West Virginia Business Litigation Lawyer & Attorney : Law Office of Jeffrey V. Mehalic : Charleston, Huntington, Parkersburg

    You may have seen the print ads or TV commercials for LifeLock, Inc., which feature its president, Todd Davis, disclosing his Social Security number and guaranteeing its security, and offering a $1 million service guarantee if a subscriber’s identity is stolen or compromised.  But according to a lawsuit filed last week in the Circuit Court of Jackson County, West Virginia, not everyone is satisfied with LifeLock’s services.  Here is the complaint, courtesy of the plaintiff's counsel, Davis Paris of Marks & Klein, LLP.

    In Gerhold v. LifeLock, Inc., Civil Action No. 08-C-69 (May 12, 2008), the plaintiff alleges that LifeLock and Davis, who is also named as a defendant, engage in deceptive business practices and fraudulent advertising in having “induced nearly one million individuals, including Plaintiff and the Putative Class in the state of West Virginia, into subscribing to the identity theft protection services the company purportedly provides.”

    The plaintiff seeks to certify a class consisting of “All persons in the state of West Virginia who subscribed to LifeLock, between 2005 and the present, including former residents who resided in West Virginia at the time they subscribed to LifeLock’s services.”  The class is alleged to have more than 1,000 members.

    LifeLock is alleged to misrepresent the scope and effectiveness of its services, and to conceal the potential harm that its services could have on its subscribers' credit profiles by LifeLock's placing and renewing fraud alerts on those profiles.  LifeLock also fails to disclose that the credit reports it obtains for its subscribers are the free annual reports to which they would be entitled ordinarily, and that by LifeLock ordering the credit report, the subscriber is ineligible to order the report for 12 months.

    The complaint also deals with Davis’ disclosure of his own Social Security number, which apparently has not been as secure as Davis has claimed:

9.      While LifeLock has only publicly acknowledged that Davis’s identity was compromised on one (1) occasion, there are more than twenty (20) driver’s licenses that have been fraudulently obtained through the misappropriation of Davis’s personal information.

10.    Furthermore, a simple background check performed using Davis’s social security number reveals that his entire personal profile has been compromised to the extent that the birth date associated with his social security number is November 2, 1940, which would make Davis 67 years old.  This is clearly fraudulent information.

    The complaint alleges causes of action for violations of the West Virginia Consumer Credit and Protection Act for unfair or deceptive acts or practices and by a credit service organization, unconscionability, injunctive relief, and declaratory judgment.

    The lawsuit was the subject of a front-page story by Andrew Clevenger in the Sunday Gazette-Mail, which points out that Gerhold's counsel has filed similar class actions against LifeLock and Davis in New Jersey in March  and in Maryland in April.  For additional information, here are posts from, the Blogger News Network and from News Blaze.

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    In January, I wrote about the so-called tripartite relationship among an insured, the insured’s lawyer retained and paid by the insurance company, and the insurance company, and an appeal before the Supreme Court of Appeals that illustrated some of the perils of the relationship.

    The Court  has issued its decision in Horkulic v. Galloway, 2008 WL 481000 (W.Va. 2008), which involved a dispute between the lawyer for William Galloway, the defendant in a legal malpractice case, and TIG Insurance Company, which insured Galloway and had retained his lawyer, William Wilmoth.  Galloway’s lawyer claimed that a settlement had been reached with plaintiff Jeffrey Horkulic, in which Galloway would confess judgment in the amount of $1,500,000, but that Horkulic would accept Galloway’s policy limits of $500,000 in satisfaction of his claim, would not pursue Galloway’s personal assets, and would not record the judgment. 

    TIG argued that the purported settlement would enable Horkulic to use Galloway’s confession of judgment in a separate bad faith action in order to establish the value of that claim, and appealed the Circuit Court of Hancock County’s order approving the settlement, including Galloway’s confession of judgment. 

    in a unanimous opinion by Justice Joseph Albright, the Court noted the difficulties presented by the parties' relationships:  

In the present case, TIG was not permitted to participate in the settlement enforcement hearing and thus cannot be deemed to have had a full and fair opportunity to litigate the issue.  More specifically, the order in question expressly declares that TIG will have the opportunity to challenge the $1.5 million confessed judgment by Mr. Galloway.  This case presents the classic tripartite configuration in which a party to a bifurcated bad faith action was not a party in the underlying action, despite the reality that such entity furnished counsel for the defendant in the underlying action.  The fact remains that Mr. Wilmoth, as counsel for Mr. Galloway hired through TIG, was not protecting the interests of the insurance company, TIG, while the settlement negotiation matters were being litigated in the lower court.  His duties as counsel ran solely to the interests of Mr. Galloway.

    The Court did not reverse the circuit court's order approving the settlement, but clarified TIG's right to challenge Galloway's confession of judgment:

Based upon the foregoing, we hold that a consent or confessed judgment against an insured party is not binding on that party's insurer in subsequent litigation against the insurer where the insurer was not a party to the proceeding in which the consent or confessed judgment was entered, unless the insurer expressly agreed to be bound by the judgment.  Therefore, an attack on the consent or confessed judgment in the subsequent litigation by an insurer who did not expressly agree to such judgment is a permissible direct, not collateral, attack on the consent or confessed judgment ...  The primary issue to be resolved in this appeal is the extent to which the specific August 25, 2006 order [approving the settlement] under inquiry may be utilized against TIG when the bifurcated bad faith claim is ultimately litigated.  Thus, subsequent to the filing of this opinion, the lower court will progress forward on the course it previously set, dissolving the stay and proceeding with discovery on the bad faith claim.

    In other words, because TIG did not agree to be bound by Galloway's confession of judgment, TIG is free to challenge it during the litigation of the bad faith case.  But because the  bad faith case has not been litigated yet,  the Court cannot predict what effect, if any, the confession of judgment will have.

    In addition to TIG's appeal of the order approving the settlement, it had also sought a writ of prohibition against the circuit court's award of attorney's fees to Horkulic's counsel for  having  to enforce the settlement.  The circuit court awarded fees of $500 per hour for 101.5 hours and $54.00 in expenses.  TIG's challenge was based on its lack of opportunity to participate before the circuit court and that the award was excessive.

    The Supreme Court granted the writ based on TIG's lack of participation: "Thus, under the facts of this case, we find that the lower court erred in granting attorney fees against TIG without allowing TIG to participate in the evidentiary hearing addressing the pertinent issues culpability [sic] for the extensive delays of this case.  It is appropriate to grant a writ of prohibition and to remand this matter for a full evidentiary hearing to determine the extent of TIG's culpability in delaying the settlement." 

    Although the Supreme Court did not explicitly address the amount of the award, under West Virginia case law, such as Aetna Cas.& Sur. Co. v. Pitrolo, 342 S.E.2d 156 (W.Va. 1986), part of the circuit court's inquiry will necessarily focus on the reasonableness of the fees.

    Justice Robin Davis concurred on behalf of herself and Chief Justice Elliott Maynard in order to point out that by granting TIG's petition for a writ of prohibition, "this Court has made no determination with respect to the reasonableness of those fees." 

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    It didn’t take the Supreme Court of Appeals long to issue its ruling in Wetzel v. Employers Service Corporation of West Virginia, 2007 WL 3312679 (W.Va.), which was argued on October 10, and which I discussed on October 23.

    The issue was whether the claimant's widow could hold the workers' compensation claims administrator for her husband's employer liable for its conduct in allegedly causing or hastening his death from an occupational disease.  Mary Wetzel claimed that Employers Service Corporation of West Virginia (ESC), the claims administrator for Chemical Leaman Tank Lines, was not Chemical Leaman's agent and therefore not entitled to the statutory immunity from civil liability that traditionally applied to workers' compensation employers.  Alternatively, she argued that if ESC was Chemical Leaman's agent, then ESC was liable under an intentional tort theory.  She also argued that she could assert a claim for unfair trade practices against ESC because it was in the business of insurance in processing and paying workers' compensation claims for Chemical Leaman.

    The Supreme Court was not persuaded by any of the plaintiff's theories.  in a per curiam opinion, the Court found that, under its prior decision interpreting the meaning of "agent," ESC, in its capacity as workers' compensation claims administrator, was Chemical Leaman's agent for workers' compensation purposes. 

    The Court also rejected the plaintiff's theory that even if ESC was Chemical Leaman's agent, ESC could be liable for its intentional refusal to pay certain medical claims.  The plaintiff had not alleged a deliberate intention claim against ESC, as provided by West Virginia Code § 23-4-2(d)(2), which is traditionally the only method of defeating workers' compensation immunity, but had urged a new cause of action for ESC's intentional refusal "to honor and timely pay workers' compensation benefits."  The Court expressed concern that recognizing the plaintiff's cause of action would interfere with an employer's right to contest an employee's claim, which had also been the Court's concern in Persinger v. Peabody Coal Co., 474 S.E.2d 887 (W.Va. 1996). 

    Finally, the Court concluded that ESC was not in the business of insurance for purposes of the plaintiff's claim under the West Virginia Unfair Trade Practices Act.  The plaintiff had conceded that ESC was not an insurer, but claimed that it was engaged in the business of insurance, which brought it within the scope of the UTPA.   In so holding, the Court affirmed its ruling in Hawkins v. Ford Motor Co., 566 S.E.2d 624 (W.Va. 2002), which had established that self-insured employers that process their own liability claims are not liable for unfair trade practice claims.  (The Court also pointed out in a footnote that in amendments to the Workers' Compensation Act in 2005, the Legislature had eliminated claims such as Mrs. Wetzel's, which alleged violations of the UTPA by a private workers' compensation carrier or third-party administrator or by its employees or agents.)
   
    Justices Joseph Albright and Larry Starcher dissented, and would have reversed the circuit court's rulings regarding ESC's immunity and its liability under the UTPA.  Their opinions accused the majority of reading the pertinent statutes on both issues too broadly, with the result that ESC improperly received immunity from liability and Mrs. Wetzel was deprived of her day in court.

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    An interesting appeal that presents an issue of first impression was argued before the Supreme Court of Appeals last week.  The case is Wetzel v. Employers Service Corporation of West Virginia, No 33337. Here are the appellant’s brief, the appellee’s brief, and the reply brief.

    The issue is whether a workers’ compensation claims administrator for a self-insured employer can be liable for unfair trade practices (or “bad faith”) for conduct that allegedly causes or hastens a claimant’s death.  Mary Wetzel, the executrix of her husband’s estate, claims that Employers Service Corporation (ESC), the claims administrator for Chemical Leaman Tank Lines, delayed or denied her husband’s physicians’ requests for medically necessary treatment, which resulted in his death at the age of 49 from the effects of occupational exposure to toluene diisocyanate.

    In response, ESC characterized its role as Chemical Leaman’s claims administrator as being the employer’s agent, and maintained that such status entitled it to immunity the same as if Chemical Leaman had been sued directly.  ESC also argued that under case law interpreting the West Virginia Unfair Trade Practices Act, an entity that does not have a contractual obligation to pay a claim, such as an insurance company, cannot be held liable for bad faith. 

    The Circuit Court of Marshall County, West Virginia granted ESC’s motion for summary judgment on the grounds that the statutory immunity afforded to Chemical Leaman, an employer covered by workers’ compensation, also extended to ESC, as its agent.  The court also ruled that ESC was not in the business of insurance and thus could not be liable under West Virginia’s Unfair Trade Practices Act.

    This case is unique because the claims administrator, not the employer, is the defendant.  The West Virginia cases cited by both parties have only addressed an employer’s conduct in determining whether a claimant may maintain a direct action against the employer. Persinger v. Peabody Coal Company, 474 S.E.2d 887 (W.Va. 1996).  Similarly, in Hawkins v. Ford Motor Co., 566 S.E.2d 624 (W.Va. 2002), which limited the applicability of the Unfair Trade Practices Act to entities which were in the business of insurance, there was no claims or third-party administrator present.

    From my reading of the parties’ briefs, if Mrs. Wetzel prevails on the issue that ESC is not entitled to immunity, her action can go forward even if the Supreme Court agrees with the Circuit Court that ESC is not in the business of insurance and therefore cannot be liable for any bad faith, as she also asserted claims for the intentional infliction of emotional distress and negligence, which would not be affected. 

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    A state court judge has dismissed the lawsuit filed by the Book Exchange, an independent bookstore in Morgantown, West Virginia, against West Virginia University and Barnes & Noble, which manages WVU’s bookstores.  Monongalia County Circuit Court Judge Robert Stone made the ruling at a hearing on October 11.  He also dissolved an injunction that was granted in July against WVU.   Here is the Associated Press story on the dismissal, which appeared in the Saturday Gazette-Mail on October 13.

   The lawsuit alleged that WVU's program of withholding funds from financial aid recipients and designating that the money can be spent only at WVU’s bookstore violated state antitrust, unfair trade practice, and consumer protection statutes.   In July, another Circuit Court judge had granted the Book Exchange's request for an injunction against WVU, which notified students via e-mail that the funds had been reserved and were available for use. 

    The AP story doesn't have any details on the basis for the dismissal, and Judge Stone has not yet entered an order reflecting his ruling.  As soon as an order is entered, I'll make it available.

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    Another federal district court decision I have wanted to write about is one that Judge John T. Copenhaver, Jr. entered on September 26, 2007 in Strawn, et al. v. AT&T Mobility, Inc. f/k/a Cingular Wireless LLC, Civil Action No. 2:06-CV-0988.

    The plaintiffs filed a class action in the Circuit Court of Kanawha County (Charleston), West Virginia against Cingular (now AT&T), alleging that its decision to enroll them in its roadside assistance program and charge $2.99 per month without their consent constituted an unfair trade practice under the West Virginia Consumer Credit and Protection Act.

     Cingular removed the action to federal court based on the Class Action Fairness Act’s requirement that a class action with an amount in controversy in excess of $5 million, exclusive of interest and costs, is subject to federal jurisdiction.  CAFA has other jurisdictional requirements, but only the amount in controversy was in dispute.

    The court found that Cingular had the burden of establishing federal jurisdiction, but that the class representatives’ stipulations that the amount in controversy was less than $5 million were not persuasive (because in West Virginia, a jury can return a verdict in excess of the amount in controversy, thereby rendering such a stipulation meaningless).

    The parties argued about the size of the class, which was critical to the court’s jurisdiction.  Under the Consumer Credit and Protection Act, each plaintiff would be entitled to $200 in damages, so a class of 25,001 members, at $200 each, would exceed $5 million.  Cingular initially asserted that the class consisted of 62,000 members, which the plaintiffs disputed.  Cingular reduced the number to 58,800 members (after eliminating its employees and business customers), but that number included individuals who had become enrolled in Cingular’s roadside assistance program and continued to pay the monthly fee.  Because the suit was filed on behalf of those who had been enrolled and charged the amount without their consent, the court found that the putative class “was much narrower.”

    The plaintiffs challenged Cingular’s estimate of 58,800 in their reply, so the court gave Cingular an opportunity to reply and to “narrow its response to the more limited scope of the putative class and  calculate the amount defendant believes to be in dispute.”   Cingular’s reply was to inform the court that its “concerns cannot be resolved at the removal stage.”   Cingular then made three arguments that did not remotely answer the court’s questions.  Consequently, the court concluded there was no record “to support a finding that the amount-in-controversy exceeds $5,000,000.” 

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    Discovery regarding insurance reserves is a complicated issue.  A party in litigation against an insurance company in a bad faith or unfair trade practice case will often make a discovery request for the reserve set by the insurance company for the underlying claim on the theory that the reserve reflects the insurance company’s true valuation of the claim.  David Rossmiller at Insurance Coverage Law Blog has written about rulings made by federal courts in California (as described by J. Craig Williams at May It Please The Court) and Missouri in discovery disputes over reserve information.

    The issue has been addressed recently by the Supreme Court of Appeals of West Virginia in State ex rel. Erie Ins. Property & Cas. Co. v. Mazzone, 2007 WL 1661461 (W. Va. 2007), in which Erie Insurance Company sought a writ of prohibition to prevent enforcement of the circuit court’s order requiring disclosure of its insurance reserves to the plaintiff in a third-party bad faith case.

    Erie claimed that its reserve information constituted opinion work product, which, under West Virginia Rule of Civil Procedure 26(b)(3), may be disclosed “only upon a showing that the party seeking discovery has substantial need of the materials … and that the party is unable to without undue hardship to obtain the substantial equivalent of the materials by other means.”  Erie also contended that reserve information is generally treated as opinion work product. 

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    This is an update to my post last month about the lawsuit filed by the Book Exchange, an independent bookstore, against West Virginia University and Barnes & Noble, which alleged antitrust violations and unfair trade practices as a result of WVU's program of reserving funds from students who receive financial aid, then requiring the money to be spent at its bookstore. 

    According to Forbes.com, Circuit Judge Russell M. Clawges, Jr. granted the Book Exchange's motion for a preliminary injunction today.  The injunction prevents WVU from sending out e-mails to the students informing them the funds have been reserved, which was scheduled to occur today.  The article does not say whether the injunction also prevents WVU from reserving the funds in the first place.  Presumably, the Court granted the injunction because the immediate and irreparable harm that the Book Exchange alleged was the e-mail notifications, after which the students could begin to make their purchases at WVU's bookstore. 

    Forbes.com's article says that approximately 3,000 students participated in the program last fall.  If each student spent the $500 that was reserved, that's about $1.5 million in sales that the Book Exchange did not have an opportunity to compete for. 

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    Sooner or later, just about every movie becomes the subject of litigation.  So perhaps it's no surprise that "We Are Marshall" is now at the center of a lawsuit.  Deborah Novak and John Witek filed suit in federal court in California on June 20, alleging fraud, copyright infringement, breach of contract, and unfair trade practices against Warner Bros. Pictures and others involved with the movie.  "We Are Marshall" was released in December 2006, and deals with the 1970 plane crash in which 75 people, including 45 Marshall University players, coaches, and staff died, and the process of rebuilding the team.   

    Novak and Witek, who live and work in Huntington, West Virginia, home of Marshall, made the Emmy-winning documentary, "Ashes to Glory," and claim that their work was unfairly used in the movie, and cite 24 specific similarities between "Ashes to Glory" and "We Are Marshall."  Here's the complaint, courtesy of www.courthousenews.com.

    Litigation like this often centers on who had the idea (or wrote the screenplay or novel) that became the movie.  That was the basis for Art Buchwald's lawsuit against Paramount Studios over "Coming To America," which starred Eddie Murphy.  Incidentally, that litigation was the subject of a book by Pierce O'Donnell, Buchwald's lawyer, entitled Fatal Subtraction: The Inside Story of Buchwald v. Paramount, which describes the creative accounting practices employed by movie studios when calculating a movie's "net" profit.

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    West Virginia University and its bookstore, which is managed by Barnes & Noble, have been sued by a competitor on the grounds that WVU unfairly reserves funds from students receiving financial aid, and requires the money to be spent at its bookstore for the purchase of textbooks and other items.  The Book Exchange, an independent bookstore, filed the complaint on June 8 in the Circuit Court of Monongalia County, West Virginia (Morgantown).

    The Book Exchange alleges several causes of action, including violations of West Virginia's Antitrust Act, Unfair Trade Practices Act, Consumer Credit and Protection Act, and Electronic Mail Protection Act (the last because WVU communicates with the students via e-mail).   Here's the complaint, courtesy of plaintiff's counsel, Bader C. Giggenbach.
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    I was sitting in a doctor's office yesterday and happened to read a copy of Fortune Small Business from December 2006, which contained an article about a small Connecticut mortgage lender that says a much larger competitor stole its employees and its trade secrets.  Even though the story is a few months old, its significance remains current. 

    Charter Oak Lending Group, LLC of Danbury, Connecticut alleges that CTX Mortgage Company induced several of its employees to leave and to take confidential proprietary information with them.  As a result, besides the loss of employees and information, Charter Oak lost about 150 pending loans, which represented $1 million in fees.  Charter Oak alleges that its business was decimated in a matter of weeks due to the departures and losses.
   
  In December 2004, Debra Killian, Charter Oak's president, sued CTX and the employees who left, and alleged causes of action including unfair trade practices, misappropriation of trade secrets, breach of fiduciary duty and computer-related offenses.  Last fall, the Connecticut Attorney General sued CTX for corporate raiding and misappropriation of trade secrets.  

    Ms. Killian was kind enough to talk with me, and said the lawsuit remains scheduled for trial in April 2008.   Mandatory mediation must be completed by February 2008.  Because the lawsuit has been classified as complex litigation, the parties will have a bench trial.  She also told me that CTX has since closed its Danbury office, which it had staffed with the employees raided from Charter Oak.   Ms. Killian said her company has never rebounded from the effects of the defections, but remains in business, and she is committed to seeing the lawsuit through to its conclusion.  I hope she is successful.

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