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November 2019

Another Federal District Court Strikes

a Massive Blow to ADA Claim Abuse

 

By: Gregory A. Hearing

GrayRobinson, P.A.

 

           

            On August 23, 2019, United States District Judge Paul C. Huck threw down the gauntlet on serial Americans with Disabilities Act (“ADA”) plaintiffs and their attorneys who litigate within the Southern District of Florida with his blistering sanctions order directed at serial ADA plaintiff Alexander Johnson and Mr. Johnson’s attorney, Scott R. Dinin.  Johnson v. Ocaris Management Group Inc d/b/a U-Gas East Flagler, No. 18-CV-24586 (S.D. Fla. Aug. 23, 2019).  In his show of force against abusive ADA claimants and their attorneys, Judge Huck ensured through his order that Mr. Johnson and Mr. Dinin would be unable to perpetrate future bad faith ADA claims and that both attorney and client were held accountable for their egregious behavior.

            Referring to Mr. Johnson’s serial ADA complaints as an “illicit joint enterprise,” Judge Huck’s order describes an elaborate scheme to “deliberately and knowingly [abuse] the ADA and the legal system solely for [Mr. Johnson’s and Mr. Dinin’s] financial gain … [which] undermined the credibility of legitimate ADA cases.”  Id. at 6.  To perpetrate their illicit joint enterprise, Mr. Johnson, who is deaf, scouted gas stations in Miami-Dade and Broward counties for televisions built into the gas pumps. Id. at 2-3.  Upon locating a business where gas pump televisions actively operated without closed captioning, Mr. Johnson and his attorney would then file a Title III ADA claim against the business alleging Mr. Johnson’s inability to enjoy the benefit of the televisions in the absence of closed captioning.  Id.  The duo would then promptly seek settlement with the business owner(s).  Id.

Without pre-file notice requirements, similar minor violations of the ADA relating to physical access barriers and audio/visual accommodations have proven to be a headache for public and private entities covered by Title II or Title III of the ADA.  Moreover, these violations can lead to costly litigation resulting in financial annoyance for larger entities while threatening bankruptcy for smaller entities.  Fully aware of the animus and fear such lawsuits are capable of instilling in a defendant, emotions which may precipitate a defendant’s willingness to settle quickly for a four figure amount, some plaintiffs partner with attorneys who are prepared to risk their careers to take advantage of entities covered by Title II or III of the ADA and the ADA’s attorney’s fees provisions in hopes of easy payouts.

            But, as evidenced in Judge Huck’s order, those attorneys willing to venture into the depths of serial ADA lawsuits imperil both themselves and their clients.  Although Judge Huck discovered many problematic facts regarding the illicit joint enterprise, some of the more notable facts were that Mr. Dinin purposefully inflated his billable hours, Mr. Johnson and Mr. Dinin “acknowledged their ethical transgressions at the show cause hearing,” and Mr. Dinin misrepresented his legal experience and the extent of his firm’s support staff.  Johnson, No. 18-CV-24586 (S.D. Fla. Aug. 23, 2019).  Additionally, Mr. Johnson and Mr. Dinin avoided sabotaging their illicit joint enterprise by deliberately avoiding the simple remedy of turning off the gas pump televisions in an effort to prevent other gas stations from catching on and turning off their own gas pump audio visual displays to avoid serial ADA litigation.  Id.  Lastly, and in direct conflict with the Rules Regulating The Florida Bar, Mr. Dinin shared his attorney’s fees with Mr. Johnson.  Id.

            Faced with the foregoing facts, the requirements of Canon 3(B)(6) of the Code of Conduct for United States Judges and pursuant to Federal Rule of Civil Procedure 11, the court’s inherent powers and Local Rule 11.1, Judge Huck imposed severe sanctions against Mr. Johnson and Mr. Dinin including the following:  1) the disgorgement of all fees and costs recovered from each of their gas pump lawsuits and a full accounting of same showing the fees and costs were returned to all of the defendants; 2) Mr. Johnson and Mr. Dinin were required to each pay a $59,900 penalty to the court designated charity for individuals with disabilities; 3) they are prohibited from collecting outstanding settlement amounts from their other gas pump cases; 4) they were enjoined from filing any ADA complaints in any court without the court’s permission; 5) Judge Huck referred Mr. Dinin to the Southern District of Florida Ad Hoc Committee on Attorney Admissions, Peer Review and Attorney Grievance for the committee’s investigation into Mr. Dinin’s actions in his ADA cases; 6) Judge Huck referred Mr. Dinin to The Florida Bar for investigation into his behavior and ADA cases; and 7) Mr. Dinin was required to file Judge Huck’s sanctioning order in every ADA lawsuit he has filed within two years of the order.  Johnson, at 17-21.  Because Mr. Johnson represented to the court that he was without the financial means to pay the disgorgement and penalty, the court provided him with the alternative of performing 400 community service hours for the court designated charity for individuals with disabilities.  Id. at 19-20.

            Regardless of whether Mr. Johnson chose to pay the monetary sanctions or perform the 400 community services hours, Judge Huck’s sanctions against the serial ADA plaintiff send the unmistakable message to other plaintiffs and potential plaintiffs that for-profit ADA claims will not be tolerated.  More importantly, Judge Huck’s order and its repercussions in Mr. Dinin’s other ADA lawsuits should alarm any serial ADA plaintiff represented by Mr. Dinin in the past or present, which appears to be Judge Huck’s intention based on the severity of the order.  As for Mr. Dinin, facing ethics investigations at both the federal and state level, it would be surprising, based on the facts and Judge Huck’s order, if Mr. Dinin did not face significant professional repercussions.

            Although many defense attorneys and corporate counsel have suspected the foregoing behavior in one case or another, part of the frustration shared by defense counsel, defendants, and even the courts in these cases is that, unless the defendant can show or the court discovers bad faith on the part of the plaintiff and/or plaintiff’s attorney, the court’s only remedy for the defendant is a dismissal with prejudice and, in certain situations, an order preventing the plaintiff from filing similar ADA lawsuits within the court’s jurisdiction.  While courts may become annoyed by serial filers, the courts tend to tread carefully on the fine line of protecting an individual’s right to bring forth a non-frivolous/good faith ADA lawsuit and a defendant’s right to avoid ADA extortion.

For instance, on August 22, 2019, the day prior to Judge Huck’s sanctioning order, U.S. District Judge T. Kent Wetherell, II entered an order granting a defendant’s motion to dismiss in a separate serial ADA plaintiff’s lawsuit in the Northern District of Florida.  Gil v. City of Pensacola, Fla., No. 3:19-CV-00392, (N.D. Fla. Aug. 22, 2019).  Juan Carlos Gil, the plaintiff in that lawsuit, was a blind man living in Miami who, as an “ADA tester,” accessed the websites of various municipalities and counties located within Florida searching for any violations.  Id.  Mr. Gil, through his attorney, then filed numerous lawsuits alleging that he was considering moving and that the websites, including the City of Pensacola’s website, were not ADA compliant as they were incompatible with Mr. Gil’s screen reader.  Id.  Not surprisingly, Mr. Gil’s attorney was none other than Scott Dinin, the attorney subject to Judge Huck’s blistering sanctions order in Johnson.

            In contrast to Judge Huck’s scathing order, Judge Wetherell unyieldingly dismissed Mr. Gil’s lawsuit with prejudice finding that Mr. Gil failed to allege an injury in fact or a real and immediate threat of future injury.  Id.  Although Judge Wetherell did not address the issue of whether Mr. Gil had engaged in a bad faith scheme to profit from ADA litigation, in light of Judge Huck’s sanctioning order and the investigations into Mr. Dinin’s ADA lawsuits which will result from same, Mr. Gil should be very concerned regarding Mr. Dinin’s willingness to admit to his illicit joint enterprise at the show cause hearing in Johnson.

            While some serial plaintiffs and their attorneys will continue to “play the game” until a court permanently shuts down their operation and they suffer serious consequences, others may take note of courts’ actions, such as Judge Huck’s, and decide to cease filing serial ADA lawsuits while their finances and career remain intact.  As for defense and corporate counsel, it is important to identify the serial ADA plaintiffs and their attorneys in your jurisdiction and know when your client is targeted by same.  Once engaged, defense and corporate counsel should remain vigilant to find any evidence of bad faith and monitor the plaintiffs and the plaintiffs’ attorneys other cases.  Even if a client decides to settle with a serial ADA plaintiff, as evidenced by Judge Huck’s order as well as other similar instances throughout the U.S., the client may be entitled to relief via disgorgement at a later date because, unlike other types of cases, a serial ADA case is not over as long as a serial ADA plaintiff and the plaintiff’s attorney continue to “play the game.”  As the old adage goes, if you play with fire you will eventually get burned.

 

June 2019

 

Employee Medical Marijuana Use:  Discipline or Accommodate?

 

By:  Gregory A. Hearing and Matthew A. Bowles

gregory.hearing@gray-robinson.com; matthew.bowles@gray-robinson.com

GrayRobinson, P.A.

 

 

          With 33 states legalizing medical marijuana use, employers may be left dazed and confused as to how medical marijuana will impact their rights and their employees’ rights.  Employers should understand whether employee medical marijuana use gives rise to the right to discipline employees for such use or whether employers must accommodate an employee’s use of medical marijuana due to a disability and/or serious health condition.  This inquiry is further complicated by the fact that state and local medical marijuana and disability/leave laws vary substantially.

Under the Controlled Substances Act (“CSA”), marijuana is classified as a Schedule I substance.  Therefore, use of medical marijuana remains illegal under federal law and does not have to be accommodated under the Americans with Disabilities Act (“ADA”).  While an employer need not accommodate medical marijuana use under federal law, an employee’s medical marijuana use may implicate state and local accommodation/leave laws.

There are three types of medical marijuana and/or accommodation statutes.  Those which affirmatively provide that an employer has no duty to accommodate the consumption of medical marijuana, such as in Florida, Oregon and Montana, where employers may freely enforce their drug-free workplace policies and discipline employees who violate same; states whose laws are silent on accommodating medical marijuana use, such as California, New Mexico and Massachusetts; and, those states which expressly require accommodation of an employee’s medical marijuana use, such as in New York, Maine and Connecticut.

Since the CSA classifies medical marijuana as an illegal substance at the federal level, the CSA should preempt any state and/or local laws to the contrary.  However, both state and federal courts have upheld state medical marijuana accommodation/anti-discrimination laws.  For example, in Noffsinger v. SSC Niantic Operating Co. LLC, 273 F. Supp. 3d 326 (D. Conn. 2017), the court found that the CSA does not preempt Connecticut’s Palliative Use of Marijuana Act which prohibits employers from discriminating based on an employee’s medical marijuana use.

Based on the foregoing, it is imperative that defense and corporate counsel not only ensure that their clients are aware of the type of medical marijuana accommodation laws which apply in their state, but also know whether such laws allow their clients to discipline medical marijuana users or require them to accommodate an employee based on the consumption of state legalized medical marijuana.

 

March 2019

By Russell S. Buhite

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.,

Seattle, Washington

 

 

Do You Have an ERISA Short-Term Disability Plan or a Payroll Practice?

 

 

Does the employer you represent know whether their short-term disability (“STD”) plan would be governed by ERISA or would be exempt as a “payroll practice?” 

Many employers offer their employees STD, paid time off (“PTO”), sick pay, vacation pay, or similar benefits, but you may be surprised as to how often they do not know whether these types of benefit would be considered an ERISA plan subject to notice, IRS reporting, and plan document requirements when what they really intended was a “payroll practice” that provides “normal compensation” at a lower rate to their employees while on short-term disability.  To comply with ERISA, employer sponsors must provide employees a summary plan description (SPD), file a Form 5500, provide an informational return and SPD to the IRS, and establish a claim procedure. Employers need to have a clear understanding as to what type of plan they intended to create and ensure that they comply with applicable law. The consequences of making an error in how such benefits are funded, administered, and perhaps litigated, could be costly.  This paper will focus on issues arising in STD claims where applicable law may be in dispute.

In practice, STD claim litigants often miss the distinctions between an ERISA plan and an exempt payroll practice by making assumptions that are not borne out by the facts and ending up applying the wrong law, in the wrong court, using incorrect evidentiary procedures, and arguing the wrong potential remedies. What is the difference if ERISA applies to an STD dispute?  There is no right to a jury trial in ERISA cases, disputes can be litigated in federal court, relief is generally limited to the benefits available as of the date of trial, and claims administrators often enjoy deferential review of their decisions.  By contrast, when the benefit is considered a “payroll practice,” there is no ERISA preemption and the case can be litigated in state court under state law and to a jury.   

            Generally speaking, a welfare benefit plan is governed by ERISA if it has been “established or maintained by an employer…for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance …or otherwise, medical... or disability [benefits].” ERISA §3(1).  In Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982), the court stated that an ERISA plan is established if “from the surrounding circumstances, a reasonable person could ascertain the intended benefits, class of beneficiaries, source of financing, and the procedures for receiving benefits.  Id. at 1372.  No formal written plan is required and very little employer involvement is needed. Id.  But what distinguishes an ERISA STD plan from an employer’s “payroll practice” that is not covered by ERISA?

            The Department of Labor exempts from ERISA certain “payroll practices” including “payment of employees’ normal compensation, out of the employer’s general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties or is otherwise absent for medical reasons.”  29 C.F.R. §2510.3-1(b)(2). This is the simple definition, but how is it applied in practice?

            Even in cases where an employer holds the short-term disability benefit out to its employees as an ERISA plan and treated it as such by filing a Form 5500 with the Department of Labor, courts have held that it can instead fall within the “payroll practice” exemption.  See Stern v. IBM Corp., 326 F.3d 1367, 1373 (11th Cir. 2003); Langley v. DaimlerChrysler Corp., 502 F.3d 475, 479-80 (6th Cir. 2006)(payroll practice exemption applied even where employer characterized STD plan as an ERISA plan, provided an SPD, and filed a Form 5500).  Mere labelling of the plan as ERISA-governed is not enough to make it so.  In Foster v. Sedgwick Claims Mgmt. Svcs., 842 F.3d 721 (D.C. Cir. 2016), the employer argued that it had created an ERISA STD plan where the relationship between Sun Trust and the claim administrator Sedgwick established an ongoing administrative scheme for the benefits that subjected the plan to ERISA. The court disagreed and held that the arrangement fell squarely within the exemption because benefits were paid from Sun Trust Bank’s general assets and the plan was “entirely separate” from its ERISA-covered employee benefit plan.  Id., citing 29 C.F.R. §2510.3-1(b)(2).  Id. at 729.

            By contrast, in Clay v. AT&T Comm., Inc., 2012 WL 5868767 (E.D. Cal.  2012), the court found an STD plan subject to ERISA where, although the benefits were tied to the employee’s regular pay, paid through the same payroll system, considered taxable income, and ended on termination of employment, benefits were not paid directly out of the employer’s general assets. Id. at *10.  In Clay, although the employer advanced payment of the STD benefit for administrative convenience, the payment procedure was that of a funded benefit program.  The employer was reimbursed by an irrevocable trust no later than a month after the payment, trust assets were used exclusively for providing benefits (using an independent trustee exercising fiduciary duties while managing trust assets), and the employer filed required forms and plan documents. Claims were also administered, approved, or denied by an entity independent from the employer. While the STD benefits were initially paid out of the employer’s general assets, the true source of benefit payments was the trust.  Accordingly, the court found that the payroll exemption did not apply and ERISA preempted benefit claims.  Id.

            While not always clear in practice, the rule of thumb follows the regulation, i.e. the payroll practice exemption to ERISA applies where the employer pays full or partial payment of the employees’ normal compensation, out of the employer’s general assets, to currently employed individuals (rather than former employees), without pre-funding, and without employee contributions, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties or is otherwise absent for medical reasons. 

An employer can use an insurer or other party as a third-party administrator and still have an exempt plan if it pays benefits out of general assets. But if an employer instead uses, at least partly, an insurance company to fund an insured STD plan rather than general assets, ERISA governs.  If in doubt about which type of plan one has, an employer can ask the Department of Labor for an advisory opinion on the status of their STD arrangement.  At a minimum, employers who have any concern as to whether their plan is operating as designed, it should contact a benefits attorney to review and advise. 

 

July 2018

 

In the recent decision, Sveen v. Melin (No. 16-1432, filed June 11, 2018), the United States Supreme Court held that a Minnesota statute automatically revoking a policyholder’s ex-spouse as beneficiary of a life insurance policy following divorce did not violate the Contracts Clause of the United States Constitution. (U.S. Const. Art I § 10, cl. 1.)  The Court recognized that the Contracts Clause only prohibits states from enacting laws which substantially impair contracts. A statute substantially impairs a contract only when it undermines the parties’ intent, interferes with party’s expectations, or prevents a party from safeguarding its rights. The Minnesota statute did none of these things.  Individuals are motivated to buy life insurance to protect their families, not enrich their ex-spouses. Courts generally have broad authority to divide property upon divorce, so the statute could not be construed as interfering with the policyholder’s expectations. Finally, the Court noted that revocation of a beneficiary upon divorce did not prevent the parties from safeguarding contractual rights because a policyholder need only re-designate an ex-spouse as beneficiary following a divorce.

 


 

December 2017

Submitted by: Thayla P. Bohn

 

Noteworthy Case

In the case of Marin v. Dave & Buster’s, Inc., S.D.N.Y., No. 1:15-cv-03608, a New York federal district court judge rejected a proposed settlement between the restaurant chain and the worker who alleged that Dave & Buster’s illegally reduced employees’ hours to keep them from receiving healthcare benefits.  This case is noteworthy as a first of its kind under the Employee Retirement Income Security Act under a theory that the employer intentionally interfered with workers’ benefits by cutting hours to avoid the mandate under the Affordable Care Act. The Court denied the settlement, in part, on the grounds that the plaintiff failed to provide damages calculations or other evidence to show the proposed settlement was fair and reasonable.  Last year, the court declined to dismiss the suit, finding sufficient evidence that the company acted with an “unlawful purpose” when it reduced the work hours of employees, making them ineligible for the company’s health benefits plan.

 

 


 

 

AUGUST 2017


In Williby v. Aetna Life Ins. Co., 2017 BL 284683, 9th Cir., No. 15-56394, 8/15/17, a federal appeals court ruled a California law making it harder for benefit plans to insulate themselves from judicial scrutiny through a discretionary clause applies differently depending on whether the plan is fully insured or self-funded by the employer.

The U.S. Court of Appeals for the Ninth Circuit ruled on Aug. 15 that California's ban on discretionary clauses in employee benefit plans doesn't apply to plans that are self-funded by the employer because the law is preempted by the Employee Retirement Income Security Act (“ERISA”). This decision appears to distinguish a decision issued in May, Orzechowski v. The Boeing Company Non-Union Long-Term Disability Plan, 9th Cir., No. 14-55919, 5/11/17, which held the California insurance law was not preempted by ERISA.

According to the Ninth Circuit, the different outcomes are because the benefit plans at issue in the two cases—both sponsored by Boeing Co. and administered by Aetna Life Insurance Co.—have different sources of funding. Boeing's long-term disability plan is fully insured by Aetna and thus subject to the California law making it easier for participants to challenge benefit denials in court. Boeing's short-term disability plan is funded by Boeing's general assets, which means the California law doesn't apply to it because of ERISA preemption, the court said.

 

 

MAY 2017

 

Tenth Circuit LHD Review, January to May, 2017:  A View from the Trial Courts

Matthew Y. Biscan

Satriana & Biscan, LLC

Denver, Colorado

www.sbattys.com

 

A thorough investigation of the plaintiff’s disability claim, which included medical evaluations, third party evaluation, and surveillance, was approved in Stone v. Unum Life Ins. Co. of Am., 2017 U.S. Dist. LEXIS 1419, Case No. 15-CV-0630-CVE-PJC (N.D. Ok. January 5, 2017).  Among other facts, Plaintiff earned both a bachelor of science and a master of science degree after the onset of her disability.  The court rejected plaintiff’s argument that the investigation by the carrier was “too aggressive.”  Rather the court termed the investigation, which included examinations, record review, a background investigation, and surveillance, as thorough and anything but “too aggressive.”  The denial of disability benefits was affirmed as “well within the ‘continuum of reasonableness.’”  The court refused to apply the Texas ban on discretionary clauses (see Tex. Admin. Code §3.1203) retroactively and applied the standard of review called for under ERISA.

Applying Utah law to a governmental disability plan not governed by ERISA, the court in Williams v. Hartford Life & Accident Ins. Co., 2017 U.S. Dist. LEXIS 18144; 2017 WL 519215, Case No. 2:14-CV-304-DN (D. Utah February 8, 2017) determined that the carrier breached its contract in terminating benefits.  In a trial to the court on briefs, the finder of fact concluded that a determination that the plaintiff was not disabled based on record reviews (without the benefit of examination by defense witnesses) and surveillance failed to outweigh the testimony of treating physicians. 

The decision to terminate disability benefits was determined not to be arbitrary and capricious in Johnson v. Life Ins. Co. of N. Am., 2017 U.S. Dist. LEXIS 45643, Case No. 15-cv-0699-WJM-MEH (D. Colo. March 28, 2017).  A case construing both short term and “regular occupation” long term claims, the court did not consider that the carrier’s determination contrary to the conclusion of the Social Security Administration was improper, rejecting plaintiff’s argument that the carrier “failed to reconcile” its determination with the granting of benefits by SSA.  It expressly recognized the right of an ERISA plan to make a determination based on conflicting evidence.  Again the evidence in support of denial of benefits included medical examination and surveillance.  Here the court considered plaintiff’s argument that the Colorado ban on discretionary clauses (C.R.S. §10-3-1116(2)) should be applied.  After an evaluation of Colorado law and particular reference to the precise language of the statute, the court reluctantly refused to apply the ban retroactively, even in the face of renewals of the plan subsequent to the ban’s enactment.  The court also refused to grant plaintiff a remedy for the plan’s failure to timely respond to requests for documents, exercising its discretion where no prejudice was found.

In a review of a decision to terminate residential mental health treatment for a minor, the court granted the carrier’s motion for summary judgment in John B. v. Conn. Gen. Life Ins. Co., 2017 U.S. Dist. LEXIS 51331, Case No. 1:16-CV-00041-BSJ (D. Utah April 3, 2017).  Applying a deferential ERISA standard of review, and recognizing that the plan explicitly provided that treatment covered was “[r]equired to be rendered in the least intensive setting that is appropriate for the delivery of health care,” the court found the termination of residential care not to be arbitrary and capricious.  The plan’s decision was based on record review, peer-to-peer conference with the treating facility, the involvement of an independent psychiatrist, and a plan employed psychiatrist.

Finally, a reasonably concise order granting approval of a class action settlement can be found at Woods v. Std. Ins. Co., 2017 U.S. Dist. LEXIS 70528, Case No. 1:12-cv-01327-KBM/KRS (D.N.M. May 9, 2017).  The court described the case as “vigorously litigated.”  See Woods v. Std. Ins. Co., 771 F.3d 1257 (10th Cir. 2014).

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