Arkansas Law Review publishes article authored by Nathan

The Arkansas Law Review published an article in its Winter 2012 edition authored by Nathan Chaney. The article is entitled "A Survey of Bad Faith Insurance Tort Cases in Arkansas" and contains a summary of hundreds of bad faith cases decided by Arkansas state and federal courts.

Bad faith cases are unique to insurance companies. All contracts have an 'implied duty of good faith,' but the only time someone can sue for a breach of this duty is when an insurance company does the breaching. Since insurance companies usually dictate policy terms, insurance policies are considered 'contracts of adhesion' that consumers can either sign or reject as-is, and cannot negotiate terms. The consumer's absence of an ability to negotiate is why insurers are held to a higher 'bad faith' standard.

There are two types of bad faith. The first type is called 'third party bad faith.' When an insurance company must defend someone (such as when the policyholder causes a wreck), the insurance company owes a 'fiduciary duty' (the highest legal duty owed by one to another) to the insured. That duty requires the insurance company to settle the case if it has an opportunity to do so and settlement would be reasonable under the circumstances. If it does not settle in this situation, it can be liable for negligent refusal to settle or outright bad faith.

The other type of bad faith is 'first party bad faith.' That involves a situation where an insured makes a claim with the insurance company and the insurance company treats the insured with ill will, hatred, or outright malice. First party bad faith usually arises in one of two circumstances: (1) the insurance company denies the claim on the merits without conducting a proper investigation, or (2) the insurance denies the claim despite facts in the file showing that the claim should be paid.

In a nutshell, insurance companies are supposed to give insureds the benefit of the doubt in the absence of hard evidence that they shouldn't. When they don't, they commit bad faith.

The map is not the territory

As a Boy Scout, orienteering was one of the merit badges I earned before I became an Eagle Scout. It involved my scout buddies and me using topographic maps to plot cross-country courses. Several of these trips took place walking through the pine forests of DeGray Lake, and we had to avoid getting lost on the wrong fingers of the lake. Even with our best efforts at reading the map, a time or two we wound up at the end of one of the wrong fingers. While we had a map, our twelve-year-old selves couldn't always translate what was on the map into what we saw in the dense forest in front of us.

On a later trip to rehash what we'd learned, our scoutmaster guided us along the route we were supposed to have taken. (He even gave us one opportunity to drop our packs. Knowing that he was a prankster, no one took him up on it — we were right not to, because we took a different route back). When we got to the spot where we took a wrong turn and wound up on the wrong finger of the lake, he explained to us how we'd gone wrong with our mapreading. In our case, it was better to have a guide who'd already been down this path, rather than a map drawn on a piece of paper to try and guide ourselves.

Even later in life, I continue to be an outdoorsman. When I lived in Northwest Arkansas, my favorite place to go was the Kings River (it still is, when I get up to that part of the country). One of the most breathtaking sites on this river is Kings River Falls. The Arkansas Natural Heritage Commission has even established a Kings River Falls Natural Area in Madison County near St. Paul for ready access to the falls.

The map above shows the location of Kings River Falls, but you really can't tell anything about the beauty of the place from the map alone. You just know where it is. To see the real beauty, you have to get out into the territory and walk down the riverbank next to the walls built by Scottish settlers from rocks pulled from the jagged bluffs of the Ozark Mountains. You have to experience the rushing water for yourselves. I've done this on numerous occasions, and I'll share one with you below:

The map of Kings River Falls tells nothing about the icy-cold water numbing my toes, the freight-train roar of 10,000 cubic feet of water cascading through a tiny gorge each second, the sight of man-sized logs tossing about in 6-foot standing waves. Nor does a map tell anything about the most vivid memory I have: the wonderful scent of pure, clean, rich, fresh earth. I had to be in the territory to experience all these things.

Those early outdoor lessons also help in the practice of law. Most times when our personal injury cases go to court, a jury must chose between two stories: the treating doctor's story or the professional defense witness' story. The treating doctor will have taken a history, performed a medical examination, reviewed pertinent records, evaluated the impact of any preexisting conditions, assessed the patient's complaints of pain, and actually treated the patient over several years. In contrast, the professional defense witness often will have only read records for an hour or two.

The treating doctor is a guide who knows the territory. The professional defense witness is just some guy who has a map and — without having seen the territory — could very well be lost in the woods.

Arkansas Supreme Court sides with farmers, strikes down punitive damages cap

In a decision handed down on December 8, 2011, the Arkansas Supreme Court struck down the punitive damages cap found in the Civil Justice Reform Act of 2003. The Court ruled that this legislative enactment directly violated a separate part of the Arkansas Constitution. UPDATE: Watch coverage of this ruling here:

The case arose out of two genetically modified strands of rice that contaminated the US long-grain rice supply. Arkansas is the leading producer of long-grain rice, and 52% long grain rice grown in the US was exported to other countries prior to 2006. The USDA had not granted regulatory approval of genetically modified rice, and no foreign government had authorized its use for human consumption. The world wide reaction to the contamination of the US long-grain rice supply was profoundly negative, which resulted in the decrease of in exports of 622,972 metric tons of American rice to other countries from 2005-2008.

On April 15, 2010, a Lonoke County jury found that the producer of the genetically modified rice, Bayer Cropscience, was negligent in allowing the genetically modified rice to contaminate the American rice supply. The jury awarded a group of Arkansas rice farmers a total of $8 million in compensatory damages, and $42 million in punitive damages. Bayer appealed to the Arkansas Supreme Court, arguing that the punitive damages cap was constitutional. The Supreme Court disagreed, and held that the trial court was correct because the cap "limit[ed] the amount to be recovered for injuries resulting in ... injuries to persons or property" in violation of the Arkansas Constitution.

Punitive damages cannot be awarded unless there is evidence of conduct that shows a deliberate intent to injure, or a conscious indifference that shows a reckless disregard of the consequences of one's actions. The purpose of punitive damages is to serve as a warning or example to defendants and others. Before the trial began on March 23, 2010, the trial court declared the punitive damages cap was unconstitutional, and that there was sufficient proof that Bayer's conduct was recklessly indiffierent to the dire consequences of contamination for the trial to move forward on punitive damages.

Several proponents of tort reform have been critical of the Court's decision. According to one state senator, "the democratic process is the major casualty in this legal ruling. I understand the constitutional necessity of separation of powers, but at some point the will of the people comes into play." There are two flaws in this argument: First, each justice on the Arkansas Supreme Court is democratically elected, and the vote of the Supreme Court was unanimous in this case. Second, the writing of our constitution is a very important part of the democratic process, and our constitution trumps contrary laws written by legislators — only the people can amend the constitution by popular vote. That is just how a constitutional system works.

Similarly, the Arkansas State Chamber of Commerce responded by saying that the ruling is a "setback in efforts to create an environment that is encouraging to job-creating entrepreneurs and business leaders," because "the uncertainty presented by the potential for unlimited damage assessments will discourage growth and expansion of Arkansas business." However, this group apparently discounts the fact that rice farmers are small business owners, too. Furthermore, rice farming is a major industry in Arkansas, and Bayer's actions caused serious harm to one of East Arkansas' largest employers, Riceland Foods.

The reaction to this ruling by the State Chamber of Commerce is curious — why is it so afraid of having Arkansas citizens sitting on a jury, as the voice of the community, deciding the appropriate punishment for people that harm Arkansas citizens and businesses?

Several representatives from trade groups in favor of the 2003 law have suggested an initiative to amend the constitution, by citizen petition or through legislative referral in 2012 or 2013. The danger to our State is that punitive damages caps mean that irresponsible companies can recklessly disregard the consequences of their actions and get away with it.

At the Chaney Law Firm, we believe that juries should decide what actions should be punished, what actions are safe and unsafe, and what it will take to fix what can be fixed, to help what can't be fixed, and to make up for what went wrong.

High-tech patent cold war — Let the arms race begin

Google recently lost a bid to buy Nortel's patent portfolio in bankruptcy, and it is disappointed with the results. Google blames the patent system for increasing costs of its Android platform and generally stifling innovation.

Google's complaints are especially interesting considering President Obama's recent speeches on how America's government needs to promote innovation to compete with the rest of the world (and he's right — the Constitution tells us that patents are supposed to "promote progress of science and the useful arts"). These speeches implied that individual inventors and startup companies can help bring us out of our current economic woes by creating jobs at new (and mainly small) businesses.

From a historical perspective, Google is still a startup company; it was formally incorporated in 1998. Assume that Google began applying for patents when its founders created their first search engine in 1996 — those patents would not have expired yet, since patents last 20 years after the date of filing. This means that Google is a relative newcomer to the patent game, but has 15 years' experience as a startup company for whom the patent system is supposed to promote innovation.

And what is Google telling us from its position of experience? That the patent system is not geared towards promoting innovation by startup companies. What's to blame, according to Google? First, the patent system itself, since it is geared towards large corporations who can afford to invest millions of dollars and years of time toward procuring and enforcing patents. A patent, at its very core, is merely the right to exclude someone else from practicing a patented invention — and the only way to exclude someone from doing what they're doing is to sue them. The average utility patent costs somewhere in the five-figure range and takes 3–4 years to obtain, and the average patent infringement lawsuit costs at least a million dollars. What startup company or small business do you know of that can pay a million dollars for a patent infringement lawsuit?

Second, Google complains the patent system is open to exploitation by non-practicing entities (known as "NPEs", or the less-politically-correct "patent trolls"), who do not actually make and sell innovative products, but instead buy and enforce patents against those who do. Just because a startup or small business has a patent doesn't mean that it can't be sued for patent infringement by someone else — products can be, and often are, covered by more than one patent.

What do the pitfalls of the patent system mean for real businesses? Well, there are two general approaches a business can choose to take. First, an industry can elect not to pursue patent protection and compete on the merits of their products. This approach is rare these days, as it is hard for small businesses and startups to attract investment capital without a protectable core product. Second, everyone in the industry can elect to pursue a patent enforcement model. This is the Cold War, mutually-assured destruction model. Since most products in the rapidly evolving high-tech industry are covered by some type of patent, the industry players can extract licensing fees from their competitors, and can resolve patent disputes through some mixture of cross-licensing arrangements, cash payments, and injunctions against future competition. Google's recent press releases make abundantly clear that while it is playing the patent game, it doesn't want to be.

Any industry in which one player shifts from the first two the second model will ultimately force all other players in the industry into the second model. Google is a prime example of this. Its press releases following the Nortel patent sale plainly indicate that Google would prefer to compete on the merits of its products, rather than the size of its patent portfolio. That is, Google would rather spent tens of millions per year on research and development of new technology, rather than litigating over old technology. While some portray this as sour grapes, Google is the current poster child for startup companies, so perhaps the architects of our patent system should listen to what it is saying if they truly want to encourage innovation by startups and small businesses.

The Casey Anthony verdict and the burden of proof

Earlier this week, Casey Anthony walked on first-degree murder and child abuse charges, but was convicted of lying to the police. After the verdicts were announced, people took to the Internet to comment on their views about the case.

The comments take two general forms. First, about half of the people think Anthony got away with something due to how long it took Anthony to go to the police, the party pics, and her ever-changing story. The other half thought that the prosecution didn't prove its case beyond a reasonable doubt. So, the difference between the two types of comments appears to have roots in the burden of proof.

"Beyond a reasonable doubt" is a very high standard. It means all 12 people on the jury had to be absolutely convinced that Anthony really murdered her own daughter. From my limited knowledge about the case, which I didn't follow closely, I understand that the police couldn't really identify the cause of death because it took a while to discover the poor little girl's body. This is a sticking point for lots of criminal juries due to the burden of proof. It is a missing piece of knowledge that prevents the jurors from being absolutely convinced that someone is guilty of a crime.

In civil cases, the burden is not "beyond a reasonable doubt." Technically, it is called a "preponderance of the evidence," but all that means is "which explanation is more likely than not?" So, in a civil case, the plaintiff has the burden of proving that her story is more likely than not to be true. If the defendant's view of the case is more believable, or both stories are equally plausible, then the defense wins.

In some civil cases, both sides have experts that testify about the sides' differing viewpoints. In those cases, the jury simply must decide which expert's explanation is more believable. Oftentimes, the difference of opinion between experts boils down to which expert is willing to continue learning about new medical research and technologies. We see lots of experts who don't educate themselves about these things and then testify based on twenty-year-old medical knowledge without any significant effort at continuing education. As a comparison, I wouldn't want a 1982 computer technician working on my 2008 laptop, even if he is an expert on 1982 computers. I'd rather trust someone with more current knowledge about the subject matter.

In other civil cases, a patient's doctor testifies about his treatment, and the defense hires an expert (who often has a long track history of testifying against injury victims) to testify that the patient isn't as hurt as she says she is. Again, the jury has to decide which story is more believable: is the patient tricking the doctor, her coworkers, and her friends and family, or is the well-seasoned defense expert saying what he always says to help the insurance company and its insured escape responsbility?

Finally, there are civil cases where the defense doesn't even hire an expert to testify. In those cases, the insurance companies try to save a litle money by appealing to juror cynicism. That is, the insurance company lawyer tries to portray the injury victim as a liar, cheat, and fake. Sometimes they accuse the lawyers and doctors of colluding with each other. In this situation, the jury's task is simply to decide whether the injured person and all her witnesses are telling the truth, or whether the insurance company on the other side is trying to get away with its insured doing something wrong.

One thing that often gets lost in civil trials also deals with the burden of proof. As we've written about before, money is the only way our civil justice system allows harm to be corrected. Well, in a civil trial the proper amount of money is the difference between what could have been and what actually is. So the law tells juries that they must award the amount that is more likely than not to put the victim back in the place they were before the harm occurred.

One last thought on the burden of proof. Because the standard isn't "beyond a reasonable doubt" in civil cases, that means it's okay for a juror to have doubts about the case. But, as long as there is less doubt on the victim's side than on the defense's side, then the law requires the jury to side with the victim.

Nathan featured in ATLA Docket

Nathan was recently featured in the ATLA Docket, the magazine published by the Arkansas Trial Lawyers Association. The article follows the awards ceremony at the 2011 ATLA Convention, at which Nathan received an award as the 2011 Most Outstanding Member of the Young Lawyers' Division, and it details Nathan's qualifications and achievements that led to him receiving the award.

Nathan receives award from Arkansas Trial Lawyers Association

The Arkansas Trial Lawyers Association (ATLA) held its annual convention in Little Rock last weekend, and Nathan received ATLA's award for Outstanding Member of the Young Lawyers Division.

Nathan has been a member of ATLA since becoming a licensed attorney in 2004. However, Nathan's history with the organization is much older. Don has been a member of ATLA for three decades, and Nathan attended many an annual meeting in Eureka Springs with his father.

We are excited and proud to have ATLA award-winning trial lawyers within our ranks, as ATLA's mission statement coincides with our own:

ATLA has become the state’s largest and most active voluntary statewide legal organization representing, educating and developing Arkansas’ trial bar. Our members are attorneys dedicated to protecting the health and safety of Arkansas families, to enhancing consumer protections and to preserving each and every citizen's right to trial by jury and access to the courts.

For more information, please visit ATLA's website.

Patent Rocket Docket stays in the Eastern District of Texas

In 2010, the Eastern District of Texas remained the undisputed Rocket Docket for patent cases. According to a recent article, 299 patent cases were filed in the E.D. Tex. in 2010. That's 44 more cases than the next most popular district in Delaware. Even more stunning, however, is the number of defendants in the E.D. Tex.: nearly 4,000, compared with under 1,000 for the next most popular district.

The E.D. Tex. remains a popular district because the docket moves quickly (hence the nickname) and because the judges are perceived as familiar with patent cases. In litigation, plaintiffs generally want to move quickly, while defendants wish to slow down the process. Motions to transfer venue are a way to slow down the process by (1) filing the motion in the first place, and (2) transferring the case to a slower, less patent-savvy district court.

The Federal Circuit Court of Appeals, which hears all patent appeals, continues to review many cases involving requests for transfer of venue. Some of those cases have attempted to make it easier for Defendants to secure a transfer of venue to a more convenient location. Accordingly, it remains to be seen whether the E.D. Tex. will continue to be the nation's Rocket Docket for patent cases.

Nathan teaches class on victory in recent appeal

Nathan Chaney taught a CLE hosted by the Arkansas Trial Lawyers Association last Friday. The theme of the day of CLE was insurance coverage issues, and Nathan taught about his recent appeal in which he disqualified a lawyer employed by an insurance company.

The seminar followed the format of the one Nathan gave last summer to the Arkanas Bar Association. However, this seminar focused more on the fallout surrounding the disqualification of the Farmers Insurance Company lawyer (you can download the presentation here). Essentially, Farmers will have to fulfill its bargain with its policyholders by hiring independent lawyers to represent them. Furthermore, Farmers may have defaulted its policyholders on many cases in which its employee-attorneys answered lawsuits. Fortunately, Farmers alone will be the responsibility of taking this calculated risk, not the policyholders.

One question at the CLE was, "why do you care what the insurance companies do? After all, wouldn't it be better for an plaintiff's lawyer to have a 9-to-5 in-house lawyer on the other side, rather than a skilled lawyer in a big firm?" My answer to that question was this: all people who have a contractual right to a lawyer deserve skilled representation given with undivided loyalty. If I get sued, I want the best lawyer my insurance company can find to represent me — don't we all feel that way?

We, as lawyers, take an oath to uphold the justice system. And at the heart of our justice system are lawyers who exercise independent, professional judgment. Here at the Chaney Law Firm, we take our oath seriously, even when it's inconvenient. That's why we objected to Farmers appointing its own lawyer, and that's why I gave a CLE on the topic last week.

Chaneys win appeal in Arkansas Supreme Court

We've written several times about our ongoing case involving an insurance company trying to represent its customers using employee-attorneys. We're very pleased to announce that the Arkansas Supreme Court published its decision recently, and the Chaneys scored a complete win.

Our client was hit by a negligent driver. Farmers Insurance Company hired a well-known defense firm to represent the negligent driver. After about four months, however, Farmers tried to substitute its own in-house, employee-attorney into the case to represent the negligent driver. At that time, Nathan Chaney opposed this substitution on the grounds that it was illegal and unethical.

The Arkansas Supreme Court sided with Nathan's argument. The Court applied an Arkansas statute that has been on the books for over 50 years. According to the statute, what Farmers was trying to do is the unauthorized practice of law. While Farmers' lawyer challenged the constitutionality of the statute, it was upheld on appeal. Farmers also claimed that our firm could not raise this issue, but the Court summarily rejected that argument.

The Court's decision was split 4–3 (our Supreme Court only has 7 justices). The remaining 3 justices would have held the statute unconstitutional because only the Arkansas Supreme Court can govern the practice of law in our state. However, those 3 justices also sided with our argument, since they held in a concurring opinion that "[a]n attorney may not serve two masters" because the attorney's loyalties would be divided. A lawyer's client has the right to undivided fidelity from the lawyer, and a corporation cannot provide the required loyalty. However, the Court reserved its strongest language for the divergent interests an insured and his insurance company have:

Further, an insurance carrier, for example, is a business and is naturally concerned with profits and retaining as much of the insurance premiums as possible, which translates in a lawsuit into a desire to pay as little in fees, costs, and judgments as possible. The insured’s interests are not the same as the insurance company’s, and those interests may vary greatly.

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The relation of an attorney to his client is pre-eminently confidential. It demands on the part of the attorney undivided allegiance, a conspicuous degree of faithfulness and disinterestedness, absolute integrity and utter renunciation of every personal advantage conflicting in any way directly or indirectly with the interest of his client.

As we have said in the past, this case is just one example of the way the Chaney Law Firm fights for the rights of individual Arkansans every day. The right to competent and unbiased counsel has been reaffirmed for every Arkansan who has an auto insurance policy, and we are proud to be protecting ordinary Arkansans against the interests of corporate greed.