Can Seller of Defective Used Equipment be Strictly Liable in New York?

Mario Miquel Jaramillo was injured at work when his right hand was caught between two rollers on a 1964 Flexo Folder Gluer (“FFG”) which his employer, Glenwood Universal Packaging, purchased as used equipment from Weyerhaeuser Company in 1986. The evidence demonstrated that Weyerhaeusar sold an average of 3 used FFG’s per year, owned patents related to technology used in FFG’s, and had a working relationship with FFG manufacturers.

Jaramillo filed a complaint in New York state court against Weyerhaeuser alleging strict product liability. The case was removed to federal district court (S.D.N.Y.) and Weyerhaeusar was granted summary judgment as a casual seller of FFG’s under New York law and, therefore, could not be held strictly liable.

Casual sellers and regular sellers are distinguished in New York case law in strict product liability actions. The casual seller is only liable if it fails to warn the consumer of known defects that are not obvious or easily recognizable. The appellate court also noted that whether strict liability applies to sales of used goods, as in the present matter, is an open question under New York law.

After an examination of similar case law, the Second Circuit determined that it was necessary to have a resolution of the question of whether a seller of used industrial equipment can be deemed a “regular” seller in order to consider the propriety of summary judgment. To answer that question, it was certified to the New York Court of Appeals. The Second Circuit retained jurisdiction pending the outcome of the certification.

New Case Law Defining "Midwifery"

The Commonwealth Court in Goslin v. State Board of Medicine has ruled that practicing midwifery is not practicing surgery or medicine and that certified midwives and licensed nurse-midwives are not one and the same. As a result of the ruling, lay midwives are not subject to regulation by the State Board of Medicine.

Read the entire decision by the Court here.

Why are confidentiality clauses in personal injury settlements dangerous?

Settlement agreements and releases in personal injury cases are increasingly containing confidentiality provisions that may potentially result in adverse tax consequences to the unwary.

The little known tax court decision of Amos v. Commissioner, T.C. Memo 2003-329 (December 1, 2003), is a cautionary tale for Plaintiff's counsel. The relevant facts of the Amos case are condensed as follows:

-    Professional athlete, Dennis Rodman, kicked a photographer in the groin upon  falling out of bounds during an NBA game.

-    The photographer commenced a lawsuit, which eventually settled for the sum of $200,000.00.

-    A settlement agreement was executed between the parties which contained a confidentiality clause.

-    The photographer treated the entire amount of the settlement as compensation for a personal physical injury under IRC Sec. 104(a)(2) and excluded same as income.

-    Possibly as a result of the publicity of the incident, the photographer's income tax return was audited.  The IRS sought to treat the entire sum of $200,000.00 as taxable compensation, reasoning that the settlement amount was motivated by a desire for confidentiality, as opposed to compensation for a personal physical injury.

The Tax Court analyzed the facts as follows:

-    A taxpayer has the burden of proving that damages are on account of personal physical injuries or sickness, under IRC Sec. 104(a)(2), citing Commissioner v Schleir, 515 U.S. 323, 328 (1995), and United States v. Burke, 504 U.S. 229, 248 (1992).

-    "The nature of the claim forming the basis for the settlement controls whether such damages are excludable under IRC Sec. 104 (a)(2)." Burke, supra, 504 U.S. at 237 [emphasis added].

-    "The intent of the payor is critical" and "the character of the settlement payment hinges ultimately on the dominant reason of the payor in making the payment." Knuckles v. Commissioner, 349 F.2d 610, 613 (10^th Cir. 1995).

The Court's decision was to treat 60% of the damages as compensation for the photographer's physical injuries and 40% as payment for confidentiality.  Thus, 40% of the damages were taxable. The impact of the ruling was an acknowledgment that despite the dominant reason Mr. Rodman paid the photographer was to compensate him for his physical injuries, the court still held that a portion of the award represented taxable damages. The holding in Amos provides justification for the IRS to treat all personal injury damage awards as part taxable and part non-taxable if the settlement agreement contains a confidentiality provision.

Therefore, counsel must be cautious during settlement negotiations and insist on striking such confidentiality provisions from personal injury settlements that fall within the purview of IRC Sec. 104(a)(2). If confidentiality is non-negotiable, any such clause should be drafted so as to contain express language that confidentiality is mutually beneficial to both parties and that no consideration is being paid or intended for that purpose.

Also be sure to strike the phase "in settlement of a doubtful and dubious claim" which is frequently inserted into settlement agreements. In the worst case scenario, the settlement agreement and/or release needs to be clear as to the percentage of the total settlement that is being allocated to confidentiality and the percentage allocated as compensation for personal physical injury. It could thus be argued that additional consideration must be paid to offset any such potential tax implications for such apportionment.

Here is a .pdf of the Amos case if you want to review the specific language of the tax court.

Pennsylvania Supreme Court Holds That UIM "Other Insurance" Clause Is Void

New case law on signing releases in complex cases

On July 7, in Ford Motor Company v. Buseman, the Superior Court reversed a trial court order denying a Motion for Summary Judgment in a products liability case resulting from a tragic car accident in which a Ford Explorer rolled over.

A federal lawsuit was filed against the driver and settled with two insurance companies for general releases. A separate state action was filed against Ford Motor for defective design. After the federal lawsuit was settled, Ford filed a Motion for Summary Judgment arguing that the execution of broad releases in the federal lawsuit that released "all other firms, person," etc. released the parties to the state suit.

The Superior Court holds that (at most) this is a unilateral mistake and the releases (without any limitations or indications that the state lawsuit parties were not released) were broad enough to effectively release the product defendants. The trial court was reversed.

See the Court's full opinion here.

New Federal case law on what is required in rejecting UIM insurance coverage

New case law on obtaining UIM from your employer for a work related auto accident.

New case law on uninsurance when colliding with dirt bike

In the case of Burdick v. Erie Insurance Group, the Superior Court held that an insurance policy that excludes uninsured benefits when the insured collides with off road vehicles, is against public policy and violates the Motor Vehicle Financial Responsibility Law.

In this case, the plaintiff, while driving his regular vehicle, was hit by a dirt bike on a public road.  The defendant dirt bike driver was uninsured.  The plaintiff's insurance company denied uninsurance benefits under the plaintiff's vehicle's policy.  The Court held this denial was illegal.

New Case Law on stacking of uninsurance and underinsurance by Pennsylvania employees

Pennsylvania Supreme Court says high-cost loans violated Pa. banking laws

From CentreDaily.com:

The Pennsylvania Supreme Court ruled Thursday that payday loans that cost borrowers a $150 monthly fee plus 6 percent interest violate state consumer law.

The high court upheld a Commonwealth Court ruling last year that fees charged by Advance America Cash Advance Centers exceeded limits of the state's Consumer Discount Company Act.

The state Banking Department sued Advance America over its "monthly participation fee" for their $500 lines of credit, calling them illegal and usurious.

Advance America spokesman Jamie Fulmer said Thursday he was not familiar with the decision and could not comment. The Spartanburg, S.C.-based company announced in December it was shutting down its Pennsylvania operations because of the Commonwealth Court decision.

"When you're not in a position to generate any revenue, you can't cover your cost," he said. All of the company's Pennsylvania stores have been closed, he said.

Advance America calls itself the nation's leading payday advance company, with more than 2,800 centers.