When Is the Presence of Lactobacillus Acidophilus an Occurrence Under a CGL Policy?

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In Wisconsin Pharmacal Co. v. Nebraska Cultures of California, No. 13AP613 (Wis. Ct. App. Oct. 29, 2014), the Wisconsin Court of Appeals analyzed the circumstances under which a supplier’s negligent provision of an incorrect ingredient to a manufacturer, where the ingredient renders the other ingredients and the final product unusable, constitutes an “occurrence” under a commercial general liability (CGL) policy.

The dispute arose when a supplier mistakenly supplied the wrong ingredient to Wisconsin Pharmacal, which manufactured a “feminine health probiotic supplement” for a major retailer.  The probiotic supplement was sold as a chewable tablet under the retailer’s label.  Wisconsin Pharmacal made the chewable tablets through what the court called a “tableting process”—that is, by combining a number of raw ingredients and pressing the resulting mixture into tablets.

One of the necessary ingredients of the tablet was Lactobacillus rhamnosus A, a bacterium used as a probiotic.  Wisconsin Pharmacal contracted with a series of suppliers to obtain a “substantial quantity” of the bacteria.  However, instead of supplying Lactobacillus rhamnosus A, the suppliers mistakenly supplied Lactobacillus acidophilus. That bacterium, once incorporated into the finished product, could not be extracted from the tablets, which became unusable.  The retailer was forced to recall the supplement. Continue reading this entry

Direct Benefits Estoppel: 7th Cir. Explains How You Can Be Compelled to Arbitrate Without Agreeing to Do So

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Everyone knows that you can’t be compelled to arbitrate a dispute unless you’ve agreed to do so. But what everyone knows is sometimes wrong. There are situations in which a person has to arbitrate even though she didn’t sign an agreement to that effect. Generally, “a nonsignatory party” must arbitrate if “so dictated by the ‘ordinary principles of contract and agency.’” Thomson-CSF v. American Arbitration Ass’n, 64 F.3d 773, 776 (2d Cir. 1995). One of those principles is expressed in a phrase that doesn’t come trippingly off the tongue: direct benefits estoppel. Zurich Am. Ins. Co. v. Watts Indus., 417 F.3d 682, 687 (7th Cir. 2005). The idea is that one who derives a direct benefit from an agreement without signing it can be bound to its arbitration clause.

Judge Griesbach of the Eastern District of Wisconsin found himself having to apply direct benefits estoppel in a case in which his decision not to hold a nonsignatory party liable for an arbitration award was reversed this week by the Seventh Circuit. Everett v. Paul Davis Restoration, Inc., No. 12-3407 (7th Cir. Nov. 3, 2014). In a sense, the judge was bound to be reversed as to one of his decisions in the case.

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Suing the State: Class Action or “Mass Action”

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Wisconsin’s court of appeals recently clarified the extent to which class-action lawsuits may be brought against Wisconsin governmental entities in Townsend v. Neenah Joint School District, No. 13AP2839 (Oct. 22, 2014). Wisconsin cases have recognized the tension between the class-action device and Wisconsin’s requirement that a plaintiff provide a “notice of claim” to a governmental entity before suing that entity. In Townsend, the court clarified that one type of class action can coexist with the notice-of-claim requirements: “mass actions.”

This case began when the Neenah Joint School District amended its teachers’ retirement plan and when six of the teachers filed suit as a putative class action, challenging the amendments. Attached to their complaint was the notice of claim previously served on the District under Wis. Stat. § 893.80, which identified two teachers and purportedly was served on behalf of the class, with each class member listed in an attachment. Whether class members affirmatively chose to be listed on the notice is not clear, but they were all given the opportunity to opt out. The claim in the notice was for $61 million.

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Wisconsin's Court of Appeals Rejects Municipality's "Fee in Lieu of Room Tax"

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Nothing in life might be certain but death and taxes, but a recent decision from Wisconsin’s court of appeals turned out to be an exception to that rule. In Bentivenga v. City of Delavan, No. 2014AP137 (Ct. App. Oct. 15, 2014), District II held that the City of Delavan could not require certain condominium owners to pay what the city called a “fee in lieu of room tax” on units that they owned but chose not to rent out to the public.

Taxing authorities often are loath to give up potential revenue, particularly since so many have seen their tax rolls decline in recent years. So when the developer built the Lodges at Lake Lawn Resort Condominium, the city required the developer to enter into an agreement that any owner of a condominium who chose not to rent the unit to the public would pay a fee to the city “in lieu of the room tax which the City would have otherwise received from the rental of such Unit to the public.” The base fee was $250 per month, with future increases tied to measures of inflation. The purchasers of condos were told of the agreement and that the condo association would collect the fee and forward it to the city. Nevertheless, the owners who chose not to rent their units to the public and paid the fee then sued the city and the condominium association, asking for a refund and arguing that the fee was illegal. The circuit court ruled for the city.

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Seventh Circuit Reminds Attorneys to Conduct “Reasonable Amount of Legal Research” Before Filing Claims

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Under the federal civil rights statutes, plaintiffs who prevail ordinarily receive an award of attorneys’ fees that must be paid by the defendant. But, in order not to deter plaintiffs from filing such claims, the reverse is not true. Indeed, only in rare cases do courts award prevailing defendants their fees: an award is appropriate only where a plaintiff’s claim is frivolous, unreasonable, or without foundation. The Seventh Circuit, in an opinion by Judge Rovner, recently came across just such a case.

In Bluestein v. Central Wisconsin Anesthesiology, Nos. 13-1374, 14-1256 & 14-1257 (7th Cir. Oct. 15, 2014), the plaintiff was a practicing anesthesiologist who, along with 15 other physicians, was a shareholder of Central Wisconsin Anesthesiology. She alleged that she was fired from her position because of a disability and filed suit under the Americans with Disabilities Act. But the ADA, like other Civil Rights Statutes, protects employees, not employers. Because Bluestein had a vote on all major decisions (including the vote to terminate her from the practice), she was not an employee of Central Wisconsin, but rather an owner-employer.

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