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Fraud Just Got More Expensive - Equity as a Factor in Attorney Fee Awards

Published on: November 15, 2013

The Louisiana Supreme Court recently held that the New Home Warranty Act ("NHWA") is not the exclusive remedy for a purchaser of a new home where the builder fails to disclose known defects in the Residential Property Disclosure Act ("RPDA"). Stutts v. Melton, 2013-0557, -- So.2d. ----. The Court also upheld an award of damages and attorney fees for fraud victims who elect not to seek rescission of a sales contract despite no Civil Code article expressly allowing for attorney fees in such instances.

Builder Chad Melton completed a home in Walker, Louisiana in 2004. He and his wife lived in the home for approximately nine months prior to selling the home to James and Lisa Stutts. The Residential Property Disclosure Act, La. R.S. 9:3196, et seq., requires disclosures of known problems with a home prior to sale. Melton provided the Stutts with a disclosure form, but failed to mention that color had previously been observed bleeding onto the walls of the home from the roof.

In Stutts, it was factually established that Melton was aware of the roof defect because he had entered into a $13,600 settlement with the roof manufacturer to fund the replacement of the roof. Nevertheless, Melton cleaned the walls and installed gutters instead of the more expensive roof replacement.

Melton's gutter solution was ill-advised and unsuccessful. After discovering the problem in the summer of 2006, the Stutts filed suit seeking as damages: the repair costs for the roof; costs for additional repairs; and attorney fees.

The Stutts filed a motion for summary judgment on their fraud claim citing La. C.C. art. 1953. The Meltons opposed the motion, arguing that the NHWA provides the "exclusive remedy" available to the Stutts. The motion was granted and, after a bench trial on damages, the trial judge awarded damages to include attorney fees.

The court of appeal reversed both the summary judgment and the money judgment, holding that the Stutts' claims were untimely under the NHWA.The NHWA provides a one year warranty period for new home construction and an additional thirty day period in which to file suit under the Act. By its terms, the NHWA provides the "exclusive remedies" between a builder and an owner relative to home construction.

The Louisiana Supreme Court reversed and reinstated that lower court's judgment. The Court held that the RPDA applied in this case because the home had been occupied by the Meltons after construction was completed. Even though the NHWA claims were prescribed, the Stutts possessed a timely claim that Melton had provided a fraudulent disclosure in violation of the RPDA.

The Court next addressed the Stutts' claim for attorney fees. The Court observed that no statute specifically authorized attorney fees where the plaintiff does not seek rescission of the sale. However, the Court reasoned, citing principles of equity found in Louisiana Civil Code article 4, that the legislature surely did not intend for victims of fraud to go uncompensated if they elect not to seek full rescission of the sale. Accordingly, attorney fees were held appropriate where fraud is committed but the victim elects not to seek rescission of the contract.

The Court's holding in Stutts may have a limited impact on the NHWA because of the peculiar facts of the case, i.e. the builder of the new construction living in the completed home before selling it to plaintiffs. However, the Court's award of attorney fees is an interesting development in the law. Time will tell whether the Court may be inclined to create further exceptions to the established rule that attorney fees cannot be awarded in the absence of statutory or contractual language awarding attorney fees.

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Is Timing Everything Where Workers Compensation Benefits are Forfeited Based on Fraud? It Depends…

In Moran v. Rouse's Enterprises, LLC, 19-2392019(La. App.5Cir. 12/26/19)- - - So. 3d - - -, the Louisiana Fifth Circuit held that thereis a forfeiture of all benefits when a worker’s compensation claimant commitsfraud, regardless of when the fraudulent conduct occurs. The court declined tofollow opinions from the First and Third Circuits concluding otherwise.

In Moran, the claimant obtained treatment for injuries toher back, right knee, and right shoulder after a slip and fall at work forRouses supermarket. In her deposition, the claimant Moran testified that sheexperienced knee pain only once before her fall; it was “years ago” and not“serious.” Moran also claimed that she experienced no prior shoulder or backpain. However, medical records established:

• Complaintsof knee pain on at least 8 separate occasions between 2012 and the job injury;

• Complaintsof right knee, right wrist, and back pain after a slip and fall in 2013; and

• A rightshoulder impingement diagnosis 2 months before the on-the-job accident.

Rouses and its workers compensation carrier affirmativelyalleged a violation of La. R.S. 23:1208, Louisiana’s workers compensation fraudstatute, following the claimant’s deposition. Paragraphs “A” and “E” of section1208 provide in pertinent part:

A. It shallbe unlawful for any person… to willfully make a false statement orrepresentation… for the purpose of obtaining or defeating any benefit orpayment under…this Chapter.

***

E. Anyemployee violating this Section shall… forfeit any right to compensationbenefits under this Chapter.

As part of their fraud defense, the defendants specificallydenied responsibility for all worker’s compensation benefits, i.e. benefitsthat that might have otherwise been due both before and after the fraudulentdeposition testimony.

Following trial, the workers compensation judge determinedthat Moran carried her burden of proving the occurrence of on-the-job injuryand disability. Nevertheless, the trial court also ruled that the claimant madefalse statements for the purpose of obtaining workers compensation benefits inviolation of section 1208, thereby forfeiting the right to both the pre andpost-deposition benefits that she was claiming.

On appeal, Moran argued that the forfeiture requirement ofsection 1208 applies prospectively only. Moran cited opinions from theLouisiana First and Third Circuits. After addressing the statute and the caselaw, the Moran court affirmed the decision of the workers compensation judgefinding that the forfeiture of benefits provided for in of Section 1208 isclear and unambiguous. The opinion states that “…if the legislature hadintended to limit the application … it would have clearly expressed that in thestatute.”

There are no Louisiana Supreme Court opinions which specifically address whether the Section 1208 forfeiture applies retroactively or prospectively only. Given the defined split in the Louisiana appellate courts, the issue is ripe for consideration by the state’s highest court.

Ed is a Keogh Cox partner who litigates Worker’s Compensation, automobile and premises liability as well as subrogation claims. He is an avid runner and enjoys traveling with his wife Jennifer and their three children.

Insight

Court Examines Whether AI Images May Receive Copyright Protection

Under the Copyright Act of 1976, copyright protection “subsists in any original work of authorship fixed in any tangible medium of expression, now know or later developed, from which they can be perceived or otherwise communicated, either directly or with the aid of a machine or device.”^ The Act goes on to state that works that may receive copyright protection are not limited to script or printed material but may include “any physical rendering of the fruits of creative intellectual or aesthetic labor.”^

Throughout its history, and despite the Act’s somewhat archaic language, copyright law has proven to be adaptable enough to cover all manner of works created with new and emerging technologies. However, the traditional understanding of copyright law is being challenged by the advent of artificial intelligence (AI) and its ability to produce new creations.

The US District Court for the District of Columbia. recently ruled that works created autonomously by AI are not susceptible of copyright protection. In Thaler v. Perlmutter, Stephen Thaler appealed an administrative decision by the United States Copyright office denying his application to register the copyright for an image generated by an AI program he developed. The court’s decision examined the meaning of what it means to be an “author,” as defined by the Copyright Act and held that only works of human authorship are susceptible of copyright protection under U.S. law.*

The court compared the issue to a case from 1884 that examined whether copyright protection could extend to the then-cutting edge field of photography. In Burrow-Giles Lithographic Co. v. Sarony, it was argued that a photograph should not qualify as a protected work because it was created by a camera. The US Supreme Court disagreed and held that while a camera may generate a “mechanical reproduction” of a scene, it does so only after the photographer develops a “mental conception” of the photograph^^. The court reasoned that the technology used to create the work was immaterial so long as there was human involvement in and creative control over the work.

In a later case, the US Ninth Circuit examined a case in which a crested macaque monkey took a photograph of himself, and various parties attempted to file suit on the monkey’s behalf to confirm copyright protection for the monkey’s photograph.** While the case was decided on standing grounds, the court considered whom the Copyright Act was designed to protect and concluded that the act was designed solely to protect humans.

The Thaler court identified no authority supporting copyright protection in any work originating from a non-human.* However, the issue presented in Thaler was limited to copyright protections for a work created solely by an AI, absent any human input. Therefore, it remains to be seen how courts will address issues related to copyright protection for images that blend human and AI origins.

We stand in a new frontier in both technology and copyright law. As artists and developers increasingly use AI as a tool, the increased distance between human creativity and the final product will present challenging questions regarding how much human input is necessary to afford these creations protection under copyright law.*

References:

^17 U.S.C § 102(a)

* Thaler v. Perlmutter, No. 22-CV-01564-BAH, R. Doc. 24 (Filed 08/18/23).

^^ Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, 59 (1884).

** Naruto v. Slater, 888 F.3d 418 (9^th Cir. 2018).

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Keogh Cox's Win Prevents Plaintiff from Recovering Louisiana Lottery Jackpot

The United States District Court for the Eastern District of Louisiana grants defendant, Circle K's, Motion to Dismiss concluding that plaintiff has no right to claim loss of opportunity to win the Louisiana Lottery Powerball jackpot, $103,100,000.00, because of an expired ticket issued in error.

This matter arose from plaintiff's purchase of two sets of Powerball tickets on or about January 19, 2012. The drawing that was the subject of the purchase was to be held on January 21, 2012 with a jackpot of $103,100,000.00. Sometime after the drawing date, plaintiff discovered the purchased tickets were printed on January 18, 2012 and worthless for the January 21, 2012 drawing. Plaintiff filed suit seeking damages in the amount of the Powerball jackpot.

After removal to Federal Court, on behalf of Circle K, Keogh Cox moved to dismiss the suit by claiming that Louisiana law affords no relief to plaintiff for the alleged claims. Specifically, Louisiana law explicitly precludes any relief to the plaintiff.

Keogh Cox cited La. R.S. 47:9009 which states "that there shall be no liability on the part of and no cause of action shall arise against the corporation, its governing board, staff, agents, vendors, or employees, arising out of or in connection with the issuance, failure to issue, or delivery of a lottery ticket."

Moreover, Keogh Cox asserted that the Louisiana Statute precludes payment of prize money on the basis of lottery tickets produced or issued in error. The United States District Court found merit in these assertions after extensive briefing and arguments by Keogh Cox attorneys, John P. Wolff, III, Nancy B. Gilbert, Richard W. Wolff and Mark Assad.

The United States District Court found that Circle K was statutorily exempt from the suit and, under the directives of the lottery itself, it is the sole responsibility of plaintiff to verify the accuracy of the game play. Plaintiff failed to do so and, as such, was barred from suit.