"A Contract is a Contract"--Why Settlement Negotiation Documents Need to be Thought Through

Back in 1997, R.J. Reynolds Tobacco (“Reynolds”) joined a handful of competitors in signing an historic $11.3 billion settlement agreement with the state of Florida to relieve itself from liability and health costs stemming from smoking-related illnesses in exchange for reduced advertising and 25 years worth of settlement payments to the state. However, Reynolds tried to renege on that agreement, arguing that wasn’t its problem anymore, as its parent company sold the cigarette brands in question—Salem, Winston, Kool and Maverick—to ITG Brands in 2015.

Since then, neither Reynolds or ITG has paid the government under the settlement agreement. ITG paid $7 billion for the brands but wasn’t part of the historic settlement, which took place years earlier. ITG did agree to use “reasonable best efforts” to negotiate with the government to join it, but those talks were reportedly futile.

To quote the appellate court, the Fourth District Court of Appeals, “ a contract is a contract, and…Reynolds continues to be liable under the contract it signed with the state of Florida,” the opinion said. The court simply was not swayed by Reynolds’ arguments, finding that its purchase agreement with ITG ”did not in any way vitiate the responsibilities and obligations of Reynolds under the first contract.” The appellate panel said it was compelled to affirm the settlement as it was clear, unambiguous, included no provisions for brand transfers and required all parties to approve amendments in writing.

Quoting former U.S. Supreme Court Justice Oliver Wendell Holmes, the opinion said the “duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it—and nothing else.” The opinion went further and stated that “one contract did not alter the obligations of the other contract” as the purchase agreement was separate and involved different parties, and pointed to case law that says, “a corporation that acquires the assets of another business entity does not as a matter of law assume the liabilities of the prior business.” It did not help Reynolds that it had tried these same arguments in Texas and Minnesota, where the courts there snubbed the same argument.

The Fourth DCA also knocked down claims from Philip Morris USA, another party to the settlement, that ITG should be liable for the payments, finding that did not comport with the plain language in its purchase agreement with Reynolds.

Florida’s Fourth District Court of Appeal declined to rehear the case last week and said it would not certify the case to the state Supreme Court. This latest ruling means Reynolds must hold up its end of a historic $11.3 billion settlement struck with the state in 1997. The state has reported that the ruling will result in a one-time $92 million payment and roughly $30 million per year for the state.

This decision should not be a surprise. Because the contract between ITG and Reynolds was not a purchase of Reynolds’ liabilities, it is surprising that Reynolds thought it could walk away from a settlement reached with the state and that somehow, that left ITG holding the proverbial “bag.” However this case is a stark reminder that if a company reaches settlements such as this, it must consider them in any subsequent reorganization, sale or material change to the company.

If you are interested in receiving a copy of the initial decision or wish to reach out to me, you may do so by calling me at 305.377.3700 or by email at blog@miamimaritimelaw.co.

Florida Supreme Court Does 180-Degree Turn on "Daubert"

In Curiam, 2019 Fla. LEXIS 818 (Fla. May 23, 2019), the Florida Supreme Court reversed its course made in its earlier ruling that the ”grave constitutional concerns” were at play if the Daubert  standard were adopted in the State of Florida. See DeLisle v. Crane Co., 258 So. 3d 1221, 1229 (Fla. 2018).  In a nutshell, the ruling now finds that those “grave constitutional concerns” over adopting the more stringent Daubert  standard used in federal court now “appear unfounded.” The ruling made Florida the latest state (now the 37th state to do so) to adopt the Daubert  standard and reject Frye.

Daubert  (Daubert v. Merrell Down Pharm, Inc., 509 U.S. 579 (1993)) stems from a 1993 U.S. Supreme Court decision and includes a five-prong test to weigh the scientific validity of expert witness testimony. It creates a higher bar for experts, who, if challenged, may have to attend a hearing and pass judicial muster before they are permitted to testify at trial. Under the Frye standard, experts can testify based on their opinion, bringing evidence that could be somewhat new or novel, not necessarily repeatable or peer-reviewed.

The Florida Legislature passed the Daubert  standard as law in 2013, but the justices had previously ruled in Delisle that separation of powers invalidated that move because only the Court had the power to make it. But now, this apparently sudden “flip” has those of us taking cases to trial in the near future considering whether we now move to strike opposing parties’ experts for failing to meet the more stringent Daubert  standard.

The decision is still being editorially reviewed by the reporters, but we have the decision “hot off the presses.” If you wish a copy of the decision or wish to understand how this important ruling can affect a case you may have, please feel free to write us at blog@miamimaritimelaw.co.

Bad Faith Cure Period Begins to Run When CRN is Electronically Filed

The Second District Court of Appeals in Harper v. Geico Gen. Ins. Co., 2019 Fed. App. LEXIS 3211 (Fla. 2d Cir. Mar. 1, 2019) has essentially shorted the time an insurer can avoid a bad faith action. The Court held that the plain language of Florida’s bad faith statute, Section 624.155(3)(d) “states that no action shall lie if the damages are paid or corrective action is taken within sixty days after the insured files the CRN.” Here, “files” was interpreted by the Court to include the moment when a CRN is electronically filed and not printed, mailed and ultimately received by the insurer. In other words, once the CRN is filed by the insured, the sixty-day cure period begins to run. It is important to note that when the statute was originally enacted, the insured seeking to file a CRN would complete a paper form and mailed copies to both the Department of Financial Services and the insurance company.

The insurance company in Harper argued that it made payment to the insured person within the cure period, based on the date it actually received a physical copy of the CRN by mail. However, under the Court’s interpretation of the word “filed”, the insurance company made the payment sixty five days after the CRN was electronically filed, exposing itself to a bad faith action by the insured.

This case is a wake-up call to all insurers to be very mindful of the date the CRN is filed and to diary the 60-day cure period to take place from that date, not any other date. If you are interested in receiving a copy of this decision, please contact us at blog@miamimaritimelaw.co.

Fla Supreme Court Rejects Daubert Evidence Standard

The Florida Supreme Court rejected a 2013 law intended to bring the state’s expert witness standard in line with most others states—this is otherwise known as the Daubert standard. The change in standard was backed by the Republican-controlled Legislature and business groups but opposed by plaintiffs’ attorneys. Supporters of the Daubert standard maintain switching to it would keep “junk science” out of court cases, while opponents argue a change in standard would make cases more expensive and time-consuming.

Writing for the majority, Justice Peggy Quince noted Florida’s adherence to the Frye standard set by the 1923 U.S. Supreme Court decision and the Legislature’s attempt to impose the Daubert standard followed in federal courts and 41 states. Quince noted that “Frye relies on the scientific community to determine reliability whereas Daubert relies on the scientific savvy of trial judges to determine the significance of the methodology used.” Justices Barbara Pariente, R. Fred Lewis and Jorge Labarga concurred.

Justice Quince further noted that the Florida Legislature has authority over substantive law while the Court is responsible for procedural standards, and the question of standards was one for the Court alone to decide under the separation of powers, Quince said in the 39-page opinion. This  4-3 decision overturned a ruling by the Fourth District Court of Appeal and ordered reinstatement of an $8 million verdict for Richard DeLisle, who blamed his mesothelioma on exposure to asbestos in cigarette filters and in workplaces.

If you are interested in obtaining a copy of this decision or wish to contact us to discuss this case further, you may contact us at blog@miamimaritimelaw.co.

Justice Peggy Quince, author of the opinion

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