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Federal Court Holds 99.9% Ownership Does Not Constitute Being “Wholly Owned” Banner Image

Federal Court Holds 99.9% Ownership Does Not Constitute Being “Wholly Owned”

Month: November 2021

Federal Court Holds 99.9% Ownership Does Not Constitute Being “Wholly Owned”

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The United States District Court for the Western District of Pennsylvania recently granted a title insurance company’s motion for summary judgment finding there was no longer coverage after the insured owner conveyed its property to its 99.9% owner. See Tithonus Partners II, LP v. Chicago Title Ins. Co., 2021 WL 4711284 (W.D. Pa. Oct. 8, 2021).  In 2012, Tithonus Tyrone, LP, purchased a property and obtained a title insurance policy from defendant.  The property contained an assisted living facility as well as vacant land.  In 2013, Tithonus Tyrone obtained refinancing from HUD for the property containing the assisted living facility and, in connection with the same, conveyed the 58 acres of vacant land for $22,500 to Tithonus Partners II, LP, who was the 99.9% owner and limited partner of Tithonus Tyrone. Tithonus Partners later subdivided the property and sold some of it to a third party.  In 2020, that third party commenced an action against Tithonus Partners based on the claim that some of the conveyed property was not owned by Tithonus Partners.  Tithonus Partners then made a title claim with defendant, who denied the claim because Tithonus Partners was not the insured under the policy.  Tithonus Partners brought this action against the defendant, and the parties cross-moved for summary judgment.

The Court granted defendant’s motion and denied Tithonus Partners’ motion.  Tithonus Partners argued that it was an insured based on two of the policy’s definitions of “Insured.”  First, it argued that it was a “successor[] to an Insured by dissolution, merger, consolidation, distribution, or reorganization.”  The Court rejected this claim, noting that another section of the policy refers to successors “to the Title of the Insured” rather than just “successors to an Insured” and that the latter definition only applies to situations in which the original insured no longer exists or undergoes “an existential alteration,” which is not the case here.  Second, Tithonus Partners claimed it was an insured under the definition that includes “a grantee of an Insured under a deed delivered without payment of actual valuable consideration conveying the Title . . . if the grantee wholly owns the named Insured.”  Tithonus Partners claimed that, as the 99.9% owner of the original insured, it should be deemed an insured under the policy.  Further, it noted that it is impossible for a limited partnership to be 100% owned by a single entity in Pennsylvania, so “[t]his is as close as a Pennsylvania limited partnership can be to ‘wholly owned.’”  The Court disagreed, finding that the unambiguous policy language requires 100% ownership, and that 99.9% ownership is insufficient.   “[T]he term ‘wholly owned’ as used in § 1(d)(i)(D)(2) is clear and unambiguous. It is not readily susceptible to different constructions. . . . Although Tithonus Partners argues that it is impossible for a limited partnership to be wholly owned, this was not specifically couched, nor does the Court construe it, as an argument that the term ‘wholly owned’ is ambiguous. Ambiguity must emanate from the contractual language itself, not from any party’s perception or interpretation of those terms.”  Accordingly, the Court dismissed the action.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.

Governor Vetoes Statute on Equal Telemedicine Rates

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, Labinot Alexander Berlajolli, or Connor Breza.

In our July 15, 2021 healthcare Law Update, we noted that the New Jersey State Assembly and Senate passed S2559, which requires State and private insurers in New Jersey to pay for telemedicine services at the same rate as in-person services. Yesterday, Governor Murphy issued a conditional veto of S2559. Although a lot of nice things were said about telemedicine in the conditional veto, ultimately, Governor Murphy could not approve S2559 citing fiscal concerns, among other things. Instead, he recommended that “Senate Bill No. 2559 (Fourth Reprint) be amended to require the Department of Health (‘DOH’) to, within the next 18 months, assess pay parity and make a policy recommendation as to whether and under what circumstances pay parity should continue, taking into account the considerations discussed above.” Governor Murphy also recommended that “pay parity remain in place through the end of 2023 in order to give policymakers ample time to review the results of the study and make revisions to the law, as appropriate.”

As noted in the conditional veto, the pay parity requirement will expire on January 11, 2022, unless the New Jersey Legislature and Governor Murphy extend the policy as recommended by the Governor.

The Importance of Avoiding Net Opinions in Environmental Cleanup Disputes

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The Appellate Division’s unpublished decision in Meyer v. Constantinou, decided earlier this year, affirmed the exclusion of the testimony of an environmental expert as a “net opinion” for disregarding key facts and data without appropriate reasoning and justification.

Understanding the Admissibility of an Expert’s Opinion in New Jersey Courts

Rule 703 of the New Jersey Rules of Evidence provides that an expert must base his or her opinion on facts or data presented at or before trial. The corollary to Rule 703 is the “net opinion” rule, which requires an expert to explain why and how an event took place rather than merely provide a conclusion or “net opinion.” See Townsend v. Pierre, 221 N.J. 36, 53-54 (2015); Polzo v. Cnty. of Essex, 196 N.J. 569, 583 (2008); State v. Townsend, 186 N.J. 473, 494 (2006). An expert’s opinion becomes inadmissible as a “net opinion” if it is based on speculation, unquantified possibilities, or fails to make the connection between the incident and the resulting damages.

Federal courts use a formalized standard known as the “Daubert factors” as a means to determine whether or not expert testimony should be admissible at trial. In New Jersey, the Daubert factors are used as a “helpful - but not necessary or definitive - guide” for courts to consider when determining whether or not the expert opinion  is admissible. In re Accutane Litigation, 234 N.J. 340 (2018). The admission or exclusion of evidence, as well as the determination of an expert’s credibility, ultimately lies in the sound discretion of the trial court.

Expert’s (In)Action in Environmental Cleanup

The opinion in Meyer v. Constantinou, No. A-1793-18, 2021 WL 1499851 (N.J. Super. Ct. App. Div. Apr. 16, 2021), while unpublished, sheds light on the problems that arise when an expert offers an unsupported, or net, opinion in an environmental cleanup dispute.

In Meyer, a gas station/auto repair shop discovered PCE contamination in the soil on its property when it was remediating chemicals that had leaked from its underground storage tanks. The gas station then initiated legal action against a dry cleaning facility located at a nearby shopping center. At trial, the gas station’s expert contended that the PCE contamination migrated downhill from the dry cleaner onto the gas station property. The court held the gas station failed to establish liability and ruled in favor of the defendants, in part because the gas station’s expert provided an inadmissible “net opinion” due to his failure to sufficiently support or explain his methodology.

Missing Samples and Making Assumptions - When the Facts and Numbers Don’t Add Up

On appeal, the Appellate Division affirmed the trial court’s view that the gas station’s expert had rendered an inadmissible “net opinion.” The court pointed out that the expert relied on a number of unfounded “facts” about the gas station property to support his causation opinion.  For example, the expert assumed the PCE stemmed from the nearby dry cleaners because the gas station/auto shop did not use chlorinated solvents in its operations. Yet, a Preliminary Assessment of the contaminated property was never conducted, the prior contents of the waste oil tank and use of the tank by the former owners of the gas station were never confirmed, and the expert never validated the auto shop’s claim that it never used PCE. Similarly, the expert failed to provide sufficient objective data, such as the degree of slope and an assessment of the exact relative topographies of the two properties, to support his theory that rainwater carried PCE downhill from the dry-cleaners onto the gas station. The basis of the expert’s opinion on this point was limited to a single visual observation.

The expert also relied for his causation opinion on soil samples taken from the two properties, but the sampling data did not support his primary reason that the PCE came from the dry cleaners. That is, the expert opined that his isopleth map (a map that uses lines or colors to indicate areas with similar meteorological features) supported the opinion that PCE concentrations decreased as they moved closer to the gas station, explaining that the declining PCE gradients matched the  topography. Yet, the expert did not consider the results of sampling taken from the excavation of the waste oil tank located only several feet from the auto shop building, which detected a substantial amount of PCE, and he acknowledged that if he had included the additional sample in his analysis, the isopleth map he drew would have been completely different.

Finally, the expert made statements about the dry cleaning operations that proved to be unsubstantiated, and he acknowledged he did not know how or when a discharge or spill occurred at that facility. The expert also assumed that the dry cleaners obtained a new dry-cleaning machine around the time of the discovery of the PCE contamination on the auto shop property, and opined that the new equipment was substituted for the prior machine due to the discharges of PCE. Yet, the facts revealed the dry cleaning machine was actually replaced many years after the PCE was first detected at the gas station/auto repair property. The expert had never inspected the dry cleaning equipment, and had never visited the dry cleaners except as a patron. Thus, the Appellate Division concluded that the expert’s opinion relating to the dry cleaning operations was speculative at best.

Ultimately, the Appellate Division affirmed the decision of the trial court that the expert’s opinion was an inadmissible “net opinion,” and it upheld the trial court’s judgment in favor of the defendants.

The Importance of a Good Expert

Meyer represents an important reminder that environmental consultants employed as experts in New Jersey courts must be able to apply their expertise to all the relevant evidence, and be able to justify the reliability of their methodology. Absent the clarity that comes though appropriate data, evidence, and methods that inform the conclusions, it is likely that an expert opinion will be excluded as a net opinion.

For more information, please contact the author Holli B. Packer at hpacker@riker.com or any attorney in our Environmental Practice Group.

Biden Administration Releases Vaccine Mandates for Healthcare and Private Sector Workers

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, Labinot Alexander Berlajolli, or Connor Breza.

The much anticipated vaccine mandates are finally here. On November 4, 2021, the Centers for Medicare and Medicaid Services (“CMS”) released an interim final rule requiring COVID‑19 vaccination for all healthcare workers within Medicare and Medicaid‑certified facilities. Eligible staff must receive the first dose of a two‑dose COVID‑19 vaccine or a one‑dose vaccine by December 5, 2021, and must be fully vaccinated by January 4, 2022. The regulation provides for exemptions based on recognized medical conditions or religious beliefs, observances, or practices. Surprisingly, there is no testing exception in the healthcare setting. Comments are due within 60 days after the date of publication in the Federal Register.

Additionally, the U.S. Department of Labor’s (“DOL”) Occupational Safety and Health Administration (“OSHA”) released an emergency temporary standard (“ETS”)—a type of regulation that takes immediate effect to address “grave dangers” to workers—requiring businesses with 100 or more employees to mandate COVID‑19 vaccinations for their workforces or have workers show a weekly negative test and continue to wear masks. Employees must be fully vaccinated by January 4, 2022. Comments are due within 30 days after the date of publication in the Federal Register.

More Federal Regulations to Be Rescinded and More

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, Labinot Alexander Berlajolli, or Connor Breza.

Biden HHS Seeks to Repeal Multiple Trump Era Regulations

The Department of Health and Human Services (“HHS”) has proposed 86 FR 58042, which repeals two final rules promulgated by the Trump administration: “Department of Health and Human Services Good Guidance Practices,” published on December 7, 2020; and “Department of Health and Human Services Transparency and Fairness in Civil Administrative Enforcement Actions,” published on January 14, 2021. The Good Guidance Practices Rule required agencies to treat guidance documents as non-binding both in law and in practice, except as incorporated into a contract. It also required agencies to take public input on guidance documents into account and make all guidance documents available on a single website.  The Civil Administrative Enforcement Actions Rule imposed a number of procedural hurdles on agencies engaged in civil administrative enforcement or adjudication. According to the HHS, the rules “create unnecessary hurdles that hinder the Department’s ability to issue guidance, bring enforcement actions, and take other appropriate actions that advance the Department’s mission” and “are inconsistent with the policies and goals of the current Administration.” Comments are due November 19, 2021.

Final Rule Impacting 340B Discounts Rescinded

In our prior update dated July 6, 2021, we noted that HHS proposed a rule to rescind the final rule entitled “Implementation of Executive Order on Access to Affordable Life-Saving Medications,” first published in the December 23, 2020, Federal Register ("2020 Rule"). 86 FR 54390  finalizes the proposal to rescind the 2020 Rule. The 2020 Rule required community health centers to pass on the 340B discounts they get for insulin and Epi-Pens directly to patients. HHS is rescinding the 2020 Rule due to the excessive administrative costs and burdens that implementation would have imposed on health centers, especially in light of the COVID-19 pandemic. In particular, the 2020 Rule required health centers to create and maintain new practices necessary to determine patients' eligibility to receive certain drugs at or below the discounted price paid by the health center or subgrantees, plus a minimal administration fee. HHS found that the 2020 Rule's implementation would have resulted in reduced resources available to support critical services to health center patients—including those who use insulin and injectable epinephrine.

HHS Issues Final Rule Aimed at Strengthening Family Planning Services

HHS has issued 86 FR 56144, a final rule, “Ensuring Access to Equitable, Affordable, Client‑Centered, Quality Family Planning Services,” which revises the regulations that govern the Title X family planning program. The final rule reverses the Title X rules promulgated in 2019, which, among other things, prohibited Title X funded sites and providers from providing patients with any information about abortion services, or offering abortion services at the same site, even though those services were not funded by Title X. The prohibition on the use of Title X funds to pay for abortions is maintained under the final rule, but Title X funded sites and providers are once again permitted to counsel and refer patients to abortion services, as well as permit family planning services to be co‑located with abortion services. The final rule is effective November 8, 2021.

2022 User Fee Rates for Issuers Offering Qualified Health Plans

HHS issued a final rule, 86 FR 53412, that sets the revised 2022 user fee rates for issuers offering qualified health plans ("QHPs") through federally-facilitated Exchanges and State-based Exchanges on the Federal platform. The final rule also repeals separate billing requirements related to the collection of separate payments for the portion of QHP premiums attributable to coverage for certain abortion services.

Rule on Amendment to Uniform Administration Requirements Delayed

The final rule, 86 FR 53562, postpones the effective date of 86 FR 2257, first promulgated on January 12, 2021, which makes amendments to the Uniform Administrative Requirements. Specifically, the rule amends paragraph (c), which previously stated, “It is a public policy requirement of HHS that no person otherwise eligible will be excluded from participation in, denied the benefits of, or subjected to discrimination in the administration of HHS programs and services based on non-merit factors such as age, disability, sex, race, color, national origin, religion, gender identity, or sexual orientation. Recipients must comply with this public policy requirement in the administration of programs supported by HHS awards.” The rule amended paragraph (c) to state, “It is a public policy requirement of HHS that no person otherwise eligible will be excluded from participation in, denied the benefits of, or subjected to discrimination in the administration of HHS programs and services, to the extent doing so is prohibited by federal statute.”

The postponement arises from an Order issued by the U.S. District Court for the District of Columbia in Facing Foster Care et al. v. HHS, No. 21-cv-00308 (D.D.C. Feb. 2, 2021). In that case, plaintiff seeks injunctive relief, alleging that the rule amendments detrimentally modify a rule that previously set forth clear and uniform nondiscrimination protections for beneficiaries of and participants in services funded by federal grants. On August 5, 2021, the Court granted plaintiff’s emergency application for a temporary restraining order and motion for stay, postponing implementation of the final rule and its accompanying amendments until November 9, 2021.

California Court Finds for Bank on Equitable Mortgage and Subrogation Claims

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The Court of Appeal of California, First Appellate District, Division Four, recently overturned a lower court’s summary judgment decision against a bank for claims of equitable mortgage and equitable subrogation. See HSBC Bank USA, N.A. v. Goldstein, 2021 BL 348985 (Cal. App. 1st Dist. Sept. 15, 2021). In 2006, Option One Mortgage Corporation (“Option One”) made a loan to Andrew Goldstein (“Goldstein”), and Goldstein executed a deed of trust to Option One as security on the loan. This loan paid off a previous loan made by Long Beach Mortgage Company (“Long Beach”). About two months before Option One loaned Goldstein the money, it obtained a title report erroneously stating that title to the property was vested solely in Goldstein, while in fact it was vested in Goldstein and his wife Donna (“Donna” and collectively “the Goldsteins”) as community property. In 2011, the Goldsteins filed for bankruptcy, and in 2013, HSBC received an assignment of the deed of trust. HSBC sued Donna in 2018, alleging, among other causes of action, equitable mortgage and equitable subrogation. Donna moved for summary judgment, arguing that section 338(d) of the California Code of Civil Procedure barred the action because undisputed evidence showed that Option One had information that would have put a reasonable person on inquiry notice of mistake more than three years before the filing of the complaint. The trial court agreed and ruled that section 338(d) barred the suit, finding that information available to Option One about title to the property would put a reasonable person on inquiry that Donna had an interest in the property which was senior to the deed of trust, and that since the section 338(d) statute of limitations therefore began to run on March 23, 2007 – when Option One first learned of Donna’s interest – and expired three years thereafter on March 23, 2010, prior to the filing of the bankruptcy action, the suit was untimely.

The Court of Appeal sought to determine the nature of the cause of action and, while agreeing with the trial court as to dismissal pursuant to section 338(d)’s three-year statute of limitations of HSBC’s other claims, it reversed with regard to its equitable mortgage and equitable estoppel claims. As to the equitable mortgage claim, the Court wrote that an equitable mortgage is granted to carry out the parties’ intent, but only as incidental to enforcement of the original obligation. The Court found that the “original obligation” was Option One’s written loan, and that a claim to enforce that obligation was not governed by section 338(d), but instead by other provisions of California law, which provide a four-year and six-year statute of limitations on actions to enforce an obligation to pay a note payable at a definite time and would have been tolled during the bankruptcy. As to the equitable subrogation claim, the Court found that section 338(d) only applies if the original creditor was a victim of fraud or mistake.  The Court noted that the equitable subrogation doctrine allows a lender who pays off a borrower’s debt to a creditor “to succeed to the rights and remedies of the creditor so paid,” and relied on a 2017 California case (Bank of New York Mellon v. Citibank, N.A. 8 Cal.App.5th 935 (2017)) which found that a plaintiff’s claim was not time-barred under section 338(d) because its equitable subrogation theory was “not in the nature of relief from . . . fraud or mistake,” in that the creditor to whose position plaintiff sought to be subrogated was not “the alleged victim of fraud or mistake as to its own security.” The Court held that because HSBC sought to be subrogated to Long Beach’s position of priority because of Option One’s payment of the Long Beach loan, and because HSBC’s rights under the 2005 deed of trust is not in the nature of relief from fraud or mistake, the trial court erroneously ruled that section 338(d) bars HSBC’s equitable subrogation claim.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.

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