I. EMPLOYMENT LAW

No Cause Of Action Exists Under the New Jersey Law Against Discrimination (LAD) for Discrimination in Pay When Discrimination is Based on "Discrete Acts" that Occurred Outside of the Statute of Limitations

In Alexander v. Seton Hall Univ., --- A.2d ---, 2009 WL 4572344 (N.J. Super A.D. Dec. 7, 2009), three long-time female Seton Hall University professors alleged age and sex discrimination in pay in violation of the New Jersey Law Against Discrimination (LAD).

In the fall of 2004 and fall of 2005, Seton Hall compiled summaries of faculty information arranged by college, gender, rank, and salary. In August 2005, plaintiffs obtained copies of these summaries and claimed that they learned, for the first time, that their salaries were disproportionately lower than male, “newer [and][ ] younger faculty members,” holding similar positions for the same or shorter periods, although, plaintiffs admitted that they suspected this was the case. Plaintiffs filed their complaint on July 27, 2007.

The trial judge found the case of Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618, 127 S.Ct. 2162, 167 L. Ed.2d 982 (2007) was controlling in the present case. Pursuant to Ledbetter, an employer's decision to set an employee's pay or salary is a ‘discrete act’ that commences the running of the limitation's period. Therefore, paychecks received as a result of discriminatory pay decisions occurring outside of the limitations period, which merely represented a continuing impact of those time-barred decisions, cannot form the basis for plaintiffs' complaint. The trial judge further noted that allowing plaintiffs to recover for pay decisions more than two years old would defeat the purpose of the statute of limitations, especially since plaintiffs alleged they always suspected that disparities existed. As such, the Law Division dismissed the complaint to the extent it was based on discrete discriminatory acts occurring prior to July 27, 2005 (two years prior to the filing of the complaint), and to the extent it was based upon the present impact of those acts.

Plaintiffs argued that their discrimination allegations were timely under the “continuing violations” doctrine, and that the doctrine applies to cases alleging discriminatory pay disparity. Plaintiff also contended that the trial court misinterpreted Ledbetter by finding that any discriminatory pay decision is a “discrete act” that could trigger the two-year statute of limitations. Plaintiffs also asserted that they could not have taken action before they became aware of the discriminatory pay decisions.

The question before the appeals court was whether ongoing discriminatory pay disparities during the period constitute “continuous violations” so that plaintiffs may recover beyond the limitations period based on paychecks received during the period. The appeals court looked to federal pay discrimination cases as a guide. The court found Ledbetter controlling in this similar pay discrimination case. The court held that “[i]f each new paycheck stemming from an out-of-time discriminatory act constituted a new violation, there would be no meaningful statute of limitations so long as the plaintiffs were being paid.” The court found that plaintiffs did not allege “discrete acts” of discrimination within the limitations period; nor did they allege facial or intentional discrimination when the disparity began. Accordingly, the court affirmed the dismissal of plaintiffs' complaint on statute of limitations grounds.

The ADA’s Protections for Alcoholism Do Not Protect an Employee From Termination if it Affects His Ability to Show Up for Work

In Vandenbroek v. PSEG Power CT LLC, 2009 WL 4730427 (2nd Cir. Dec. 11, 2009), Plaintiff Bruce VandenBroek appealed from an award of summary judgment in favor of defendant PSEG on his claims that PSEG terminated him for being an alcoholic and for taking medical leave in violation of the Americans with Disabilities Act (“ADA”), and the Family and Medical Leave Act (“FMLA”).

On appeal, plaintiff relied upon the case, Teahan v. Metro-North Commuter Railroad Co., 951 F.2d 511 (2d Cir.1991), in arguing that the district court erred in concluding that he was terminated because of his violation of PSEG's “no call/no show” policy, rather than because of his alcoholism. The court noted that the facts of Teahan are similar; however, the Teahan holding, that an employer fires an employee because of his disability when the decision is based on conduct caused by the disability at issue, was based on the Rehabilitation Act, not the ADA. The court found that unlike the version of the Rehabilitation Act at issue in Teahan, the ADA specifically permits employers to hold an employee who is an alcoholic to the same qualification standards for employment or job performance and behavior as other employees. Regardless of the stated distinction between the two statutes, the court found that plaintiff did not produce sufficient evidence to satisfy the “otherwise qualified” prong to make out a prima facie case under the ADA.

The court concluded that reliable attendance at scheduled shifts was an essential function of plaintiff’s job, which was why defendant’s employment rules made those who violate the “no call/no show” policy subject to discharge for the first offense. The court noted that in Teahan, it emphasized that “absenteeism resulting from alcoholism is a factor that bears on whether an employee is ‘otherwise qualified.’ Therefore, the court found that the plaintiff was not “otherwise qualified” because defendant could have concluded that he posed a risk of recurring absenteeism. Accordingly, the court affirmed the entry of summary judgment because plaintiff has not established a prima facie ADA claim.

Plaintiff also argued that his termination violated the FMLA because it followed his return from leave taken for alcoholism treatment and because the notice of his two-day disciplinary suspension referenced prior FMLA-protected leave. On this claim, the court found that defendant produced significant evidence that plaintiff was terminated for repeated violations of the “no call/no show” policy, and that plaintiff's prior absences for back and nasal surgery were unrelated to his termination. As such, the court held that summary judgment was properly entered in favor of defendant on plaintiff's FMLA claim.

II. INSURANCE COVERAGE/PROFESSIONAL MALPRACTICE

Excess Insurer Has No Duty to Indemnify Where Excess Insurer Policy Incorporates Prior Knowledge Exclusion of Primary insurance Policy, and Insured Had Prior Knowledge of Potential Claim

In Executive Risk Indemnity Inc. v. Pepper Hamilton, LLP, --- N.E.2d ---, 2009 WL 3347222 (N.Y. Oct. 20, 2009), the New York Supreme Court was asked to determine, under Pennsylvania law, whether excess insurers Executive Risk Indemnity Inc. and Twin City Fire Insurance Company, based upon their prior knowledge exclusions, were entitled to summary judgment declaring that they have no obligation to indemnify defendants Pepper Hamilton LLP and one of its members in actions asserted against them for professional malpractice.

The dispute centered on Pepper Hamilton’s representation of Student Finance Corporation (SFC) and its principal. SFC financed loans to students attending vocational schools and acquired student loans from other lenders. In March 2002, Pepper Hamilton learned that SFC had been involved in securities fraud in failing to disclose the forbearance payments. The firm terminated its representation of SFC one month later.

In July of 2002, Pepper Hamilton's general counsel sent a memorandum to the attorneys regarding the firm's insurance application and inquired whether any person was “aware of any fact or circumstance, act, error, omission or personal injury which might be expected to be the basis of the claim or suit for lawyers professional liability.” In August of 2002, the partner who was aware of the SFC fraud advised the firm, but the application submitted by the firm in September did not disclose any information concerning SFC, and in a letter to Twin City, dated October 25, 2002, Pepper Hamilton warranted that it had no material changes to its application.

Eventually, SFC was forced into bankruptcy. In April 2004, Pepper Hamilton was advised that valid claims and causes of action could be brought against Pepper Hamilton “on behalf of the estate and/or creditors of” SFC. Pepper Hamilton immediately contacted its primary insurer Westport and excess insurers Executive Risk, Twin City and Continental Casualty and informed them of the potential claims. Lawsuits were filed against the firm in early 2005 and the firm’s primary insurer, Westport, defended the claims. However, the excess insurers denied coverage.

Executive Risk commenced this action against the Pepper Hamilton and Westport, seeking a declaration that it had no obligation to indemnify defendants in the underlying actions. The law firm defendants counterclaimed for a declaration in their favor and brought third-party claims against Twin City and Continental Casualty. Executive Risk and Twin City relied upon Westport's prior knowledge exclusion, expressly incorporated into their policies.

Under Pennsylvania law, a court must consider a two-pronged test when determining whether a prior knowledge exclusion applies. Specifically, it must be shown that the insured knew prior to effective date of the policy of certain facts that occurred prior to that effective date. Then, a court must determine that a reasonable attorney in possession of such facts would have a basis to believe that the insured might expect such facts to be the basis of a claim against the insured.

The New York Supreme Court evaluated the facts and found that the law firm defendants knew of SFC's securities fraud months prior to the effective dates of the Executive Risk and Twin City policies and that they had sufficient knowledge that a claim could be brought against the law firm. As such, the court granted summary judgment in favor of the excess insurers and declared that based on the policies' prior knowledge exclusions, Executive Risk and Twin City had no obligation to indemnify the law firm defendants in the underlying actions.