Subcontractor’s Status as Plaintiff’s “Two-Contract” Statutory Employer Establishes Owner’s Immunity

The Louisiana Supreme Court recently held that failure to pay filing fees necessary to add a defendant does not invalidate the proceeding as to other defendants. Prior to the ruling, Louisiana courts held that a failure to pay for one defendant invalidated the entire proceeding.

In Kirt v. Metzinger 2019-C-1162 (La. 04/03/20), plaintiffs requested a medical review panel after the death of their mother due to complications after surgery. Plaintiffs named three defendants—two doctors and the hospital. A letter from the Patient’s Compensation Fund Oversight Board (PCF) was mailed to the plaintiffs, confirming that the defendants were qualified under the Louisiana Medical Malpractice Act, and informing the plaintiffs that they were required by La. R.S. 40:1231.8 to pay a filing fee of $100 per named defendant within forty-five days of the mailing of the letter. Plaintiffs responded, requesting to add two additional defendants to the panel, one of whom was an unidentifiable nurse. Plaintiffs also included payment of $500.

The PCF responded that it was unable to add the nurse without proper identification. Three weeks later, plaintiffs notified the PCF they were also unable to identify the nurse. Upon request, Parish Anesthesia was added to the panel instead. Nearly five months later, plaintiffs provided the PCF with the identity of the nurse in question and requested she be added. The PCF sent confirmed the addition and requested another $100 filing fee which was never paid. Nevertheless, the medical review panel thereafter determined that none of the defendants, including the nurse, breached their standard of care. Suit followed against all defendants.

The defendants moved for summary judgment, arguing that the failure to pay the additional filing fee invalidated the proceeding as to all defendants. The trial court granted this motion, and the appellate court affirmed. Reversing the lower courts, the Supreme Court found that the failure to pay the additional $100 filing fee did not invalidate the entire proceeding. The court observed that separate confirmation letters sent by the PCF provided a different forty-five day period during which to pay the filing fee tied to each individual defendant.

The Kirt court stated: “[t]he notion of ‘one filing fee’ for every panel proceeding cannot be reconciled with the different payment deadlines that arise when the PCF sends separate letters confirming defendants’ qualified status. A single filing fee cannot be subject to different payment deadlines.” The court dismissed only the nurse and remanded the remainder of case to the lower courts.

Chad A. Sullivan is a partner with Keogh, Cox & Wilson, Ltd. Prior to becoming an attorney, he worked as a licensed Registered Nurse. He utilizes his background in nursing on a daily basis in his law practice that primarily focuses on automobile liability, medical malpractice, nursing home litigation, healthcare professional licensure and discipline, and products liability.

If you are a property owner, stop and think about the “what ifs” before you enter into a lease with a property manager or lessee. For example, what if an invitee of the property that you own is hurt while on and/or because of a condition on the property? Who is responsible?

A property owner may be able to transfer its potential liability to a property manager or lessee of the property if the lease contains an indemnification provision. However, not all indemnification provisions are enforceable, and these critical provisions are often litigated.

The Eastern District Court of Louisiana recently enforced an indemnification provision, granting summary judgment to a landowner who sought indemnification from its property lessee in Avila v. Village Mart, LLC, Civ. A. No. 20-1850, 2021 WL 4439579 (E.D. La. 9/28/21). In the case, a shopping center leased retail space to a men’s store. Before the store opened, a painter was injured when he fell from a ladder. The owner of the shopping center argued that the lessee owed a defense. It argued indemnity applied because the plaintiffs’ claims arose out of the lessee’s buildout construction, over which the owner did not have any care, custody, or control.

In response, the lessee argued that the owner was not entitled to indemnification because the plaintiffs’ claims did not “arise out of or were connected with Tenant’s use, occupancy, management or control of the Leased Premises.” The lessee claimed that it was not using, occupying, managing, or controlling the leased space because the only permitted use of the space was to sell menswear, and the space was not being used for this purpose at the time of the accident.

Louisiana courts often apply a “but for” causation test to such “arising out of” language in indemnity provisions. Avila, 2021 WL 4439579, at *5, citing Kan. City S. Ry. Co. v. Pilgrim’s Pride Corp., No. 06-03, 2010 WL 1293340, at *6 (W.D. La. Mar. 29, 2010), and Perkins v. Rubicon, Inc., 563 So.2d 258, 259-60 (La. 1990). The court observed the lessee’s arguments contradicted language in the lease that allowed the lessee to use and occupy the store before it opened to the public. The lease also explained that the lessee was responsible for certain construction work and identified specific dates to begin work and to open the store. Thus, the lease contemplated use and occupancy before the store was open to the public. The court found that the lessee’s possession of the space and its construction obligations under the lease established its use and occupancy of the space. The court stated:

Given the broad language in the indemnity agreement – ‘arising out of or connected with’ – [the plaintiffs’] injuries, resulting from his work as a subcontractor painting the premises leased by [the retail space lessee,] are connected to [its] use and occupancy of the premises. … Because [the retail space lessee] was in possession of the space, and had assumed responsibility for the buildout and for contractors and subcontractors working on the buildout, the Court finds that the plaintiffs’ liability theories fall within the scope of the indemnity provision in the lease. Avila, 2021 WL 4439579, at *6.

The enforceability of indemnity provisions such as the one examined in Avila will continue to be litigated. In the meantime, Avila reminds us of the importance of sound indemnity language to anticipate the “what ifs.”

Clients frequently ask their attorneys whether they should arbitrate their commercial and construction disputes instead of litigating in the court system. This question arises either when drafting the contract or, if the contract contains an arbitration clause, once a claim occurs. Claims that require analysis of complex contracts, government regulations, and technical issues, such as those that arise in the construction, environmental, and energy industries, are well-suited to arbitration.

Parties typically want the quickest and least expensive means to a fair result. This is true even for highly sophisticated businesses where the amount in dispute is high. Arbitration gives parties a high level of control in the dispute resolution process. It is specifically designed to provide an alternative to the onerous and expensive discovery and trial procedures required in litigation. Parties can tailor the discovery and schedule to the needs of the case, which drastically reduces the overall time and cost of reaching resolution.

Arbitration also allows parties to select an arbitrator with specialized knowledge necessary to decide the case, which is especially beneficial in complex cases. Because parties agree to arbitration in their contract, they have control over the process in a way that is not available in litigation. For example, the parties may designate the administrative body and applicable rules, require a three-arbitrator panel for a complex case, name a particular arbitrator, require confidentiality, or dictate the timeframe for the hearing.

The following four factors are key considerations in assessing arbitration:

Expertise of decision-maker – One of the most important benefits of arbitration is the parties’ ability to select the arbitrator. This affords parties an opportunity to designate a decision-maker with specific qualifications and expertise needed to understand the contracts, legal issues, engineering and technical facts, and expert evidence to be presented. The parties can also select someone with strong management skills to handle complex matters or difficult decisions. The benefit is two-fold: Fewer resources are needed to educate the decision-maker in the critical industry background information, and the risk of an unreasonable ruling is reduced.

Timeframe for resolution – The median time to resolution in commercial arbitrations is less than one year, whereas the time to trial in federal court is two to three years.* Because appeal rights in arbitration are limited, the award typically terminates the dispute and the expense. However, after a trial, the case could linger through the appeal process for several more years, thus increasing the expense.

In addition to direct cost saving, decreasing the resolution time creates an indirect cost benefit to industry. Because “time is money,” shaving years off the process results in significant savings that likely can be better used advancing the business than litigating a case. Businesses lose billions of dollars every year because of the inherent delays in the litigation process.^ These losses stem from uncertainty in the outcome, capital set aside as reserves for potential losses, open claims reported to insurers, investors, potential clients and auditors, and loss of employee hours and administrative costs expended in litigation. Arbitration offers an alternative to mitigate and control these costs.

Expense – Arbitration typically costs more upfront than litigation. The parties must pay the administrative costs and arbitrator fees, which vary depending on the time and complexity involved, but generally range from $20,000 for a $100,000 claim to $60,000 for a $1 million claim. The costs are shared among the parties, which decreases the per-party cost in multiparty claims.

However, parties can control the cost of arbitration. Discovery, depositions, and document production in complex cases can come with staggering costs. In arbitration, the rules governing discovery and evidence are less formal. Additionally, discovery is more limited, which encourages a streamlined process and reduces costs and time significantly.

Risks – An often-cited risk of arbitration is the lack of appeal right. An arbitration award can only be vacated on limited grounds of fraud, corruption, misconduct, or where an arbitrator exceeds their power.~ However, if the initial decision-maker has expertise in the industry and law involved, the expectation is that the decision will be a well-reasoned one that the parties can accept.

In contrast, a major risk of litigating a complex commercial dispute is the fact-finder’s lack of understanding of the issues, the escalating potential for nuclear verdicts, and the appellate court’s limited power to correct factual findings.

In sum, arbitration is a good choice for dispute resolution where parties want to control the risk of an unreasonable outcome, reduce the time and expense of the process, and select a decision-maker with special expertise in their industry.

About the author: Mary Anne Wolf is an engineer and attorney. She is on the panel of commercial and construction arbitrators for the American Arbitration Association. Her goal as an arbitrator is to assist parties in managing their case for efficient resolution, give a high level of attention to each party’s position, and achieve a fair result.

References:

* AAA, Measuring the Costs of Delays in Dispute Resolution [online]; Micronomics, (March 2017), Efficiency and Economic Benefits of Dispute Resolution through Arbitration Compared with U.S. District Court Proceedings.

^ Efficiency and Economic Benefits, pp. 4-5, 16-23.

~ La. R.S. 9:4210 (LA Binding Arbitration Act); 9 USCA §10 (FAA).