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Lawsuit Precluded by Federal Law

A U.S. District Court judge left a trickle of maneuverability to a group of states seeking to compel the U.S. Army Corps of Engineers to create a physical barrier to prevent Asian carp from entering waterways connected to Lake Michigan.

"Though mindful of, and alarmed by, the potentially devastating ecological, environmental, and economic consequences that may result from the establishment of an Asian carp population in the Great Lakes, the Court is nevertheless constrained to answer the question in the negative," Tharp ruled.

Prior actions of Congress "preclude the Corps from taking the actions that plaintiffs believe necessary to prevent the Asian carp from reaching Lake Michigan," he wrote.

He did allow the plaintiffs to re-plead their claims if they can show a "viable nuisance claim" that is not precluded by federal law.

In addition to the Corps, the Metropolitan Water Reclamation District of Greater Chicago was a defendant in the case. Joining in the suit as intervenors/defendants were the city of Chicago, Coalition to Save Our Waterways and Wendella Sightseeing Co. Inc.

Scorecard: Five states and two Indian tribes lose their case against the U.S. Army Corps of Engineers and co-defendants, which tried to force action to prevent environmental harm from Asian carp.

Takeaway: You can't compel the federal government to act, when its own laws forbid it to do so.

Workers' Comp Fraud Leads to Prison

A building contractor in California was sentenced to seven years in prison for failing to pay workers' comp insurance on as many as 400 employees at two companies.

Steven Morales -- who with his son Brian operated Shelby Development and Shelby Framing in Murrieta, Calif. -- was convicted of three counts of workers' comp fraud and one count each of tax evasion and perjury, according to news reports.

The pair intentionally failed to report accurate payroll information or workplace injuries to the state.

Brian pleaded guilty to charges resulting from the three-year scheme in 2010 and was sentenced to four years in prison.

Nearly $3.2 million was not paid to the State Compensation Insurance Fund, California Economic Development Department, Granite State Insurance and the California Contractors' Network, according to news reports.

Scorecard: Contractor sentenced to seven years in prison.

Takeaway: States, in budgetary crises, are launching investigations for violations of various regulations.

Retiree Ineligible for Workers' Comp

A social services inspector for Mahoning County, Ohio, was ruled ineligible for workers' comp by the Ohio Supreme Court because she had already retired.

Patricia Rouan was injured at work in May 2004 and received temporary total disability compensation benefits for her knee and leg conditions for about a year. Benefits ended in June 2005.

While still receiving benefits, Rouan applied for and was approved for disability retirement for a permanently disabling "major depressive disorder" -- a condition the state Industrial Commission had specifically denied as part of her workers' comp claim.

After Rouan left the workforce, she requested temporary total disability compensation after successfully requesting additional allowance for two arthritic knee conditions. The Industrial Commission rejected her request, finding she had "voluntarily abandoned the work force when she took disability retirement for a condition that was unrelated to her workplace injury."

In October, the Ohio Supreme Court agreed with that decision.

Scorecard: Retiree will not receive workers' comp payments.

Takeaway: Retirement bars temporary total disability compensation if the worker did not remain in the workforce after retiring and the retirement was not precipitated by the injury.

Court: No Duty to Defend

The 5th U.S. Circuit Court of Appeals ruled in favor of Liberty Mutual Insurance Co., which had refused to defend or indemnify an insured involved in a well-drilling that took place in the wrong location.

PPI Technology Services had been retained by third parties to plan well-drilling operations, according to the appeals court ruling issued late last year.

After the well was drilled in the wrong area, PPI was sued for negligence, according to court documents.

One of the third parties involved in the drilling sought more than $4.2 million for drilling the well in the wrong spot, while another sought about $738,000 in delay rentals to maintain the lease where the well was ultimately drilled.

PPI requested defense and indemnification from Liberty Mutual, which had issued it a commercial general liability policy. When Liberty Mutual refused, PPI filed suit for breach of contract, breach of the duty of good faith and fair dealing and violation of the Texas Prompt Payment Statute.

Upon motion by Liberty Mutual, the lawsuit was dismissed by the U.S. District Court for the Southern District of Texas. The 5th Circuit upheld that decision.

At issue was whether "property damage" from an "occurrence" was part of the underlying litigation, which was required by PPI's insurance policy with Liberty Mutual.

The court ruled that Liberty Mutual had no duty to defend because "the allegations in the underlying lawsuits are either purely economic, and thus not covered, or are purely legal conclusions, rather than factual allegations as required."

Because it ruled there was no "property damage," it never considered the question of whether an "occurrence" was part of the litigation. The duty-to-indemnify issue was not part of the final decision because an arbitration panel ruled PPI had no liability in the case.

Takeaway: A policy guaranteeing insurance for property damage won't cover litigation costs for negligence when actual property damage is not involved.

Scorecard: Liberty Mutual did not need to pay nearly $5 million after an insured drilled a well in the wrong location.

DOJ and SEC Offer Roadmap on Foreign Corrupt Practices

New guidance on the Foreign Corrupt Practices Act offers some insights for organizations, but doesn't make any radical changes from past provisions, according to several attorneys.

The FCPA, of course, is designed to prevent bribes or other items of value being provided to foreign officials as a way to obtain an improper business advantage.

The guide, which was issued late last year by the Department of Justice and Securities and Exchange Commission, "comes in the wake of widespread criticism of the government's aggressive enforcement campaign which has prompted highly publicized settlements totaling billions of dollars in corporate fines and an upswing in criminal cases against corporate executives and other individuals," according to an article by Spencer C. Barasch and Sara J. Chesnut of Andrews Kurth.

After a number of successful FCPA prosecutions, the government has recently seen a series of setbacks, according to an article by Alberto R. Gonzales, Richard W. Westling and William C. Athanas of Waller Landsden.

"Convictions have been vacated, indictments have been dismissed with prejudice, and orders belittling the government's case and finding that prosecutors engaged in misconduct have been entered," they write, noting that a massive sting operation against 22 individuals "produced not a single conviction."

The guide addresses a variety of topics in some detail, recites legal opinions and offers "hypotheticals and case studies explaining the government's rationale for pursuing or not pursuing enforcement actions," according to Andrews Kurth.

Among the guidance offered: Small gifts or modest entertainment are permissible; lavish hospitality and extravagant gifts are not, they write. Payments to facilitate or expedite action are permitted; payments in expectation of influencing decisions are not.

Takeaway: Make sure to train employees on FCPA compliance because prosecutions by the federal government have skyrocketed in the past several years.

Scorecard: In just one year, the Justice Department collected more than $1.4 billion from three companies for FCPA violations.

February 19, 2013

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