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Morrison v. Toys “R” Us

6/9/2004

 
Whether A Self-Insured Company Not In The Insurance Business Can Be Sued For Unfair Claim Settlement Practices 

While shopping in a Toys “R” Us store in Kingston, Massachusetts, plaintiff Susan Morrison was injured by a falling sign.  Morrison sued Toys “R” Us, and the store’s claims department tried to settle with Morrison.  Toys “R” Us made its highest offer of $45,000, but Morrison rejected the offer and demanded $250,000.  At trial, the jury awarded Morrison $1.2 million, which the court remitted to $250,000, plus interest.  Morrison then sued Toys “R” Us for unfair claim settlement practices in violation of chapters 93A and 176D (the Unfair Insurance Practices Act), for “[f]ailing to effectuate prompt, fair, and equitable settlements of claims in which liability ha[d] become reasonably clear.” G.L. c. 176D, § 3(9)(f).  The Superior Court dismissed the complaint, holding that Toys “R” Us is not “in the business of insurance” within the meaning of G.L. c. 176D, and therefore is not subject to the unfair insurance claim settlement prohibitions in G.L. c. 176D, § 3(9).  The Superior Court also held that c. 93A does not create a separate right of action against a non-insurance company for unfair claims settlement practices. Morrison appealed, and the Appeals Court reversed the Superior Court.  The Appeals Court held that Toys “R” can be liable under chapter 93A for unfair claim settlement practices even though it is not an insurance company.  

The Supreme Judicial Court took the case for further appellate review. NELF filed an amicus brief on behalf of Toys “R” Us, arguing that exposing Toys “R” Us to liability under G.L. c. 93A for its claim settlement practices contravenes the express intent of the Legislature, in c. 176D, to restrict such liability to entities that are “engaged in the business of insurance.”  NELF also argued that c. 93A does not create liability for defendants who are not in the insurance business.  NELF noted that courts from many other jurisdictions have refused to apply the statutory settlement duties of insurance companies to other businesses simply because they are self-insured.  These jurisdictions recognize that insurance claim settlement duties are a narrow legislative exception to the adversarial norm of litigation, in which a party has the right to negotiate and litigate disputes zealously, without the fear of incurring liability.  NELF argued that the Legislature has carved out a narrow exception to this adversarial rule for insurance companies, because liability insurers are in the business of defending third-party insureds. Policies typically vest insurers with the exclusive right and duty to control litigation and settlement of claims.  This unique contractual relationship gives rise to the potential for abuse and for conflicts of interest.  These concerns are absent when a company defends itself in litigation, because it is not carrying out a contractual duty to defend a third party.  

The Supreme Judicial Court agreed with NELF’s position and held that companies not in the insurance business cannot be sued under c. 93A for their claim settlement practices.  The Court explained that c. 93A was not designed to “expose ordinary defendants (even large corporations) to the risk of liability for multiple damages and attorney's fees for choosing to go to court rather than settling a dispute. . . . As an ordinary defendant, Toys had no affirmative duty to settle the plaintiff’s claim.”

Swift v. AutoZone, Inc.

6/9/2004

 
Protecting Retail Employers from Double Overtime Payments

Under the Massachusetts Sunday premium pay law most retailers must pay an employee time-and-a-half his regular wages for working on a Sunday.  Under the Massachusetts Overtime Law, an employer must also pay a non-exempt employee time-and-a-half for any work exceeding 40 hours per week.  AutoZone, an auto parts retailer, has a pay policy that credits an employee’s Sunday premium pay toward overtime pay due in the same week.  For example, if an AutoZone employee works 8 hours on a Sunday and 40 more hours in the same week, totaling 48 hours, the employee will receive 40 hours of regular pay and 8 hours of pay at time-and-a-half but will not receive double pay for the hours worked on a Sunday.

AutoZone employees Joseph Swift and Edward Cove filed a class-action lawsuit challenging AutoZone’s pay policy, arguing that they were entitled to time-and-a-half pay for both Sunday hours and overtime hours worked in the same week.  The Superior Court ruled that AutoZone’s policy violated the Overtime Law and reported to the Appeals Court the question whether an employer may offset Sunday premium payments against overtime pay. The Supreme Judicial Court then took the case for direct appellate review.  Four months after the Superior Court’s decision while the case was pending before the Supreme Judicial Court, the Legislature enacted emergency legislation amending the Overtime Law to allow employers to credit Sunday or holiday premium pay toward overtime pay.  The Supreme Judicial Court reversed the Superior Court and ruled in AutoZone’s favor.  

NELF joined an amicus brief filed by the Associated Industries of Massachusetts and others, arguing primarily that if two statutes require a person to do the same thing, that person need not do the same thing twice.  Amici also argued that the Superior Court’s interpretation was inconsistent with legislative intent, because nowhere has the Legislature authorized double time for hours worked on a Sunday and in excess of 40 hours in the same week.  The Supreme Judicial Court agreed, and held that an employer may offset Sunday premium pay against overtime pay.  “If two statutes require an employer to do the same thing, there is no rule of statutory construction that compels the employer to do so twice.”  The Court also observed that the 2003 emergency statute permitting crediting is strongly suggestive of the Legislature’s original intent when it first enacted the Overtime Law in 1960.

Rathbun v. Autozone, Inc.

6/9/2004

 
Urging Consistency in Rhode Island Employment Statutes of Limitation


Rejecting NELF’s call for consistency in Rhode Island employment discrimination cases, the First Circuit applied a three-year personal injury statute of limitations to employment discrimination claims under the Rhode Island Civil Rights Act, rather than the one-year statute under the Rhode Island Fair Employment Practices Act. Plaintiff Betsey Rathbun was an employee of AutoZone, which promoted three men to a management position before promoting her and hired or promoted three other men to higher management positions. AutoZone asserted that all six men had superior qualifications to Rathbun. She sued for employment discrimination under the Civil Rights Act, which has no specific statute of limitations, and the Fair Employment Act, which has a one-year statute. 

NELF submitted a brief supporting AutoZone, arguing that the Civil Rights Act claim primarily supplemented the employment discrimination case under the Fair Employment Act and thus the Fair Employment Act one-year statue should apply to employment-based Civil Rights Act claims. While the First Circuit considered NELF’s arguments carefully, the Court was ultimately persuaded that the federal model for the Civil Rights Act, 42 U.S.C. § 1981, utilizes the general personal injury statute of limitations and that uniform interpretation of the Civil Rights Act required a single limitations period, not variable periods depending on whether alleged discrimination occurred in the employment context or elsewhere, as in education or housing.

Stonehill College v. MCAD

6/9/2004

 
Defending Respondents’ Rights to Jury Trials under the Massachusetts Antidiscrimination Law

The Massachusetts antidiscrimination law, Chapter 151B, allows an individual claiming discrimination to commence either an administrative proceeding before the Massachusetts Commission Against Discrimination (“MCAD”) or a lawsuit. In 1994 the Supreme Judicial Court held in Dalis v. Buyer Advertising, Inc that a complainant’s judicial determination includes a right to a jury trial under the Massachusetts Constitution.  By contrast, a respondent has no statutory right to elect an immediate judicial determination of the claim, but may seek a judicial review of the MCAD decision under the Administrative Procedures Act if the claimant elected to go to the MCAD.  In 1997, to preserve the constitutionality of the statute, the SJC extended a jury trial right to respondents as well (Lavelle v. MCAD). Because the SJC wanted to preserve a role for the MCAD, Lavelle permitted respondents to claim jury trials only after final MCAD action, which can take up to eight years.  Lavelle left a host of issues unresolved, and, with four cases pending before it that raise such issues, the SJC requested amicus briefs on themand on the question of whether its decision in Dalis was correct.  

In a brief submitted jointly with Associated Industries of Massachusetts and the Boston Area Management Attorneys Group, NELF argued that Dalis correctly granted jury trial rights to complainants but that Lavelle violated respondents’ guarantee of equal protection by delaying their right to a jury for years pending final MCAD action.  NELF argued that with a fundamental constitutional right at stake, the SJC failed to examine whether a compelling state interest justified such a disparity and, if so, whether its limitation of respondents’ jury trial right was narrowly tailored. In their supplemental brief, NELF and the amici took issue with the MCAD/employee argument that jury trial rights attach only to § 9 proceedings, where the complainant elects to go to court, and not to appeals from administrative proceedings originally brought before the MCAD under § 5.  NELF also argued that if the Court were persuaded that there is no jury trial right after § 5 proceedings, then the Court must overrule its decisions allowing the MCAD to award emotional distress damages, since those are quintessential legal damages of the sort customarily awarded by juries. 

The Court, over a strong dissent by Justice Cowin and a concurrence by Justice Sosman that reads more like a dissent, held that Dalis was correct in recognizing a constitutional jury trial right under § 9, but that Lavelle erred when it extended that right to § 5 proceedings. The Court characterized § 9 and § 5 proceedings as fundamentally different, the former a private action between two parties and the latter an administrative enforcement action vindicating the interest of the general public in the eradication of discrimination.  The Court went on, in reasoning Justice Sosman characterized as “inconsistent,” to permit the MCAD to continue to award emotional distress damages.  In the only bright spot in the decision the Court explicitly announced that “a finding of discrimination, or retaliation, by itself, is no longer sufficient to permit an inference of, or a presumption of, emotional distress.”  In what might be read as a rebuke to the MCAD for its ready issuance of five- and six-figure emotional distress damage awards, the Court laid out criteria for such awards and admonished judges hearing c. 30A appeals from MCAD rulings to set aside or reduce emotional distress awards for which there is insufficient evidence.

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