UNDERTAKER’S DOCTRINE IN NEGLIGENCE CLAIMS — NO GOOD DEED GOES UNPUNISHED?

Posted on May 4, 2018 by David Adelstein Posted in Negligence | Tagged duty, individual liability, negligence, negligence duty, real estate agent duty, undertaker's doctrine

There are many times the old adage, “No good deed goes unpunished,” rings true. At one point in time, or more likely many points in time, we have all felt this why. We undertook a good deed only to feel unappreciated or the good deed backfires.

In Florida, there is a legal doctrine known as the undertaker’s doctrine. Just the name of the doctrine has a morbid undertone, right? This doctrine applies in negligence scenarios because it establishes a duty that the undertaker owes to another, even if he undertook a service because he is a swell guy. This undertaker’s doctrine has been described as follows:

Whenever one undertakes to provide a service to others, whether one does so gratuitously or by contract, the individual who undertakes to provide the service — i.e., the ‘undertaker’ — thereby assumes a duty to act carefully and to not put others at an undue risk of harm. The undertaker is subject to liability if: (a) he or she fails to exercise reasonable care, which results in increased harm to the beneficiary; or (b) the beneficiary relies upon the undertaker and is harmed as a result.

Muchnick v. Goihman, 43 Fla.L.Weekly D986b (Fla. 3d DCA 2018 (internal citations and quotations omitted).

An example of the application of the undertaker’s doctrine can be found in Muchnick where the appellate court held former tenants could assert a negligence claim against their real estate rental agent. In this case, a real estate agent knew a family looking to rent another high-end apartment because they lived in the same building. He worked for a real estate brokerage firm and he approached the family about renting another unit in the same building. During the walk through of that unit, there were items the family wanted repaired and the agent assured the family they would be addressed prior to the family moving in. The family rented the apartment and the brokerage firm was listed as the broker for the transaction.

When the family moved into the unit, the items they wanted repaired were not. And, to make matters worse, the family discovered a serious water intrusion and damage problem that resulted in mold getting into to the apartment’s ventilation system. The family communicated predominantly with the real estate agent regarding the issues as the owner of the unit lived abroad and the agent lived in the building. During a deposition, the father claimed that the agent told him that since he lived in the same building he would be the go-to-guy to address any issues with the apartment and undertake repairs. The issues did not get resolved which impacted the children’s health and they were forced to terminate the lease early and relocate.

Initially, the real estate agent argued that his firm, and not him personally, should have been sued, because he was acting in the scope of his employment as a real estate agent in dealing with the family. The appellate court rejected this argument stating:

[J]ust because Goihman [agent] was acting in the scope of his employment when he rented the apartment, promised to fix it, and managed the repairs, doesn’t mean that he was shielded from personal liability under all circumstances. [O]fficers or agents of corporations may be individually liable in tort if they commit or participate in a tort, even if their acts are within the course and scope of their employment. All that needs to be alleged is that the agent or officer personally participated in the tort, even if the complained of action was because of and entirely within the scope of his or her employment.

Muchnick, supra (internal citations and quotations omitted).

Next, the real estate agent argued that since he did not own the apartment unit, he did not owe a duty to the family that was renting the unit to fix and manage the repairs. The appellate court rejected this argument too…because of the undertaker’s doctrine. Once the real estate agent volunteered, even if gratuitously, to fix the problems and manage the repairs, he assumed a duty to exercise reasonable care in performing those services.

It is great to be a swell guy. But, when you agree to undertake a service, even if that service is nothing but a good deed you are performing, you have a duty to use reasonable care in performing that service to prevent harm to the beneficiary of that service.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

WHAT IS THE FALSE CLAIMS ACT? WHAT IS A QUI TAM ACTION? WHAT IS A RELATOR’S PURPOSE?

Posted on April 28, 2018 by David Adelstein Posted in 31 USC 3730, False Claims Act | Tagged False Claims Act, False Claims Act recovery, FCA, qui tam, relator, Section 3730

What is the False Claims Act? What is a qui tam action? What is a relator’s purpose?

If you have asked these questions, the Eleventh Circuit in U.S. ex rel Hunt v. Cochise Consultancy, Inc., 2018 WL 1736788, *3-5 (11th Cir. 2018) (internal quotations and citations omitted) did such a wonderful job summarizing the high points of the False Claims Act, particularly a qui tam action, that it is worth repeating. I just added the headings for purposes of convenience.

History Behind False Claims Act (FCA)

The FCA [False Claims Act] was enacted in 1863 to stop[] the massive frauds perpetrated by large contractors during the Civil War. These contractors billed the United States for nonexistent or worthless goods, charges exorbitant prices for goods delivered, and generally robbed in purchasing the necessities of war.

Enforcement Mechanisms of the False Claims Act

Section 3730 [31 USC s. 3730] of the FCA sets forth three different enforcement mechanisms for a violation of the Act. Section 3730(a) provides that the Attorney General may sue a violator in a civil lawsuit. Section 3730(b) allows a private plaintiff, known as a relator, to bring a qui tam action in the name of the United States against a violator. Section 3730(h) creates a private right of action for an individual whose employer retaliated against him for assisting an FCA investigation or proceeding.

Qui Tam Action – Section 3730(b)

In qui tam action, the relator pursues the government’s claim against the defendant, and asserts the injury in fact suffered by the government. In bringing a qui tam action, the relator in effect, sue[es] as a partial assignee of the United States.

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Special procedures apply when a relator brings an FCA action; these procedures afford the government the opportunity to intervene and assume primary control over the litigation. A relator who initiates an FCA action must file her complaint under seal and serve it only on the Unites States. While the lawsuit remains under seal, the United States has the opportunity to investigate and decide whether to intervene as a party. During this period, the United States may serve a civil investigative demand upon any person believed to be in possession of documents or information relevant to an investigation of false claims, requiring that person to produce documents, answer interrogatories, or give oral testimony. In addition, the United States may meet with the relator and her attorney, giving the government an opportunity to ask questions to assess the strengths and weaknesses of the case and the relator a chance to assist the government’s investigation.

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If the United States decides to intervene, the government acquires primary responsibility for prosecuting the action, although the relator remains a party. In contrast, if the United States declines to intervene, the relator may proceed with the action alone on behalf of the government, but the United States is not a party to the action.

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Although the United States is not a party to the non-intervened case, it nevertheless retains a significant role in the litigation. The government may request to be served with copies of all pleadings and deposition transcripts, seek to stay discovery if it would interfere with the Government’s investigation or prosecution of a criminal or civil matter arising out of the same facts, and veto a relator’s decision to voluntarily dismiss the action. Additionally, the court may permit the government to intervene later upon a showing of good cause.

Recovery in a Qui Tam Action

Any recovery obtained from a defendant in an FCA qui tam action belongs to the United States, regardless of whether the government has intervened. The relator is entitled to a portion of the recovery, however. Because the relator receives a shares of the government’s proceeds, he is essentially a self-appointed private attorney general, and his recovery is analogous to a lawyer’s contingent fee. By allowing a relator to bring a qui tam action and share in the government’s recovery, the FCA creates an economic incentive to encourage citizens to come forward with knowledge of frauds against the government.

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The size of the relator’s share depends upon whether the United States intervenes. In an intervened case, the relator is usually entitled to between 15 and 25 percent of the proceeds, as well as reasonable expenses, attorney’s fees, and costs. In an non-intervened case, the relator’s share is usually greater: between 25 and 30 percent of the proceeds, as well as reasonable expenses, attorney’s fees, and costs.

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Even though the relator receives a smaller share in an intervened case, relators generally try to persuade the United States to intervene because the government’s intervention makes it far more likely that there will be a recovery. When the United States elects to intervene, about 90 percent of the time the case generates a recovery, either through settlement or a final judgment. But only about 10 percent of non-intervened cases results in recovery. Indeed, when the government declines to intervene, more than 50 percent of the time the relator decides not to proceed and voluntarily dismisses the action.

If you have questions regarding a False Claims Act / qui tam action, make sure to consult counsel that understands the nuances of such actions including any legal hurdles and challenges. The False Claims Act is contained in 31 USC s. 3729 – s. 3733 and there is a plethora of law setting forth a relator’s requirements. This discussion provides merely a high level summary of a complex legal scheme.

THERE ARE TIMES AN EQUITABLE SUBROGATION CLAIM IS THE MOST PRACTICAL RECOURSE FOR REIMBURSEMENT

Posted on April 22, 2018 by David Adelstein Posted in Indemnification, Negligence, Subrogation | Tagged common law indemnification, duty owed, equitable subrogation, indemnification, negligence, negligence duty, subrogation

Equitable subrogation is a claim that can be pursued when a party (referred to as the subrogee) pays for damages to protect its interest–perhaps to mitigate its own exposure–seeks reimbursement from another party primarily liable for the damages. There are times a party seeking reimbursement for purely economic losses is best able to pursue an equitable subrogation claim, as opposed to a common law indemnification or negligence claim.

Equitable subrogation is generally appropriate where: (1) the subrogee made the payment to protect [its] own interest, (2) the subrogee did not act as a volunteer, (3) the subrogee was not primarily liable for the debt, (4) the subrogee paid off the entire debt, and (5) subrogation would not work any injustice to the rights of a third party.

Tank Tech, Inc. v. Valley Tank Testing, L.L.C., 43 Fla.L.Weekly D868a (Fla. 2d DCA 2018) quoting Dade Cty. Sch. Bd. v. Radio Station WQBA, 731 So.2d 638, 646 (Fla. 1999).

Equitable subrogation is not dependent on a contract—it is simply an “equitable remedy for restitution to one [the subrogee] who in the performance of some duty has discharged a legal obligation which should have been met, either wholly or partially, by another.” Tank Tech, Inc., supra, quoting W. Am. Ins. Co. v. Yellow Cab Co. of Orlando, Inc., 495 So.2d 204, 206 (Fla. 5^th DCA 1986).

As shown in the recent decision below, there are times an equitable subrogation claim will generate more traction for purposes of a reimbursement claim than a negligence claim or common law indemnification claim, because an equitable subrogation claim does not require the party seeking reimbursement to show a duty is owed to it by the party it is seeking reimbursement from.

The recent decision of Tank Tech, Inc. involved damage to underground petroleum storage tanks at Circle K locations. Company “A,” the subrogee, had been hired by Circle K to retrofit existing tanks by adding an interior wall inside of the tanks. Company “B” was separately hired by Circle K to test the interstitial space between the new interior wall installed by Company “A” and the existing tank wall. There was no contractual relationship between Company “A” and Company “B.”

After the tanks were retrofitted, Circle K notified Company “A” that the modified tanks were damaged and failing. Although Company’s “A” investigation revealed the failure was the result of Company’s “B’s” testing methodology, Company “A” nevertheless repaired the damage to the tanks because its contract with Circle K required it to do so regardless of whether the damage was caused by a third party, such as Company “B.”

Company “A” then sued Company “B” for reimbursement of its repair costs under various claims, one of which was equitable subrogation. Each party had expert opinions that pointed to the other for the cause of the tanks’ failure and damage. The trial court granted a motion for summary judgment in favor of Company “B” finding that equitable subrogation did not apply. This summary judgment was reversed on appeal as the Second District maintained that there were factual issues supporting the basis of the equitable subrogation claim:

Tank Tech’s [Company “A”] contract with Circle K obligated it to repair damages to the USTs [tanks]. But Tank Tech’s contractual obligation to Circle K did not convert Tank Tech into a “volunteer” to pay for damages caused by a third party and thus did not prevent the application of the equitable subrogation doctrine. Instead, Tank Tech was merely fulfilling its legal obligation to Circle K which was a necessary means of protecting itself from liability to Circle K. And Tank Tech, by virtue of Dr. Cignatta’s affidavit [expert opinion establishing Company “B” caused failure to tanks], established a genuine issue of material fact regarding whether Tank Tech or Valley Tank [Company “B”] was primarily liable for the damages. If Tank Tech is ultimately successful in proving that Valley Tank caused the damage to the USTs, then it would be entitled to seek any damages it incurred as a result of having to repair the damaged USTs. To hold that Tank Tech is precluded from pursuing a claim for subrogation would leave Tank Tech without a remedy, a “most unfair and inequitable result.”

Tank Tech, Inc., supra (internal citations omitted).

Negligence and Common Law Indemnification

Relatedly, Company “A” also sued Company “B” for negligence and common law indemnification for repairing tanks it claimed were caused by Company “B’s” testing methodology. The trial court also granted summary judgment in favor of Company “B” on these claims. Unlike the equitable subrogation claim, the Second District affirmed the summary judgment in favor of Company “B” on these claims.

For Company “A” to sustain a negligence claim, it would have to establish that Company “B” owed it a duty. Without a duty owed, there is no negligence claim. Whether there is a duty is a question of law for the court. In this case, when dealing with only economic losses, the relationship between the parties—Company “A” and Company “B”—needs to be examined to determine whether a special relationship exists to warrant creating a duty to protect the economic interests of another. “[I]n order to proceed on a common law negligence claim based solely on economic loss, there must be some sort of link between the parties or some other extraordinary circumstance that justifies recognition of such a claim.” Tank Tech, Inc., supra. Here, the Second District agreed that Company “B” did not owe Company “A” a duty to support a negligence claim:

The reason why the negligence claim fails here is because there is neither a special relationship between Valley Tank [Company “B”] and Tank Tech [Company “A”] nor any extraordinary circumstance that would require imposition of a duty. Tank Tech’s injury did not flow from Valley Tank’s testing of the USTs [tanks]. Instead, Tank Tech seeks to recover the money it spent in repairing the USTs, an expense that was the result of a negotiated contract between Tank Tech and Circle K. There was no contract between Valley Tank and Tank Tech obligating Valley Tank to repair any USTs it damaged during testing or otherwise obligating Valley Tank to repay Tank Tech for the expenses incurred pursuant to Tank Tech’s contract with Circle K. And Valley Tank’s testing did not cause any personal injury or property damage to Tank Tech, the types of injuries for which the common law of negligence has historically permitted recovery.

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This is simply a case of a party attempting to bring a tort claim to recover monies that it spent as a result of a contractual obligation to a third party. But negligence claims cannot proceed based on a party’s desire to relieve itself from a bad bargain.

Tank Tech, Inc., supra.

Likewise, regarding the common law indemnification claim, “actions for indemnity have been restricted to situations involving either a duty, an express contract, or the existence of active and passive negligence.” Tank Tech, Inc., supra, quoting Hiller Grp., Inc. v. Redwing Carriers, Inc., 779 So.2d 602, 603 (Fla. 2d DCA 2001). Since the Second District already agreed there was no special relationship between Company “A” and Company “B” and, thus, no duty owed, the common law indemnification claim failed for the same reasons as the negligence claim.

SUING A PUBLIC ENTITY FOR NEGLIGENT MISREPRESENTATION …NOT SO FAST

Posted on April 14, 2018 by David Adelstein Posted in Negligence | Tagged duty of care, negligence, negligent misrepresentation, sovereign immunity

Suing a public entity for negligent misrepresentation…let’s just say, is not that easy. Not that easy at all! Putting aside the doctrine of sovereign immunity (the doctrine that the king can do no wrong), a public entity does not have an affirmative duty to necessarily convey accurate information, no matter how fair or unfair this may sound. And, a negligence claim fails without the defendant (in this case, public entity) owing the plaintiff a duty of care.

For example, in City of Dunedin v. Pirate’s Treasure, Inc., 43 Fla. L. Weekly D783a (Fla. 2d DCA 2018), a commercial owner wanted to renovate its property to accommodate a refurbished marina and a new restaurant. The owner met with the city to review its preliminary conceptual site plan. Based on this meeting, the owner prepared a costly site plan to comply with the City’s development code for the restaurant and marina. The City’s engineering department approved the site plan. However, the City then informed the owner that it had concerns with the restaurant’s square footage and parking. The owner and City agreed that the site plan for the marina and restaurant would be separated, as the owner did not want to ruffle any feathers. The City then approved the separate site plan for the marina but told the owner that the site plan approval for the restaurant was terminated as the owner needed to submit a brand-new application and comply with the updated development code. The owner filed suit against the City claiming, among other things, the City made misrepresentations about the site plan approval only to engage in a bait-and-switch tactic where the misrepresentations were made to induce the development of the marina, without the accompanying restaurant.

The City moved to dismiss the negligent misrepresentation claim on sovereign immunity grounds. The trial court denied the City’s motion finding as a matter of law the City was not entitled to sovereign immunity and the City appealed.

Interestingly, the appellate court rejected the City’s sovereign immunity argument but still reversed the trial court’s holding that the City is not liable to the owner for negligent misrepresentation. The court based its reversal on its determination that the City did now owe the owner a duty of care, hence the negligent misrepresentation claim failed as a matter of law.

A duty of care analysis is different from the analysis whether the City is sovereignly immune from the suit. If there is no duty owed, there is no reason to delve into whether sovereign immunity applies. Here, the Court found no duty was owed because the City “does not owe a duty to convey accurate information concerning whether Pirate’s Treasure’s [owner] site plan complied with the City’s development code.” City of Dunedin, supra.

The owner in this case could have been 100% correct. It had assurances from the City and acted on those assurances in devoting the money and time in finalizing its site plan based on the current development code. It then submitted separate plans at the behest of the City (to appease the City) only for the City to approve the marina (the project it wanted) while terminating the site plan for the restaurant (the project it really did not want). But, assuming this is all true, it does not matter because the court found that the City never owed an affirmative duty to the owner to convey accurate information, i.e., in this case, whether the owner’s site plan complied with the development code.