Jobs Incentive Act and Small Employer Quality Jobs Act will now transfer 5% of incentive payment amounts to Oklahoma Quick Action Closing Fund. ➢ The Quick Action Closing Fund is a fund that can be used by the Governor for economic development and related infrastructure development.
HB 3324, amending 62 O. S. Supp. 2017, §48.2, 68 O. S. Supp. 2017, §§3604, 3904, 3914; effective Aug. 2, 2018 39 Economic Development Economic Incentive Laws Outline Pages 11-12
Oklahoma Quality Jobs Act – Duty of Incentive Approval Committee is to determine eligibility under the Act.
Saving Quality Jobs Act under 68 O. S. 2011, §§3701-3712 was repealed.
SB 897, amending 68 O. S. Supp. 2017, §3603; repealing 68 O. S. 2011, §§3701-3712; effective Nov. 1, 2018 40 U.S. Tax Cuts and Jobs Act
41 Federal Tax Tax Cuts and Jobs Act Outline Pages 12-13 The Tax Cuts and Jobs Act (P. L. 115-97) enacted December 22, 2017, and generally effective for tax years beginning in 2018, made substantial changes in federal income and other taxes. The Tax Cuts and Jobs Act (“TCJA”) provides in 2018 through 2025, an individual may claim an itemized deduction up to only $10,000 ($5,000 if married filing separately) for: state and local real property taxes, state and local personal property taxes; and state and local income tax. TCJA enacted numerous other changes in the Internal Revenue Code (“IRC”) with respect to federal income tax that could affect Oklahoma income tax imposed on a taxpayer. Oklahoma income tax generally conforms to and follows the federal income tax under the IRC, as amended.
42 COURT CASES
43 COURT CASES: Sales and Use Tax United States Supreme Court United States Constitution Outline Pages 13-15 This case dealt with the extent to which a state can require an out-of-state vendor to collect and remit sales tax on sales to customers within its state under the Commerce Clause of the United States Constitution. Prior Law. Prior to the Wayfair opinion, a state could only require a vendor to collect and remit sales tax if the vendor had substantial nexus with the taxing jurisdiction which required a physical presence within the state where the sale was made. National Bellas Hess, Inc. v Department of Revenue of Ill., 386 U.S. 753 (1967); Quill Corp. v. North Dalota, 504 U.S. 298 (1992).
South Dakota v. Wayfair, 585 U.S. ___ (2018) 44 COURT CASES: Sales and Use Tax Continued: Example. ➢ A customer in Oklahoma goes on-line and purchased items from an Alaskan vendor and has them shipped to Oklahoma. ➢ If the Alaskan vendor did not have a physical presence in Oklahoma (warehouse, employees, sales people, delivery trucks, etc.), then the Alaskan vendor would not have to register to do business in Oklahoma, charge Oklahoma's sales tax, collect it from the Oklahoma customer and remit it to the State of Oklahoma. ➢ Under Oklahoma law, the customer would have to pay use tax on any items it purchases from out-of-state which corresponds to the sales tax it would have paid if it made the purchase from an in-state vendor. ▪ Use tax has historically been one of the most underpaid taxes.
South Dakota v. Wayfair, 585 U.S. ___ (2018) 45 COURT CASES: Sales and Use Tax Continued: The South Dakota Legislature enacted a law that any out- of-state retailer with more than $100,000 in sales in South Dakota would be deemed an in-state vendor. United States Supreme Court Held: The South Dakota law did not violate the Commerce Clause. The physical presence test of National Bellas Hess and Quill is overturned. The test is still whether the out-of-state vendor has substantial nexus with the taxing jurisdiction, which the court found is satisfied based upon the $100,000 in annual sales requirement. The Court did not reach the question of whether smaller retailers would have "substantial nexus" without a physical presence.
South Dakota v. Wayfair, 585 U.S. ___ (2018) 46 COURT CASES: Workers Comp. Rebates Oklahoma Supreme Court Outline Page 15-17 This case involves assessments made against workers compensation insurance carriers, CompSource, and self- insurers ("Insurance Carriers") that are paid to the Multiple Injury Trust Fund, and rebates of such assessments paid from Oklahoma income tax collections. In 2002, 85 O.S. § 173 provided that the Insurance Carriers could not pass through 2/3 of the assessments through to their customers. Insurance carriers would receive a rebate equal to 2/3 of the Section 173 assessments to be paid from Oklahoma income tax collections. 68 O.S. § 6101-6102.
CompSource Mutual Insur. Co. v. State ex rel. Okla. Tax Comm. and Okla. Assoc. Of Electric Self Insurers Fund v. State Of Okla. Tax Comm., 2018 OK 54 47 COURT CASES: Workers Comp. Rebates Continued: In 2011, Section 173 was repealed and re-codified as 85 O.S. § 403, and in 2014, Section 403 was repealed and re-codified as 85A O.S. § 31 The re-codified statutes continued to provide that the Insurance Carriers could not pass through 2/3 of the assessments through to their customers. From 2002 through 2014, the rebates provided in 68 O.S. § 6101-6102 were unchanged and granted by the Tax Commission. In 2015, the Legislature amended Section 31 removing the restriction on passing through 2/3 of the costs of the assessments on to the insurance carriers customers.
CompSource Mutual Insur. Co. v. State ex rel. Okla. Tax Comm. and Okla. Assoc. Of Electric Self Insurers Fund v. State Of Okla. Tax Comm., 2018 OK 54 48 COURT CASES: Workers Comp. Rebates Continued: ➢ The Legislature did not repeal or change the rebate provided under 68 O.S. § 6101-6102. ➢ However, the Governor issued an Executive Order stating that the rebate under 68 O.S. § 6101-6102 was repealed by implication. The Administrative Law Judge recommended that the Insurance Carrier's rebates should be paid; however, the Commissioners did not follow the ALJ's recommendations and denied the rebates. The Insurance Carriers appealed to the Oklahoma Supreme Court.
CompSource Mutual Insur. Co. v. State ex rel. Okla. Tax Comm. and Okla. Assoc. Of Electric Self Insurers Fund v. State Of Okla. Tax Comm., 2018 OK 54 49 COURT CASES: Workers Comp. Rebates Continued: The OTC argued that the rebates statute "specifically incorporated" Section 173, and when it was repealed (in 2011) the rebates were repealed. The Insurance Carriers argued: the reference to Section 173 assessments in the rebate statute was a general reference which carried over when Section 173 was repealed and replaced. Since the assessments are still in place, the rebates are still claimable under 68 O.S. § 6101-6102. Oklahoma Supreme Court held in favor of the Insurance Carriers and granted the rebates.
CompSource Mutual Insur. Co. v. State ex rel. Okla. Tax Comm. and Okla. Assoc. Of Electric Self Insurers Fund v. State Of Okla. Tax Comm., 2018 OK 54 50 COURT CASES: Motor Vehicle License Oklahoma Court of Civil Appeals Apportionment of Tax, Fees and Penalties Outline Pages 17-18 Several Oklahoma School Districts sued the Oklahoma Tax Commissioners in their official capacity for a declaratory judgment and injunction over the apportionment of motor vehicle taxes, fees and penalties to school districts. Under the Motor Vehicle License and Registration Act, a fraction of the taxes, fees and penalties are allocated among school districts. In 2015, the statutes were amended, and the school districts believed that the funds were wrongfully apportioned by the Tax Commission following the amendments.
Independent School Dist. No. 2 Tulsa County v. Oklahoma Tax Commissioner, 2018 OK CIV APP 49, 419 P.3d 1281 51 COURT CASES: Motor Vehicle License Continued: Statute prior to 2015 amendments provided: ➢ Each month the school district will receive at least as much as it received in the same month of the preceding year. 47 O.S. § 1104(B)(2)(a). ➢ In months where there is an excess, then the districts first get repaid for any deficits in previous months, and then any excess is apportioned among the school districts based upon the average daily attendance in the school districts. 47 O.S. § 1104(B)(2)(b). ➢ In deficit months, the amounts distributed will be reduced proportionately. 47 O.S. § 1104(B)(2)(c). ➢ If there is a deficit for the fiscal year, then each school district would be apportioned enough to ensure they receive the same amount as the previous year from the motor vehicle taxes and fees allocated to the general revenue fund. 47 O.S. § 1104(M).
Independent School Dist. No. 2 Tulsa County v. Oklahoma Tax Commissioner, 2018 OK CIV APP 49, 419 P.3d 1281 52 COURT CASES: Motor Vehicle License Continued: In 2015, the Legislature repealed the last two - 47 O.S. § 1104(B)(2)(c) and (M). The Tax Commission started apportioning as follows: ➢ In deficit months, the fees and taxes would be apportioned among the school districts based upon the average daily attendance in the school districts. ➢ If surplus months, school districts would receive as much as they did in the same month of the previous year, with any excess apportioned among the school districts based upon the average daily attendance in the school districts. The Tax Commission argued that without Subsection (2)(c), the make up provision in Subsection (2)(B) was ineffective.
Independent School Dist. No. 2 Tulsa County v. Oklahoma Tax Commissioner, 2018 OK CIV APP 49, 419 P.3d 1281 53 COURT CASES: Motor Vehicle License Continued: The school districts argued that there was no change to the apportionment in Subsections (2)(a) and 2(b). ➢ Since Subsection (2)(b) still provided for a make-up for previous deficits, they are still entitled to as much as they received the previous year, unless there is a deficit for the entire year. Oklahoma COCA ruled in favor of the school districts. ➢ The Tax Commission was directed to recalculate the apportionments for 2015 and 2016. ➢ However, since the school districts did not ask for a monetary judgment, they received no money based upon the recalculation. ➢ Further, the law was changed in 2017; therefore, the order would not have any substantive effect moving forward.
Independent School Dist. No. 2 Tulsa County v. Oklahoma Tax Commissioner, 2018 OK CIV APP 49, 419 P.3d 1281 54 COURT CASES: Income Tax Oklahoma Court of Civil Appeals Commerce Clause and the Oklahoma Capital Gain Deduction Outline Pages 18-19
This case challenges the headquarters requirement of the Oklahoma Capital Gain Deduction under the Commerce Clause of the United States Constitution. To claim the deduction the company sold must have had its headquarters in Oklahoma for three years prior to the sale. 68 O.S. § 2358(F). The company at issue was headquartered in Washington.
Baskins V. Oklahoma Tax Commission, Oklahoma Court of Civil Appeals, Case No. 115,947 (2018) (Unpublished) 55 COURT CASES: Income Tax Continued: A similar case was decided 4 years ago, CDR Systems Corp. v. Oklahoma Tax Commission, 2014 OK 31, 339 P.3d 848. In CDR case, the COCA held that the headquarters requirement violated the Commerce Clause and the Tax Commission requested certiorari to the Oklahoma Supreme Court. The Oklahoma Supreme Court granted certiorari and reversed holding that the headquarters requirement was not discriminatory against interstate commerce. CDR was petitioning for certiorari before the United States Supreme Court when the Tax Commission paid the refund making the case moot. Court of Civil Appeals held the CDR case binding precedent and the statute does not violate the Commerce Clause. Baskins V. Oklahoma Tax Commission, Oklahoma Court of Civil Appeals, Case No. 115,947 (2018) (Unpublished) 56 OTC ORDERS
57 OTC Orders: Income Tax Aerospace Income Tax Credit Outline Page 20 Taxpayer claimed the $5,000 Aerospace credit for the 2015 tax year. The Compliance Division denied the credit because the taxpayer did not receive his degree from an institution accredited by the "Accreditation Board for Engineering and Technology." ➢ The taxpayer received his Bachelor of Aeronautical Engineering degree from Cairo University, Egypt and his Masters of Engineering degree from Concordia University, Montreal Canada. Protest Denied: The statute requires that the institution from which the degree was attained be accredited. Taxpayer is appealing pro se.
OTC Order No. 2018-08-07-06(Currently on Appeal) 58 OTC Orders: Sales Tax Bad Debt Deduction Outline Pages 20-21 Tax Commission assessed sales tax on bad debt deductions taken for private label credit card ("PLCC") charges that had been written-off. ➢ A PLLC is a credit card that can only be used at the specified retailor. In this case Lowe's. ➢ Under agreements, Lowe’s guaranteed its customers PLCC debts. Under 68 O.S. § 1366, the vendor can deduct bad debts and, thus, get reimbursed for the sales tax it remitted when the customer fails to pay. The Tax Commission ruled in 2013 that Section 1366 bad debt deductions were available to Lowe's for charged-off PLCC accounts; however, the amount of the deductions had yet to be determined. OTC Order No. 2018-05-17-21 59 OTC Orders: Sales Tax Continued: Under the PLCC agreements, payments were applied in the following order: ➢ debt cancellation insurance, ➢ fees (such as late fees), ➢ interest, and ➢ principal. Under PLLC agreements between the Banks and Lowe's, the Banks provided Lowe's with monthly charged-off principal on a statewide basis. Lowe's would then deduct the bad debts on its sales tax reports for each of its locations based on a ratio of total sales at each location.
OTC Order No. 2018-05-17-21 60 OTC Orders: Sales Tax Continued: Compliance Division Arguments. ➢ cardholder payments must be applied to principal first before interest and other fees. ➢ the use of a ratio was not authorized by statute and each written-off sale needed to be documented. ALJ's Recommendations. It appears that the ALJ agreed with Lowe's. Commissioner's Order. The Commissioners rejected the ALJ's recommendations and issued its own Order which agreed with the Compliance Division’s arguements. Lowe's appealed.
OTC Order No. 2018-05-17-21 61 OTC Orders: Sales Tax Rental With Operator Outline Pages 21-22 Facts: ➢ Taxpayer organizes parties and corporate events. These events can include carnival rides, carnival games, bouncy houses, photographs, food, bands and any number of activities. ➢ When the Taxpayer operated and maintained possession and control of a ride or activity throughout an event, it did not charge sales tax. If tangible personal property did transfer, the Taxpayer charged sales tax. ➢ The Compliance Division took the position that if there was a separate charge for an item, then it was rented without an operator. Taxpayer Position. The items were operated by the Taxpayer, and the customers would not have rented the items for the events without an operator. Thus, what the taxpayer provided were nontaxable services. OTC Order No. 2018-10-25-08 62 OTC Orders: Sales Tax Continued: Protest Denied in Part and Granted in Part. Sales tax was appropriate because possession did pass if the item was listed on the invoice and it was taken to the event, regardless of whether the item was actually operated by the Taxpayer. The ruling made the following exceptions: ➢ If an operator was required by law (e.g., carnival rides); ➢ Separately stated service charges (e.g., poster design is nontaxable, the cost of the printed poster is taxable); and ➢ Where there is a specific OTC rule stating tangible personal property used with a type of service is not taxable (e.g., hair styling and similar services have specific rules – the taxpayer provided stylists for hair parties with temporary hair color, applying temporary tattoos, and face painting).
OTC Order No. 2018-10-25-08 63 OTC PRESS RELEASES
64 OTC Press Releases: Sales Tax South Dakota v. Wayfair Press Release - Friday, August 31, 2018 - Remote Sellers Information and FAQs. Remote sellers with more than $10,000 annually in the state of Oklahoma must register, report, collect and remit sales tax. ➢ The Statute actually provides for an election between: (1) reporting and remitting, and (2) notification. Press Release - Monday, October 15, 2018 - Simplified Remote Seller Registration Now Available. All remote sellers must register, report, collect and remit sales tax. ➢ In Wayfair, the U.S. Supreme Court held South Dakota’s $100,000 of sales requirement created “substantial nexus.” ➢ The U.S. Supreme Court declined to rule regarding smaller retailers – such cases to be determined on a case by case basis.
OTC Order 2015-02-26-13. 65 THE END
Thank you for not snoring out loud!
66 Exhibit "A"
HB 3713 SB 883 SJR 35
SB 893 SB 1059
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HB 2253 commercial airline • •
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• HB 2716
HB 3372
SB 1166 •
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SB 943 • • HB 3715
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• Oklahoma Bar Association
CONTINUING LEGAL EDUCATION
INSURANCE LAW UPDATE 2018
By
Rex Travis
Thursday, November 29th, 2018: DoubleTree at Warren Place, Tulsa, OK
Thursday, December 13th, 2018: Oklahoma Bar Center, Oklahoma City, OK
ABOUT THE SPEAKER
Rex Travis is a graduate of the University of Oklahoma College of Law (1962). He limits his practice in Oklahoma City to plaintiff’s insurance and personal injury claims. He has done this practice more than 55 years.
He writes articles for the Oklahoma County Bar Association Briefcase, frequently writes briefs for the Oklahoma Association for Justice (OAJ) amicus curiae program, writes a regular insurance law column for the OAJ Advocate, and has taught Insurance Law at the University of Oklahoma College of Law and Oklahoma City University School of Law and frequently teaches CLE programs. He has published chapters in Matthew Bender Company’s Law of Liability Insurance. He is a past president of the OAJ and the Oklahoma County Bar Association and serves on the Legal Ethics Committee of the Oklahoma Bar Association. He received the Earl Sneed Award for CLE from the OBA in 1996. He is a retired Lt. Col. from the U.S. Air Force Reserve.
© 2018 - Rex Travis Note: written materials available to download as PDF at www.TravisLawOffice.com
TABLE OF CONTENTS
BAD FAITH - DISCOVERY ...... 1
Bad Faith Plaintiff Entitled to Broad Discovery of Insurance Company’s Financial Results - Smith v. State Farm Mut. Automobile Ins. Co., 2018 WL 4517470 (W.D. Okla. Sept. 20, 2018) . 1
BAD FAITH – MOTION TO DISMISS ...... 2
Petition In Removed Case Complies With Twombly/Iqbal Standards So As To Defeat Motion To Dismiss - Scott v. Est. of Hershel, 2017 WL 4343150 (Sept. 29, 2017) ...... 2
COMPREHENSIVE – BAD FAITH ...... 3
Insurance Company’s Good Faith Belief It Had a Defense Justifies Summary Judgment on Bad Faith Claim - Harris v. Progressive Direct Ins. Co., 2018 WL 3217191 (10th Cir. July 2, 2018) 3
COMPREHENSIVE GENERAL LIABILITY COVERAGE - DISCOVERY...... 5
Proportionality Issue Precludes Discovery of Too Voluminous Material; Coverage Opinions Protected From Discovery- Above It All Roofing & Constr., Inc v. Sec. Nat’l Ins. Co., 2018 WL 3970505 (N.D. Okla. Aug. 20, 2018) ...... 5
DECLARATORY JUDGMENT ...... 6
Court Will Exercise Discretion In Favor Of Denying Jurisdiction For Declaratory Judgment (DJA) Where Issue In DJA Will Necessarily Be Decided In Underlying, State Court Tort Action - Zurich Am. Ins. Co. v. Welch, 2018 WL 547575 (W.D. Okla. Jan. 24, 2018) ...... 6
DISCOVERY ...... 7
Court Describes “How Not to do Discovery” - Grubaugh v. CSAA Gen. Ins. Co., 2018 WL 445108 (N.D. Okla. Jan. 16, 2018) ...... 7
DISCOVERY ...... 8
Overly Broad Descriptions of Materials Sought May Result in Denial of Discovery - Ward v. Liberty Ins. Corp., 2018 WL 991546 (W.D. Okla. Feb. 20, 2018)...... 8
ii DISCOVERY SANCTIONS ...... 9
Appropriate Sanction For Failure To Disclose Insurance In Discovery Was Attorney Fees For Failed Judicial Settlement Conference And Discovering Insurance - Hopkins AG Supply LLC v. First Mt. Bancorp, 2017 WL 2937713 (W.D. Okla. July 10, 2017) ...... 9
EARTHQUAKE DAMAGE ...... 10
Insurance Company Denied Summary Judgment On Contract And Bad Faith Claims But Granted Summary Judgment That No Punitive Damages Are Recoverable - Thomas v. Farmers Ins. Co., Inc., 2018 WL 701813 (N.D. Okla. Feb. 2, 2018) ...... 10
EARTHQUAKE INSURANCE – BAD FAITH ...... 11
Deficiencies in Investigation Preclude Summary Judgment for Insurance Company as to Bad Faith and Punitive Damages - Whiteman v. State Farm Fire & Cas. Co., 2018 WL 1582474 (W.D. Okla. Mar. 30, 2018) ...... 11
ERISA LIFE INSURANCE ...... 13
Incontestability Clause May Not Preclude ERISA Life Insurance Plan From Denying Life Insurance Benefit Based On Insurance Company’s Error In Not Properly Documenting Policy - Smith v. Standard Ins. Co., 2018 WL 703133 (W.D. Okla. Feb. 2, 2018) ...... 13
FEDERAL REMOVAL ...... 14
Failure To Serve Resident Defendant Does Not Render Case Removable On Fraudulent Joinder Grounds - Ake v. C. United Life Ins. Co., 2017 WL 3105875 (W.D. Okla. July 21, 2017) ...... 14
FEDERAL COURT REMOVAL ...... 16
The 30 Days Within Which a Case Against an Insurance Company Must Be Filed Begins to Run With the Date the Insurance Company Gets the Suit Papers From the Insurance Commissioner’s Office, Not the Date of Service on the Insurance Commissioner - Shiel v. Pac. Specialty Ins. Co., 2018 WL 830149 (W.D. Okla. Feb. 12, 2018) ...... 16
FIDELITY BOND ...... 17
Fidelity Bond Provides No Coverage For Putting A Client In A Bad Investment, Even Though Bad Acts May Have Been Committed In The Process Of Selling The Investment Product - Wilbanks Securities, Inc, et al., v. National Union Fire Insurance Company of Pittsburgh, 2018 WL 738904 (W.D. Okla. Feb. 6, 2018) ...... 17
iii GENERAL LIABILITY – DUTY TO DEFEND ...... 18
Roofer’s CGL Policy Carried a Duty to Defend - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co., 285 F. Supp. 3d 1224 (N.D. Okla. 2018) ...... 18
GENERAL LIABILITY INSURANCE – SURPLUS LINES CARRIERS ...... 20
Oklahoma Insurance Regulations Exempt Surplus Lines Insurance Carriers from “Defense Within Limits Prohibition” - James River Ins. Co. v. Blue Ox Dance Hall, LLC, 2017 WL 5195877 (N.D. Okla. Nov. 9, 2017) ...... 20
HEALTH INSURANCE ...... 21
PPO Contract Between Hospital And Health Insurance PPO And Contract Formed By Hospital Admission Documents Created A Controversy Not “Related To” An ERISA Plan So As To Trigger ERISA Pre-Emption - Cates v. Integris Health, Inc., 2018 OK 9, 412 P.3d 98 (Okla. 2018) ...... 21
HOMEOWNERS’ INSURANCE ...... 23
Family Member Insured Has No Standing To Sue For Property Damage And Resulting Bad Faith Under Homeowners Policy - Karen Annette Foster-Blackwood, Jean Renee Blackwood- Foster, Patricia Kay Foster v. Liberty Insurance Corporation, 2018 WL 738906 (W.D. Okla. Feb. 6, 2018) ...... 23
HOMEOWNERS LIABILITY INSURANCE ...... 24
Location three-Tenths of a mile from lake cabin not “Premises used in in connection with insured premises - State Farm Fire & Cas. Co. v. Lusk, 2018 WL 2392542 (N.D. Okla. May 25, 2018) ...... 24
LIABILITY ...... 26
No Coverage for Claim By Named Insured Against an Officer of a Subsidiary; Tender of Defense Clause Time Limit Strictly Enforced - Statton v. Allied World Specialty Ins. Co., 2018 WL 454563 (N.D. Okla. Jan. 17, 2018) ...... 26
LIABILITY INSURANCE ...... 28
No Formal Proof Of Loss Required To Trigger Attorney Fee And Interest Statute In Suit On Liability Policy - JP Energy Mktg., LLC v. Com. and Indus. Ins. Co., 2018 OK 11 ...... 28
iv LIABILITY – DISCOVERY OF RESERVES ...... 29
“Claim notes” prepared in contemplation of litigation protected as work product; Claim Reserve Data not discoverable - Annese v. U.S. Xpress, Inc., 2018 WL 3468375 (W.D. Okla. July 18, 2018) ...... 29
LIABILITY INSURANCE – GENERAL LIABILITY INSURANCE - EXCLUSIONS ...... 29
Assault and Battery Exclusion Bars Coverage for Shooting by Off-Duty officer - Event Sec., LLC v. Essex Ins. Co., 715 F. App’x 853 (10th Cir. 2017) ...... 29
LIABILITY INSURANCE – LOANED SERVANT ...... 31
Employee Returning From Distant Job Was And Remained A Loaned Servant Of The Company To Whom His Employer Had Loaned His Services - Star Ins. Co. v. Fed. Ins. Co., 702 Fed. Appx. 772 (10th Cir. 2017) (unpublished)...... 31
MOTOR CARRIER JOINDER ...... 32
Joinder Of Interstate Motor Carrier’s Liability Insurance Company Not Permitted In Federal Court - Hankla v. Lee, 2018 WL 563181 (W.D. Okla. Jan. 25, 2018) ...... 32
PROPERTY INSURANCE ...... 34
Insurance Proceeds Should Go to Mortgage Company to Pay for Repairs - Privilege Underwriters Reciprocal Exch. v. West, 2018 WL 4088777 (N.D. Okla. Aug. 27, 2018) ...... 34
PROPERTY INSURANCE BINDERS ...... 35
Motion to Dismiss Not Proper In Estate’s Suit On Oral Contract To Insure - Claypole v. Geico Cas. Co., 2018 WL 1187964 (W.D. Okla. Mar. 6, 2018) ...... 35
PROPERTY INSURANCE – BAD FAITH ...... 37
Contract And Bad Faith Claims Both Time-Barred - Zewdie v. Safeco Ins. Co. of Am., 2018 WL 493799 (W.D. Okla. Jan. 19, 2018) ...... 37
PROPERTY INSURANCE – BAD FAITH ...... 40
Preexisting Damage, Prior Insurance Settlement with Confidentiality Agreement Did Not Preclude Bad Faith Claim - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co., 2018 WL 894875 (W.D. Okla. Feb. 14, 2018) ...... 40
v PROPERTY INSURANCE – REPAIR OF DAMAGED PROPERTY AS SPOLIATION ...... 41
Repair of Damaged Roof After Insurance Company Had Inspected it was Not Spoliation Justifying Dismissal of Suit - Ranchers Pipe & Steel Corp. v. Ohio Sec. Ins. Co., 2017 WL 6025327 (N.D. Okla. Dec. 5, 2017) ...... 41
REMOVAL TO FEDERAL COURT AND REMAND ...... 42
Joinder of Tort Claim Against Insurance Company’s Employee May Defeat Removal - Bynum v. State Farm Fire & Cas. Co., 2018 WL 3769871 (W.D. Okla. Aug. 9, 2018)...... 42
SUBROGATION – SAVING STATUTE ...... 43
Subrogated Insurance Company is entitled to benefit of the saving statute to refile a subrogation action after insured dismisses suit against tort-feasor – State Farm Mut. Ins. Co. v. Payne, 2017 OK 95, 408 P.3d 204...... 43
UNINSURED MOTORIST ...... 45
UM Policy issued on Golf Cart is not subject to UM law - Progressive N. Ins. Co. v. Pippin, 725 F. App’x 717 (10th Cir. 2018) ...... 45
vi BAD FAITH - DISCOVERY
BAD FAITH PLAINTIFF ENTITLED TO BROAD DISCOVERY OF INSURANCE COMPANY’S FINANCIAL RESULTS - Smith v. State Farm Mut. Automobile Ins. Co., 2018 WL 4517470 (W.D. Okla. Sept. 20, 2018)
Smith v. State Farm Mutual Automobile Insurance Company1 holds that a plaintiff seeking bad faith punitive damages is entitled to broad discovery of the insurance company’s financial results from its operations in Oklahoma.
Plaintiff sought bad faith actual and punitive damages in a suit arising from a hit-and-run,
UM case. Plaintiff sought discovery of the amount of automobile premium income and of claims paid and claim expenses in the last five years. State Farm resisted the discovery, claiming it was
“overly broad, unduly burdensome, not material, seeks information that is not relevant to the claims and defenses of any party, not proportional to the needs of the case.”
Plaintiff argued the discovery was proper because plaintiff sought punitive damages and this information would be pertinent to showing the amounts Defendant made by not properly paying claims. The Court, Judge Cauthron, in the Western District, held the discovery was proper.
Judge Cauthron pointed out that a majority of federal courts have permitted discovery of a defendant’s financial information without requiring plaintiff to establish a prima facie case for punitive damages2 and that Oklahoma law requires production of financial information where a request for punitive damages is plead.3 The Court also noted that Oklahoma’s punitive damage
1 2018 WL 4517470 (W.D. Okla. Sept. 20, 2018). 2 Citing Mid Continent Cabinetry, Inc. v. George Koch Sons, Inc., 130 F.R.D. 149 (D. Kan. 1990). 3 Citing Toussaint-Hill v. Montereau in Warren Woods, 2007 WL 3231720 (N.D. Okla. 2007) and Heartland Surgical Specialty Hosp., LLC v. Midwest Division, Inc., 2007 WL 950282 (D. Kan. 2007). 1 statute, specifically 23 O.S. §9.1, permits the jury to consider the “profitability of the misconduct to the Defendant” and that the financial information is “relevant to assessing the amount of punitive damages that would achieve the desired retributive and deterrent effect.”4
BAD FAITH – MOTION TO DISMISS
PETITION IN REMOVED CASE COMPLIES WITH TWOMBLY/IQBAL STANDARDS SO AS TO DEFEAT MOTION TO DISMISS - Scott v. Est. of Hershel, 2017 WL 4343150 (Sept. 29, 2017)
Scott v. Est. of Hershel5 holds that a state court petition in a removed case met the standards the Supreme Court laid down in Twombly and Iqbal to defeat a motion to dismiss.
Scott was killed in a logging truck wreck in Texas. He was insured by a Texas policy which included UM/UIM. The tortfeasor’s $25,000 liability limit was paid but his UM carrier,
State Auto, declined to tender his UM. It contended that, under Texas UM law, which applied, the UM carrier did not need to tender UM benefits until a judgment was obtained against the tortfeasor, which did not occur because that claim was settled. Magistrate Judge West, in the
Eastern District, rejected that argument in this opinion overruling the insurance company’s motion to dismiss.
Judge West notes that, while Twombly6 and Iqbal7 impose a “refined standard” for motions to dismiss, requiring sufficient factual matter to state a claim for relief which is plausible on its face, the two Supreme Court cases “did not intend the end of the more lenient pleading requirements” of the federal rules. The Court noted Erickson v. Pardus8 in which the Supreme
4 Citing Emmert Second Limited Partnership v. Marshalltown Company, 2011 WL 13228383 (W.D. Okla. 2011). 5 2017 WL 4343150 (? Sept. 29, 2017). 6 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). 7 Ashcroft v. Iqbal, 556 U.S. 662 (2009). 8 551 U.S. 89 (2007). 2 Court found “specific facts are not necessary; the statement need only ‘give the defendant fair notice of what the . . .claim is and grounds upon which it rests.’ ”9
The Court further found that the UM carrier painted with too broad a brush the claim that
Texas law required the underlying case be tried to judgment for the UM to become exposed. The
Court noted Brainard v. Trinity Universal Ins. Co.10 which says: “of course, the insured is not required to obtain a judgment against the tortfeasor . . . .The insured may settle with the tortfeasor, as Brainard did in this case, and then litigate the UIM coverage with the insurer.”
This new case is useful in that it helps negate a common misperception that Twombly and
Iqbal make it virtually impossible to get past a motion to dismiss. This case makes it clear that
Twombly and Iqbal do not do away with notice pleading.
COMPREHENSIVE – BAD FAITH
INSURANCE COMPANY’S GOOD FAITH BELIEF IT HAD A DEFENSE JUSTIFIES SUMMARY JUDGMENT ON BAD FAITH CLAIM - Harris v. Progressive Direct Ins. Co., 2018 WL 3217191 (10th Cir. July 2, 2018)
Harris v. Progressive Direct Ins. Co.11 holds that a good faith belief it had a defense to a claim protected a motor vehicle insurance company from a bad faith claim for denying payment.
Ms. Harris had a pickup truck which developed a steering problem. She took it to a repair facility for repair. While the truck was there, would-be thieves tried to steal the truck and ended up damaging it by running it into the fence of the repair facility to try to take it out.
Progressive, which had comprehensive coverage on the vehicle, paid for body damage to the vehicle but refused to pay for engine trouble which the insured and the repair shop owner said did not exist before the attempted theft but did exist after. There was some question whether
9 Id. At 93. 10 216 S.W.3d 809, 818 (Tex. 2006). 11 2018 WL 3217191 (10th Cir. July 2, 2018). 3 the problem was a blown head gasket or a cracked head. Progressive argued the engine problem preexisted the attempted theft.
The trial court, Judge Heaton, in the Western District, overruled Progressive’s summary judgment motion as to the comprehensive claim for the engine damage but sustained
Progressive’s summary judgment motion as to bad faith. The jury returned a verdict for the insured for the engine damage. Harris appealed the grant of summary judgment as to bad faith.
The Tenth Circuit affirmed, in this opinion by Judge Holmes.
The basis for the ruling in both courts was the rule that there is no bad faith, as a matter of law, if the insurance company had an arguable basis for denying the claim, citing Manis v.
Hartford.12 The Court does a rather thorough analysis of Oklahoma bad faith law, which will be of interest to those of us who do bad faith cases.
Among other things in that analysis, the Court rejects Harris’s argument that Progressive was in bad faith for not giving equal consideration to its insured’s interests as to its own. The
Court notes that the rule that the insurance company must give the insured’s interests equal weight to those of the insurance company originates with State Farm Mut. Ins. Co. v. Skaggs.13
The Court says the difference is that Skaggs was a third-party bad faith case (a case in which the insured was suing his liability insurance company for failing to settle a claim of a third-party against him. In this context, the insurance company is forbidden to give its own interests priority over those of the insured but not in the first-party context where the interests of the insured and
12 1984 OK 25, 681 P.2d 760. 13 252 F.2d 356,359 (10th Cir. 1957. 4 the insurance company are wholly different. Rather, the Court says is the reasonableness of the insurance company’s actions, citing Buzzard v. McDanel.14
This case also teaches a lesson about the hazard of losing an insurance case with prevailing party attorney fees available under 36 O.S. §3629(b). Ms. Harris got $5,500 for her body damage but, the opinion tells us owed Progressive $177,000 in attorney fees as the prevailing party on the bad faith claim.
COMPREHENSIVE GENERAL LIABILITY COVERAGE - DISCOVERY
PROPORTIONALITY ISSUE PRECLUDES DISCOVERY OF TOO VOLUMINOUS MATERIAL; COVERAGE OPINIONS PROTECTED FROM DISCOVERY- Above It All Roofing & Constr., Inc v. Sec. Nat’l Ins. Co., 2018 WL 3970505 (N.D. Okla. Aug. 20, 2018)
Above It All Roofing & Constr., Inc v. Sec. Nat’l Ins. Co.15 holds that discovery sought of
“any legal decision, legal authority, or secondary source Defendant relied upon to determine the meaning of the term pollution and asbestos” over a seven-year period was too broad in light of the “proportionality” rule and that coverage opinions will almost always be protected by attorney client privilege so that discovery of these items would be denied.
This case seems to have spawned a sort of nightmare discovery dispute. This is an opinion by Magistrate Judge McCarthy resolving discovery disputes in a case assigned to Judge
Frizzell in the Northern District federal court. The issues discussed here are only two of several but the other issues are so obscure and case-specific as to not warrant discussion here.
The insured sought discovery of legal decisions, legal authority or secondary source the insurance company had relied on in cases over a seven-year period. Judge McCarthy concludes
14 1987 OK 28, ¶10. 736 P.2d 157,159. 15 2018 WL 3970505 (N.D. Okla. Aug. 20, 2018). 5 that the request was overly broad in light of the proportionality provision of F.R.C.P. 26(b)(1).16
The insured also sought discovery of all coverage opinions to the insurance company over a ten-year period dealing with pollution, asbestos and punitive damage exclusions. Judge
McCarthy noted that coverage opinions are generally protected by attorney-client privilege unless waived by the insurance company.17 Here it appears the material sought was within that general rule so discovery was denied.
DECLARATORY JUDGMENT
COURT WILL EXERCISE DISCRETION IN FAVOR OF DENYING JURISDICTION FOR DECLARATORY JUDGMENT (DJA) WHERE ISSUE IN DJA WILL NECESSARILY BE DECIDED IN UNDERLYING, STATE COURT TORT ACTION - Zurich Am. Ins. Co. v. Welch, 2018 WL 547575 (W.D. Okla. Jan. 24, 2018)
Zurich Am. Ins. Co. v. Welch18 holds that the court should exercise its discretion in favor of declining to enter a declaratory judgment where the issue required to be decided in the declaratory judgment action will also be required to be decided in an underlying, state court tort action.
Mrs. Zubia was injured in a collision with a truck owned by Zurich’s insured oil company and driven by the oil company’s employee, Welch. Zurich contended in an underlying state court tort action and in this declaratory judgment (DJA) action that Welch was not operating the truck within the course and scope of his agency so that the employer was not liable and Zurich had no coverage in excess of minimum compulsory insurance limits. Mr. and Mrs. Zubia and Welch
16 “Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” 17 Citing Marathon Ashland Pipe Line, LLC v. Maryland Cas. Co., 243 F.3d 1232, 1352-54 (10th Cir. 2001). 18 2018 WL 547575 (W.D. Okla. Jan. 24, 2018). 6 moved to dismiss, arguing the issue to be decided in the DJA was the same in the DJA as in the underlying, state court action so that the DJA would interfere with the state court’s determination of the issue. The federal court in the DJA, Judge Miles-LaGrange, in the Western District, agreed and dismissed the DJA.
The Court notes that the U.S. Supreme Court has held District Courts have “unique and substantial discretion” in determining whether to issue a declaratory judgment where a duplicative state proceeding exists.19 Here, the state court had denied a summary judgment on the permissive use/scope of employment issue. A decision in this case might conflict with that ruling. The Court then decided that rather than staying the DJA, the Court should dismiss it.
DISCOVERY
COURT DESCRIBES “HOW NOT TO DO DISCOVERY” - Grubaugh v. CSAA Gen. Ins. Co., 2018 WL 445108 (N.D. Okla. Jan. 16, 2018)
Grubaugh v. CSAA Gen. Ins. Co.20 prescribes how lawyers should not proceed with discovery!
The case, evidently a UM case, came before Magistrate Frank McCarthy on referral of a discovery dispute from Judge John Dowdell. Rather than laying down rules of law, it stands as a prime example of how not to perform in dealing with discovery issues.
The Court started out by noting that Plaintiff’s lawyer had refused to return defense counsel’s requests for the “meet and confer” requirements of the local rule.21 Judge McCarthy notes that “the parties have filed pages of briefing that would not have been necessary if a meet and confer had occurred.” Ouch!
19 Wilton v. Seven Falls Co., 515 U.S. 277, 286-87, 115 S.Ct. 2137 (1998). 20 2018 WL 445108 (N.D. Okla. Jan. 16, 2018). 21 Northern District LcvR37.1. 7 Judge McCarthy further observed that Plaintiff’s lawyer had interposed boilerplate objections to the written discovery. He observed: “It is unacceptable to answer every discovery request with a string of general unsupported objections.” The Judge says when discovery responses are provided “subject to” boilerplate objections or “without waiving objections” with no regard to applicability of those objections, it is unclear whether the discovery response has received a complete response. He also says such objections may violate F.R.C.P. 26(g) that every objection is warranted by existing law or a nonfrivolous legal argument and not interposed for delay. (I find the practice of routinely objecting to each question and then giving an answer to be fairly common on the part of defense lawyers, too.)
If you don’t want to end up the subject of an unflattering opinion, this might be a good
(and brief) opinion for you to read!
DISCOVERY
OVERLY BROAD DESCRIPTIONS OF MATERIALS SOUGHT MAY RESULT IN DENIAL OF DISCOVERY - Ward v. Liberty Ins. Corp., 2018 WL 991546 (W.D. Okla. Feb. 20, 2018)
Ward v. Liberty Ins. Corp.22 holds that overly broad discovery requests may result in the discovery being denied in its entirety, as opposed to the court limiting the discovery.
In this suit on a UM policy and associated bad faith case, Plaintiff sought discovery from a non-party, a service which contracted with the Defendant insurance company to provide
“Independent Medical Examination”23 services. One of the bases for the bad faith claim was relying on biased doctors to conduct “IME’s.” This opinion dealt with subpoenas requiring the production of documents and other subpoenas requesting testimony from the non-party service.
22 2018 WL 991546 (W.D. Okla. Feb. 20, 2018). 23 The Court uses the terms “independent” medical exam and “IME” although the examination sought was apparently by a physician selected by the defendant, as opposed to a truly independent doctor appointed by a court. 8 The Court, Judge DeGiusti, in the Western District, quashed the discovery because he held it was overly broad. The Court noted that the subpoenas sought production of documents in
24 categories and used blanket terms such as “all documents,” “all marketing materials,” “all documents regarding.” The Court cites other cases in other courts in the 10th Circuit holding that such broad language in discovery requests require the responding party to engage in “mental gymnastics” to determine what materials “may or may not be remotely responsive.” Maybe narrower categories of discovery are more likely to result in enforceable discovery.
DISCOVERY SANCTIONS
APPROPRIATE SANCTION FOR FAILURE TO DISCLOSE INSURANCE IN DISCOVERY WAS ATTORNEY FEES FOR FAILED JUDICIAL SETTLEMENT CONFERENCE AND DISCOVERING INSURANCE - Hopkins AG Supply LLC v. First Mt. Bancorp, 2017 WL 2937713 (W.D. Okla. July 10, 2017)
Hopkins AG Supply LLC v. First Mt. Bancorp24 holds that the appropriate sanction for a defendant’s failure to disclose insurance in discovery was the plaintiff’s attorney fees in a failed judicial settlement conference and in discovering the insurance.
Plaintiff inquired in discovery about any insurance. Defendant’s attorney responded
Defendant was “ . . . unaware of any insurance agreement under which such insurers would be liable to satisfy all or part of any judgment which might be obtained against defendants.” In fact,
Defendant, apparently unbeknownst to Defendant’s attorney, had an errors and omissions policy which would cover the claim in the case.
Plaintiff claimed sanctions for the failure to disclose pursuant to FRCP 37(c)(1). The
Court, Judge Cauthron in the Western District, found sanctions were justified but limited to
Plaintiff’s attorney fees in preparing for and attending a failed judicial settlement conference and
24 2017 WL 2937713 (W.D. Okla. July 10, 2017). 9 for discovering the policy. She declined to reopen discovery because Plaintiff had not timely asked that discovery be reopened when the policy was first discovered and found Plaintiff was not further disadvantaged because evidence of the insurance would not have been admissible in any event.
EARTHQUAKE DAMAGE
INSURANCE COMPANY DENIED SUMMARY JUDGMENT ON CONTRACT AND BAD FAITH CLAIMS BUT GRANTED SUMMARY JUDGMENT THAT NO PUNITIVE DAMAGES ARE RECOVERABLE - Thomas v. Farmers Ins. Co., Inc., 2018 WL 701813 (N.D. Okla. Feb. 2, 2018)
Thomas v. Farmers Ins. Co., Inc.25 holds that evidence in a claim under an earthquake policy does not justify summary judgment for the insurance company on contract and bad faith claims but that the evidence is insufficient for the insured to avoid summary judgment for the insurance company for punitive damages.
Thomas, a Farmers insured had homeowner’s and earthquake coverage on a home in
Sand Springs. The insured felt shaking of the house and heard a loud boom during an earthquake near Conway Springs, Kansas, southwest of Wichita. Two days later, she found a large crack in the slab under the house.
She reported the claim to Farmers, which sent out an adjuster who told the insured he had handled one or two other earthquake claims, neither of which was paid and that he could not recall Farmers ever having paid an earthquake claim. Farmers hired an engineer who had no experience with earthquake damage and who said he thought the crack in the slab was due to “ . .
. normal, minor seasonal shrinking and swelling of clay soils common to this region.”
The insured hired a “Certified Professional Soil Scientist” who did a study of the soil on
25 2018 WL 701813 (N.D. Okla. Feb. 2, 2018). 10 which the home was built and reported that it was not clay but “ . . . that the home was built on very fine sandy loam.” The insurance company’s engineer testified he thought:
. . . that settling is never covered under the Policy, no matter how caused. After having portions of the Earthquake Endorsement read to him, [the engineer] stated that he misspoke and settling is covered if earthquake is found to be the proximate cause of the damage.
Plaintiffs (the insureds) sued in state court and Farmers removed the case to federal court.
There, Judge Kern, in the Northern District, overruled Farmers’ motions for summary judgment on the contract claim and the bad faith claim but sustained summary judgment for Farmers on a claim for punitive damages.
There was, he held, a clear dispute as to the cause of the loss which precluded summary judgment on the contract claim. The evidence that Farmers assigned an adjuster with little or no experience with earthquake claims and an engineer who likewise had no experience with earthquakes, together with the adjuster’s testimony that, so far as he knew, Farmers had never paid an earthquake claim, precluded summary judgment on the bad faith claim. However, the
Court saw no evidence Farmers . . . “acted with oppression, malice, fraud or gross negligence or wantonness.” This justified summary judgment for Farmers on the punitive damage claim.
EARTHQUAKE INSURANCE – BAD FAITH
DEFICIENCIES IN INVESTIGATION PRECLUDE SUMMARY JUDGMENT FOR INSURANCE COMPANY AS TO BAD FAITH AND PUNITIVE DAMAGES - Whiteman v. State Farm Fire & Cas. Co., 2018 WL 1582474 (W.D. Okla. Mar. 30, 2018)
Whiteman v. State Farm Fire & Cas. Co.26 holds that deficiencies in the investigation of an earthquake claim preclude summary judgment for the insurance company as to bad faith and punitive damages.
26 2018 WL 1582474 (W.D. Okla. Mar. 30, 2018). 11 Ms. Whiteman had a homeowner’s policy on her home. The policy contained an “earth movement” exclusion. She bought earthquake coverage from State Farm so as to modify the earth movement clause.
There was an earthquake of 2.9 on the Richter scale ten to fifteen miles from her home.
She found cracks in her house and made an earthquake claim. State Farm assigned an adjuster who went to her home and looked at some, but not all, of the damage and hired an engineer to inspect the damage and give an opinion. The engineer’s opinion was that the damage was not caused by an earthquake but rather by earth movement due to excessive soil moisture, differing soil types under the house and defective construction. State Farm denied the claim.
Ms. Whiteman sued on the contract and for bad faith, seeking actual and punitive damages. State Farm moved for summary judgment on the bad faith and punitive damage claims.
In this opinion, the Court, Judge DeGiusti, in the Western District, overrules the motion.
Plaintiff argued, and the Court agreed, that summary judgment for the defendant was inappropriate due to an inadequate investigation of the claim. Despite the fact that the engineer and adjuster claimed there was excess soil moisture, neither tested for soil moisture or reported finding evidence of “ponding.” Neither did they test the soil to see if the expansion or contraction of the soil types would cause the cracking. In order for the insurance company to be entitled to summary judgment on the bad faith claim, it would have been necessary to have investigated these things. Similarly, absent looking at the evidence, the Court could not conclude that there was no evidence to justify punitive damages.
12 ERISA LIFE INSURANCE
INCONTESTABILITY CLAUSE MAY NOT PRECLUDE ERISA LIFE INSURANCE PLAN FROM DENYING LIFE INSURANCE BENEFIT BASED ON INSURANCE COMPANY’S ERROR IN NOT PROPERLY DOCUMENTING POLICY - Smith v. Standard Ins. Co., 2018 WL 703133 (W.D. Okla. Feb. 2, 2018)
Smith v. Standard Ins. Co.27 holds an insured’s beneficiary was not entitled to summary judgment that the incontestability clause of an ERISA life insurance policy prevented the insurance company from denying life insurance benefits more than two years after the coverage was issued where an apparent error by the insurance company resulted in a required health history not being submitted to the insurance company.
Mrs. Smith was employed by a food service company which afforded her $88,000 in life insurance and an option to buy additional life insurance equal to 3 times her annual salary. When open enrollment became available, she elected to buy the additional life insurance amounting to more than $132,000. More than two years later, she died.
The insurance company paid the $88,000 but refused to pay the $132,000, claiming a required Evidence of Insurability (EOI) form had not been submitted to the insurance company.
Mr. Smith, her beneficiary, objected that both the insurance policy and an Oklahoma statute28 made the policy incontestable after two years.
The insurance company claimed that the Oklahoma statute did not apply because (1)
ERISA pre-empted the statute and (2) the policy was delivered in North Carolina, where her employer was located. The husband responded that the “saving statute” in ERISA saved Section
4103 from pre-emption.
27 2018 WL 703133 (W.D. Okla. Feb. 2, 2018). 28 36 O.S. §4103(2). 13 Mr. Smith sued in state court. The insurance company removed to federal court based on federal question jurisdiction because ERISA applied. Mr. Smith moved for summary judgment.
The Court, Judge DeGiusti, in the Western District, denied summary judgment. Judge
DeGiusti notes that summary judgment “plays a limited role in an ERISA case.” He holds that the non-moving party in a summary judgment application is not entitled to the usual inferences in his favor and that the proper standard of review in the District Court is whether the decision by the ERISA plan to deny the claim was arbitrary and capricious, not whether it was simply wrong.
The result of all this may be that the insurance company will benefit by its mistake in not properly submitting the form required by the insurance company, although the employee filled out and filed the form and the employer withheld the premium from her pay. If this is ultimately the result in the case, then the case becomes a “poster child” case for why ERISA should be done away with.
FEDERAL REMOVAL
FAILURE TO SERVE RESIDENT DEFENDANT DOES NOT RENDER CASE REMOVABLE ON FRAUDULENT JOINDER GROUNDS - Ake v. C. United Life Ins. Co., 2017 WL 3105875 (W.D. Okla. July 21, 2017)
Ake v. C. United Life Ins. Co.29 holds a plaintiff’s failure to serve a defendant with residence in the same state as plaintiff so that the case against the resident defendant was subject to dismissal did not render the case removable to federal court on grounds of fraudulent joinder.
Ms. Ake bought a cancer policy on herself and her husband from United Life. Ten years later, her husband contracted cancer. United refused to pay benefits. Ms. Ake sued United Life in state court and joined the agent who sold the policy, alleging misrepresentations about the policy.
The agent, like Ms. Ake, was an Oklahoma citizen.
29 2017 WL 3105875 (W.D. Okla. July 21, 2017). 14 After Ms. Ake did not get service on the agent within 180 days, United Life removed the case to federal court, claiming fraudulent joinder of the local agent caused there to be diversity of citizenship. Ms. Ake moved to remand. The federal court, Judge David Russell, sustained the motion to remand.
He noted that Plaintiff had 180 days in which serve the agent lest the case be dismissed for lack of service, but only if “ . . .the plaintiff has not shown good cause why such service was not made within that period . . . .”30 United Life claimed the fact that Plaintiff had not gotten service within 180 days indicated the joinder was fraudulent.
The Court cites numerous cases from federal courts around the country holding that, in considering whether there was complete diversity, the court should take into account unserved defendants. It is not clear that those cases involved statutes like Oklahoma’s requiring service within a particular time. The list of cases Judge Russell cites will make this case pretty valuable in doing research on the issue.
What is also somewhat unclear is which version of 12 O.S. §2004I the Court was considering. There was a change to the statute in 2017 changing the provision that the judge should dismiss the case to one providing that the case would be “deemed dismissed” at the end of 180 days unless the Plaintiff has shown good cause. This change came after the events involved in the case before Judge Russell. The Oklahoma Court of Civil Appeals has held that the “deemed dismissed” language creates an “instanter” dismissal, so that a suit filed within a year of the date of dismissal but more than a year after the “deemed dismissed” date was not saved by 12 O.S. §100, the “saving statute” which permits refiling within a year of dismissal
30 12 O.S. §2004I. 15 without prejudice.31
It is also unclear how permanent the protection from removal will be. Judge Russell notes that the state court could dismiss the action as to the resident defendant, following which the defendant could remove. Nevertheless, this is an interesting way of avoiding removal.
FEDERAL COURT REMOVAL
THE 30 DAYS WITHIN WHICH A CASE AGAINST AN INSURANCE COMPANY MUST BE FILED BEGINS TO RUN WITH THE DATE THE INSURANCE COMPANY GETS THE SUIT PAPERS FROM THE INSURANCE COMMISSIONER’S OFFICE, NOT THE DATE OF SERVICE ON THE INSURANCE COMMISSIONER - Shiel v. Pac. Specialty Ins. Co., 2018 WL 830149 (W.D. Okla. Feb. 12, 2018)
Shiel v. Pac. Specialty Ins. Co.32 holds that the 30 days within which a petition for removal must be filed begins to run with the time the insurance company gets the suit papers from the Insurance Commissioner’s office upon which they are served, not the date the Insurance
Commissioner is served.
The Shiels sued Pacific Specialty Insurance Company in state court and served the
Insurance Commissioner, as required by 36 O.S. §621B.33 The insurance company removed the suit to federal court. 28 USC §1446(b)(1) requires the Petition for Removal must be filed “within
30 days after the receipt by the defendant” of the summons.
The Shiels moved to remand because the removal petition was filed more than 30 days after service on the Secretary of State but less than 30 days after the Secretary of State sent the summons to the insurance company. The District Court, Judge DeGiusti, in the Western District held the removal proper and overruled the Motion to Remand.
31 Hough v. Oilfield Service, Inc. v. Newton, 2017 OK CIV APP 31, 396 P.3d 230. 32 2018 WL 830149 (W.D. Okla. Feb. 12, 2018). 33 “Service of such process against a foreign or alien insurer shall be made only by service of process upon the Insurance Commissioner.” 16 He noted that 36 O.S. §622B provides: “Process served upon the Insurance
Commissioner and copy thereof forwarded as provided in this section shall constitute service upon the insurer.” Because of this statute, the service was not complete on the insurance company until the Insurance Commissioner forwarded the service to the insurance company. For this reason, the removal was timely.
FIDELITY BOND
FIDELITY BOND PROVIDES NO COVERAGE FOR PUTTING A CLIENT IN A BAD INVESTMENT, EVEN THOUGH BAD ACTS MAY HAVE BEEN COMMITTED IN THE PROCESS OF SELLING THE INVESTMENT PRODUCT - Wilbanks Securities, Inc, et al., v. National Union Fire Insurance Company of Pittsburgh, 2018 WL 738904 (W.D. Okla. Feb. 6, 2018)
Wilbanks Securities, Inc, et al., v. National Union Fire Insurance Company of
Pittsburgh34 holds that a fidelity bond does not provide coverage to a securities firm which may be liable because one of its employees put an investor into an unsuitable investment even though various bad acts accompanied the sale of the investment product because the bond is not designed to provide liability coverage.
Wilbanks Securities had a customer who had $1.5 million available to invest from the sale of a business. Wilbanks’ registered representatives put the clients into a drilling program, assuring them that it carried “zero risk” and would qualify them for tax benefits. The registered rep was not licensed to sell the drilling program and wrote the sale through the account of another agent who did have the right license. He also told the clients they just needed to sign the paperwork and he would complete it. The clients testified various places in the document they signed had their initials but that they did not initial the document.
34 2018 WL 738904 (W.D. Okla. Feb. 6, 2018). 17 The drilling program went bad and the clients lost all but $37,000 of their $1.5 million investment and got no tax benefit. The clients made a FINRA (Financial Industry Regulatory
Authority) claim against Wilbanks Securities, which had a “Blanket Fidelity Bond” with
National Union Fire Insurance Company on its employees, including the registered rep.
National Union filed this declaratory judgment action for a declaration that the bond provided no coverage. Judge David Russell, in the Western District, agreed with National Union and granted National Union summary judgment.
Judge Russell noted that Oklahoma has not yet ruled on the issue whether a fidelity bond of this sort provides coverage and that there is some dispute among the other jurisdiction cases on the subject but finds persuasive what the cases call the “now prevailing” view that cases of this sort do not result in coverage.
The key to the holding is that the bond does not provide liability coverage for the liability incurred by the insured (Wilbanks Securities, here) but rather protects the insured against “direct loss” incurred by the insured due to dishonest or fraudulent acts of the employee. Here, the liability is not a direct loss but is an indirect loss, which should be covered by liability coverage instead of a fidelity bond.
GENERAL LIABILITY – DUTY TO DEFEND
ROOFER’S CGL POLICY CARRIED A DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co., 285 F. Supp. 3d 1224 (N.D. Okla. 2018)
Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.35 holds that a roofer’s general liability policy gave rise to a duty to defend for a suit based on facts in which the contractor dropped a large pipe through the ceiling of a business in the building which the contractor was
35 285 F. Supp. 3d 1224 (N.D. Okla. 2018). 18 reroofing.
Above It All Roofing & Construction Co. (here, “roofer”) was reroofing a building. Some workmen dropped a large lead pipe, which fell through the ceiling of a shop which the building owner had rented to a tenant. Roofer removed the pipe from the shop but did not immediately cover the hole so that dust and debris continued to fall down into the shop.
The shop owner ultimately moved out of the shop to a smaller location and, as a result, suffered loss of business. The shop owner also alleged emotional distress from worry she had been exposed to asbestos. She sued the building owner and the roofer. The original petition alleged the dust and debris contained asbestos. Perhaps because of the insurance company’s contention the asbestos claim precluded coverage, the shop owner filed an amended petition omitting any mention of asbestos.
The roofer sought a defense and indemnification from Security National, which had a
CGL policy on the roofer. The insurance company denied coverage and refused to defend, based on several policy exclusions. The roofer sued the insurance company in state court for breach of contract and bad faith. That case was removed to federal court.
Judge Greg Frizell, in the Northern District federal court, suggested that the parties brief whether there was a duty to defend separately from the issue of coverage for indemnification, but not in the form of a motion for summary judgment. This opinion is the result.
The insurance company argued there was no coverage due to policy exclusions for pollution, asbestos and punitive or exemplary damages. Judge Frizell writes a painstaking and thorough analysis of each of these exclusions and concludes that they do not preclude coverage for defense. Despite concluding that asbestos constitutes pollution and that pollution is excluded, he concludes that there is coverage for defense because there were damages from loss of use of
19 the property due to the damage from the pipe falling through the ceiling.
He deferred a decision on the effect of an argument belatedly raised by the insurance company because that had not been raised initially. His opinion contains a very good analysis of the various exclusions and the efficient proximate cause doctrine under Oklahoma law.
GENERAL LIABILITY INSURANCE – SURPLUS LINES CARRIERS
OKLAHOMA INSURANCE REGULATIONS EXEMPT SURPLUS LINES INSURANCE CARRIERS FROM “DEFENSE WITHIN LIMITS PROHIBITION” - James River Ins. Co. v. Blue Ox Dance Hall, LLC, 2017 WL 5195877 (N.D. Okla. Nov. 9, 2017)
James River Ins. Co. v. Blue Ox Dance Hall, LLC36 holds that Oklahoma Insurance
Department regulations exempt surplus lines insurance carriers from the prohibition on defense within limits clauses.
An earlier partial summary judgment in this case held that claims of patrons injured by bouncers at a Tulsa bar and dance hall were within an Assault and Battery (A&B) Endorsement to the bar’s CGL policy. This opinion deals with whether a policy provision which permits the insurance company to deduct claims expenses and defense costs from the limit of liability provided in the A&B Endorsement is a valid one.
Such provisions, called a “defense within limits clause” are prohibited by an Oklahoma
Insurance Department regulation.37 This opinion holds that, because that regulation is addressed to “all Property and Casualty Insurers Licensed in the State of Oklahoma,” Surplus Lines
Insurance companies, such as James River Insurance Company are not controlled by the
“defense within limits clause” and can deduct their defense costs from the limit and avoid paying the limits to the injured claimants.
36 2017 WL 5195877 (N.D. Okla. Nov. 9, 2017). 37 Oklahoma Administrative Code § 365-1-15. 20 Surplus Lines insurance companies are not licensed to write business in Oklahoma. They are permitted only to write coverage which is such a poor risk that no licensed company will write it. The Insurance Commissioner has issued a “waiver” which appears to say that, if surplus lines or non-admitted carriers were not allowed to use “defense within limits” clauses, the poor risks they write would cause market unavailability “forcing consumers to obtain coverage from non-admitted insurers.” Of course, the companies benefitted by the waiver are those very non- admitted insurers. This makes no sense, at least not to anyone other than an insurance commissioner. Here, the policy provided coverage of $1 million per person injured not to exceed
$2 million for all persons injured during a policy period. The Assault and Battery Endorsement reduced that coverage to $25,000 per person not to exceed $50,000 for all persons injured during a policy period. This decision, permitting James River Insurance Company to pay defense costs out of the coverage reduces that coverage to zero.
HEALTH INSURANCE
PPO CONTRACT BETWEEN HOSPITAL AND HEALTH INSURANCE PPO AND CONTRACT FORMED BY HOSPITAL ADMISSION DOCUMENTS CREATED A CONTROVERSY NOT “RELATED TO” AN ERISA PLAN SO AS TO TRIGGER ERISA PRE-EMPTION - Cates v. Integris Health, Inc., 2018 OK 9, 412 P.3d 98 (Okla. 2018)
Cates v. Integris Health, Inc.38 holds that contract and fraud claims by a patient insured under a PPO and a health care provider were not “related to” ERISA in such a way as to trigger
ERISA preemption so a motion to dismiss for lack of state court jurisdiction should have been overruled.
Cates had health insurance under a Participating Provider Organization (PPO) plan. She checked into Integris Hospital and, as part of the paperwork for admission, entered into a
38 2018 OK 9, 412 P.3d 98 (Okla. 2018). 21 contract with Integris which provided she would be responsible for any bill that remained after a third-party payment unless the hospital is prohibited by contract between the third-party payer and the hospital from billing for those amounts. The PPO had also contracted with the hospital that it would not bill the insured “ . . . except for a copay or deductible or coinsurance, or, in cases where Integris has confirmed the services are not covered, advised the patient the services are not covered prior to delivering the services, and the patient agreed to pay for those services.”
Instead of honoring that agreement, Integris declined to submit her bills from a car wreck to the PPO but rather filed a lien against her recovery from the car insurance. Cates brought this class action suit for breach of the admission contract between Cates and Integris and breach of the contract Integris had entered into with the PPO, along with a claim for deceit and one for violation of the Oklahoma Consumer Protection Act.39
Claiming ERISA pre-emption, Integris removed the case to federal court where Judge
Friot remanded the case to state court.40 In state court, Judge Roger Stuart, in Oklahoma County, found ERISA pre-emption applied and dismissed the case. This appeal resulted.
The Supreme Court reversed, in a six to one opinion by Justice Wyrick. (Justice Kauger did not participate. Justice Watt had retired and Justice Darby had not yet been appointed to replace him.)
The case turned on the issue whether the controversy was pre-empted by ERISA because it “related to” an ERISA plan.41 The Court cites federal authorities suggesting that there must be some restriction on how closely the controversy must “relate to” the ERISA plan or every
39 15 O.S. §§751 et seq. 40 2014 WL 12493272. 41 29 U.S.C. §1144(a). 22 controversy which could arise in a case in which ERISA benefits are payable would be “related” and ERISA pre-emption would apply. The Court concludes that Cates’ controversy involves the contract between her and the hospital and the agreement by the hospital to submit all claims to the PPO and did not implicate ERISA at all.
This is an extremely important case with a lot of implications. Terry and Brad West,
Gregg Luther and Shawn Spencer, all of the West Law Firm in Shawnee did yeoman-like work to win this case. It should be noted that it is nearly unanimous and authored by the most conservative Justice on the Court. That’s all really remarkable.
HOMEOWNERS’ INSURANCE
FAMILY MEMBER INSURED HAS NO STANDING TO SUE FOR PROPERTY DAMAGE AND RESULTING BAD FAITH UNDER HOMEOWNERS POLICY - Karen Annette Foster- Blackwood, Jean Renee Blackwood-Foster, Patricia Kay Foster v. Liberty Insurance Corporation, 2018 WL 738906 (W.D. Okla. Feb. 6, 2018)
Karen Annette Foster-Blackwood, Jean Renee Blackwood-Foster, Patricia Kay Foster v.
Liberty Insurance Corporation42 holds that a person insured under a homeowner’s policy only by reason of being described as a family member insured has no status under the policy which entitles them to bring a property damage claim or a bad faith claim arising out of damage to the insured home.
Kay Foster lived in Iowa but owned a home in Oklahoma which was occupied by Karen
Foster-Blackwood and Jean Blackwood-Foster. (The opinion does not tell us the relationship among the three women other than to say Karen and Jean claim by reason of being resident relatives of Kay Foster.) The home suffered damage from a water leak. The women claim
Liberty failed to deal promptly with the water leak, causing mold and thereby failed to deal fairly
42 2018 WL 738906 (W.D. Okla. Feb. 6, 2018). 23 and in good faith with the claim.
Liberty moved to dismiss under FRCP 12(b)(6) the claims asserted by Karen and Jean, urging they had no status entitling them to sue. The Federal Court, Judge David Russell, in the
Western District, treated the motion as a Motion to Dismiss (instead of a motion for summary judgment) despite the necessity for considering the policy language of the policy, attached to the
Motion because the Complaint referred to the policy and there was no claim the policy Liberty attached was not the correct one.
The policy named Kay as the named insured (“You,” in the policy) and defines “insured” to include “you and residents of your household who are . . . your relatives.” The plaintiffs claimed this entitled Karen and Jean to sue for the property damage and resulting bad faith. They supported their argument by citing Hensley v. State Farm Fire and Casualty Company43. In that case, the Oklahoma Supreme Court held that a purchaser of a home under a contract for deed, known to the insurance company but not named in the policy had standing to sue under the policy.
Judge Russell rejected that argument, declining to hold that people not named in the policy nor known to the insurance company had standing to sue for property damage and bad faith under the policy. He sustained the Motion to Dismiss.
HOMEOWNERS LIABILITY INSURANCE
LOCATION THREE-TENTHS OF A MILE FROM LAKE CABIN NOT “PREMISES USED IN IN CONNECTION WITH INSURED PREMISES - State Farm Fire & Cas. Co. v. Lusk, 2018 WL 2392542 (N.D. Okla. May 25, 2018)
State Farm Fire & Cas. Co. v. Lusk44 holds that a beach three-tenths of a mile from the
43 2017 OK 57, 398 P.3d 11. 44 2018 WL 2392542 (N.D. Okla. May 25, 2018). 24 insured’s lake house where the insured regularly went was not “premises used in connection with insured premises” so as to provide coverage for an ATV injury occurring there.
The insured evidently lived in Oklahoma County and owned a lake home at Lake
Eufaula. The insured had a homeowner’s policy with State Farm which had a motor vehicle exclusion. The “motor vehicle” definition in the policy included a “recreational vehicle” which specifically included an ATV. The insured got sued in Oklahoma County for an injury incurred when she ran over the plaintiff with her ATV on a sandy embankment 0.32 miles from the insured’s cabin and enroute from the cabin to a beach the insured visited regularly.
The coverage question arose over whether the ATV injury occurred “while off an insured location.” The policy defined “insured location” to include “any premises used by you in connection with the premises.” The insured testified she went to her lake cabin on average 3 times a month and regularly used the route where the injury occurred to go to the beach nearest her lake cabin.
State Farm argued that the sandy embankment did not qualify as “premises used by” the insured in connection with the insured premises. The Court, Judge Dowdell, in the Northern
District, agreed with State Farm and granted State Farm summary judgment. He relied on an earlier decision by Judge Frizell, in the Northern District,45 and a Massachusetts Court of
Appeals case.
This case is a bit troubling. Most homeowner’s policies which have a motor vehicle exclusion define “motor vehicle” so as to only include a vehicle likely to be insured under a motor vehicle policy. Most insureds will expect an ATV to be covered under the homeowner’s
45 State Farm Fire & Cas. Co. v. Junker, 2015 WL 12585906. 25 liability policy. One has to wonder if State Farm agents warn their insureds ATVs are not covered and if State Farm offers them coverage for ATV liability.
LIABILITY
NO COVERAGE FOR CLAIM BY NAMED INSURED AGAINST AN OFFICER OF A SUBSIDIARY; TENDER OF DEFENSE CLAUSE TIME LIMIT STRICTLY ENFORCED - Statton v. Allied World Specialty Ins. Co., 2018 WL 454563 (N.D. Okla. Jan. 17, 2018)
Statton v. Allied World Specialty Ins. Co.46 holds there was no coverage under a liability policy for a suit by the named insured against an officer of subsidiary corporation for business torts and that a “tender of defense” clause would be treated differently than a notice of claim provision with regard to a duty to defend.
This is a peculiar case involving a peculiar policy. The Plaintiff, Statton, owned an
Oklahoma company, which a New York company wanted to buy. Statton sold the Oklahoma company to the New York conglomerate and continued to run the Oklahoma company.
Based on criteria in the sales contract, the New York conglomerate owed Statton $2 million if he continued in the employment of the conglomerate. The conglomerate asked Statton to renegotiate the deal so that he got stock in the New York company instead of cash for the $2 million obligation.
When Statton refused to renegotiate the deal, the New York company terminated his employment for cause, stating the cause to be accusations by employees of the New York company that he had, among other things, asked employees of the New York company to work on projects unrelated to the business the New York corporation had bought. These claims became the basis for a suit in federal court in New York which the New York company brought against Statton.
46 2018 WL 454563 (N.D. Okla. Jan. 17, 2018). 26 Statton learned, in the process of defending the New York case, that the New York company had a liability policy which included Employment Practices Liability Coverage which applied when wrongful acts were alleged “by or on behalf of an employee.” Statton put the insurance company on notice 5 months after the New York company’s claims against him but as soon as he learned of the availability of the coverage.
The liability insurance company denied coverage or a defense. Statton brought this declaratory judgment action in the Northern District federal court for a declaration that there was coverage or, alternatively, a duty to defend.
The Oklahoma federal court, Judge Dowdell, granted the insurance company summary judgment on both claims. He held that the policy was not ambiguous but rather provided unambiguously that the claim, to be covered under the policy, had to be not just based on claims asserted by an employee but claims of an employment practice directed against the employee, as opposed to one directed against the named insured.
As to the defense obligation, the policy provided that the insurance company “does not assume the duty to defend any claim under the policy” but that “notwithstanding” that provision,
“the Insureds shall have the right to tender the defense of a claim” and that the insurance company would then defend.
However, the policy provided that the right to tender the defense “shall be exercised by the named insured (the New York company) on behalf of all Insureds by providing written notice and that the “right to tender a defense shall terminate if it is not exercised within 15 days of the date the claim is first made against the insured.”
The Court rejected Statton’s argument that the Oklahoma cases requiring proof of prejudice to the insurance company in order for late notice to be a defense were inapplicable to
27 this “right to tender a defense” clause. Since Statton had not been able to make the tender within
15 days, that right was lost and there was no duty to defend.
I was involved in this case. And, I lost it.
LIABILITY INSURANCE
NO FORMAL PROOF OF LOSS REQUIRED TO TRIGGER ATTORNEY FEE AND INTEREST STATUTE IN SUIT ON LIABILITY POLICY - JP Energy Mktg., LLC v. Com. and Indus. Ins. Co., 2018 OK 11
JP Energy Mktg., LLC v. Com. and Indus. Ins. Co.47 holds no formal proof of loss beyond a request for coverage and a defense is required to trigger the attorney fee and interest provision of 36 O.S. Sec. 3629B.
JP Energy had a liability claim, which its liability insurance company denied and refused to defend. JP Energy sued the liability carrier in state court for a declaratory judgment. The trial court rendered declaratory judgment for JP Energy. The Court of Civil Appeals affirmed and the
Supreme Court denied certiorari.
JP Energy moved for appellate attorney fees pursuant to Section 3629B. The Supreme
Court granted them in this order signed by the Chief Justice. The problem arose from the fact that Section 3629B specifies that the prevailing party, entitled to attorney fees and interest, if it is the insured, is determined by whether the recovery is more or less than the amount the insurance company offers in response to a proof of loss.
47 2018 OK 11. 28 LIABILITY – DISCOVERY OF RESERVES
“CLAIM NOTES” PREPARED IN CONTEMPLATION OF LITIGATION PROTECTED AS WORK PRODUCT; CLAIM RESERVE DATA NOT DISCOVERABLE - Annese v. U.S. Xpress, Inc., 2018 WL 3468375 (W.D. Okla. July 18, 2018)
Annese v. U.S. Xpress, Inc.48 holds that “claim notes” prepared in contemplation of litigation are protected from discovery by work product and that claim reserve data does not indicate liability but rather is an amount set aside for potential future liability and is not subject to discovery.
This brief opinion notes the well-known rule that work product is governed by federal law while privilege is a matter of state law. It then says that 21 pages of “claim notes” were prepared in contemplation of litigation and are, therefore, protected work product, not subject to discovery.
The Court, Judge Cauthron, in the Western District, also denies discovery of claim data reflecting setting of claim reserves. The Court cites Signature Development Company v. Royal
Ins. Co. of America,49 for the proposition that “reserves were not evidence of liability because the insurer’s reserve ‘is merely an amount it set aside to cover potential future liabilities.’ ”
LIABILITY INSURANCE – GENERAL LIABILITY INSURANCE - EXCLUSIONS
ASSAULT AND BATTERY EXCLUSION BARS COVERAGE FOR SHOOTING BY OFF-DUTY OFFICER - Event Sec., LLC v. Essex Ins. Co., 715 F. App’x 853 (10th Cir. 2017)
Event Sec., LLC v. Essex Ins. Co.50 holds that an assault and battery exclusion to a general liability policy unambiguously excludes coverage for a shooting by an off-duty officer the insured hired to provide security.
48 2018 WL 3468375 (W.D. Okla. July 18, 2018). 49 230 F.3d 1215, 1224 (10th Cir. 2000). 50 715 F. App’x 853 (10th Cir. 2017). 29 The named insured, Event Security, was hired to provide security at a concert. The insured hired off-duty officers to provide the security. One of the off-duty officers shot and killed a man sitting in a car at the concert, claiming the man had a gun.
The personal rep of the dead man’s estate sued the insured. Essex Insurance Company, which had a general liability policy on Event Security denied coverage based on an assault and battery exclusion. The personal rep and Event Security sued in the Western District Federal
Court for a declaratory judgment that the policy did not obligate Essex to defend or pay claims in the case.
The District Court, Judge Robin Cauthron, granted Essex a Federal Rule 12(b)(6) motion to dismiss due to failure to state a claim and then denied a motion to alter or amend judgment, pursuant to Federal Rule 59(e). The Tenth Circuit affirmed, in this opinion by Circuit Judge
Phillips.
The 10th Circuit held that the allegation of negligence on the part of the security company and the officers did not take the case out of the exclusion of coverage for assault and battery. The
Court cited OUJI 19.6 which requires that, for a civil battery, the defendant intended to make a harmful or offensive contact with the plaintiff and makes that contact. When the officer fired his gun, he intended to make such contact. The fact that there may have been negligence in doing so or in failing to adequately train the officers did not change the nature of the act from an assault and battery.
30 LIABILITY INSURANCE – LOANED SERVANT
EMPLOYEE RETURNING FROM DISTANT JOB WAS AND REMAINED A LOANED SERVANT OF THE COMPANY TO WHOM HIS EMPLOYER HAD LOANED HIS SERVICES - Star Ins. Co. v. Fed. Ins. Co., 702 Fed. Appx. 772 (10th Cir. 2017) (unpublished)
Star Ins. Co. v. Fed. Ins. Co.51 holds that a mechanic loaned from his employer to another company to perform work at a distant site was the loaned servant of the company to which he was loaned when he was involved in an at-fault wreck on the return trip so the insurance company for the company to which he was loaned had primary coverage.
Mr. Flint owned two oil field-related companies in Seminole County, Oklahoma. C & C
Tank Truck Services (C & C) transported fluids for oil-rig operations. DJF Services, Inc. (DJF) provided oil field services and operated some oil and gas wells in Spur, Texas, some 340 miles away. Federal Insurance Company insured DJF. Star Insurance Company (Star) insured C & C.
A pulling unit at one of the wells in Spur needed repair. Flint instructed his chief mechanic, an independent contractor named Cornell, to go fix it, along with Collins, a DJF mechanic. Cornell became ill so Flint instructed Cellars, a mechanic for C & C to go with him instead.
The two mechanics worked on the rig but did not succeed in fixing it so Cornell, now somewhat recovered, went to the Texas well-site. He concluded the job they had done was defective and that the equipment they had worked on needed to be returned to Oklahoma for more repair. Collins drove a truck with the part on it and was accompanied by Cornell while
Cellars drove Cornell’s truck. On the way from the job-site to Oklahoma, there was a bad wreck due to Cellars’ fault.
51 702 Fed. Appx. 772 (10th Cir. 2017) (unpublished). 31 The liability carrier for Cornell’s truck exhausted its limits in settlement of the case.
Federal and Star each paid 50% of the money required to complete the settlement and reserved rights to seek recovery from the other for the payment and defense costs, depending on the outcome of which of them was primary to the other. That issue hinged on whether Cellars was a loaned servant of DFJ (in which case Federal would be primary) or remained solely the servant of C & C (in which case Star would be primary).
The Western District federal court, Sr. Judge Leonard, held Cellars was a loaned servant of DFJ, so Federal was primary and had to pay Star. The Tenth Circuit affirmed in this opinion by Judge Harris Hartz, of New Mexico.
The case serves as a pretty go-to source for citations of cases dealing with the niceties of loaned servant issues. The opinion reviews the rules laid down by Oklahoma state and federal cases. Judge Hartz rejected numerous arguments put forth by Federal why it contended Cellars was not the loaned servant of its insured, DFJ, without avail. The Court made clear that the test of who is the master of a “loaned servant” is the right to control, not who actually exercised control.
MOTOR CARRIER JOINDER
JOINDER OF INTERSTATE MOTOR CARRIER’S LIABILITY INSURANCE COMPANY NOT PERMITTED IN FEDERAL COURT - Hankla v. Lee, 2018 WL 563181 (W.D. Okla. Jan. 25, 2018)
Hankla v. Lee52 holds that an injured plaintiff may not join in a suit an interstate motor carrier’s liability insurance company.
Hankla was injured in a wreck with an interstate motor carrier. She sued and joined the interstate carrier’s liability insurance company, New Hampshire Insurance Company in the suit.
52 2018 WL 563181 (W.D. Okla. Jan. 25, 2018). 32 The insurance company moved to dismiss for failure to state a claim. (The opinion does not show whether the suit was filed in federal court initially or removed there from state court.)
The District Court, Judge DeGiusti, in the Western District, sustained the motion to dismiss. He based his decision on a state Court of Civil Appeals’ decision, Fierro v. Lincoln
Gen. Ins. Co.53 That case held that, where an interstate motor carrier had obtained its federal, interstate license to operate through the “single state registration” requirements in its home state, and was not licensed in Oklahoma, it could not be joined in the suit against the motor carrier but rather could be sued only after the plaintiff had obtained a judgment against the motor carrier.
Fierro in turn, relied on Daigle v. Hamilton54 which did not involve a motor carrier.
Rather, it rejected an argument that adoption of the Oklahoma Compulsory Insurance Law55 had made every motor vehicle liability insurance policy a statutorily required policy so that joinder of the liability carrier was proper.
Judge DeGiusti says that:
Post-Daigle and Fierro, Oklahoma federal courts have been unanimous in holding that insurance companies for interstate carriers who have not filed proof of insurance in Oklahoma may not be named as joint defendants. See, e.g., Simpson v. Litt, No. CIV-17-339-R, 2017 WL 2271484, at *3 (W.D. Okla. May 23, 2017) (“The Oklahoma Supreme Court in Daigle seemed to lay a blanket rule that a plaintiff could maintain a joint, direct action against the carrier and the insurer by virtue of the carrier’s obligation to maintain insurance under the statute.... Under that reasoning, § 230.30 would seem to allow Mr. Simpson to state a claim here. Unfortunately for him, the Oklahoma Court of Civil Appeals carved out an exception to this rule in Fierro... because neither § 169 nor § 230.30 applies to interstate motor carriers, the interstate carrier’s insurance company cannot be named as a defendant prior to judgment being entered against the carrier.”)
53 2009 OK CIV APP 62, 217 P.3d 158. 54 1989 OK 137, 782 P.2d 1379. 55 47 O.S. § 7-600 et seq. 33 However, state courts have continued to permit joinder of the insurance carrier under
Enders v. Longmire.56 That leaves us with a somewhat anomalous situation in which joinder is permitted in state courts but denied in federal courts. That is not supposed to be the result under
Erie R. Co. v. Thompkins.57 The outcome of a case ought not to depend on whether it is decided in federal court or down the street at the state courthouse.
PROPERTY INSURANCE
INSURANCE PROCEEDS SHOULD GO TO MORTGAGE COMPANY TO PAY FOR REPAIRS - Privilege Underwriters Reciprocal Exch. v. West, 2018 WL 4088777 (N.D. Okla. Aug. 27, 2018)
Privilege Underwriters Reciprocal Exch. v. West58 holds that insurance proceeds from a roof loss should go to the mortgage company which was the loss payee under the policy to pay for replacement of the roof, rather than to either the now-divorced husband or wife.
Mr. and Mrs. West had a roof loss. While that loss was being adjusted, they got divorced.
Mrs. West was awarded the home. Mr. West then claimed that, because Mrs. West took the home in the divorce at a depreciated value, due to the damaged roof, he should be entitled to the insurance settlement.
When the unhappy couple was unable to agree on distribution of the settlement proceeds, the insurance company interpleaded the proceeds and left to the federal court the disposition of policy proceeds. The Court, Judge Claire Eagan, in the Northern District, ordered the proceeds paid to the mortgage company where, pursuant to a mortgage provision, the mortgage company could direct the proceeds be used to repair the property, so as to protect the mortgage company’s interest in the property.
56 1937 OK 154, 67 P.2d 12. 57 304 U.S. 64 (1938). 58 2018 WL 4088777 (N.D. Okla. Aug. 27, 2018). 34 The mortgage contained a provision (which I have not previously seen) that, unless the lender and borrower otherwise agree in writing, any insurance proceeds shall be applied to restoration or repair of the property. The provision says the lender shall hold the proceeds to ensure the work is done properly and pay them out for repairs. Judge Eagan, (it would appear, properly) ordered the proceeds paid to the lender.
This mortgage provision solves a problem which otherwise sometimes arises in which the loss payee simply gets the proceeds. Particularly if the mortgage is a relatively low-rate mortgage that the mortgage company would like out of, or if the lender has not been very good about paying payments timely, the lender will sometimes take the proceeds, apply them to the loan and leave the insured property owner with an unrepaired property. This mortgage provision and this ruling avoids that usually unfortunate result.
PROPERTY INSURANCE BINDERS
MOTION TO DISMISS NOT PROPER IN ESTATE’S SUIT ON ORAL CONTRACT TO INSURE - Claypole v. Geico Cas. Co., 2018 WL 1187964 (W.D. Okla. Mar. 6, 2018)
Claypole v. Geico Cas. Co.59 holds a federal court motion to dismiss is inappropriate in a suit by the estate of an insured on an oral contract of insurance and for bad faith for breach of the contract.
Mr. Johnson bought a 5th wheel trailer which was damaged in a collision the same day he purchased it. Mr. Johnson died (although it is not clear in the opinion whether as a result of the collision). Claypole, personal representative of his estate, filed suit in Grant County District
Court after GEICO declined to pay a collision damage claim. GEICO removed the case to federal court and moved to dismiss under FRCP 12(b)(6), for failure to state a claim.
59 2018 WL 1187964 (W.D. Okla. Mar. 6, 2018). 35 The estate alleged in the petition that Mr. Johnson had other vehicles insured by GEICO and alleged, on information and belief, that Mr. Johnson orally acquired a binder for the coverage by telephone. GEICO refused to pay the claim, saying its trailer policy, which it attached to its motion, covered some trailers but not a “trailer with built-in sleeping facilities designed for recreational or camping use.”
The federal district court, Judge David Russell, in the Western District, deals first with several issues concerning rules for determining motions to dismiss. He notes that normally factual matters not included in the petition or complaint cannot be considered without converting the motion to dismiss to a motion for summary judgment, which triggers a different set of rules.
However, he says “the district court may consider documents referred to in the complaint if the documents are central to the plaintiff’s claim and the parties do not dispute the documents’ authenticity.” For this reason, the Court here may consider the policy because it is referred to in the petition but may not consider other material not described in the petition.
GEICO attached and relied on a pleading filed in the probate in an effort to collect for the trailer which described the trailer and attached a catalogue which it claimed showed the trailer was a camper trailer with built-in sleeping facilities. Judge Russell says that is not material which can be considered on a motion to dismiss, because the court cannot take judicial notice of these documents.
Because the material before the Court was insufficient to enable the Court to dismiss the contract claim, the Court likewise overruled the motion to dismiss the bad faith claim. However, the Court makes a rather sweeping ruling, without discussion or citation of authority. The Court rejects an argument that the estate cannot make a bad faith claim because the insurance contract was between the decedent and the insurance company but says no recovery can be had in the bad
36 faith for emotional distress or mental anguish. The Court’s entire treatment of that issue is: “The damages, however, may not include emotional distress and mental anguish as pled.”
We don’t know whether factually, the decedent in this case survived the collision long enough to suffer emotional distress and mental anguish. If he did, and the Court means to say the bad faith claim for emotional distress and mental anguish damages dies with the insured, there certainly should be more discussion than the issue got. The Oklahoma survival statute provides:
In addition to the causes of action which survive at common law, causes of action for mesne profits, or for an injury to the person, or to real or personal estate, or for any deceit or fraud, shall also survive; and the action may be brought, notwithstanding the death of the person entitled or liable to the same.60
That statute would certainly seem to raise the question whether a bad faith claim in which the insured suffered emotional distress or mental anguish but dies before the trial survives the death of the insured. The issue may rest on whether, for this purpose, the claim arises in tort or contract. Columbian Nat. Life Ins. Co. v. Lemmons61 holds that a claim against a life insurance company for negligent failure to promptly process life insurance application survived, whether based in tort or contract, because it arose from a contract. In any event, clearly some more briefing and discussion is required on this issue, if the facts of the case require it (which we don’t know).
PROPERTY INSURANCE – BAD FAITH
CONTRACT AND BAD FAITH CLAIMS BOTH TIME-BARRED - Zewdie v. Safeco Ins. Co. of Am., 2018 WL 493799 (W.D. Okla. Jan. 19, 2018)
Zewdie v. Safeco Ins. Co. of Am.62 holds that both the insureds’ contract claim and bad faith claim were time-barred.
60 12 O.S. §1051. 61 1923 OK 1147, ¶5, 222 P. 255. 62 2018 WL 493799 (W.D. Okla. Jan. 19, 2018). 37 Zewdie had a water damage case which he discovered November 10, 2011. The policy had a provision reducing the time to sue under the policy two years, as permitted by statute.63
The insurance company came out, looked at the damage and paid less than $2,000, taking the position that most of the damage was due to faulty construction. Zewdie began an arbitration proceeding against his builder as a result.
On December 5, 2011, Safeco wrote a letter saying it had transferred the file to its subrogation department, apparently as a result of the claim against the builder. On July 30, 2012, the insureds’ lawyer wrote a letter of representation to Safeco complaining that Safeco had done little to resolve the claim and that the insureds had sustained “extraordinary” losses as a result.
Safeco assigned an adjuster who responded on August 7, 2012.
On November 1, 2012, the insureds’ lawyer wrote Safeco accusing it of bad faith and notifying it of a mediation to be held in the arbitration against the builder. Safeco responded with a letter saying its lawyer would attend the mediation. The insureds’ lawyer suggested if Safeco were to participate in the mediation, it should come prepared to negotiate all issues, including bad faith.
Safeco then paid the insureds some additional money (about $35,000) on the claim. On
June 17, 2013, the insureds’ lawyer wrote that the claim against the builder had been settled. As part of that settlement, Safeco waived subrogation. On December 12, 2013, the insureds’ lawyer submitted a settlement demand, which Safeco’s lawyer rejected on December 30, 2013. The insureds sued March 3, 2015 in state court. Safeco removed the suit to federal court.
In this opinion, Judge Heaton, in the Western District, sustained a motion for summary
63 36 O.S. §3617. 38 judgment as to both the contract and bad faith claims, based on the statutes of limitation.
Judge Heaton rejected a claim by the insureds that the “time to sue” provision was unenforceable because it was not readily apparent. He found the provision sufficiently prominent to make clear that the time to sue under the policy was limited to two years.
He also rejected claims by the insureds that the insurance company had waived or was estopped to assert the statute of limitations because it had negotiated with the insureds and led them to believe the claim would be paid. He discusses numerous cases dealing with the issue of an insurance company extending the time to sue by negotiation or otherwise leading the insureds to believe the claim will be paid without regard to the time to sue provision. He notes that negotiation does not extend the time to sue by two years but extends the time to sue only for a reasonable time after it becomes apparent that the insurance company will not pay the claim. He held the two-year time-to-sue runs from the date of the loss and that the claim was clearly denied not later than December 30, 2013, after the two years ran following the November 10, 2011 loss had run. The insureds had only a reasonable time thereafter to sue, not two more years.
The two-year statute of limitation on the bad faith claim began to run when the insureds first could have filed a bad faith claim. Since the insureds began to complain of Safeco’s bad faith November 1, 2012, the statute began to run then and ran November 1, 2014. Even if Safeco extended the time to sue by negotiation, it was only for a reasonable time to file the suit after the claim was clearly denied December 30,2013.
This case doesn’t tell us much we didn’t already know about time-to-sue but it is an excellent reminder that we must calendar these dates as soon as we see the file in our offices and get the suit filed within the appropriate time periods. The case also gathers to date the cases on extending the time-to-sue by negotiation.
39 PROPERTY INSURANCE – BAD FAITH
PREEXISTING DAMAGE, PRIOR INSURANCE SETTLEMENT WITH CONFIDENTIALITY AGREEMENT DID NOT PRECLUDE BAD FAITH CLAIM - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co., 2018 WL 894875 (W.D. Okla. Feb. 14, 2018)
Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co.64 holds that neither evidence of preexisting damage nor a confidentiality agreement from an earlier insurance settlement precluded the insured from asserting a bad faith claim against its property insurance company.
Shadid owned 25 commercial properties in Oklahoma City. He claimed they were damaged in a hailstorm May 31, 2013. The insurance company conducted an extensive investigation and required Shadid to produce voluminous records about prior losses, repairs and maintenance to the properties. It then denied the claims, claiming the damage for which claims were asserted was incurred in an earlier hailstorm in 2010, before its policy was effective or resulted from depreciation due to wear and tear.
Shadid sued on the contract and for bad faith. The motion for summary judgment before the court relates to whether there are disputed facts as to the bad faith claim which preclude summary judgment for the insurance company. The insurance company claimed the insured had failed to cooperate in its investigation because he said he was precluded from telling the insurance company the amount paid in settlement of the 2010 claims by another insurance company due to a confidentiality agreement in conjunction with that settlement. The Court,
Judge DeGiusti, in the Western District found there were fact issues which must be decided by the jury and denied summary judgment.
With regard to the insurance company’s persistent effort to obtain records of prior losses to the property, the Court notes: “Defendant does not explain why Plaintiff was obligated to
64 2018 WL 894875 (W.D. Okla. Feb. 14, 2018). 40 provide information concerning the condition of the insured properties before the policy period, which was presumably included in Defendant’s underwriting of the policy or its initial assessment of the insured risk.”
In addition to denying summary judgment on the policy claim and the bad faith claim, the court also declined to enter summary judgment on the insurance company’s request that the
Court declare that, due to the policy provision that the policy applies only to losses occurring during the policy period, the company is not liable for losses which occurred before the policy was written. Similarly, the Court declined to enter an order declaring that, because the policy provided for replacement cost only after the damage was repaired, the insurance company would be liable only for actual cash value as to property sold in its damaged condition. The Court concludes such findings would be “advisory opinions,” beyond the courts’ power.
This is a good case to read if you are one who resists at all costs having a case removed to federal court. This is hardly an opinion showing some conservative bias on the part of the Court.
PROPERTY INSURANCE – REPAIR OF DAMAGED PROPERTY AS SPOLIATION
REPAIR OF DAMAGED ROOF AFTER INSURANCE COMPANY HAD INSPECTED IT WAS NOT SPOLIATION JUSTIFYING DISMISSAL OF SUIT - Ranchers Pipe & Steel Corp. v. Ohio Sec. Ins. Co., 2017 WL 6025327 (N.D. Okla. Dec. 5, 2017)
Ranchers Pipe & Steel Corp. v. Ohio Sec. Ins. Co.65 holds that the insured’s repair of a damaged roof after the insurance company had inspected it was not spoliation such as to justify dismissal of the insured’s suit as a sanction.
The insured’s roof was damaged in a March 2015 storm. The insurance company’s engineer inspected the property three times, took pictures and did a report. The insured filed suit in June 2017 on the contract and for bad faith and finally repaired the roof in June 2017.
65 2018 WL 1333976 (N.D. Okla. Mar. 15, 2018). 41 The insurance company sought dismissal of the case as a sanction for spoliation by reason of the insured having replaced the roof. Magistrate Judge McCarthy denied the sanction in this opinion.
For repair by the insured to constitute sanctionable spoliation, the insurance company would have to be prejudiced. Here, it was not as its engineer had time to and did inspect the property.
REMOVAL TO FEDERAL COURT AND REMAND
JOINDER OF TORT CLAIM AGAINST INSURANCE COMPANY’S EMPLOYEE MAY DEFEAT REMOVAL - Bynum v. State Farm Fire & Cas. Co., 2018 WL 3769871 (W.D. Okla. Aug. 9, 2018)
Bynum v. State Farm Fire & Cas. Co.66 holds that where the plaintiff/insured joined a non-diverse employee of the insurance company in the state court action, there is no fraudulent joinder and a motion to remand will be sustained.
Bynum was a State Farm insured who had a loss in Beckham County. He sued State
Farm in Beckham County on a claim and for bad faith and joined a tort claim against a State
Farm claim man for having been in the insured home while the insured was not there.
State Farm removed the case to federal court, claiming fraudulent joinder in that the suit against the State Farm employee was a sham to defeat removal. Bynum moved to remand. The
Court, Judge DeGiusti, in the Western District, sustained the motion to remand.
To show fraudulent joinder and defeat a motion to remand, State Farm would have to show either (1) actual fraud (which State Farm did not claim) or (2) that the plaintiff/insured could not state any cause of action against the resident employee. The Court finds that State
66 2018 WL 3769871 (W.D. Okla. Aug. 9, 2018). 42 Farm did not make that appropriate showing. It claimed plaintiff could not show damages from the trespass. The Court said nominal damages may be recovered for trespass in Oklahoma.
State Farm argued plaintiff could not prove that the employee was not acting in the scope of his employment so that the facts would “if anything, create vicarious liability of State Farm, not personal tort liability of its agent.” The Court cited Shebester v. Triple Crown Insurers67 for the proposition that “One who commits a tortious act while acting as agent for another within the scope of his authority is individually liable.”
The Court granted the motion to remand but declined to award attorney fees. The Court said where State Farm had an objectively reasonable basis for removal, award of attorney fees against it would not be proper.
SUBROGATION – SAVING STATUTE
SUBROGATED INSURANCE COMPANY IS ENTITLED TO BENEFIT OF THE SAVING STATUTE TO REFILE A SUBROGATION ACTION AFTER INSURED DISMISSES SUIT AGAINST TORT- FEASOR – State Farm Mut. Ins. Co. v. Payne, 2017 OK 95, 408 P.3D 204
State Farm Mut. Auto. Ins. Co. v. Payne68 holds that a subrogated insurance company whose insured dismisses his case against the tort-feasor causing the loss is entitled to the one year permitted to refile after dismissal which the insured would have had to refile had he not settled the case.
State Farm’s insured (under collision and uninsured motorist coverage) sued the tort- feasor (apparently underinsured) who caused the loss (Payne) just before the two-year statute of limitations ran. State Farm paid its uninsured motorist and collision coverage and sued Payne to recover its subrogation. Payne’s insurance company raised the statute of limitations, arguing that
67 1992 OK 20, 826 P.2d 603. 68 2017 OK 95, 408 P.3d 204. 43 the one year within which to refile the dismissed lawsuit69 was court of appeal available only to the State Farm insured who had filed the original case but not to State Farm as subrogee.
The district court (Judge Andrews, in Oklahoma County) granted summary judgment to the defendant, holding State Farm was not entitled to the benefit of the saving statute which would have been available to its insured. State Farm appealed. The Court of Civil Appeals affirmed. The Supreme Court reversed in an opinion by Justice Wyrick, joined in by Vice Chief
Justice Gurich and Justices Kauger, Winchester, Edmondson, and Reif. Justices Watt and Colbert dissented without separate opinion. Chief Justice Combs disqualified.
The Court noted that the saving statute provides “the plaintiff” or if the plaintiff dies, his personal representative, may refile within one year. The question then became whether the plaintiff’s subrogated insurance carrier was encompassed within the term “the plaintiff” so as to be entitled to refile. The Court held it was, saying that the Court had earlier held that the subrogated insurance company was bound by the statute of limitations available to its insured to file a suit for subrogation in the first place, as opposed to having its own statute of limitation beginning when it pays the insured’s claim. It made sense to the Court that, if the insurance company is bound by its insured’s statute of limitation, it ought also to be entitled to the same right to refile which was available to its insured. This ruling was also consistent with the cases holding that the saving statute is remedial in nature and should be liberally construed.
69 Under 12 O.S. §100. 44 UNINSURED MOTORIST
UM POLICY ISSUED ON GOLF CART IS NOT SUBJECT TO UM LAW - Progressive N. Ins. Co. v. Pippin, 725 F. App’x 717 (10th Cir. 2018)
Progressive N. Ins. Co. v. Pippin70 holds that a UM policy issued on a golf cart is not subject to UM law so that exclusions not permitted in UM policies are valid.
Mr. Pippin bought a golf cart for use at a lake home. His Progressive agent wrote a policy on the golf cart without being instructed by Mr. Pippin to which she included $500,000 in
“uninsured motorist” coverage. When he asked the agent about the UM coverage on the golf cart, she told him “You can never have too much UM coverage.”
Three years later, Mr. Pippin was badly injured in a car wreck. He was driving a vehicle which was titled in the name of one of his companies and which he normally used for both business and personal use. The at fault driver had a $50,000 liability policy, which was paid.
While the vehicle Mr. Pippin was driving had no UM coverage, another vehicle, which his wife drove, had a $100,000 UM policy, which was also paid.
Progressive denied payment of its $500,000 UM policy, based on an exclusion applicable when the insured was occupying a vehicle available for his regular use. This exclusion would not have been permitted to exclude UM coverage under Oklahoma UM law, due to Cothren v.
Emcasco Ins. Co.71and Morris v. America First Ins. Co.72 Progressive sued Pippin in the Western
70 725 F. App’x 717 (10th Cir. 2018). 71 1976 OK 137, 555 P.2d 1037. 72 2010 OK 35, 240 P.3d 661. Cothren held such an exclusion invalid. A later amendment to the UM statute permitted such an exclusion but only if the vehicle being occupied was totally uninsured. Conner v. American Commerce Ins. Co., 2009 OK CIV APP 61, 216 P.3d 850 erroneously permitted the exclusion where the vehicle had no UM coverage. Morris held Conner did not apply where coverage was available to the insured on another vehicle. This was the case with Pippin. 45 District for a declaratory judgment that the UM coverage did not apply or, alternatively, that it applied only to the extent of minimum compulsory insurance law limits.
Chief Judge Heaton declined to certify the questions to the Oklahoma Supreme Court and granted Progressive summary judgment. The Tenth Circuit affirmed, in an opinion by Judge
Kelly, in which Judge Bacharach joined. The Court en banc declined to grant rehearing.
Chief Judge Heaton and the majority in the Tenth Circuit held that Progressive could write whatever policy it chose and not be subject to the Oklahoma UM statute because the policy was written on a golf cart, which did not qualify as a “motor vehicle” within the meaning of the
UM law.
Pippin argued that the policy should be reformed on a theory of constructive fraud because the mistake on the part of Progressive’s agent in writing a motor vehicle policy on a non-motor vehicle should not be permitted to benefit Progressive by enabling it to take UM premiums while writing something other than a UM policy.73 The dissenting judge in the Tenth
Circuit, Judge Briscoe, substantially adopted Pippin’s argument and dissented from the en banc opinion declining to grant rehearing. The Tenth Circuit also declined to certify the coverage issue to the Oklahoma Supreme Court.
In the interest of full disclosure, this was my case. I lost it.
73 Gentry v. American Motorist Ins. Co., 1994 OK 4, 867 P.2d 468 applies constructive fraud in this context. 46 Oklahoma Bar Association
CONTINUING LEGAL EDUCATION INSURANCE LAW UPDATE 2018
By Rex Travis Copyright 2018 Written materials provided by: Oklahoma Bar Association
Note: materials available to download in searchable PDF format on Continuing Legal Education page under For Attorneys section at: www.TravisLawOffice.com Oklahoma Bar Association - INSURANCE LAW UPDATE 2018
• All of the cases we will talk about are insurance cases • However, some will not involve strictly insurance law issues • Rather, they will involve federal procedural issues which often arise in insurance law cases Oklahoma Bar Association - INSURANCE LAW UPDATE 2018
• These will include such things as discovery issues, motions to dismiss or motions for summary judgment • My theory is that you really need to know about these issues if you’re going to practice insurance law Oklahoma Bar Association - INSURANCE LAW UPDATE 2018
• You will also see more cases which appear only in Westlaw. At one time we didn’t talk about those cases much • However, as more and more insurance issues are decided in federal court, we see more and more the courts citing to “Westlaw only” cases Oklahoma Bar Association - INSURANCE LAW UPDATE 2018
• If you’re doing much insurance practice and trying to not use Westlaw and Westlaw cases, good luck! • The problem, of course, is that your opponent is using Westlaw and will be citing Westlaw only cases favorable to their side; you may then locate those cases and respond to them but will miss such cases favoring your position HEALTH INSURANCE - Cates v. Integris Health, Inc.
• HEALTH INSURANCE
• PPO CONTRACT BETWEEN HOSPITAL AND HEALTH INSURANCE PPO AND CONTRACT FORMED BY HOSPITAL ADMISSION DOCUMENTS CREATED A CONTROVERSY NOT “RELATED TO” AN ERISA PLAN SO AS TO TRIGGER ERISA PRE-EMPTION • Cates v. Integris Health, Inc., 2018 OK 9, 412 P.3d 98 (Okla. 2018) HEALTH INSURANCE - Cates v. Integris Health, Inc.
• Cates had health insurance under Participating Provider Organization (PPO) plan • She checked into Integris Hospital and, as part of paperwork for admission, entered into contract with Integris HEALTH INSURANCE - Cates v. Integris Health, Inc.
• Contract provided she would be responsible for any bill remaining after third-party payment • Unless hospital prohibited by contract between third-party payer and hospital from billing for those amounts HEALTH INSURANCE - Cates v. Integris Health, Inc.
• PPO contracted with hospital it would not bill insured “ . . . except for copay or deductible or coinsurance, or, in cases where Integris confirmed services not covered, advised patient services not covered prior to delivering services, and patient agreed to pay for services” • Instead of honoring agreement, Integris declined to submit bills from car wreck to PPO • Rather filed lien against her recovery from car insurance HEALTH INSURANCE - Cates v. Integris Health, Inc.
• Cates brought class action suit for breach of admission contract between Cates and Integris and breach of contract Integris had entered into with PPO • Along with claim for deceit and • For violation of Oklahoma Consumer Protection Act HEALTH INSURANCE - Cates v. Integris Health, Inc.
• Claiming ERISA pre-emption, Integris removed case to federal court • Judge Friot remanded case to state court • In state court, Judge Roger Stuart, Oklahoma County, found ERISA pre-emption applied and dismissed case • This appeal resulted HEALTH INSURANCE - Cates v. Integris Health, Inc.
• Supreme Court reversed, in six to one opinion by Justice Wyrick • Justice Kauger did not participate • Justice Watt had retired and Justice Darby not yet appointed to replace him HEALTH INSURANCE - Cates v. Integris Health, Inc.
• Case turned on issue whether controversy was pre-empted by ERISA because it “related to” ERISA plan • Court cites federal authorities suggesting must be some restriction on how closely controversy must “relate to” ERISA plan • Or every controversy which could arise in case in which ERISA benefits payable would be “related” and ERISA pre-emption would apply HEALTH INSURANCE - Cates v. Integris Health, Inc.
• Court concludes Cates’ controversy involves contract between her and hospital • And agreement by hospital to submit all claims to PPO • Did not implicate ERISA at all HEALTH INSURANCE - Cates v. Integris Health, Inc.
• This is an extremely important case with a lot of implications • Terry and Brad West, Gregg Luther and Shawn Spencer, all of West Law Firm in Shawnee did yeoman-like work to win case HEALTH INSURANCE - Cates v. Integris Health, Inc.
• It should be noted nearly unanimous and authored by most conservative Justice on Court • That’s all really remarkable LIABILITY INSURANCE - JP Energy Mktg., LLC v. Com. and Indus. Ins. Co.
• LIABILITY INSURANCE • • NO FORMAL PROOF OF LOSS REQUIRED TO TRIGGER ATTORNEY FEE AND INTEREST STATUTE IN SUIT ON LIABILITY POLICY • JP Energy Mktg., LLC v. Com. and Indus. Ins. Co., 2018 OK 11 LIABILITY INSURANCE - JP Energy Mktg., LLC v. Com. and Indus. Ins. Co.
• JP Energy had liability claim which liability insurance company denied and refused to defend • JP Energy sued liability carrier in state court for declaratory judgment • Trial court rendered declaratory judgment for JP Energy LIABILITY INSURANCE - JP Energy Mktg., LLC v. Com. and Indus. Ins. Co.
• Court of Civil Appeals affirmed and Supreme Court denied certiorari • JP Energy moved for appellate attorney fees pursuant to Section 3629B • Supreme Court granted them in order signed by Chief Justice LIABILITY INSURANCE - JP Energy Mktg., LLC v. Com. and Indus. Ins. Co.
• Problem arose from fact Section 3629B specifies prevailing party entitled to attorney fees and interest • If it is insured, determined by whether recovery more or less than amount insurance company offers in response to proof of loss LIABILITY INSURANCE – GENERAL LIABILITY INSURANCE - EXCLUSIONS - Event Sec., LLC v. Essex Ins. Co.
• LIABILITY INSURANCE – GENERAL LIABILITY INSURANCE - EXCLUSIONS
• ASSAULT AND BATTERY EXCLUSION BARS COVERAGE FOR SHOOTING BY OFF-DUTY OFFICER • Event Sec., LLC v. Essex Ins. Co., 715 F. App’x 853 (10th Cir. 2017) LIABILITY INSURANCE – GENERAL LIABILITY INSURANCE - EXCLUSIONS - Event Sec., LLC v. Essex Ins. Co.
• Named insured, Event Security, hired to provide security at concert • Insured hired off-duty officers to provide security • Off-duty officer shot and killed man sitting in car at concert • Claimed man had a gun LIABILITY INSURANCE – GENERAL LIABILITY INSURANCE - EXCLUSIONS - Event Sec., LLC v. Essex Ins. Co.
• Personal rep of dead man’s estate sued insured • Essex Insurance Company had general liability policy on Event Security • Denied coverage based on assault and battery exclusion LIABILITY INSURANCE – GENERAL LIABILITY INSURANCE - EXCLUSIONS - Event Sec., LLC v. Essex Ins. Co.
• Personal rep and Event Security sued in Western District Federal Court • For declaratory judgment policy did not obligate Essex to defend or pay claims in case LIABILITY INSURANCE – GENERAL LIABILITY INSURANCE - EXCLUSIONS - Event Sec., LLC v. Essex Ins. Co.
• District Court, Judge Robin Cauthron, granted Essex Federal Rule 12(b)(6) motion to dismiss due to failure to state claim • Then denied motion to alter or amend judgment • Pursuant to Federal Rule 59(e) • Tenth Circuit affirmed in opinion by Circuit Judge Phillips LIABILITY INSURANCE – GENERAL LIABILITY INSURANCE - EXCLUSIONS - Event Sec., LLC v. Essex Ins. Co.
• 10th Circuit held allegation of negligence on part of security company and officers did not take case out of exclusion of coverage for assault and battery • Court cited OUJI 19.6 which requires for civil battery • Defendant intended to make harmful or offensive contact with plaintiff and makes that contact LIABILITY INSURANCE – GENERAL LIABILITY INSURANCE - EXCLUSIONS - Event Sec., LLC v. Essex Ins. Co.
• When officer fired his gun, he intended to make such contact • Fact there may have been negligence in doing so • Or in failing to adequately train officers • Did not change nature of act from assault and battery LIABILITY INSURANCE – LOANED SERVANT - Star Ins. Co. v. Fed. Ins. Co.
• LIABILITY INSURANCE – LOANED SERVANT • • EMPLOYEE RETURNING FROM DISTANT JOB WAS AND REMAINED A LOANED SERVANT OF THE COMPANY TO WHOM HIS EMPLOYER HAD LOANED HIS SERVICES • Star Ins. Co. v. Fed. Ins. Co., 702 Fed. Appx. 772 (10th Cir. 2017) (unpublished) LIABILITY INSURANCE – LOANED SERVANT - Star Ins. Co. v. Fed. Ins. Co.
• Mr. Flint owned two oil field-related companies in Seminole County, Oklahoma • C & C Tank Truck Services (C & C) transported fluids for oil-rig operations • DJF Services, Inc. (DJF) provided oil field services and operated oil and gas wells in Spur, Texas, 340 miles away • Federal Insurance Company insured DJF • Star Insurance Company (Star) insured C & C LIABILITY INSURANCE – LOANED SERVANT - Star Ins. Co. v. Fed. Ins. Co.
• Pulling unit at well in Spur needed repair • Flint instructed chief mechanic, independent contractor named Cornell, to go fix it, along with Collins, DJF mechanic • Cornell became ill so Flint instructed Cellars, mechanic for C & C to go with him instead LIABILITY INSURANCE – LOANED SERVANT - Star Ins. Co. v. Fed. Ins. Co.
• Two mechanics worked on rig but did not succeed in fixing it • Cornell, now recovered, went to Texas well-site • Concluded job they did defective and equipment they worked on needed to be returned to Oklahoma for more repair LIABILITY INSURANCE – LOANED SERVANT - Star Ins. Co. v. Fed. Ins. Co.
• Collins drove truck with part on it accompanied by Cornell • Cellars drove Cornell’s truck • On the way from job-site to Oklahoma, there was bad wreck due to Cellars’ fault LIABILITY INSURANCE – LOANED SERVANT - Star Ins. Co. v. Fed. Ins. Co.
• Liability carrier for Cornell’s truck exhausted its limits in settlement of case • Federal and Star each paid 50% of money required to complete settlement and reserved rights to seek recovery from the other for payment and defense costs • Depending on outcome of which of them primary to other LIABILITY INSURANCE – LOANED SERVANT - Star Ins. Co. v. Fed. Ins. Co.
• Issue hinged on whether Cellars loaned servant of DFJ (in which case Federal primary) or remained solely servant of C & C (in which case Star primary) • Western District federal court, Sr. Judge Leonard, held Cellars loaned servant of DFJ, so Federal primary and had to pay Star • Tenth Circuit affirmed in opinion by Judge Harris Hartz, of New Mexico LIABILITY INSURANCE – LOANED SERVANT - Star Ins. Co. v. Fed. Ins. Co.
• Case serves as go-to source for citations of cases dealing with niceties of loaned servant issues • Opinion reviews rules laid down by Oklahoma state and federal cases LIABILITY INSURANCE – LOANED SERVANT - Star Ins. Co. v. Fed. Ins. Co.
• Judge Hartz rejected numerous arguments put forth by Federal why it contended Cellars not loaned servant of its insured, DFJ, without avail • Court made clear test of who is master of “loaned servant” is right to control, not who actually exercised control SUBROGATION – SAVING STATUTE - State Farm Mut. Auto. Ins. Co. v. Payne
• SUBROGATION – SAVING STATUTE • • SUBROGATED INSURANCE COMPANY IS ENTITLED TO BENEFIT OF THE SAVING STATUTE TO REFILE A SUBROGATION ACTION AFTER INSURED DISMISSES SUIT AGAINST TORT-FEASOR • STATE FARM MUT. INS. CO. V. PAYNE, 2017 OK 95, 408 P.3D 204 SUBROGATION – SAVING STATUTE - State Farm Mut. Auto. Ins. Co. v. Payne
• State Farm’s insured under collision and uninsured motorist coverage sued underinsured tort-feasor who caused loss (Payne) • Just before two-year statute of limitations ran SUBROGATION – SAVING STATUTE - State Farm Mut. Auto. Ins. Co. v. Payne
• State Farm paid uninsured motorist and collision coverage • Then sued Payne to recover subrogation SUBROGATION – SAVING STATUTE - State Farm Mut. Auto. Ins. Co. v. Payne
• Payne’s insurance company raised statute of limitations • Argued one year within which to refile dismissed lawsuit court of appeal available only to State Farm insured who filed original case • But not to State Farm as subrogee SUBROGATION – SAVING STATUTE - State Farm Mut. Auto. Ins. Co. v. Payne
• District court (Judge Andrews, Oklahoma County) granted summary judgment to defendant • Held State Farm not entitled to benefit of saving statute • Would have been available to its insured SUBROGATION – SAVING STATUTE - State Farm Mut. Auto. Ins. Co. v. Payne
• State Farm appealed • Court of Civil Appeals affirmed SUBROGATION – SAVING STATUTE - State Farm Mut. Auto. Ins. Co. v. Payne
• Supreme Court reversed in opinion by Justice Wyrick • Joined in by Vice Chief Justice Gurich and Justices Kauger, Winchester, Edmondson, and Reif • Justices Watt and Colbert dissented without separate opinion • Chief Justice Combs disqualified SUBROGATION – SAVING STATUTE - State Farm Mut. Auto. Ins. Co. v. Payne
• Court noted saving statute provides “the plaintiff” • If plaintiff dies, personal representative • May refile within one year SUBROGATION – SAVING STATUTE - State Farm Mut. Auto. Ins. Co. v. Payne
• Question then became whether plaintiff’s subrogated insurance carrier encompassed within term “the plaintiff” • So entitled to refile • Court held it was SUBROGATION – SAVING STATUTE - State Farm Mut. Auto. Ins. Co. v. Payne
• Said Court earlier held subrogated insurance company bound by statute of limitations available to insured to file suit for subrogation • As opposed to having its own statute of limitation beginning when it pays insured’s claim SUBROGATION – SAVING STATUTE - State Farm Mut. Auto. Ins. Co. v. Payne
• Made sense to Court if insurance company bound by insured’s statute of limitation • Also entitled to same right to refile available to insured • Ruling consistent with cases holding saving statute is remedial in nature and should be liberally construed UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• UNINSURED MOTORIST • • UM POLICY ISSUED ON GOLF CART IS NOT SUBJECT TO UM LAW • Progressive N. Ins. Co. v. Pippin, 725 F. App’x 717 (10th Cir. 2018) UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• Pippin bought golf cart for use at lake home • Progressive agent wrote policy on golf cart without being instructed by Pippin UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• Included $500,000 in “uninsured motorist” coverage • When Pippin asked agent about UM coverage on golf cart • She told him “You can never have too much UM coverage” UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• Three years later Pippin badly injured in car wreck • Driving vehicle titled in name of one of his companies • Which he normally used for both business and personal use UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• At-fault driver had $50,000 liability policy • Liability paid UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• Vehicle Pippin driving had no UM coverage • Vehicle which his wife drove had $100,000 UM policy • Also paid UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• Progressive denied payment $500,000 UM policy • Based on exclusion applicable when insured was occupying vehicle available for his regular use UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• Exclusion not permitted to exclude UM coverage under Oklahoma UM law • Due to Cothren v. Emcasco Ins. Co.and Morris v. America First Ins. Co. UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• Progressive sued Pippin in Western District for declaratory judgment UM coverage did not apply • Or, alternatively, it applied only to extent of minimum compulsory insurance law limits UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• Chief Judge Heaton declined to certify questions to Oklahoma Supreme Court • Granted Progressive summary judgment UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• Tenth Circuit affirmed, in opinion by Judge Kelly joined by Judge Bacharach • Court en banc declined to grant rehearing UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• Chief Judge Heaton and majority in Tenth Circuit held Progressive could write whatever policy it chose • And not be subject to Oklahoma UM statute • Because policy written on golf cart • Does not qualify as “motor vehicle” within meaning of UM law UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• Pippin argued policy should be reformed on theory of constructive fraud • Mistake on part of Progressive’s agent in writing motor vehicle policy on non-motor vehicle • Should not benefit Progressive by enabling it to take UM premiums while writing something other than UM policy UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• Dissenting judge in Tenth Circuit, Judge Briscoe, substantially adopted Pippin’s argument • Dissented from en banc opinion declining to grant rehearing • Tenth Circuit also declined to certify coverage issue to Oklahoma Supreme Court UNINSURED MOTORIST - Progressive N. Ins. Co. v. Pippin
• In the interest of full disclosure, this was my case • I lost it. REMOVAL TO FEDERAL COURT AND REMAND - Bynum v. State Farm Fire & Cas. Co.
• REMOVAL TO FEDERAL COURT AND REMAND • • JOINDER OF TORT CLAIM AGAINST INSURANCE COMPANY’S EMPLOYEE MAY DEFEAT REMOVAL • Bynum v. State Farm Fire & Cas. Co., 2018 WL 3769871 (W.D. Okla. Aug. 9, 2018) REMOVAL TO FEDERAL COURT AND REMAND - Bynum v. State Farm Fire & Cas. Co.
• Bynum State Farm insured • Had loss in Beckham County • Sued State Farm in Beckham County REMOVAL TO FEDERAL COURT AND REMAND - Bynum v. State Farm Fire & Cas. Co.
• On claim and for bad faith • Joined tort claim against State Farm claim man • For having been in insured home while insured not there REMOVAL TO FEDERAL COURT AND REMAND - Bynum v. State Farm Fire & Cas. Co.
• State Farm removed case to federal court • Claimed fraudulent joinder • Claimed suit against State Farm employee sham to defeat removal REMOVAL TO FEDERAL COURT AND REMAND - Bynum v. State Farm Fire & Cas. Co.
• Bynum moved to remand • Court, Judge DeGiusti, Western District, sustained motion to remand REMOVAL TO FEDERAL COURT AND REMAND - Bynum v. State Farm Fire & Cas. Co.
• To show fraudulent joinder and defeat motion to remand, State Farm has to show either • (1) actual fraud (which State Farm did not claim) or • (2) plaintiff/insured could not state cause of action against resident employee REMOVAL TO FEDERAL COURT AND REMAND - Bynum v. State Farm Fire & Cas. Co.
• Court finds State Farm did not make appropriate showing • Claimed plaintiff could not show damages from trespass • Court said nominal damages may be recovered for trespass in Oklahoma REMOVAL TO FEDERAL COURT AND REMAND - Bynum v. State Farm Fire & Cas. Co.
• State Farm argued plaintiff could not prove employee not acting in scope of employment • Facts would “if anything, create vicarious liability of State Farm, not personal tort liability of its agent” REMOVAL TO FEDERAL COURT AND REMAND - Bynum v. State Farm Fire & Cas. Co.
• Court cited Shebester v. Triple Crown Insurers for proposition • “One who commits tortious act while acting as agent for another within scope of authority individually liable” REMOVAL TO FEDERAL COURT AND REMAND - Bynum v. State Farm Fire & Cas. Co.
• Court granted motion to remand • Declined to award attorney fees • Court said where State Farm had objectively reasonable basis for removal, award of attorney fees against it not proper PROPERTY INSURANCE – REPAIR OF DAMAGED PROPERTY AS SPOLIATION – Ranchers Pipe & Steel Corp. v. Ohio Sec. Ins. Co.
• PROPERTY INSURANCE – REPAIR OF DAMAGED PROPERTY AS SPOLIATION • • REPAIR OF DAMAGED ROOF AFTER INSURANCE COMPANY HAD INSPECTED IT WAS NOT SPOLIATION JUSTIFYING DISMISSAL OF SUIT • Ranchers Pipe & Steel Corp. v. Ohio Sec. Ins. Co., 2017 WL 6025327 (N.D. Okla. Dec. 5, 2017) PROPERTY INSURANCE – REPAIR OF DAMAGED PROPERTY AS SPOLIATION – Ranchers Pipe & Steel Corp. v. Ohio Sec. Ins. Co.
• Insured’s roof damaged in March 2015 storm • Insurance company’s engineer inspected property three times • Took pictures • Did report PROPERTY INSURANCE – REPAIR OF DAMAGED PROPERTY AS SPOLIATION – Ranchers Pipe & Steel Corp. v. Ohio Sec. Ins. Co.
• Insured filed suit in June 2017 on contract and for bad faith • Finally repaired roof in June 2017 PROPERTY INSURANCE – REPAIR OF DAMAGED PROPERTY AS SPOLIATION – Ranchers Pipe & Steel Corp. v. Ohio Sec. Ins. Co.
• Insurance company sought dismissal of case as sanction for spoliation • By reason of insured having replaced roof • Magistrate Judge McCarthy denied sanction PROPERTY INSURANCE – REPAIR OF DAMAGED PROPERTY AS SPOLIATION – Ranchers Pipe & Steel Corp. v. Ohio Sec. Ins. Co.
• For repair by insured to constitute sanctionable spoliation • Insurance company would have to be prejudiced • Here, it was not • Its engineer had time to and did inspect property MOTOR CARRIER JOINDER - Hankla v. Lee
• MOTOR CARRIER JOINDER
• JOINDER OF INTERSTATE MOTOR CARRIER’S LIABILITY INSURANCE COMPANY NOT PERMITTED IN FEDERAL COURT • Hankla v. Lee, 2018 WL 563181 (W.D. Okla. Jan. 25, 2018) MOTOR CARRIER JOINDER - Hankla v. Lee
• Hankla injured in wreck with interstate motor carrier • She sued and joined interstate carrier’s liability insurance company, New Hampshire Insurance Company in suit • Insurance company moved to dismiss for failure to state claim MOTOR CARRIER JOINDER - Hankla v. Lee
• Opinion does not show whether suit filed in federal court initially or removed there from state court • District Court, Judge DeGiusti in Western District, sustained motion to dismiss • Based decision on state Court of Civil Appeals’ decision, Fierro v. Lincoln Gen. Ins. Co. MOTOR CARRIER JOINDER - Hankla v. Lee
• Held, where interstate motor carrier obtained federal, interstate license to operate through “single state registration” requirements in home state • And not licensed in Oklahoma • It could not be joined in suit against motor carrier • But rather could be sued only after plaintiff obtained judgment against motor carrier MOTOR CARRIER JOINDER - Hankla v. Lee
• Fierro in turn relied on Daigle v. Hamilton • Did not involve motor carrier • Rather, rejected argument adoption of Oklahoma Compulsory Insurance Law made every motor vehicle liability insurance policy statutorily required policy • So joinder of liability carrier proper MOTOR CARRIER JOINDER - Hankla v. Lee
• Judge DeGiusti says: • “Post-Daigle and Fierro, Oklahoma federal courts have been unanimous holding insurance companies for interstate carriers who have not filed proof of insurance in Oklahoma may not be named as joint defendants. See, e.g., Simpson v. Litt, 2017 WL 2271484, at *3 (W.D. Okla. May 23, 2017)” MOTOR CARRIER JOINDER - Hankla v. Lee
• Judge DeGiusti continues: • “Oklahoma Supreme Court in Daigle seemed to lay blanket rule plaintiff could maintain joint, direct action against carrier and insurer by virtue of carrier's obligation to maintain insurance under statute.... • Under that reasoning, § 230.30 would seem to allow Mr. Simpson to state claim here. Unfortunately, Oklahoma Court of Civil Appeals carved out exception to rule in Fierro... because neither § 169 nor § 230.30 applies to interstate motor carriers, interstate carrier’s insurance company cannot be named as defendant prior to judgment being entered against carrier” MOTOR CARRIER JOINDER - Hankla v. Lee
• However, state courts have continued to permit joinder of insurance carrier under Enders v. Longmire • Leaves us with somewhat anomalous situation in which joinder permitted in state courts but denied in federal courts MOTOR CARRIER JOINDER - Hankla v. Lee
• That is not supposed to be result under Erie R. Co. v. Thompkins • Outcome of case ought not to depend on whether decided in federal court or down street at state courthouse PROPERTY INSURANCE - Privilege Underwriters Reciprocal Exch. v. West
• PROPERTY INSURANCE • • INSURANCE PROCEEDS SHOULD GO TO MORTGAGE COMPANY TO PAY FOR REPAIRS • Privilege Underwriters Reciprocal Exch. v. West, 2018 WL 4088777 (N.D. Okla. Aug. 27, 2018) PROPERTY INSURANCE - Privilege Underwriters Reciprocal Exch. v. West
• Mr. and Mrs. West had roof loss • While loss being adjusted, they got divorced • Mrs. West awarded home PROPERTY INSURANCE - Privilege Underwriters Reciprocal Exch. v. West
• Mr. West claimed because Mrs. West took home in divorce at depreciated value • Due to damaged roof • He should be entitled to insurance settlement PROPERTY INSURANCE - Privilege Underwriters Reciprocal Exch. v. West
• When couple unable to agree on distribution of settlement proceeds • Insurance company interpleaded proceeds • Left disposition of policy proceeds to federal court PROPERTY INSURANCE - Privilege Underwriters Reciprocal Exch. v. West
• Court, Judge Claire Eagan, in Northern District, ordered proceeds paid to mortgage company • Pursuant to mortgage provision, mortgage company could direct proceeds be used to repair property • To protect mortgage company’s interest in property PROPERTY INSURANCE - Privilege Underwriters Reciprocal Exch. v. West
• Mortgage contained provision that • Unless lender and borrower otherwise agree in writing • Insurance proceeds shall be applied to restoration or repair of property PROPERTY INSURANCE - Privilege Underwriters Reciprocal Exch. v. West
• Provision says lender shall hold proceeds to ensure work done properly • And pay them out for repairs • Judge Eagan ordered proceeds paid to lender PROPERTY INSURANCE - Privilege Underwriters Reciprocal Exch. v. West
• This mortgage provision solves problem which otherwise sometimes arises • In which loss payee simply gets proceeds PROPERTY INSURANCE - Privilege Underwriters Reciprocal Exch. v. West
• Particularly if mortgage is relatively low-rate mortgage that mortgage company would like out of • Or if lender has not been very good about paying payments timely PROPERTY INSURANCE - Privilege Underwriters Reciprocal Exch. v. West
• Lender will sometimes take proceeds • Apply them to loan PROPERTY INSURANCE - Privilege Underwriters Reciprocal Exch. v. West
• Leave insured property owner with unrepaired property • Mortgage provision and this ruling avoids that usually unfortunate result LIABILITY – DISCOVERY OF RESERVES - Annese v. U.S. Xpress, Inc.
• LIABILITY – DISCOVERY OF RESERVES • • “CLAIM NOTES” PREPARED IN CONTEMPLATION OF LITIGATION PROTECTED AS WORK PRODUCT; CLAIM RESERVE DATA NOT DISCOVERABLE • Annese v. U.S. Xpress, Inc., 2018 WL 3468375 (W.D. Okla. July 18, 2018) LIABILITY – DISCOVERY OF RESERVES - Annese v. U.S. Xpress, Inc.
• Brief opinion notes well-known rule work product governed by federal law • While privilege matter of state law LIABILITY – DISCOVERY OF RESERVES - Annese v. U.S. Xpress, Inc.
• Says 21 pages of “claim notes” prepared in contemplation of litigation • Therefore, protected work product, not subject to discovery LIABILITY – DISCOVERY OF RESERVES - Annese v. U.S. Xpress, Inc.
• Court, Judge Cauthron, Western District, denies discovery of claim data reflecting setting of claim reserves • Court cites Signature Development Company v. Royal Ins. Co. of America, for proposition “reserves not evidence of liability because insurer’s reserve ‘merely amount set aside to cover potential future liabilities’ ” BAD FAITH - DISCOVERY - Smith v. State Farm Mut. Automobile Ins. Co.
• BAD FAITH – DISCOVERY • • BAD FAITH PLAINTIFF ENTITLED TO BROAD DISCOVERY OF INSURANCE COMPANY’S FINANCIAL RESULTS • Smith v. State Farm Mut. Automobile Ins. Co., 2018 WL 4517470 (W.D. Okla. Sept. 20, 2018) BAD FAITH - DISCOVERY - Smith v. State Farm Mut. Automobile Ins. Co.
• Plaintiff sought bad faith actual and punitive damages in suit arising from hit-and-run UM case • Plaintiff sought discovery of amount of automobile premium income • And of claims paid and claim expenses • In last five years BAD FAITH - DISCOVERY - Smith v. State Farm Mut. Automobile Ins. Co.
• State Farm resisted discovery • Claimed “overly broad • Unduly burdensome • Not material • Seeks information not relevant to claims and defenses of any party • Not proportional to needs of case” BAD FAITH - DISCOVERY - Smith v. State Farm Mut. Automobile Ins. Co.
• Plaintiff argued discovery proper • Because plaintiff sought punitive damages • Information pertinent to showing amounts Defendant made by not properly paying claims BAD FAITH - DISCOVERY - Smith v. State Farm Mut. Automobile Ins. Co.
• Court, Judge Cauthron, Western District, held discovery was proper • Judge Cauthron pointed out majority of federal courts permitted discovery of defendant’s financial information without requiring plaintiff to establish prima facie case for punitive damages • Oklahoma law requires production of financial information where request for punitive damages plead BAD FAITH - DISCOVERY - Smith v. State Farm Mut. Automobile Ins. Co.
• Court noted Oklahoma’s punitive damage statute • Specifically 23 O.S. §9.1 • Permits jury to consider “profitability of misconduct to Defendant” • Financial information “relevant to assessing amount of punitive damages that would achieve desired retributive and deterrent effect” FEDERAL REMOVAL - Ake v. C. United Life Ins. Co.
• FEDERAL REMOVAL • • FAILURE TO SERVE RESIDENT DEFENDANT DOES NOT RENDER CASE REMOVABLE ON FRAUDULENT JOINDER GROUNDS • Ake v. C. United Life Ins. Co., 2017 WL 3105875 (W.D. Okla. July 21, 2017) FEDERAL REMOVAL - Ake v. C. United Life Ins. Co.
• Ms. Ake bought cancer policy on herself and her husband from United Life • Ten years later, her husband contracted cancer • United refused to pay benefits FEDERAL REMOVAL - Ake v. C. United Life Ins. Co.
• Ms. Ake sued United Life in state court and joined agent who sold policy • Alleged misrepresentations about policy • Agent, like Ms. Ake, Oklahoma citizen FEDERAL REMOVAL - Ake v. C. United Life Ins. Co.
• After Ms. Ake did not get service on agent within 180 days, United Life removed case to federal court • Claimed fraudulent joinder of local agent • Caused there to be diversity of citizenship FEDERAL REMOVAL - Ake v. C. United Life Ins. Co.
• Ms. Ake moved to remand • Federal court, Judge David Russell, sustained motion to remand • Avoiding removal FEDERAL REMOVAL - Ake v. C. United Life Ins. Co.
• He noted Plaintiff had 180 days to serve agent lest case dismissed for lack of service • But only if “ . . . plaintiff has not shown good cause why such service not made within that period . . . .” • United Life claimed fact Plaintiff had not gotten service within 180 days indicated joinder fraudulent FEDERAL REMOVAL - Ake v. C. United Life Ins. Co.
• Court cites numerous cases from federal courts around country holding that, in considering whether complete diversity, court should take into account unserved defendants • Not clear those cases involved statutes like Oklahoma’s requiring service within particular time • List of cases Judge Russell cites will make case pretty valuable in doing research on issue FEDERAL REMOVAL - Ake v. C. United Life Ins. Co.
• What is also somewhat unclear is which version of 12 O.S. §2004I Court considered • Change to statute in 2017 • Changed provision judge should dismiss case • To one providing case “deemed dismissed” at end of 180 days unless Plaintiff has shown good cause FEDERAL REMOVAL - Ake v. C. United Life Ins. Co.
• Change came after events involved in case before Judge Russell • Oklahoma Court of Civil Appeals held “deemed dismissed” language creates an “instanter” dismissal • Suit filed within year of date of dismissal but more than year after “deemed dismissed” date not saved by 12 O.S. §100 • “Saving statute” which permits refiling within year of dismissal without prejudice FEDERAL REMOVAL - Ake v. C. United Life Ins. Co.
• Also unclear how permanent protection from removal will be • Judge Russell notes state court could dismiss action as to resident defendant • Following which defendant could remove • Nevertheless, this is an interesting way of avoiding removal DECLARATORY JUDGMENT - Zurich Am. Ins. Co. v. Welch
• DECLARATORY JUDGMENT • • COURT WILL EXERCISE DISCRETION IN FAVOR OF DENYING JURISDICTION FOR DECLARATORY JUDGMENT (DJA) WHERE ISSUE IN DJA WILL NECESSARILY BE DECIDED IN UNDERLYING, STATE COURT TORT ACTION • Zurich Am. Ins. Co. v. Welch, 2018 WL 547575 (W.D. Okla. Jan. 24, 2018) DECLARATORY JUDGMENT - Zurich Am. Ins. Co. v. Welch
• Mrs. Zubia injured in collision with truck owned by Zurich’s insured oil company • Driven by oil company’s employee, Welch DECLARATORY JUDGMENT - Zurich Am. Ins. Co. v. Welch
• Zurich contended in underlying state court tort action • And in this declaratory judgment (DJA) action • Welch not operating truck within course and scope of his agency • Employer not liable and Zurich had no coverage in excess of minimum compulsory insurance limits DECLARATORY JUDGMENT - Zurich Am. Ins. Co. v. Welch
• Mr. and Mrs. Zubia and Welch moved to dismiss • Argued issue to be decided in DJA was same in DJA as in underlying, state court action • DJA would interfere with state court’s determination of issue DECLARATORY JUDGMENT - Zurich Am. Ins. Co. v. Welch
• Federal court in DJA, Judge Miles-LaGrange, Western District, agreed and dismissed DJA • Court notes U.S. Supreme Court held District Courts have “unique and substantial discretion” in determining whether to issue declaratory judgment where duplicative state proceeding exists DECLARATORY JUDGMENT - Zurich Am. Ins. Co. v. Welch
• Here state court denied summary judgment on permissive use/scope of employment issue • Decision in this case might conflict with that ruling • Court then decided rather than staying DJA, Court should dismiss it BAD FAITH – MOTION TO DISMISS - Scott v. Est. of Hershel
• BAD FAITH – MOTION TO DISMISS • • PETITION IN REMOVED CASE COMPLIES WITH TWOMBLY/IQBAL STANDARDS SO AS TO DEFEAT MOTION TO DISMISS • Scott v. Est. of Hershel, 2017 WL 4343150 (Sept. 29, 2017) BAD FAITH – MOTION TO DISMISS - Scott v. Est. of Hershel
• Scott killed in logging truck wreck in Texas • Insured by Texas policy which included UM/UIM • Tortfeasor’s $25,000 liability limit paid • UM carrier, State Auto, declined to tender UM BAD FAITH – MOTION TO DISMISS - Scott v. Est. of Hershel
• Contended under Texas UM law, which applied • UM carrier did not need to tender UM benefits until judgment obtained against tortfeasor • Did not occur because claim settled BAD FAITH – MOTION TO DISMISS - Scott v. Est. of Hershel
• Magistrate Judge West, Eastern District, rejected argument in opinion overruling insurance company’s motion to dismiss • Judge West notes while Twombly and Iqbal impose “refined standard” for motions to dismiss, requiring sufficient factual matter to state claim for relief which is plausible on its face • Supreme Court cases “did not intend end of more lenient pleading requirements” of federal rules BAD FAITH – MOTION TO DISMISS - Scott v. Est. of Hershel
• Court noted Erickson v. Pardus • In which Supreme Court found “specific facts not necessary • Statement need only ‘give defendant fair notice of what . . .claim is and grounds upon which it rests’ ” BAD FAITH – MOTION TO DISMISS - Scott v. Est. of Hershel
• Court found UM carrier painted with too broad a brush claim Texas law required underlying case be tried to judgment for UM to become exposed • Court noted Brainard v. Trinity Universal Ins. Co. which says: • “Of course, insured not required to obtain judgment against tortfeasor . . . . insured may settle with tortfeasor, as Brainard did, then litigate UIM coverage with insurer” BAD FAITH – MOTION TO DISMISS - Scott v. Est. of Hershel
• This new case useful in that it helps negate common misperception • That Twombly and Iqbal make it virtually impossible to get past motion to dismiss • This case makes it clear Twombly and Iqbal do not do away with notice pleading DISCOVERY - Grubaugh v. CSAA Gen. Ins. Co.
• DISCOVERY • • COURT DESCRIBES “HOW NOT TO DO DISCOVERY” • Grubaugh v. CSAA Gen. Ins. Co., 2018 WL 445108 (N.D. Okla. Jan. 16, 2018) DISCOVERY - Grubaugh v. CSAA Gen. Ins. Co.
• UM case came before Magistrate Frank McCarthy on referral of discovery dispute from Judge John Dowdell • Rather than laying down rules of law, it stands as prime example of how not to perform in dealing with discovery issues DISCOVERY - Grubaugh v. CSAA Gen. Ins. Co.
• Court started out by noting Plaintiff’s lawyer had refused to return defense counsel’s requests for “meet and confer” requirements of local rule • Judge McCarthy notes “parties have filed pages of briefing that would not have been necessary if meet and confer had occurred” • Ouch! DISCOVERY - Grubaugh v. CSAA Gen. Ins. Co.
• Judge McCarthy observed Plaintiff’s lawyer interposed boilerplate objections to written discovery • Observed: “unacceptable to answer every discovery request with string of general unsupported objections” • Judge says when discovery responses provided “subject to” boilerplate objections or “without waiving objections” with no regard to applicability of objections • Unclear whether discovery response received complete response DISCOVERY - Grubaugh v. CSAA Gen. Ins. Co.
• Says such objections may violate F.R.C.P. 26(g) that every objection warranted by existing law or nonfrivolous legal argument • Not interposed for delay DISCOVERY - Grubaugh v. CSAA Gen. Ins. Co.
• I find practice of routinely objecting to each question then giving answer fairly common on part of defense lawyers, too • If you don’t want to end up subject of unflattering opinion, this might be good (and brief) opinion to read! DISCOVERY - Ward v. Liberty Ins. Corp.
• DISCOVERY • • OVERLY BROAD DESCRIPTIONS OF MATERIALS SOUGHT MAY RESULT IN DENIAL OF DISCOVERY • Ward v. Liberty Ins. Corp., 2018 WL 991546 (W.D. Okla. Feb. 20, 2018) DISCOVERY - Ward v. Liberty Ins. Corp.
• Suit on UM policy and associated bad faith • Plaintiff sought discovery from non-party • Service which contracted with Defendant insurance company to provide “Independent Medical Examination” services DISCOVERY - Ward v. Liberty Ins. Corp.
• One of bases for bad faith claim relying on biased doctors to conduct “IME’s” • Opinion deals with subpoenas requiring production of documents and other subpoenas requesting testimony from non-party service DISCOVERY - Ward v. Liberty Ins. Corp.
• Court uses terms “independent” medical exam and “IME” although examination sought apparently by physician selected by defendant • As opposed to truly independent doctor appointed by court DISCOVERY - Ward v. Liberty Ins. Corp.
• Court, Judge DeGiusti, Western District, quashed discovery • Held overly broad DISCOVERY - Ward v. Liberty Ins. Corp.
• Court noted subpoenas sought production of documents in 24 categories • Used blanket terms such as “all documents,” “all marketing materials,” “all documents regarding” DISCOVERY - Ward v. Liberty Ins. Corp.
• Court cites other cases in other courts in 10th Circuit • Holding such broad language in discovery requests require responding party to engage in “mental gymnastics” to determine what materials “may or may not be remotely responsive” • Maybe narrower categories of discovery more likely to result in enforceable discovery PROPERTY INSURANCE – BAD FAITH - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co.
• PROPERTY INSURANCE – BAD FAITH • • PREEXISTING DAMAGE, PRIOR INSURANCE SETTLEMENT WITH CONFIDENTIALITY AGREEMENT DID NOT PRECLUDE BAD FAITH CLAIM • Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co., 2018 WL 894875 (W.D. Okla. Feb. 14, 2018) PROPERTY INSURANCE – BAD FAITH - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co.
• Shadid owned 25 commercial properties in Oklahoma City • Claimed damaged in hailstorm May 31, 2013 PROPERTY INSURANCE – BAD FAITH - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co.
• Insurance company conducted extensive investigation • Required Shadid to produce voluminous records about prior losses, repairs and maintenance to properties PROPERTY INSURANCE – BAD FAITH - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co.
• Then denied claims • Claimed damage for which claims asserted incurred in earlier hailstorm in 2010 before policy effective • Or resulted from depreciation due to wear and tear PROPERTY INSURANCE – BAD FAITH - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co.
• Shadid sued on contract and for bad faith • Motion for summary judgment before court relates to whether disputed facts as to bad faith claim • Which preclude summary judgment for insurance company PROPERTY INSURANCE – BAD FAITH - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co.
• Insurance company claimed insured failed to cooperate in investigation because • Insured said precluded from telling insurance company amount paid in settlement of 2010 claims by another insurance company • Due to confidentiality agreement in conjunction with settlement PROPERTY INSURANCE – BAD FAITH - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co.
• Court, Judge DeGiusti, Western District found fact issues which must be decided by jury • Denied summary judgment PROPERTY INSURANCE – BAD FAITH - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co.
• With regard to insurance company’s persistent effort to obtain records of prior losses to property, Court notes: • “Defendant does not explain why Plaintiff obligated to provide information concerning condition of insured properties before policy period, presumably included in Defendant’s underwriting of policy or its initial assessment of insured risk” PROPERTY INSURANCE – BAD FAITH - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co.
• In addition to denying summary judgment on policy claim and bad faith claim • Court declined to enter summary judgment on insurance company’s request Court declare that, due to policy provision • Policy applies only to losses occurring during policy period, company not liable for losses occurring before policy written PROPERTY INSURANCE – BAD FAITH - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co.
• Similarly, Court declined to enter order declaring, because policy provided for replacement cost only after damage repaired • Insurance company liable only for actual cash value as to property sold in its damaged condition PROPERTY INSURANCE – BAD FAITH - Charles A. Shadid, L.L.C. v. Aspen Specialty Ins. Co.
• Court concludes such findings would be “advisory opinions,” beyond courts’ power • Good case to read if you resist at all costs having case removed to federal court • Hardly opinion showing some conservative bias on part of Court PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• PROPERTY INSURANCE BINDERS • • MOTION TO DISMISS NOT PROPER IN ESTATE’S SUIT ON ORAL CONTRACT TO INSURE • Claypole v. Geico Cas. Co., 2018 WL 1187964 (W.D. Okla. Mar. 6, 2018) PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• Mr. Johnson bought 5th wheel trailer • Damaged in collision same day he purchased it • Mr. Johnson died (not clear in opinion whether as result of collision) PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• Claypole, personal representative of estate, filed suit in Grant County District Court after GEICO declined to pay collision damage claim • GEICO removed case to federal court and moved to dismiss under FRCP 12(b)(6), for failure to state claim PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• Estate alleged in petition Mr. Johnson had other vehicles insured by GEICO • Alleged, on information and belief, Mr. Johnson orally acquired binder for coverage by telephone • GEICO refused to pay claim, saying trailer policy, attached to motion, covered some trailers but not “trailer with built-in sleeping facilities designed for recreational or camping use” PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• Federal district court, Judge David Russell, Western District, deals first with several issues concerning rules for determining motions to dismiss • Notes normally factual matters not included in petition or complaint cannot be considered without converting motion to dismiss to motion for summary judgment • Which triggers different set of rules PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• Says “district court may consider documents referred to in complaint if documents are central to plaintiff’s claim and parties do not dispute documents’ authenticity” • Court here may consider policy because referred to in petition but may not consider other material not described in petition PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• GEICO attached and relied on pleading filed in probate in effort to collect for trailer • Described trailer and attached catalogue which it claimed showed trailer was camper trailer with built-in sleeping facilities PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• Judge Russell says not material which can be considered on motion to dismiss • Court cannot take judicial notice of these documents PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• Because material before Court insufficient to enable Court to dismiss contract claim • Court likewise overruled motion to dismiss bad faith claim • Court makes sweeping ruling, without discussion or citation of authority PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• Court rejects argument estate cannot make bad faith claim because insurance contract was between decedent and insurance company • But says no recovery in bad faith for emotional distress or mental anguish • Court’s entire treatment of issue is: “The damages, however, may not include emotional distress and mental anguish as pled” PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• We don’t know whether factually, decedent in case survived collision long enough to suffer emotional distress and mental anguish • If he did, and Court means to say bad faith claim for emotional distress and mental anguish damages dies with insured, certainly should be more discussion than issue got PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• Oklahoma survival statute (12 O.S. §1051) provides: • In addition to causes of action which survive at common law, causes of action for mesne profits, or for injury to the person, or to real or personal estate, or for any deceit or fraud, shall also survive; and action may be brought, notwithstanding death of person entitled or liable to same PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• Statute certainly seems to raise question whether bad faith claim in which insured suffered emotional distress or mental anguish but dies before trial survives death of insured • Issue may rest on whether, for this purpose, claim arises in tort or contract PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• Columbian Nat. Life Ins. Co. v. Lemmons holds claim against life insurance company for negligent failure to promptly process life insurance application survived • Whether based in tort or contract • Because arose from contract PROPERTY INSURANCE BINDERS - Claypole v. Geico Cas. Co.
• More briefing and discussion required on this issue • If facts of case require it (which we don’t know) GENERAL LIABILITY INSURANCE – SURPLUS LINES CARRIERS - James River Ins. Co. v. Blue Ox Dance Hall, LLC
• GENERAL LIABILITY INSURANCE – SURPLUS LINES CARRIERS • • OKLAHOMA INSURANCE REGULATIONS EXEMPT SURPLUS LINES INSURANCE CARRIERS FROM “DEFENSE WITHIN LIMITS PROHIBITION” • James River Ins. Co. v. Blue Ox Dance Hall, LLC, 2017 WL 5195877 (N.D. Okla. Nov. 9, 2017) GENERAL LIABILITY INSURANCE – SURPLUS LINES CARRIERS - James River Ins. Co. v. Blue Ox Dance Hall, LLC
• An earlier partial summary judgment in case held claims of patrons injured by bouncers at Tulsa bar and dance hall within Assault and Battery (A&B) Endorsement to bar’s CGL policy • This opinion deals with whether policy provision which permits insurance company to deduct claims expenses and defense costs from limit of liability provided in A&B Endorsement valid GENERAL LIABILITY INSURANCE – SURPLUS LINES CARRIERS - James River Ins. Co. v. Blue Ox Dance Hall, LLC
• Such provisions, called “defense within limits clause” prohibited by Oklahoma Insurance Department regulation • Opinion holds because regulation addressed to “all Property and Casualty Insurers Licensed in State of Oklahoma” GENERAL LIABILITY INSURANCE – SURPLUS LINES CARRIERS - James River Ins. Co. v. Blue Ox Dance Hall, LLC
• Surplus Lines Insurance companies, such as James River Insurance Company not controlled by “defense within limits clause” • Can deduct their defense costs from the limit and avoid paying limits to injured claimants GENERAL LIABILITY INSURANCE – SURPLUS LINES CARRIERS - James River Ins. Co. v. Blue Ox Dance Hall, LLC
• Surplus Lines insurance companies not licensed to write business in Oklahoma • Permitted only to write coverage which is such poor risk no licensed company will write it GENERAL LIABILITY INSURANCE – SURPLUS LINES CARRIERS - James River Ins. Co. v. Blue Ox Dance Hall, LLC
• Insurance Commissioner issued “waiver” • Appears to say if surplus lines or non-admitted carriers not allowed to use “defense within limits” clauses • Poor risks they write would cause market unavailability GENERAL LIABILITY INSURANCE – SURPLUS LINES CARRIERS - James River Ins. Co. v. Blue Ox Dance Hall, LLC
• “Forcing consumers to obtain coverage from non-admitted insurers” • Companies benefitted by waiver those very non-admitted insurers GENERAL LIABILITY INSURANCE – SURPLUS LINES CARRIERS - James River Ins. Co. v. Blue Ox Dance Hall, LLC
• This makes no sense, at least not to anyone other than an insurance commissioner • Here, policy provided coverage of $1 million per person injured not to exceed $2 million for all persons injured during policy period GENERAL LIABILITY INSURANCE – SURPLUS LINES CARRIERS - James River Ins. Co. v. Blue Ox Dance Hall, LLC
• Assault and Battery Endorsement reduced coverage to $25,000 per person not to exceed $50,000 for all persons injured during policy period • This decision, permitting James River Insurance Company to pay defense costs out of coverage reduces coverage to zero FEDERAL COURT REMOVAL - Shiel v. Pac. Specialty Ins. Co.
• FEDERAL COURT REMOVAL • • THE 30 DAYS WITHIN WHICH A CASE AGAINST AN INSURANCE COMPANY MUST BE FILED BEGINS TO RUN WITH THE DATE THE INSURANCE COMPANY GETS THE SUIT PAPERS FROM THE INSURANCE COMMISSIONER’S OFFICE, NOT THE DATE OF SERVICE ON THE INSURANCE COMMISSIONER • Shiel v. Pac. Specialty Ins. Co., 2018 WL 830149 (W.D. Okla. Feb. 12, 2018) FEDERAL COURT REMOVAL - Shiel v. Pac. Specialty Ins. Co.
• Shiels sued Pacific Specialty Insurance Company in state court • Served Insurance Commissioner as required by 36 O.S. §621B • Insurance company removed suit to federal court FEDERAL COURT REMOVAL - Shiel v. Pac. Specialty Ins. Co.
• 28 USC §1446(b)(1) requires Petition for Removal must be filed “within 30 days after receipt by defendant” of summons • “Service of such process against foreign or alien insurer shall be made only by service of process upon Insurance Commissioner” FEDERAL COURT REMOVAL - Shiel v. Pac. Specialty Ins. Co.
• Shiels moved to remand • Because removal petition filed more than 30 days after service on Secretary of State • But less than 30 days after Secretary of State sent summons to insurance company FEDERAL COURT REMOVAL - Shiel v. Pac. Specialty Ins. Co.
• District Court, Judge DeGiusti, Western District, held removal proper • Overruled Motion to Remand FEDERAL COURT REMOVAL - Shiel v. Pac. Specialty Ins. Co.
• Judge DeGiusti noted 36 O.S. §622B provides: • “Process served upon Insurance Commissioner and copy thereof forwarded as provided shall constitute service upon insurer” FEDERAL COURT REMOVAL - Shiel v. Pac. Specialty Ins. Co.
• Because of statute, service not complete on insurance company • Until Insurance Commissioner forwarded service to insurance company • For this reason, removal timely GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• GENERAL LIABILITY – DUTY TO DEFEND • • ROOFER’S CGL POLICY CARRIED A DUTY TO DEFEND • Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co., 285 F. Supp. 3d 1224 (N.D. Okla. 2018) GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Above It All Roofing & Construction Co. (here, “roofer”) reroofing building • Workmen dropped large lead pipe GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Fell through ceiling of shop which building owner rented to tenant • Roofer removed pipe from shop GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Did not immediately cover hole • Dust and debris continued to fall down into shop GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Shop owner ultimately moved out of shop to smaller location • Suffered loss of business as result GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Shop owner also alleged emotional distress • From worry had been exposed to asbestos • Sued building owner and roofer GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Original petition alleged dust and debris contained asbestos • Perhaps because of insurance company’s contention asbestos claim precluded coverage • Shop owner filed amended petition omitting mention of asbestos GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Roofer sought defense and indemnification from Security National, which had CGL policy on roofer • Insurance company denied coverage • Refused to defend, based on several policy exclusions GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Roofer sued insurance company in state court for breach of contract and bad faith • Case removed to federal court GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Judge Greg Frizell, Northern District, suggested parties brief whether duty to defend separately from issue of coverage for indemnification • But not in form of motion for summary judgment • Opinion is result GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Insurance company argued no coverage due to policy exclusions for: • Pollution • Asbestos and • Punitive or exemplary damages GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Judge Frizell writes painstaking and thorough analysis of each exclusion • Concludes do not preclude coverage for defense • Despite concluding asbestos constitutes pollution and • Pollution excluded GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Concludes coverage for defense because damages from loss of use of property due to damage from pipe falling through ceiling GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Deferred decision on effect of argument belatedly raised by insurance company • Because not raised initially GENERAL LIABILITY – DUTY TO DEFEND - Above It All Roofing & Constr., Inc. v. Sec. Nat’l Ins. Co.
• Opinion contains very good analysis of various exclusions and • Efficient proximate cause doctrine under Oklahoma law