Matt Rusch Triumphs - Griffith v. LG Chem et al: Summary Judgment Affirmed on Appeal

Congratulations to partner Matt Rusch regarding a recent Nebraska Supreme Court victory, Griffith v. LG Chem et al.  The Court affirmed the Lancaster County District Court’s grant of summary judgment in favor of Erickson Sederstrom clients.  The case involved a conflict of law issues between Nebraska and Pennsylvania regarding the application of the states’ conflicting statutes of limitation. 

Background: 

The case centered around John Griffith's injuries sustained while replacing electronic cigarette batteries at his home in Pennsylvania.  He had purchased the batteries at a truck stop in Nebraska.  LG Chem and LGCAI were alleged to be the manufacturers of the batteries.  The Griffiths filed suit against LG Chem, LGCAI, Shoemaker’s, and E-Titan, alleging negligence, product liability, breach of warranty, and loss of consortium. E|S represented Shoemaker’s and E-Titan, while LG Chem and LGCAI were represented by other counsel.  Key issues included conflicting statutes of limitations from Pennsylvania and Nebraska and a challenge to personal jurisdiction over LGCAI.  The case was filed in Nebraska more than 2 years after Mr. Griffith received his injuries.  Shoemaker’s and E-Titan sought summary judgment, contending that Griffith’s claims were time-barred under Pennsylvania's 2-year limitation period. The Griffiths argued that Nebraska’s 4-year statute of limitations applied. The district court determined that an actual conflict existed between the two states' laws and that the 2-year Pennsylvania statute of limitations applied, resulting in dismissal of all claims against Shoemaker’s and E-Titan.  The district court also dismissed LG Chem and LGCAI from the case, citing a lack of personal jurisdiction.

The Griffiths appealed, challenging the summary judgment in favor of Shoemaker’s and E-Titan and the dismissal of LG Chem and LGCAI. The assignments of error focused on applying the Pennsylvania statute of limitations and the court's lack of personal jurisdiction over LGCAI.

Analysis and Conclusion:

The Nebraska Supreme Court affirmed the district court’s grant of summary judgment for Shoemaker’s and E-Titan and dismissal of the other defendants. 

The appellate court concurred with the district court's findings, emphasizing that Griffith’s negligence claims were based on Pennsylvania law, justifying application of its statute of limitations. The court also upheld the dismissal of LGCAI, stating that the Griffith failed to establish sufficient contact between LGCAI and Nebraska.

Griffith v. LG Chem, 315 Neb. 892

You Are Responsible For Deciding What Your Home’s “Replacement Cost” is in Nebraska.

Mark and Michelle Callahan sued their insurance company (Shelter Mutual Insurance Company) and insurance producer (Mr. Brant) after their home was completely lost to an electrical fire in 2019. Previously, in 2011, the Callahans purchased a “replacement cost” insurance policy from Mr. Brant, a Shelter agent. This insurance policy was paid in full; however, the Callahans sued because they learned that the cost of rebuilding their home would be greater than the payout they received from the home insurance policy.

The Callahans maintain that their home was underinsured and that they were harmed by:

(1)   The negligence of their producer, Mr. Brant, who they allege inadequately calculated the replacement cost of their home and

(2)   Mr. Brant verbally reassured both Mark and Michelle that they did not need to increase the amount of the policy to pay for total replacement. The Callahans claim they would have paid a higher monthly premium to insure their home for more money.

The Nebraska Supreme Court confirmed the lower court’s ruling, citing Nebraska’s valued policy statute, and held in favor of Mr. Brant and Shelter. The Court held that the public policy behind Nebraska’s valued policy statute barred the Callahans from presenting evidence that their home was undervalued. As such, the Callahans’ claims of negligence and negligent misrepresentation against Mr. Brant and Shelter described above were foreclosed as a matter of law.

By finding for Mr. Brant and Shelter, the Nebraska Supreme Court solidifies that when insuring real property, the dollar value set by the parties to the insurance contract controls in both directions. Further, that dollar amount effectively forecloses some tort claims (here, negligence and negligent misrepresentation) that might arise after the contract. In his dissent, Chief Justice Heavican identifies this outcome as unparalleled when compared to other states and atypical of tort law which often permits claims arising out of contract. Callahan, 314 Neb. at 247-49. Essentially, both parties to the insurance contract (the insured and insurer) are responsible for declaring and/or demanding their desired amount of coverage.

Depending on whether you side with the majority or dissent, Callahan v. Brant is either a renewed reminder for or an additional burden on the homeowner. The homeowner is responsible for knowing the cost of rebuilding their home and purchasing the precise dollar amount of insurance coverage they wish to receive in the event they suffer a total loss. This case solidifies that the remedies available to a homeowner (or other real property owner) after your home is completely lost to fire, tornado, windstorm, lightning, or explosion is limited, even if your policy presents as a “replacement cost” policy. Future allegations against an insurance producer alleging that the producer (1) suggested too low a dollar amount to cover the replacement cost of your home and/or (2) offered you reassurance that the “replacement cost” policy was adequate may not stand after your home is destroyed.

Here, the Callahans did not lose on the merits of their claims against Mr. Brant. It makes no difference to the Court whether Mr. Brant and/or Shelter Insurance failed to act reasonably when calculating the value of the Callahans’ home or whether Mr. Brant may have reassured the Callahans that their policy adequately covered their home. Instead, the Court found the Callahans’ claims inadequate as a matter of law under Nebraska’s valued policy statute.

The takeaway for homeowners in Nebraska: even when your home insurance policy identifies as a “replacement cost” plan, you are responsible for insuring your home to the amount of its replacement cost. Or at least to the amount you seek to be repaid in the event of a total loss. If your home would cost more to replace than your home insurance policy insures, you are “underinsured.” Under Nebraska’s valued policy statute and Callahan, the homeowner effectively self-insures the difference as a matter of law.

Special thanks go to Erickson|Sederstrom senior law clerk Steve Lydick for his assistance with this article.

Callahan v. Brant, 314 Neb. 219, 990 N.W.2d 1 (2023)

A Win for Homeowners: Nebraska Legislature Ends “Home Equity Theft”

Geraldine Tyler, a 94-year-old widow and homeowner in Minnesota, successfully challenged the Constitutionality of a Minnesota law that permitted her county government to seize the entire value of her property because of a much smaller outstanding property tax debt. The United States Supreme Court held that the state law practice violated the Takings Clause of the Fifth Amendment of the United States Constitution, which prohibits the government from taking private property for public use without paying just compensation to the owner.

Mrs. Tyler owed $2,300 in property tax and $13,000 in interest and penalties. Acting under Minnesota’s forfeiture procedures, the County seized her home, sold it, and kept the entire $40,000 from the sale. This sale amount more than doubled Mrs. Tyler’s debt on the property but the County returned nothing to the homeowner in consideration of the equity she had built up in the home. On May 25, 2023, the Supreme Court unanimously ruled that the State “may not extinguish a property interest that it recognizes everywhere else to avoid paying just compensation when it is the one doing the taking.” Tyler v. Hennepin Cnty., 215 L. Ed. 2d 564, 575, 2023 U.S. LEXIS 2201, *19, 143 S. Ct. 1369, 29 Fla. L. Weekly Fed. S 851.

The Tyler case has important implications beyond Minnesota. More than ten other states, including Nebraska until recently, have some form of property forfeiture law similar to Minnesota’s that has been characterized as “home equity theft.” Illinois, Minnesota, and New York have led the nation in the number of these property takings. Now on notice of the unconstitutionality of these forfeiture laws, states must change these laws to comply with the Supreme Court ruling.

During the 2023 legislative session, as part of a $6.4 billion tax relief package, the Nebraska Legislature passed LB 727, which abolished “home equity theft” in Nebraska. The bill requires property tax foreclosures to go through judicial proceedings that protect the owner’s equity.

As property values rise, so have incentives for government entities to seize properties due to tax debts. For those affected by this issue in Nebraska, the Tyler case and Nebraska’s new tax bill set forth strong protections for Nebraska homeowners. Individuals who have lost property under the former Nebraska approach that was invalidated by Tyler should consider speaking with an attorney regarding any potential recourse.

Erickson|Sederstrom Law Clerk Elise Siffring assisted with drafting this article and her help is greatly appreciated.

Bankruptcy Courts Grapple with Nonconsensual Third-Party Releases

The recent decision by the United States District Court for the Southern District of New York in In re Purdue Pharma LP, 635 B.R. 26 (S.D.N.Y. 2021) highlighted a significant unsettled issue in bankruptcy law that will receive much more attention in the coming months and years.  Purdue Pharma highlighted the question of whether a confirmed bankruptcy plan can release non-debtor third parties from liability related to the subject of the bankruptcy case.  Ultimate resolution of this issue will have far-reaching consequences for creditors and for parties related to bankruptcy debtors, such as corporate officers or owners.

In Purdue Pharma, the debtor pursued bankruptcy due to substantial litigation regarding its product, OxyContin.  Purdue Pharma proposed a bankruptcy plan that included a release from liability in existing and future opioid lawsuits for members of the Sackler family, who founded and managed the debtor.  The proposed release would have been binding against future opioid lawsuit plaintiffs who were not involved in the bankruptcy, and against state attorneys general who opposed confirmation of the Purdue Pharma plan.  The court concluded that the bankruptcy code did not authorize courts to confirm bankruptcy plans that include nonconsensual releases of third-parties.  The court found that Congress expressly granted bankruptcy courts the authority to approve plans with nonconsensual third-party releases only in asbestos cases.

The third-party release issue highlighted in Purdue Pharma poses a significant challenge for large bankruptcy cases, typically under Chapter 11.  Chapter 11 plans are custom-tailored to specific cases and are intended to allow the debtor to reorganize and emerge from bankruptcy and continue operating.  Chapter 11 plans often include creative provisions, including contributions by non-debtor third parties in exchange for release and indemnification of these third parties. 

Currently, federal courts across the country have split on whether the type of release at issue in Purdue Pharma is permitted by federal law.  The issue is expected to eventually be addressed by the United States Supreme Court.

Because bankruptcy law regarding nonconsensual third-party releases is rapidly evolving, the rights of creditors and parties closely related to debtors may change significantly in the coming months and years.If you have questions regarding how a bankruptcy has affected your rights, Erickson|Sederstrom recommends consulting with counsel.Erickson|Sederstrom’s experienced litigation and bankruptcy attorneys can help work through these and other bankruptcy-related issues, including pursuit of creditor claims and defense of preference actions.

Supreme Court Blocks Employer Vaccine Mandate but Allows Health Care Mandate

On January 13, the United States Supreme Court, in a 6-3 decision, ruled that the OSHA ETS (Emergency Temporary Standard), requiring private employers with 100 or more employees to impose vaccine and testing mandates, is unlawful and exceeds OSHA’s authority. The Supreme Court allowed a vaccine mandate for health care facilities that accept Medicare or Medicaid payments to remain in effect.

In an unsigned opinion, the Court said “Although Congress has indisputably given OSHA the power to regulate occupational dangers, it has not given that agency the power to regulate public health more broadly.” “Requiring the vaccination of 84 million Americans, selected simply because they work for employers with more than 100 employees, certainly falls in the latter category,” the court wrote. Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan dissented. “In the face of a still-raging pandemic, this Court tells the agency charged with protecting worker safety that it may not do so in all the workplaces needed,” their dissent said.

Separately, the Court issued an opinion addressing the administration’s vaccination rules for health-care workers. A 5-4 majority upheld the health care worker vaccination rules. In another unsigned opinion, the Court said “We agree with the Government that the Secretary’s rule falls within the authorities that Congress has conferred upon him.” Justices Clarence Thomas, Samuel Alito, Neil Gorsuch and Amy Coney Barrett filed a dissent.

Following the decision, the Biden administration encouraged employers to voluntarily enact COVID-19 vaccination and testing requirements.

Erickson | Sederstrom’s experienced employment and labor law attorneys are ready to help manage COVID-19 vaccination issues in the workplace. Please do not hesitate to contact one of our attorneys. Erickson|Sederstrom’s employment law attorneys can be reached at (402)397-2200.

December 20 Update Regarding Vaccine Mandates

Erickson|Sederstrom provides this update regarding the status of various vaccine mandates issued by the Biden administration.  These mandates have been the subject of court challenges with varying results.  It continues to be crucial for employers to remain up to date regarding the current status of vaccination requirements that affect their businesses, as the litigation will continue to move through the courts, leading to unpredictable outcomes until final resolution is reached, likely in the Supreme Court of the United States. 

In a key development, an injunction against enforcement of the large business mandate was lifted on December 17.

Large Business Mandate

Businesses with 100 or more workers must require employees to be vaccinated.  Unvaccinated employees must be tested weekly and wear masks while working.  The rule contains exceptions for employees who work alone or mostly outdoors.

This rule had been enjoined nationwide.  On Dec. 17, a three-judge panel of the 6th U.S. Circuit Court of Appeals allowed the mandate, lifting the injunction against enforcement.  Multiple cases from across the country had been consolidated into the 6th Circuit, which was selected at random through a court lottery system.

OSHA has announced that it will not issue employer citations before Jan. 10 for its vaccination mandate or before Feb. 9 for its testing requirement.

Health Care Worker Mandate

A wide range of health care providers that receive federal Medicare or Medicaid funding were to require workers to receive the first dose of a COVID-19 vaccine by Dec. 6 and be fully vaccinated by Jan. 4. The rule would affect more than 17 million workers in thousands of health care facilities and home health care providers.

The rule is enjoined in Nebraska and adjoining states.  A Missouri-based federal judge issued an injunction Nov. 29 barring the rule from enforcement in 10 states that had originally sued in federal court in Missouri.  There are injunctions in place in some other states based on separate lawsuits. 

The Biden administration is appealing these court rulings in separate appellate courts.  At this point, the cases have not been consolidated into any one federal appellate court. 

Federal Contractor Mandate

Contractors and subcontractors for the federal government are required to comply with federal workplace safety requirements, which require that new, renewed, or extended contracts include a clause requiring employees to be fully vaccinated Jan. 18.  There are limited exceptions for medical or religions reasons.

A federal judge in Georgia issued an injunction December 7 prohibiting enforcement of the requirement for contractors.  The ruling applies nationwide.  An appeal is expected.

Court Blocks COVID-19 Vaccination Mandate for Health Care Workers

On November 29, 2021, U.S. District Judge Matthew Schelp of the Eastern District of Missouri issued an Order granting a preliminary injunction against implementation of a federal government mandate for health care workers to receive COVID-19 vaccinations.  Judge Schelp’s order was issued in a lawsuit brought against the federal government by Nebraska and nine other states (Alaska, Arkansas, Iowa, Kansas, Missouri, New Hampshire, North Dakota, South Dakota, and Wyoming).  The Order applies to health care workers in these ten states.

The vaccine mandate was issued by the federal Centers for Medicare and Medicaid (CMS) earlier in November and applies to all Medicare and Medicaid certified medical providers.  Judge Schelp concluded that CMS had issued the mandate improperly and had to get approval from Congress. 

The preliminary injunction will remain in place unless and until there is a further court order modifying or removing the injunction.  It is anticipated that the federal government will appeal Judge Schelp’s Order.

Employers should consult with counsel to obtain further information and guidance about the most current circumstances.  Erickson|Sederstrom’s employment law attorneys are available to assist.

OSHA Releases COVID-19 Vaccine ETS Requiring Vaccination for Employers with 100 or More Employees

On November 4, OSHA released its COVID-19 vaccine ETS (Emergency Temporary Standard), requiring many employers to implement COVID-19 mandates for vaccination and testing.  While legal challenges are expected, it is critical for employers to understand the requirements, develop polices, and be prepared to comply. 

The ETS applies to all private employers with 100 or more employees, but does not apply to employees who work from home, work in a location where no other individuals are present, or who work exclusively outdoors.  Covered employers will have until January 4 to ensure that their work forces are vaccinated.  But most other requirements of the ETS must be implemented by December 5.  Employees who are not vaccinated must submit to weekly coronavirus testing and mask wearing while in the workplace.  It is up to employers to decide whether employees can opt out of vaccination through the weekly testing.  However, employers are not required to provide or pay for testing, unless required by a union contract or other local law.  Employers are also required to provide up to four hours of paid time off to be vaccinated, as well as sick leave to recover from vaccine side effects. 

Employers will need to plan for employees claiming religious and medical exemptions. 

 When an employer is on notice that an employee holds a sincere religious belief, practice, or observance preventing the employee from obtaining a COVID-19 vaccine, the employer must provide a reasonable accommodation unless it would pose an undue hardship.  This includes accommodation requests from employees preferring an alternative version or specific brand of COVID-19 vaccine available to the employee.   

A medical exemption would require a note from the employee’s doctor. 

 Erickson | Sederstrom’s experienced employment and labor law attorneys are ready to help manage these COVID-19 vaccination issues in the workplace.  Please do not hesitate to contact one of our attorneys.  Erickson|Sederstrom’s employment law attorneys can be reached at (402)397-2200.

COVID-19 Impacts Ordinary Course Defense When Defending Preference Claims

As a business owner or manager, it is frustrating to receive a bankruptcy preference demand letter.  Unless you want to pay the preference demand, you have little choice but to undertake a defense.  Unfortunately, the business disruptions caused by the COVID-19 pandemic have further complicated the legal landscape surrounding defense of preference claims.  The purpose of this article is to briefly summarize preference procedures, explain the COVID pandemic impact regarding preferences, and discuss some general strategies for businesses responding to or defending against preference claims.

I.                     Preference Process

Transfers made by a business within 90 days of it filing a bankruptcy petition under the Bankruptcy Code are potentially subject to a preference action.  In many cases, such transfers consist of payment for goods or services received by the bankrupt party in the months prior to filing its bankruptcy petition.  The preference statutes are intended to prevent the bankrupt party from preferentially transferring assets to favored parties or individuals before the bankruptcy is filed, to the detriment of other creditors, during the time leading up to the bankruptcy (when the business is likely insolvent). 

Bankruptcy trustees and debtors-in-possession have the right to seek the return into the bankruptcy estate of preferentially transferred assets or funds, so the assets can be allocated and distributed as part of the orderly bankruptcy process.  11 U.S.C. § 547(c)(2).  Typically, a preference claim begins with a demand letter being sent to the party who received the funds, demanding that payment be made back to the bankruptcy estate.  If the preference claim is not resolved based upon the demand letter, the matter may progress to an adversary proceeding, a lawsuit within the bankruptcy case for recovery of the alleged preference funds.

The most common defense against preference claims is that the transfer at issue to the bankrupt party was made “in the ordinary course” of business.  Proving the “ordinary course’ defense requires the party defending against the preference claim to show:  (A) the transfer was made in the ordinary course of business or financial affairs of the debtor and the transferee or (B) the transfer was made according to ordinary business terms.  11 U.S.C. § 547(c)(2).  (A) requires a subjective comparison of the historical transactions between this debtor and this creditor.  (B) requires an objective comparison with other transactions between parties in the same industry.  Either way, the question is whether the alleged preferential transfer was “ordinary”. 

II.                   COVID Impact

With the impact of COVID-19 since early 2020, very little has been “ordinary” about how many, or even most, businesses or industries have functioned.  This lack of normality makes it more difficult to present and prove the “ordinary course” defense.  When a course of dealing between the debtor and creditor, or even an entire industry, has been disrupted due to impacts of COVID-19, parties defending against preference actions need to think creatively.  Referring back to the business relationship between debtor and creditor preceding the 90 day preference period might not provide much value, if that time frame was influenced by COVID-19 effects. 

 III.                 Defense Perspective

When defending against preference claims, creditors preparing a defense need to take a broader look than in the past and be prepared to present extensive evidentiary support.  Developing and presenting an effective defense requires the assistance of experienced counsel to identify the best way to identify and present supporting evidence.

Questions for the creditor to evaluate include:

What relationship did this debtor and this creditor have prior to COVID-19 impacts and what changed?  How can these separate periods be quantified?  When was the last time their business relationship was “ordinary”?  If the transfer that is the subject of the preference claim was affected by COVID-19, what still makes it “ordinary”?

Was this transfer “ordinary” pursuant to a broader analysis of industry practices?  How can the industry be redefined to show what is “ordinary”?

As discussed above, defending against preference claims requires a solid understanding of relevant bankruptcy law, and effective application of bankruptcy law to the current business environment.  Erickson|Sederstrom’s bankruptcy attorneys are ready to help if your business needs to defend against a preference demand. 

United States Supreme Court Holds that "Mere Retention" of Debtor Property Does Not Violate the Automatic Stay

The United States Supreme Court recently held, in City of Chicago v. Fulton, that a creditor's "mere retention" of a debtor's property does not violate the bankruptcy automatic stay.  In Fulton, the Court found that the Bankruptcy Code permits a creditor to maintain the status quo when a debtor files for bankruptcy.  In other words, the creditor is not automatically compelled to return property of the debtor that the creditor recovered prior to the bankruptcy filing, but the creditor also cannot dispose of the property while the bankruptcy case is pending absent permission from the bankruptcy court. 

                As most bankruptcy creditors are aware, the Bankruptcy Code contains an automatic stay within § 362(a)(3).  The automatic stay acts to automatically protect the debtor and his or her property from most collection or enforcement acts by creditors upon filing of a bankruptcy petition.  Many debtors' counsel have also taken the position that the automatic stay requires creditors to return property to the debtor if the property had been repossessed or otherwise recovered by the creditor shortly before the bankruptcy filing.  Bankruptcy courts had inconsistently interpreted this aspect of the automatic stay.  Fulton made clear that if the debtor seeks return of the property, the correct means to pursue the return is a Motion for Turnover under §542 of the Bankruptcy Code, not the automatic stay statute. 

                Fulton is good news for secured creditors who fear bankruptcy filings by their defaulted customers.  If the creditor can lawfully recover collateral before a bankruptcy case is commenced, the creditor is not automatically compelled to return that collateral as soon as the bankruptcy is filed.  The debtor must take the affirmative step of filing a Motion for Turnover to compel return of the property. 

                Writing the Supreme Court’s opinion, Justice Samuel Alito noted that the language of § 362(a)(3) leads most logically to the conclusion that only affirmative acts that disturb the status quo are prohibited.  If collateral is already in the creditor’s possession when the bankruptcy case is commenced, the creditor must retain the property, but at least is not automatically required to give up possession without a separate Motion for Turnover by the debtor and opportunity for the Bankruptcy Court to decide that issue.   

                Creditors navigating bankruptcy law issues regarding how to deal with collateral or other property recovered from debtors should seek legal advice about how to proceed.  Bankruptcy law remains fraught with potential pitfalls for creditors.  Erickson|Sederstrom’s creditors’ rights attorneys provide timely advice to creditors who are seeking guidance regarding pre-bankruptcy and bankruptcy rights against debtors and debtors’ property. 

Nebraska Supreme Court Clarifies the Duties of Mental Health Professionals

The Nebraska Supreme Court recently clarified duties of mental health professionals to warn and protect third parties from their patients.  In Rodriguez v. Lasting Hope Recovery Ctr. of Cath. Health Initiatives, the court held that mental health professionals owe no duty as a matter of law to third parties for physical injuries caused by a patient who has not “actually communicated” such a threat to their mental health professionals.  The court further determined that a mental health professional’s duty to warn or protect may be met by reasonable efforts to communicate the threat to the third party and law enforcement. 

 Facts of Rodriguez

 In Rodriguez, the Omaha police placed a patient under emergency protective custody and transported him to Lasting Hope because he expressed intentions of killing his mother.  Upon arrival, the patient was assigned a treating psychiatrist.  The patient’s psychiatrist determined the patient was paranoid, homicidal, delusional, and posed a risk for harm to others outside the hospital environment.  The psychiatrist’s determination was based on the patient’s previously expressed intentions of killing his mother.  Therefore, the psychiatrist recommended for the patient five to seven days’ hospitalization for stabilization and safety, and Lasting Hope called the patient’s mother to warn her of his threats.  

 During the patient’s hospitalization, his girlfriend visited and expressed that she no longer wished to be his girlfriend.  The girlfriend was not afforded the same warning as his mother because the patient had not expressed a similar threat against his girlfriend. 

 After six days of compliance with medication and hospitalization by the patient, the psychiatrist concluded the patient was ready to be released.  Further, the patient no longer expressed an intent to harm his mother.  In fact, the patient stated to his psychiatrist that he “had a good conversation” with his mother over the telephone during his hospitalization, and he committed to “not act to harm anyone.”

 The former girlfriend’s body was discovered the following day.  Investigators concluded that the patient strangled his former girlfriend.  The decedent’s parents brought action against Lasting Hope claiming that it was responsible for wrongful death. 

 Duty to Warn & Protect

 The Nebraska Mental Health Practice Act and the Nebraska Psychology Practice Act both contain limits on practitioners’ duties regarding treating patients with mental illness.  These limits were enacted in response to the California Supreme Court's decision in Tarasoff v. Regents of University of California.  There, the court held that a mental health professional “who knows or should know that a patient poses a serious danger of violence to a third party owes a duty to exercise reasonable care to warn and protect that third party.”   

 In the case of Munstermann v. Alegent Health, the Nebraska Supreme Court determined that:

 [A] psychiatrist is liable for failing to warn of and protect from a patient’s threatened violent behavior, or failing to predict and warn of and protect from a patient’s violent behavior, when the patient has communicated to the psychiatrist a serious threat of physical violence against himself, herself, or a reasonably identifiable victim or victims.  The duty to warn of or to take reasonable precautions to provide protection from violent behavior shall arise only under those limited circumstances . . . and shall be discharged by the psychiatrist if reasonable efforts are made to communicate the threat to the victim or victims and to a law enforcement agency.

 Like the Munstermann rule, the Mental Health Practice Act and the Psychology Practice Act explicitly require that for a duty to warn to arise, a serious threat of physical violence against a reasonably identifiable victim must be “actually communicated” to a mental health professional.  “Actual communication” requires the patient to verbally express or convey to the psychiatrist their prediction to commit physical violence either against themself or a reasonably identifiable victim.

 The only reasonably identifiable victim the patient “actually communicated” an intent to physically harm was his own mother.  Based on these verbal expressions of threats, the psychiatrist ordered Lasting Hope staff to call the patient’s mother to warn her.  By the time the psychiatrist had ordered the patient’s discharge, she knew that Omaha police were aware of the patient’s threats of physical violence against his mother because Lasting Hope staff had discussed the threats with law enforcement officers, who also warned the patient’s mother.  The patient never actually communicated to his psychiatrist that he intended to harm his former girlfriend; therefore, the psychiatrist had no duty to warn her.

 Under the Munstermann rule, psychiatrists owe no duty as a matter of law to third parties for physical injuries caused by a patient who have not “actually communicated” a threat of physical violence.  Once an “actual communication” has taken place, any duty to warn or protect on the part of the psychiatrist can be discharged by reasonable efforts to communicate the threat to the victim and a law enforcement agency.  Here, the patient’s lack of communicated threats against his former girlfriend meant that no duty to warn or protect was triggered for the psychiatrist.  The former girlfriend’s death was not legally attributable to a breach of duty by the psychiatrist or Lasting Hope because the patient never “actually communicated” that he intended to harm his former girlfriend. 

 Future Developments

 When faced with a patient who “actually communicates” a serious threat of physical violence against a reasonably identifiable individual, mental health professionals have a duty to both warn and protect that individual.  However, these duties shall be discharged by the psychiatrist if reasonable efforts are made to communicate the threat to both the individual and to a law enforcement agency.

 Erickson | Sederstrom has provided counsel to mental health and other practitioners for decades.  Please consult with one of our attorneys if you have questions regarding impact of the Rodriguez decision and how mental health practitioners can minimize their legal risks.

Nebraska Supreme Court Clarifies Enforcement of Covenants Regarding Homeowners’ Associations

Erickson | Sederstrom's attorneys’ have extensive background in real estate disputes.  If faced with a difficult issue involving real estate – including conveyances, development, zoning, construction, property tax, or other issues – we recommend you contact our office and speak with one of our attorneys. 

 Real estate developments typically are governed by covenants that require or prohibit certain actions by property owners.  To be enforceable, covenants must involve issues that “touch and concern” the land.  The “touch and concern” element of real property covenants has been convoluted in its development.  The Nebraska Supreme Court recently narrowed the interpretation of this element as applied to communities governed by a homeowners’ association (“HOA”).  See Equestrian Ridge Homeowners Ass'n v. Equestrian Ridge Estates II Homeowners Ass'n, 308 Neb. 128, 146 (2021).  Specifically, the court determined that the “touch and concern” element may be satisfied as applied to communities governed by an HOA when the “burden” of HOA payments is afforded to a “benefit” that is: (1) considered a necessity to the community; and (2) increases the value of the community’s lots.

 Facts

 In Equestrian Ridge Homeowners Ass'n v. Equestrian Ridge Estates II Homeowners Ass'n, the Nebraska Supreme Court decided a dispute between two neighboring HOAs involving real covenants running at law in a neighborhood near Gretna, Nebraska.  The covenants addressed requirements to maintain a street.

 In 2004, Ted Grace (“Grace”) and Duane Dowd (“Dowd”) owned contiguous tracks of land near Gretna.  Together, Grace and Dowd agreed to grant their respective tracts of land to Equestrian Ridge, an L.L.C. established by Grace and Dowd, and develop the tracts into residential subdivisions.  Subsequently, Grace and Dowd executed an additional agreement to develop Grace’s tract (“Equestrian Ridge Estates”) first, then Dowd’s tract (“Dowd Grain Subdivision”) thereafter.  All fifteen lots in Equestrian Ridge Estates were sold and were subject to the authority of its HOA through a series of covenants, conditions, and restrictions (“CC&R’s”).  During the development of Dowd Grain Subdivision, the parties determined that Shiloh Road, the only accessible pathway to the Subdivision, terminated at a dead end; therefore, the parties decided to improve accessibility to the Subdivision by “extending Shiloh Road past its dead end to the west, across the border with” Equestrian Ridge Estates.  This agreement was evidenced by Dowd’s promise to subject Dowd Grain Subdivision and its forthcoming HOA, through a series of CC&R’s, “to a sharing of one third of the costs and expenses for the repair and maintenance of 232d Street within Equestrian Ridge Estates.”

 After developing several lots within Dowd Grain Subdivision and renaming the subdivision Equestrian Ridge Estates II, Dowd resigned from the HOA.  Thereafter, “[t]he board members of Equestrian Ridge Estates II HOA formally accepted Dowd's relinquishment of all his interests and agreed to manage the subdivision, and contributed its share of maintenance costs to improve 232d Street.

 In early 2015, Equestrian Ridge Estates II HOA “met to discuss major roadwork that was expected along 232d Street” and made several complaints, including “that when Equestrian Ridge Estates HOA made repairs to 232d Street, it did so without the input of Equestrian Ridge Estates II HOA.”  Equestrian Ridge Estates II HOA further complained “that they only ever learned about 232d Street maintenance projects upon receiving invoices from Equestrian Ridge Estates HOA, typically without any explanation about the maintenance for which they were being asked to contribute.”  Afterwards, Equestrian Ridge Estates II HOA amended its CC&R’s “to remove any requirement of [their] lot owners to contribute to maintenance costs of 232d Street” and refused to contribute to road maintenance costs, while Equestrian Ridge Estates HOA paid the entire amount.  As a result, Equestrian Ridge Estates HOA filed suit against Equestrian Ridge Estates II HOA to seek payment for the road maintenance costs pursuant to the covenants.

 Legal Conclusions

 The Nebraska Supreme Court held that Equestrian Ridge Estates II HOA “was bound to contribute to 232d Street maintenance costs under the 2004 Agreement” because Equestrian Ridge Estates II HOA “was a successor in interest of Dowd Grain Subdivision and, as such, was bound by the covenant at issue in the 2004 Agreement, which runs with the land in perpetuity.”  In support of its holding, the Nebraska Supreme Court set forth and applied the three requirements for a covenant to run with the land:

(1) The grantor and the grantee must have intended that the covenant run with the land, as determined from the instruments of record; (2) the covenant must touch and concern the land with which it runs; and (3) the party claiming the benefit of the covenant and the party who bears the burden of the covenant must be in privity of estate. 

 Applied here, the “intent to bind” element was met because it was contemplated in the 2004 agreement that the covenants at issue “would bind lot owners in the future.”  When considering the “touch and concern” element, the court noted that “it has been found impossible to state any absolute tests to determine what covenants touch and concern land and what do not.”  Therefore, this issue was “one for the court to determine in the exercise of its best judgment upon the facts of [the] case.”

 The Nebraska Supreme Court has adopted a clearer explanation of “what it means for a covenant to touch and concern the land.”  The “covenant must impose, on the one hand, a burden upon an interest in land, which on the other hand increases the value of a different interest in the same or related land.”  The “touch and concern” element is met in this instance because “[i]n exchange for the burden of being required to contribute to 232d Street maintenance costs, Dowd afforded Equestrian Ridge Estates II and its future lot owners the benefit of paved access across 232d Street to public roads.”

 Finally, the Nebraska Supreme Court distinguished and applied various definitions of “privity” when analyzing the third element of “privity of estate.”  See id. at 146-47.  In essence, “privity” can be “defined as mutual or successive relationships to the same right of property, or such an identification of interest of one person with another as to represent the same legal right or derivative interest . . . between parties.”  Id. at 147.  The “privity of estate” element is satisfied in this case because Equestrian Ridge Estates II, the same property that Dowd once owned, is now controlled by Equestrian Ridge Estates II HOA and owned by Equestrian Ridge Estates II HOA and Equestrian Ridge Estates II's lot owners.  Id.  Accordingly, “Dowd and these lot owners are successive owners of the same land pursuant to their deeds of purchase for the lots.”  Id. 

 Therefore, Dowd’s promise to subject his subdivision to a requirement to contribute to 232d Street maintenance costs at the time of the 2004 agreement “was a covenant that ran with the land.”  As a result, Equestrian Ridge Estates II HOA, as the successor in interest to Dowd, was bound to contribute to 232d Street maintenance costs.

 Future Developments for Covenants Running at Law as Applied to Communities Governed by an HOA

 Although the “touch and concern” element has been convoluted throughout its development, the Nebraska Supreme Court has now narrowed its interpretation of this element as applied to communities governed by an HOA.  Specifically, the court determined that the “touch and concern” element may be satisfied as applied to communities governed by an HOA when the “burden” of HOA payments is afforded to a “benefit” that is: (1) considered a necessity to the community; and (2) increases the value of the community’s lots, such as the street maintenance costs involved here. 

Nebraska Supreme Court Upholds Premises Liability Standard, Rejecting Foreseeability as a Conclusory Factor

In Sundermann v. Hy-Vee, the Nebraska Supreme Court found that Hy-Vee was not liable to the plaintiff, Sundermann, who sustained serious injuries when she was struck by a pickup truck while using an air compressor to fill her tires in a Hy-Vee parking lot.  Sundermann v. Hy-Vee, Inc., 306 Neb. 749 (2020).  In support of its holding, the Nebraska Supreme Court applied the framework for premises liability and rejected the trial court’s finding that Hy-Vee was liable based upon a more general foreseeability analysis.  Id at 764.  The premises liability test holds that a possessor of land is subject to liability for an injury caused to its lawful visitor by a condition on the land if

(1) the possessor either created the condition, knew of the condition, or by the existence of reasonable care would have discovered the condition; (2) the possessor should have realized the condition involved an unreasonable risk of harm to the lawful visitor; (3) the possessor should have expected that a lawful visitor such as the plaintiff either (a) would not discover or realize the danger or (b) would fail to protect himself or herself against the danger; (4) the possessor failed to use reasonable care to protect the lawful visitor against the danger; and (5) the condition was a proximate cause of damage to the plaintiff. 

Id.  Applying these elements to the facts, the first element was satisfied because Hy-Vee designed the parking lot area and chose where to place the air compressor.  Id at 767.  In considering the second element, the court viewed the evidence in the light most favorable to the plaintiff and assumed that there was a genuine issue of material fact regarding whether the location of the air compressor created an unreasonable risk of harm.  Id at 771.  When considering the third element, the law holds that “a land possessor is not liable to a lawful entrant on the land unless the possessor has or should have had superior knowledge of the dangerous condition.”  Id at 770.  Further, a landowner will not be liable for a dangerous condition unless the landowner “should have expected” that the plaintiff “either would not discover or realize the danger or would fail to protect himself or herself against the danger.”  Id. 

The open and obvious doctrine states that a possessor of land is not liable to an invitee for harm caused by any activity or condition on the land when the danger is known or obvious to the invitee.  Id.  The court found that the dangers of parking in the drive aisle to use the air compressor were obvious and the plaintiff would have appreciated the risks associated with parking where she did and crouching down to fill her tires.  Id.  Further, there was no evidence that Hy-Vee had any reason to believe that Sundermann would become distracted and unable to recognize the obvious risk, but rather Sundermann testified that she was aware of the danger and was watching for traffic.  Id.  Because the open and obvious doctrine clearly applies, Hy-Vee is not liable under the doctrine.

The court therefore found that the third element could not be satisfied, stating “even when a land possessor is aware lawful visitors are choosing to encounter an obvious risk, it does not necessarily follow that the land possessor has reason to expect the lawful visitors will fail, or be unable, to protect themselves from that risk.  Id.  Hy-Vee had not received any safety complaints before about that location, and there had not been any prior accidents that would lead Hy-Vee to believe lawful visitors would fail to protect themselves from the obvious risk associated with choosing to park in the drive aisle.  Id.  Further, Hy-Vee had no reason to expect that the plaintiff would not appreciate the danger posed by her activities.  Id.

            Because the third element could not be satisfied, Hy-Vee could not be held liable for Sundermann’s injuries.  This case was significant in rejecting the analysis used in the trial court, which focused on whether it was reasonably foreseeable that a lawful visitor would be injured in such a way.  This court instead focused on the premises liability standard, in which foreseeability is a consideration, but not a conclusory factor.

Additional Funding Enacted for Coronavirus Relief Programs

Last week, Congress passed and the President signed the latest legislation to provide additional funding for Coronavirus relief programs, the Paycheck Protection Program and Health Care Enhancement Act.
This legislation is now commonly known as “Phase 3.5” of legislative coronavirus stimulus and relief packages.

First, Phase 3.5 adds an additional $310 billion to the Paycheck Protection Program (“PPP”). Low interest, forgivable loans available through the PPP were quickly exhausted when first made available.

Phase 3.5 also adds an additional $50 billion for Economic Injury Disaster Loans (“EIDLs”) and expands the scope of eligible businesses. EIDLs are now available to certain agricultural entities with less than 500 employees.

$75 billion is provided to support health care facilities to help offset additional costs and expenses due to the coronavirus. Finally, $25 billion is provided to support increased testing.

FAMILIES FIRST CORONAVIRUS RESPONSE ACT AND WHAT IT MEANS FOR EMPLOYEES AND EMPLOYERS IN NEBRASKA

On March 18, 2020, in response to the novel coronavirus pandemic, Congress enacted the Families First Coronavirus Response Act to provide Americans paid leave, free testing, and access to certain health benefits in order to protect public health. The Act contains two divisions that specifically detail the responsibilities of the employee and employer:

• Division C –Emergency Paid Leave Act of 2020

• Division D – Emergency Unemployment Insurance Stabilization and Access Act of 2020

DIVISION C –EMERGENCY PAID LEAVE ACT OF 2020

Division C provides benefits to employees and employers when an employee is unable to work due to COVID-19.

Qualification Criteria

Employee:
• The employee has a current diagnosis of COVID-19
• The employee is quarantined (including self-imposed quarantine), at the instruction of a health care provider, employer, or government official, to prevent the spread of COVID-19.
• The employee is caring for another person who has COVID-19 or who is under a quarantine related to COVID-19.
• The employee is caring for a child or other individual who is unable to care for themselves due to the COVID-19 related closing of their school, childcare facility, or other program.

Employer:
• Government employer
• Companies with 50 – 500 employees
Employers with greater than 500 employees are required to pay the employee during the 80 hours of emergency leave, but are eligible for reimbursement through tax credit.
These benefits are active from January 19, 2020 to January 19, 2021. The benefits can be paid retroactively with applications until July 19, 2020.

The Benefits:
• Regular to two-thirds of the individual’s average monthly earnings (based on the most recent year of wages or self-employment) up to a cap of $4,000.
• Applicants can apply online, by phone, or by mail. In most cases, payments will be issued electronically.
• The beneficiary is responsible for applying.

Summary:
Employees will be compensated for up to weeks (80 hours) of regular pay if they are quarantined or self-quarantined. Employees who are quarantined in order to care for another person who has COVID-19 or for a child is entitled to two-thirds their regular rate of pay for two weeks (80 hours). Covered employers are eligible for dollar-to-dollar reimbursement through tax-credits for all qualifying workers.

DIVISION D – EMERGENCY UNEMPLOYMENT INSURANCE STABILIZATION AND ACCESS ACT OF 2020

Division D provides benefits to individuals who are unemployed due to COVID-19.

In order to slow the rate of novel coronavirus (flatten the curve), many businesses have temporarily or permanently closed which has resulted in massive layoffs. Division D of the Act expands existing Unemployment Insurance to address the current employment environment for many Americans. If an employer cannot retain their current number of employees or must reduce employees’ hours have the follow responsibilities.

Duties and Responsibilities

Employer:
• Must provide notification of potential unemployment insurance eligibility to laid-off employees
• Must ensure that employees have at least two ways to apply for benefits
• Must notify applicants (the laid-off employee) when an application is received and being processed and if the application cannot be processed, provide information to the applicant about how to ensure successful processing. Employee
• Must apply for unemployment insurance
• Not obligated to seek employment between March 22, 2020 and May 2, 2020.

Benefits:
In general, the unemployed worker in Nebraska will receive half their regular weekly wage up to $440 each week and an additional $600 provided by the Act in effort to mitigate the economic impact of the novel coronavirus pandemic. Short Term Compensation may be available to employees whose hours have been cut due to the pandemic. Benefits should be sought through NEworks.nebraska.gov.

Qualifications:
• Unemployed worker has had one unpaid week
• Unemployed worker whose job loss is due to no fault of their own
• Self-employed worker whose earnings have been impacted by the pandemic

Summary:
Employees who are laid off or face reduced hours due to COVID-19 may apply for unemployment benefits or short term compensation and are not required to seek new employment between March 22, 2020 and May 2, 2020. The turn around time for receipt of benefits is not currently known.

Title Defect Renders Collateral Useless; Bank Unable to Cover Losses from Loan Default

A recent Nebraska Supreme Court decision illustrates why individuals should always seek advice of counsel before entering into a financial agreement. In Foundation One v. Svoboda, the Nebraska Supreme Court affirmed a lower court’s ruling that a Bank could not recover vehicles pledged as collateral to secure a loan because a gap in title indicated the Borrower did not own the vehicles. 303 Neb. 624, ___ N.W.2d ___ (2019).

Foundation One loaned $200,000 to Jason Svoboda upon Svoboda pledging two Mack trucks as collateral to secure the loan. In order to maintain the priority of its claim to the vehicles the Bank paid $85,141.40 to remove several preexisting liens on the truck titles. When the Svoboda defaulted on the loan, the Bank repossessed both trucks, eventually selling one for $95,000. Before the Bank could sell the second truck, however, the legal owner intervened in the case.

The trial to determine the legal owner of the trucks brought some startling facts to light. Prior to obtaining the loan, and unbeknownst to the Bank, Svoboda had engaged in a scheme to fraudulently transfer title from the legal owner, Lehr, Inc., back to Svoboda, to use the trucks as collateral for his loan. This scheme left a gap in the trucks’ chain of title. Lehr, Inc. presented evidence at trial showing that the trucks were, at all relevant times, the legal property of Lehr, Inc., and not Svoboda.

The jury verdict ordered the Bank to return the truck remaining in its possession, and to pay an additional $95,000 to Lehr (the amount the Bank received for the sale of the other truck). The jury verdict left the Bank with the full $200,000 amount of the loan, less any payments made before the Borrower’s default. Reviewing the case on appeal, the Nebraska Supreme Court commented that the Bank is required to show a clear chain of title from any previous owners of the trucks to the Borrower, and from the Borrower to the Bank. Id. at 633, ___ N.W.2d at ___. Ultimately, the Bank could not claim an interest in either truck because “the evidence, on its face, . . . showed a break in the chain of ownership between Lehr and [the Borrower] and did not show clear title in [the Bank].” Id.

If the Bank had conducted a more thorough investigation regarding the vehicles offered by Svoboda, it would have avoided the loss in question.

Interaction Between Nebraska Statutes Defining When a Judgment is Entered and Bankruptcy Law

Under federal law, filing a petition in bankruptcy implements an automatic stay regarding judicial actions against the debtor. The Nebraska Supreme Court has clarified whether a judgment violates the automatic stay when the judgment is announced verbally prior to a bankruptcy filing, but signed and file stamped after the filing.

In Doe v. Fireman’s Fund Insurance Co., Jane Doe filed suit in Lancaster County District Court against Red Willow Dairy, Jim Huffman and Ann Huffman. 287 Neb. 486 (2014). Jim and Ann Huffman owned Red Willow Dairy, and Doe alleged the company failed to investigate and supervise an employee that assaulted Doe. Doe filed a motion for default judgment on December 14, 2009, after all defendants failed to answer her complaint. On December 18, 2009, the court sustained the motion for default judgment and directed Doe’s attorney to submit a proposed order within seven days. On December 21, 2009, Red Willow Dairy and the Huffmans filed for bankruptcy.  On December 22, 2009, the judge signed an order for the default judgment, and the Lancaster County District Court Clerk file stamped the order.

As part of a bankruptcy settlement, Doe received rights the Huffmans and Red Willow Dairy might have against Fireman’s Fund Insurance Company for its actions relating to the original lawsuit. Doe filed a complaint against the company, alleging it breached its duty to defend Red Willow Dairy and the Huffmans. In return, Fireman’s filed a motion for partial summary judgment, arguing that the entry of the default judgment violated the automatic stay even though the court announced the judgment three days prior. The district court agreed and granted the motion for partial summary judgment.

Doe appealed the district court’s decision, arguing that signing the order previously announced and file stamping were only clerical in nature and Nebraska should adopt the ministerial exception referred to by United State Court of Appeals for the First Circuit. The “ministerial exception” reasons that when a judicial decree is so clear and unambiguous, the judicial action is complete. Any subsequent announcements that provide a court with no discretion do not violate the automatic stay rule.

The Nebraska Supreme Court declined to adopt this exception, noting that the exception contradicts Nebraska Statute §25-1301. The Nebraska law resolves any uncertainty regarding the commencement of the time to appeal a judgment by defining “judgment” as a decision that is rendered and entered. The court reasoned that the rendition in this case occurred when the default judgment was announced on December 18, 2009. The entry of the default judgment did not occur until December 22, one day after the Huffmans and Red Willow Dairy filed for bankruptcy. Because the district court did not sign and file stamp the judgment until December 22, it did not become a “judgment” until that day. The court reasoned that because the judgment was not finalized until December 22, it violated the automatic stay rule regarding the bankruptcy petition filed on December 21, 2009.

The Nebraska Supreme Court’s decision ensured that the definition of “judgment” stays clear and consistent in Nebraska. Although creditors in other jurisdictions do not violate the automatic stay rule when future proceedings involve only clerical matters, Nebraska creditors must be cautious when it comes to such proceedings.  If you have questions regarding application of the automatic stay rule with regard to collection actions, please contact one of the Erickson|Sederstrom attorneys working in the creditors rights area.

Bankruptcy Creditors Given Leeway to File Proofs of Claim Based Upon Stale Debts

In Midland Funding, LLC v. Johnson, 581 U.S. ___, 137 S.Ct. 1407, 197 L.Ed.2d 790 (2017), the United States Supreme Court held that creditors in Chapter 13 bankruptcy cases do not violate the Fair Debt Collection Practices Act if the creditor files a proof of claim based upon a stale debt in the bankruptcy case.  In other words, even if the statute of limitations set forth by state law has expired as to the creditor’s claim against the debtor, it is not a violation of federal law for the creditor to file a proof of claim in the bankruptcy case.  Once the proof of claim has been filed, the burden is on the debtor, through counsel, to identify the stale nature of the claim and object to the claim.  The Chapter 13 bankruptcy trustee may also object.  If no objection is made, the claim is likely to be allowed in the bankruptcy case.

Midland Funding has led to additional questions, including whether the same rule applies in Chapter 7 bankruptcy cases as well or is limited to Chapter 13.  Although Midland Funding was focused on Chapter 13, we believe the holding regarding stale debts would apply to Chapter 7 consumer bankruptcy cases.  Based on Midland Funding, creditors will in some cases be able to recover at least part of a debt that could not be pursued outside the bankruptcy court forum.  Creditors are now significantly more likely to file such claims in bankruptcy cases. 

Erickson | Sederstrom recommends that creditors planning to file a proof of claim that would be time-barred under state law first consult with counsel to ensure they do not violate the Fair Debt Collection Practices Act.