Do I have Coronavirus Insurance Coverage?

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The spread of COVID-19 threatens to devastate South Florida’s economy, which relies heavily on its hospitality industry. The Miami Herald reported that as of March 18, the 150,000 hotel rooms in Miami-Dade County alone, plummeted from an occupancy rate of nearly 90 percent down to 20 percent. That number will likely approach zero as Miami-Dade County Mayor Carlos Gimenez ordered the closure of all non-essential business by March 19 at 9:00 p.m., and global travel restrictions are now in effect. These measures could last several weeks, at minimum, during an otherwise busy and profitable tourist season in South Florida. The losses to the hotel industry are expected to enter into the billions, and that does not include losses from related business, such as restaurants, bars, entertainment venues, and tour operators.

One of the only potential sources of recovery to Florida business owners may be from their insurers.  In this blog post, we review three applicable types of coverage commonly found in a business insurance policy.  Whether coverage is available will depend upon numerous factors, including the specific language of a company’s particular policy and the manner in which the courts interpret those policies.

Business Interruption Coverage

Business interruption insurance coverage is intended to protect companies against the loss of income from unexpected events that cause direct physical loss or damage.  Many standard business insurance policies do not define what constitutes a “direct physical loss” necessary to trigger coverage.  In the case of a typical disaster such as a fire or windstorm, determining whether direct physical loss or damage has occurred is generally simple, although the question of whether Hurricane Katrina caused mass flooding or wind damage became far more complex than usual.[1]  In the case of the spread of a virus such as COVID-19, this exercise is more complex.  However, a number of decisions indicate that the closure of a business due to COVID-19 may, in appropriate circumstances, constitute direct physical loss sufficient to trigger insurance coverage.

In 2005, a federal appeals court addressed the issue of whether a well contaminated by e-coli bacteria constituted a direct physical loss or property damage.[2]  The court noted that although the insurance policy did not define physical loss, it did define “property damage” as “physical injury to, destruction of, or loss of use of tangible property.”[3]  Under that standard, the court concluded that a direct physical loss or property damage could arise where the “functionality” of the property was “nearly eliminated or destroyed”, or where the property was rendered “useless or uninhabitable” as a result of the presence of the bacteria.[4]

In a foundational 1968 decision, the Colorado Supreme Court held that where gasoline infiltrated the soil in and around a building, causing it to become uninhabitable and highly dangerous to use, there was a direct physical loss within the meaning of an insurance policy.[5]  Importantly, the court rejected the notion that the physical loss or damage had to occur to the building itself, quoting the following reasoning from a California appeals court:

To accept appellant’s interpretation of its policy would be to conclude that a building which has been overturned or which has been placed in such a position as to overhang a steep cliff has not been ‘damaged’ so long as its paint remains intact and its walls still adhere to one another.  Despite the fact that a ‘dwelling building’ might be rendered completely useless to its owners, appellant would deny that any loss or damage had occurred unless some tangible injury to the physical structure itself could be detected.  Common sense requires that a policy should not be so interpreted in the absence of a provision specifically limiting coverage in this manner.[6]

         In a similar vein, courts have found a “direct physical loss” to have occurred where:

  • homes were threatened by a future rock fall from an abandoned rock quarry, which had already caused extensive damage to neighboring homes;[7]
  • there was a strong chemical odor from methamphetamine cooking by other tenants which odor entered into the insured’s leased home;[8]
  • cat urine odor entered the insured’s condominium unit from a neighboring unit;[9]and
  • asbestos was released into a building.[10]

In each of these cases, the court reasoned that the direct physical loss or property damage arose from the harm or risk of harm that rendered the subject property unusable or uninhabitable in some way.

From these cases, a compelling argument can be made that where the spread or potential spread of COVID-19 renders a business premises unusable or uninhabitable for a period of time, business interruption loss coverage may be triggered.  There are of course cases that do not follow the decisions referred to above, and the success of this argument will depend on applicable state law.  At present, we are unaware of any Florida court that has adjudicated an analogous claim.[11]

Aside from variations in state law, whether a business’s insurance policy covers losses arising from its inability to use its business premises will depend on the language of its specific policy.  Some policies may have language that requires damage to specific property.  Others may exclude coverage for claims arising from communicable diseases.[12] For these reasons, business owners must carefully review its policies and obtain proper legal advice concerning the availability of business interruption coverage.

Contingent Business Interruption

Many insurance policies also contain contingent business interruption coverage that applies to damage which not only affects the company’s own property but also that of third-parties, such as its customers, suppliers, and delivery personnel.  This coverage ordinarily requires the same direct physical loss or property damage to trigger coverage as under the standard business interruption coverage, with the key difference being that the loss or damage is sustained to the third-party’s property as opposed to that of the policyholder.  Again, the applicability of this coverage is policy specific and therefore requires a careful review of the policy and advice from a competent professional.

Government Authority Coverage

Insurance policies also routinely contain coverage for losses arising when an insured cannot access its own property because of an order made by a government authority, such as Mayor Gimenez’s recent order closing all non-essential businesses.

Under most insurance policies, the government authority must completely block access to the business premises for this coverage to apply.  For this reason, Mayor Giminez’s initial orders limiting businesses’ operations likely does not trigger this type of coverage.  However, Mayor Gimenez’s more recent order for the complete closure of all non-essential businesses likely does, subject to any applicable exclusions.

Preserve Your Claims

It is important that you take steps to immediately review all of your company’s insurance policies with competent professional advisors, notify your insurer of all of your claims, and keep track of all of your losses and expenses as a result of COVID-19.  Taking these steps may mean the difference between obtaining complete coverage for your losses or bearing the entirety of them on your own.

We are currently reviewing insurance policies on behalf of for our clients across North America in the hospitality, real estate, retail and manufacturing sectors in preparing to challenge insurers who deny claims for the substantial losses they are only starting to suffer.  If you have any questions concerning your potential policy coverage for business interruption losses, feel free to contact us at 305-350-5690 or info@fidjlaw.com

 

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[1]  State Farm v. United States, ex rel. Rigsby, 137 S.Ct. 436 (2016)

[2] Motorists Mutual Ins. Co. v. Hardinger, 131 Fed.Appx. 823 (3d Cir. 2005).

[3] Id., at 825.

[4] Id., at 826-827, citing Port Authority of New York & New Jersey v. Affiliated FM Ins. Co., 311 F.3d 226 (3d Cir. 2002).

[5] Western Fire Insurance Co. v. First Presbyterian Church, 165 Colo. 34 (1968).

[6] Id. at 40, quoting from Hughes v. Potomac Insurance Company, 199 Cal.App.2d 239 (1989) (emphasis added).

[7] Murray v. Sate Farm Fire and Cas. Co., 203 W.Va. 477 (1998).

[8] Farmers Insurance Co. of Oregon v. Trutanich, 858 P.2d 1332 (Or. Ct. App. 1993).

[9] Mellin v. N. Sec. Ins. Co., 115 A.3d 799 (N.H. 2015).  Notably, the court found that property damage included “not only tangible changes to the property that can be seen or touched” but also “changes that are perceived by the sense of smell and that exist in the absence of structural damage.”

[10] Port Authority of New York & New Jersey v. Affiliated FM Insurance Co., 311 F.3d 226 (3d Cir. 2002).

[11] In June of 2018, the District Court for the Southern District of Florida ruled that debris accumulating into a restaurant from neighboring road construction did not constitute direct physical loss or damages.  See Mama Jo’s, Inc. v. Sparta Insurance Company, 2018 WL 3412974 (S.D. Fla. June 11, 2018).  In so doing, the court did not decide whether to adopt a more “expansive definition” of the phrase “direct physical loss”, as set forth in the cases noted above.  Importantly though, the Court noted that even under the expansive definition, there was no such loss because the restaurant was not rendered uninhabitable as a result of the debris; it simply had incurred additional time and expense cleaning the debris.

[12] Following the SARS outbreak in 2003, many insurers began implementing such exclusions.

Contracts in the Time of Coronavirus:

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Part I: Force Majeure

            As the world braces for a possible prolonged battle with the coronavirus pandemic, the effects will most assuredly have wide-ranging impacts on business and contractual relationships. Business owners may be faced with labor and supply shortages, as well as government intervention, such as quarantines or emergency shelter-in-place orders, which will render non-performance of contractual duties ever the more likely. Despite the pandemic, contracts still remain valid and enforceable, and parties still face potential liability for breaches. However, for those faced with the difficult decisions of how to fulfill contractual obligations, these generational conditions may be able to excuse their performance under several doctrines of nonperformance. In this multipart series, the commercial litigation attorneys at FIDJ explore various doctrines which may excuse performance of contractual obligations. Part I of this series explores force majeure clauses.

Any party anticipating that it will not be able to perform its duties under a contract as a result of the pandemic should immediately look to their written contract to see if a force majeure clause is present and whether it applies under these circumstances. Generally, a force majeure clause is “a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event or effect that the parties could not have anticipated or controlled.” Black’s Law Dictionary, 718 (9th ed. 2009). Phrased differently, force majeure clauses alleviate one or both of the parties from some or all of their obligations to perform under a contract when an unforeseen event beyond the parties’ control prevents or delays performance.

Broadly, a force majeure clause may contain: i) an exclusive list of events constituting qualifying events; ii) a non-exclusive list with broad catch-all language (for example “and any other event beyond the anticipation or control of the parties;” or iii) a general definition of force majeure with no list of qualifying events. When interpreting force majeure clauses, courts begin with the plain language of the contract itself, and construe the clauses narrowly.

In cases where express/exclusive language is used, courts hesitate to construe the clause beyond its own terms. This type of force majeur clause might feature a specific list of events, the occurrence of any of which would excuse a party from its obligation to perform under the obligation. To the extent a contract contains a non-exclusive list, which might describe those events in more general terms, courts analyze whether the claimed event, here a pandemic, is of the same nature as the events listed. In the final case, courts tend to evaluate whether the claimed event was reasonably foreseeable. The more likely an event was reasonably foreseeable, the less likely an excuse for nonperformance based on force majeure will be sustained. We also note that not only will contractual language determine what events are covered, it may also determine whether unanticipated events which merely delay performance, rather than making such performance impossible, are excused.

Determining whether a force majeure clause applies must occur on a case-by-case basis. In all cases, parties seeking to rely upon a force majeure clause, as well as those parties receiving notice of another party to a contract seeking to enforce such a provision, should take the following steps:

1) review the force majeure provision’s language to determine its breadth and whether the claimed event is, or could be argued to be, covered by the provision;
2) determine the governing law of the contract;
3) determine whether non-performance is linked to a claimed force majeure event or if subsequent actions also contributed to nonperformance;
4) determine whether the contract requires prior notice and, if so, whether the required notice was properly given;
5) determine what obligations of both the claiming party and non-claiming party are tolled (i.e. are payments of the non-claiming party tolled? What about exclusivity provisions?);
6) determine whether the contract provides a duty to mitigate such that a claiming party needs to take/demonstrate other efforts to satisfy the contract before performance can be excused by a force majeure clause.

           As the coronavirus pandemic lingers, the possibility of nonperformance will continue to rise. Please contact us if you have any questions about any of these issues, as we will be working throughout this crisis, and advising our clients regarding their existing contracts, the consequences of non-performance, and how to prepare for an uncertain future. Feel free to contact us at 305-350-5690 or info@fidjlaw.com.

Seventeenth Judicial Circuit Appoints Judge Bowman as Circuit’s First Appellate Division Chair

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The following article was written by Jeffrey J. Molinaro for the March 2020 issue of the Broward County Bar Association’s Barrister Magazine. A full copy of the edition is available here. Mr. Molinaro is a proud member of the Broward County Bar Association.

On January 29, 2020, the Seventeenth Judicial Circuit announced a restructuring of its Appellate Division. As part of this restructuring process, Circuit Judge John Bowman was appointed by Chief Judge Jack Tuter as the division’s first Appellate Chair.

Pursuant to Article V, § 5(b) of the Florida Constitution, the circuit courts of Florida have appellate jurisdiction when provided by general law. The scope of the circuit courts’ appellate jurisdiction is found at § 26.012(1), Florida Statutes. The Appellate Division’s restructuring comes as it braces for a potential increase in appeals as a result of the legislature’s expansion of the County Court’s jurisdictional limit of $15,000 to $30,000, which became effective January 1, 2020.

As currently composed, the Appellate Division hears appeals of County Court decisions in three judge panels. However, circuit judges are neither permanently nor exclusively assigned to the Appellate Division. Instead, circuit judges are appointed to appellate panels on a six-month rotation. Previously, the Circuit relied upon court staff to oversee the Appellate Division. However, due to the potential influx of additional appellate cases, the rotation of appellate panel members, and to ensure consistency within and supervision over the Appellate Division, a permanent judicial chair was created to oversee the division. The appointment of a permanent chair is designed to allow the Court to continue to handle County to Circuit appeals in an efficient manner despite an increase in caseload which might arise.

The Appellate Division’s restructuring comes at a time when County to Circuit appeals have come under increased scrutiny due to the lack of uniformity in the County to Circuit appeals process across the state. Critics of the County to Circuit appeals process have focused on three areas: i) the lack of uniformity in the use of three judge panels instead of single judges to hear such appeals; ii) the fact that not all circuits publish their appellate opinions either online or within Florida Law Weekly; and iii) circuit appellate rulings are not binding on other circuit panels; thus, intra- as well as inter-circuit conflicting decisions occur. (It should be noted that the Seventeenth Judicial Circuit both uses three judge panels and publishes its opinions on its website.)

As a result of these deficiencies, in its 2017 regular-cycle report, the Florida Bar’s Appellate Court Rules Committee proposed amending rule 9.030 (Jurisdiction of Courts) of the Florida Rules of Appellate Procedure to require that all circuit courts adopt three judge panels. However, the Florida Supreme Court rejected this proposal. Instead, the Court created a workgroup to research these issues and propose substantive changes if necessary. Ultimately, the workgroup recommended that the legislature pass legislation to strip the circuit courts of jurisdiction over county court appeals and instead have such appeals heard by the District Courts of Appeal. While no legislation is pending, the Florida Supreme Court endorsed the workgroup’s recommendation on November 8, 2019.

A lifelong Broward County resident and graduate of Florida Atlantic University and St. Thomas University School of Law, Judge Bowman was first elected to the Circuit Court in 2002. Judge Bowman currently serves in the Circuit Civil Division. In announcing Judge Bowman’s appointment, Chief Judge Tuter explained that Judge Bowman will serve as chair of the Appellate Division while continuing his full-time civil trial duties. We wish Judge Bowman success in his new endeavor.

Florida Ad Valorem Taxation Update: First District Court of Appeal Broadly Interprets Charitable Use Exemption to Ad Valorem Taxation

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In May, the First District Court of Appeal, which covers parts of North Florida and the Panhandle, issued an opinion broadly construing the charitable purpose exemption in Florida’s ad valorem taxation regime.  The opinion, Crapo v. Gainesville Area Chamber of Commerce, 2019 WL 1941241 (Fla. 1st DCA 2019) (hereinafter Gainesville Area), is a victory for taxpayers and provides an additional tool for taxpayers seeking to achieve exempt status for their properties.

At issue in the case was the ad valorem taxation for the 2014 tax year of real property owned by the Gainesville Area Chamber of Commerce (“Chamber”) in Alachua County, Florida.  The Chamber received exemption from federal income taxation under IRC § 501(c)(6), which applies to business leagues, trade advocacy groups, and similar organizations.  However, after initially receiving an exemption from ad valorem taxation (that is, taxation of property based on its value and typically used to finance local services such as schools), the Alachua County Property Appraiser revoked the Chamber’s property’s exempt status in 2014.  After an unsuccessful challenge of the revocation before the Alachua County Valuation Adjustment Board, the Chamber brought an action in circuit court.  The circuit court permitted the exemption, and the Property Appraiser appealed.

The sole issue on appeal before the First DCA was whether the Chamber’s property fell within the exemption granted under Florida law to property used for “charitable purposes.”  For context, all real property in Florida is subject to ad valorem taxation, unless is it expressly exempted from the tax.  One category of exemptions includes property used exclusively or predominantly for educational, literary, scientific, religious or charitable purposes.  Notably, under the Florida constitution, such property may be exempted from ad valorem taxation—it is up to the legislature to actually implement the exemption.

Under this authority, the legislature has enacted statutory regime which governs the exemption of property used for literary, scientific, religious or charitable purposes.  Included therein is a provision specifically defining the term “charitable purposes” as:

[A] function or service which is of such a community service that its discontinuance could legally result in the allocation of public funds for the continuance of the function or service. It is not necessary that public funds be allocated for such function or service but only that any such allocation would be legal.

Fla. Stat. § 196.012(7).  The First DCA affirmed the circuit court and held that the Chamber’s property was used for charitable purposes, as defined above, and thus exempt.  The crucial aspect of the First DCA’s decision is the approach it took to interpreting the definition of “charitable purposes.”  The First DCA determined that this statute is clear and unambiguous in its meaning, and thus does not warrant any statutory construction or deeper analysis of its meaning.  Under the Court’s analysis, if the property at issue is used in a function or service to which public funds could legally be allocated, then the property is used for a charitable purpose.  No further analysis is necessary.

The First DCA then looked at the Chamber’s activities—economic development and related functions and services designed to grow the tax base, create jobs, and generally raise the level of prosperity in the local community.  The First DCA equated the Chamber’s activities to those of the Florida Department of Economic Opportunity, a State agency with the statutory mandate of creating, expanding, and retaining business in Florida and facilitating other job-creating efforts in the State.  See Fla. Stat. § 20.60.  Thus, because the Chamber’s activities mirrored those of a publicly-funded State agency, the Chamber’s activities could be supported by public funds and its property was used in furtherance of “charitable purposes.”

The First DCA’s decision was split 2-1.  To the dissent, the term “charitable” had historically referred to relief for the needy, not broad-based economic development, and constituted something much narrower than any activity to which public funds may legally be allocated.  The dissent also argued vociferously that the decision’s interpretation of § 196.012(7) inappropriately equated a “charitable purpose” with a “public” purpose and applied a definition of “charitable” that exceeded the bounds of the Florida constitution and years of case law.  The exemption for municipal purposes, the dissent argued, is dealt with separately in the Florida constitution, which in fact mandates an exemption for property used for municipal purposes, as opposed to authorizing the legislature to implement exemptions for property used for literary, scientific, religious or charitable purposes.  Thus, to the dissent, the majority’s interpretation of § 196.012(7) was contrary to the Florida constitution and contrary to the Court’s obligation to either interpret a statute consistently with the Florida constitution or invalidate the statute as unconstitutional.  The dissent felt it was the Court’s obligation to interpret § 196.012(7) in such a way to ensure its adherence to the established understanding of the term “charitable purposes,” specifically relief for the needy and not the equivalent of public purposes.

The majority brushed these concerns aside.  When the legislature is clear in the meaning of a statute, it is not only unnecessary, but also inappropriate, to engage in statutory construction to discern an alternative interpretation or meaning (“Creating an ambiguity where one did not previously exist would exceed our authority.”).  Moreover, the dissent’s concern regarding the historical meaning of the word “charitable” in the Florida constitution, and the amalgamation of public purposes and traditionally understood “charitable” purposes, was merely the result of choices plainly made by the legislature which should be left undisturbed.  As the Court noted, the Florida constitution grants the legislature the power to implement exemptions for property used for charitable purposes does not itself define the word “charitable.”  Thus the only reference to determine that word’s plain meaning in this context is § 196.012(7)—a statute enacted pursuant to the constitution’s grant of legislative power on this specific issue.  Interpretation of the word “charitable” by reference to the Florida constitution and related case law is consequently unnecessary and inappropriate.

Thus, the rule (in Counties covered by the First DCA, at least) is that any activity may give rise to a charitable use exemption from ad valorem taxation so long as that activity is one to which public funds may legally be allocated, regardless of its connection, or lack of connection, to the traditional understanding of the word “charitable.”  However, the First DCA noted that the Property Appraiser had not challenged the constitutionality of § 196.012(7), and as a result it is possible that a direct challenge to the constitutionality of the statute may be viewed differently by the First DCA.

Impact of the Decision

While Gainesville Area is a new case, and the full extent of its impact in the area of ad valorem taxation has not yet been determined, two aspects of it seem particularly relevant to future ad valorem taxation disputes.

First, taken to its logical extreme, Gainesville Area potentially opens up numerous activities to exempt status and may tip the balance in favor of a property owner achieving exempt status for his or her property.  It is not hard to find examples of public funding for countless everyday services—education, transportation, healthcare, legal services, economic development, athletics, recreation, cultural programs, scientific research, and many others.  A number of these categories fall under separate exemption categories and thus may not need to rely on the charitable use exemption to achieve exempt status.  However, when applying for exempt status, any such organization would be well-served by also claiming exemption under the charitable use exemption.  Nothing precludes property from being exempt under more than one exemption category, i.e. religious and educational.  Assuming the other prerequisites to exempt status (i.e. the owner of the property is exempt and the property does not benefit certain disqualifying groups or individuals) are met, Gainesville Area provides a powerful tool in favor of exemption under the charitable purpose category notwithstanding the property’s qualification, or inability to qualify, under a separate (potentially more specific) exemption category.

Second, this case represents clear guidance that the plain language of an ad valorem exemption statute is controlling—to the exclusion of other interpretations based on the rules statutory construction or constitutional jurisprudence.  Adherence to that approach may call into question previously held assumptions in this area of law.  For instance, the First DCA has held that in order for property to be exempt from ad valorem taxation, the property must be owned by an exempt entity and used for exempt purposes by the same entity.  Under this interpretation, a property is not entitled to exemption from ad valorem taxation even if it is owned by one exempt entity and used by another for clearly exempt purposes.  See e.g. Genesis Ministries, Inc. v. Brown, 2018 WL 3551967 (Fla. 1st DCA 2018) at * 3.  However, the operative statute, Fla. Stat. § 196.192 merely states that “All property owned by an exempt entity and used exclusively for exempt purposes shall be totally exempt from ad valorem taxation.”  Nothing in this clear and unambiguous statute requires the same entity to both own the property and engage in the exempt activity, yet that is how it has been interpreted by the First DCA.  The First DCA’s interpretation relates back to an older First DCA case, Ocean Highway and Port Authority v. Page, 609 So. 2d 84 (Fla. 1st. DCA 1992), which itself relies on the legislative history of the statute.

Strict reliance on the plain language of the statute, as mandated by the First DCA in Gainesville Area, however, would not preclude the exemption of property owned by an exempt entity and used by a separate entity for exempt purposes (i.e. under a lease agreement).  Note, however, that there may be instances where a statutory interpretation beyond a statute’s plain meaning has benefitted property owner’s seeking exemption from ad valorem tax.  Thus, it cannot be said that Gainesville Area is uniformly pro-taxpayer.

The tax and tax litigation attorneys at Fuerst Ittleman David & Joseph have extensive experience handling ad valorem taxation matters for clients, both in and out of court.  They will continue to monitor developments in this area of the law. If you have any questions, an attorney can be reached by emailing us at contact@fidjlaw.com or by calling 305.350.5690.

“Dear Florida Supreme Court”: Are Zero-Liability Exculpatory Clauses Enforceable?

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In Pier 1 Cruise Experts v. Revelex Corp., 17-13956, 2019 WL 3024618, at *8 (11th Cir. July 11, 2019), the Eleventh Circuit Court of Appeals addressed the novel question of whether Florida law would enforce an exculpatory clause in a commercial contract that completely absolves one of the parties from all future liability.

In a modern-written scholarly decision that breaks the fourth wall,[1] Judge Newsom certified the following question to the Florida Supreme Court:

Dear Florida Supreme Court:

We need your help.… [T]his case presents a knotty and important state-law contract question that is more appropriately answered by you than by us
…
Is a contractual “exculpatory clause” that purports to insulate one of the signatories from “any … damages regardless of kind or type … whether in contract, tort (including negligence), or otherwise” enforceable? Or, alternatively, does the clause confer such sweeping immunity that it renders the entire contract in which it appears illusory? Or, finally, might the clause plausibly be construed so as to bar some but not all claims and thus save the contract from invalidation?

Id. at * 1 (emphasis added).

In sum, the issue presented in Pier 1 is to what extent, if any, and under what circumstances, will Florida law allow one contracting party to waive its right to sue the other for damages without rendering the contract itself illusory and therefore unenforceable?

A. Existing Law Regarding Exculpatory Clauses

Florida law recognizes the enforceability of “pre-event” or “pre-injury” liability waivers if the language is clear and specific — with the exception of waivers signed by parents on behalf of children in a for-profit context (i.e., non-school-related). See Sanislo v. Give Kids the World, Inc., 157 So. 3d 256, 260–61 (Fla. 2015) (“Exculpatory clauses are unambiguous and enforceable where the intention to be relieved from liability was made clear and unequivocal and the wording was so clear and understandable that an ordinary and knowledgeable person will know what he or she is contracting away.”); Kirton v. Fields, 997 So. 2d 349, 358 (Fla. 2008) (“[W]e hold that a pre-injury release executed by a parent on behalf of a minor child is unenforceable against the minor or the minor’s estate in a tort action arising from injuries resulting from participation in a commercial activity.”).

Florida law does not recognize pre-event releases of intentional torts. See Pier 1 Cruise Experts, 2019 WL 3024618, at *8 n. 5 (“Revelex has conceded that the exculpatory clause doesn’t cover intentional torts[.]”).

As observed by Judge Newsom, however, there is scant case law in Florida on the parameters for enforcing zero-liability exculpatory clauses negotiated between commercial parties of equal bargaining power, and no case addressing whether a zero-liability clause renders the contract itself illusory.

B. What’s New in Pier 1?

Pier 1 examines the outer limits of commercial exculpatory clauses.

The facts are simple: Pier 1, a Brazilian travel agency, hired Revelex to construct a website to allow customers to book cruises online in Portuguese and pay in Brazilian reais.

Revelex expressly negotiated for a zero-liability exculpatory clause because the potentially foreseeable damages vastly exceeded the modest $100,000 cost of the website project, and Revelex did not have the financial wherewithal to take on a potential multi-million-dollar liability. In other words, the zero-liability clause was a deal-breaker.

The clause provided as follows:

Revelex shall not be liable … for any direct, special, indirect, incidental, consequential, punitive, exemplary or any other damages regardless of kind or type (whether in contract, tort (including negligence, or otherwise), including but not limited to loss of profits, data, or goodwill, regardless of whether Revelex knew or should have known of the possibility of such damages…. Customer waives any and all claims, now known or later discovered, that it may have against Revelex and its licensors and vendors arising out of this agreement and the services.

The district court invalidated the clause, finding that it rendered the entire contract illusory and thus void ab initio. See Id. at * 10 (“The district court’s conclusion … was that by insulating Revelex from “any … damages regardless of kind or type … whether in contract, tort (including negligence), or otherwise,” the exculpatory clause here denied Pier 1 “[t]he ability to sue for damages” and “collect on [any] resulting judgment,” and thereby rendered the Service Agreement illusory.”).

The district court’s conclusion was influenced by the obvious inequity of permitting a contracting party to promise to perform a particular duty on the one hand and immunizing itself from the consequences of failing to perform that duty on the other. Thus, although the negligent misrepresentation claim remained viable, the district court found that Pier 1 could not assert a claim for breach of contract against Revelex– there being no valid contract on which to sue.

The Eleventh Circuit held that the exculpatory clause did not violate Florida public policy.

The Eleventh Circuit was unable to determine, however, whether and to what extent such a commercial zero-liability exculpatory clause renders a contract illusory, leaving open the possibility of three potential outcomes in the Florida Supreme Court:

1) Finding that the exculpatory clause bars all claims;

2) Finding that the exculpatory clause renders the contract illusory (resulting, ironically, in immunity from liability for breach of contract but allowing tort claims); or

3) Finding that the exculpatory clause only prohibits tort claims (other than intentional torts) and implicitly allows for breach of contract claims.

C. Takeaway for Practitioners

  • For Transactional Lawyers. Although the district court invalidated the clause at issue, the Eleventh Circuit expressly held that a zero-liability exculpatory clause that is “crystal clear” and negotiated between parties of equal bargaining power does notviolate Florida public policy. Thus, parties to commercial contracts are free to negotiate zero-liability exculpatory clauses, assuming a legitimate need and with the understanding the risk that the entire contract could be rendered illusory and therefore unenforceable by either side depending on the Florida Supreme Court’s ruling.
  • For Litigators. Litigators currently handling matters involving broad exculpatory clauses may wish to seek abatement until a final ruling from the Florida Supreme Court.
  • For Doctors, Lawyer, Architects, and Other Licensed Professionals. It is doubtful that Florida public policy, or rules of professional ethics, would allow licensed professionals to “contract away” liability in advance of providing professional services.

The litigation and corporate attorneys of Fuerst Ittleman David & Joseph have extensive experience handling complex matters throughout Florida and the United States and can assist with a full range of litigation, transactional, compliance, and tax services from start-up to daily operations of your thriving business enterprise. Please contact us at 305-350-5690 or email us at contact@fuerstlaw.com.

Judge Says FDA Can Stop Clinic from Selling Stem Cell Treatments

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The decision may facilitate the agency cracking down more effectively on the unproven interventions these companies sell.

By Emma Yasinski
June 7, 2019

 In 2015, a stem cell clinic in Florida conducted a procedure on three women to treat their macular degeneration. Instead, it left each of them with severe vision loss. The tragedy has been held up as an example of the lack of regulatory oversight the US government has had over such outfits that offer unproven stem cell treatments—and now, it’s an example of how that is changing.

On June 3, a federal judge ruled that the US Food and Drug Administration (FDA) is entitled to a permanent injunction against US Stem Cell, forcing the company to stop conducting procedures using a particular technique that involves isolating stem cells from clients’ fat.

The FDA also filed a suit against a California-based company Cell Surgical Network, which provides similar interventions, that is still pending in court.

“The lawsuit itself wasn’t surprising. The allegations weren’t surprising. And the judge’s conclusion wasn’t very surprising,” Andrew Ittleman, an attorney at Miami-based Fuerst, Ittleman, David & Joseph, a law firm that counts government compliance for stem cell and regenerative medicine companies as one of its key practice areas, tells The Scientist. “If anything, people were wondering why it took so long.”

Hundreds of stem cell clinics have popped up across the US and other countries in recent years, making promises with little evidence that their treatments can cure ailments that traditional medicine cannot. The clinics have often avoided FDA oversight by claiming that their procedures, which often use a patient’s own cells, are not subject to FDA regulations.

The agency has been cracking down on the industry, but it has only successfully obtained a judgment against a stem cell clinic once before. This latest ruling by Judge Ursula Ungaro of the United States District Court for the Southern District of Florida may represent a sea change in regulatory enforcement, and possibly open the door for the FDA to file suits against companies violating FDA guidelines for marketing stem cell treatments en masse, according to Ittleman.

“This is a landmark decision because this is only the second time the FDA has obtained a judgment against a stem cell clinic, and the first judgment since FDA announced in 2017 the agency’s risk-based enforcement priorities for regenerative medicine,” FDA spokesperson Stephanie Caccomo tells The Scientist in an email.

See “Texas Stem Cell Law Opens Door for Controversial Treatments”

 Research on stem cell therapies has ballooned in recent years, and some procedures for certain blood disorders have even been FDA-approved, but most remain unproven as far as the FDA is concerned. Extracting fat cells using liposuction, processing them to extract stem cells (known as stromal vascular fraction cells or SVF), and injecting them into other areas of the body— the strategy US Stem Cell uses—has been an FDA target before. Some clinics provide treatments with stem cells derived from bone marrow, cord blood, or birth tissue.

Ittleman, who has represented clients sued by the FDA, doesn’t believe the ruling will immediately affect clinics using other types of stem cells. “The fat [derived stem cell treatment] has been really the one place where the FDA has been very clear for very long about its position. We don’t necessarily have that clarity in other areas,” he says. The ruling may inspire the FDA to target other unapproved stem cell treatments with litigation, he adds.

The three patients who lost all or most of their sight were the first (and only) three participants in a discontinued clinical trial US Stem Cell was running on the procedure. Afterward, the patients saw university-based ophthalmologists for treatment, and those doctors published a report in March of 2017 in the New England Journal of Medicine detailing the adverse effects on each individual and raising concern about stem cell clinics.

US Stem Cell failed to follow best practice in ophthalmology of operating on one eye first, and returning later for a second surgery on the remaining eye. This way, if there is an adverse reaction, the patient can still see with the untreated eye. But the company conducted both procedures simultaneously.

Shortly after the failed procedures, two of the patients settled lawsuits with US Stem Cell, but the company faced few other penalties. While it stopped offering fat-derived stem cell treatments for macular degeneration, it continued to provide services using SVF that it claimed could treat myriad ailments, from Parkinson’s disease to chronic obstructive pulmonary disease (COPD).

The FDA sent a warning letter to US Stem Cell in August 2017 about marketing the unapproved products and violations to good manufacturing practices. But the company did not comply. Ittleman says they were “really sticking their fingers in the FDA’s eyes over the course of time saying, ‘You don’t regulate us.’”

In a written statement sent to The Scientist, US Stem Cell said, “While we believe there is substantial evidence to prove the efficacy of this protocol, we must immediately comply with the court as we review the decision.” A spokeswoman told The New York Times that the company plans to continue offering stem cell treatments derived from other tissue.

“Precedent from cases like this helps the FDA in future enforcement actions,” says Caccomo. “The FDA will continue to take steps—such as issuing warning letters or initiating court cases—against clinics that abuse the trust of patients and endanger their health with inadequate manufacturing conditions or by manufacturing and promoting products in ways that make them drugs under the law, but which have not been proven to be safe or effective for any use.”

Click here to read the full article.

Approval of Epidiolex, a Cannabis derived drug for the treatment of Seizures

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By Jane Clarke
April 16, 2019

Epidiolex became the first cannabis-derived medication to be approved by the FDA in June of this year. It is used to treat two types of serious childhood epilepsy from the British organization GW Pharmaceuticals. The Food and Drug Administration approved the drug for sale in the US on Monday. It will probably be available in pharmacies by prescription.

Epidiolex contains a chemical compound, cannabinoid otherwise called CBD. It is popular for its reported abilities to help relief from illnesses, for example, anxiety, joint pain, a sleeping disorder, and nausea.

Moreover, epidiolex is useful in treating an uncommon type of epilepsy called Lennox-Gastaut Syndrome (LGS) and a genetic brain dysfunction known as Dravet syndrome. According to CNN, the two disorders can cause seizures. In any case, Epidiolex, with its cannabis derivatives, has been found to reduce a particular kind of those seizures by as much as 25% to 28%.

FDA endorsed the medication back in April, but GW couldn’t sell it. The reason is the DEA has regarded cannabis a Schedule I drug alongside heroin, LSD, and cocaine. It means it is considered to have “no currently accepted restorative use and a high potential for abuse.” Now, Epidiolex specifically — however not CBD or cannabis — is Schedule V. “The DEA is stating, ‘if you’ve satisfied FDA, you’ve satisfied us,’” says Andrew Ittleman, a partner of the law firm FIDJ. It’s appearing “considerable amount of deference” to the FDA.

The Cooperation of DEA with Researchers:
The Department for Drug Enforcement (DEA) says it will work with the researchers to help them in their research. Marijuana and CBD got from cannabis stay unlawful in the United States except if they are in items endorsed by the FDA, for example, Epidiolex. Researchers are conducting more research into the medical benefits of cannabis.

“DEA will keep on supporting sound and logical research that advances legitimate therapeutic uses for FDA-approved components of cannabis, consistent with the federal law,” said Acting DEA Administrator Uttam Dhillon in a written proclamation. “DEA is focused on proceeding to work with our federal partners to look for approaches to make the procedure for research progressively proficient and effective.” The greatest unknown is how insurance agencies will choose to cover Epidiolex.

The double-blind, placebo-controlled trials required for FDA endorsement just covered two rare types of epilepsy—Dravet Syndrome and Lennox Gastaut Syndrome. Around 50,000 patients are suffered by these two diseases. However, there is evidence that Epidiolex could help with many distinctive kinds of seizures and epilepsy syndromes.

Without a doubt, 66% of the 1,756 patients who have attempted Epidiolex in the previous five years didn’t have Dravet or LGS. Epidiolex demand was so high among medication inert patients like Sam that GW permitted neurologists at almost four dozen hospitals that weren’t a part of the formal trials to direct their own so-called open-label trials. It helped GW to study more about how Epidiolex functioned in a more extensive population. It allowed many sick patients to gain access to medication that may help them.

That parallel research should make it simpler for specialists to suggest the medication for different diseases, a training known as “prescribing off label.”

To conclude, the expectation among CBD advocates is that the FDA’s endorsement could goad more investigation into medicinal cannabis items, however, weed itself stays illicit.

Although therapeutic or medical cannabis is accessible in about half of U.S. states. But federal regulations still characterize CBD as a Schedule 1 medicate, which implies it has no therapeutic value however it has a high potential for abuse since it is a chemical component of the cannabis plant.

Administrative Law Update: Calls for End to Chevron Deference

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As 2017 draws to a close and administrative law practitioners reflect on the state of administrative law jurisprudence, one thing becomes clear: there are increasing calls, at both the federal and state levels, to do away with Chevron deference. The potential downfall of this modern era administrative law bedrock is something all administrative law practitioners should continue to watch.

A. A Chevron Primer

As administrative law practitioners are well aware, the Chevron doctrine describes the practice of the courts deferring to administrative agencies’ interpretations of ambiguous statutes over which an agency is delegated rulemaking authority. The doctrine was announced in Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984) in which the Supreme Court ruled that in instances where a law passed by Congress is silent or ambiguous with regard to an issue, the courts must defer to an agency’s interpretation of the law it is in charge of implementing unless that interpretation is unreasonable. Under Chevron, the court must defer to the agency even if the court finds that other interpretations of the statute are reasonable and even if the court believes that the agency’s construction of the silent or ambiguous provision is not the most reasonable among varying interpretations. As explained in Chevron,

When a court reviews an agency’s construction of the statute which it administers, it is confronted with two questions. First, always is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issues, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.

476 U.S. at 842-843.

B. The Great Chevron Debate

Since its creation, the Chevron doctrine has been the subject of widespread debate. Those who support Chevrondeference often cite agencies’ expertise in highly technical areas of regulation where such knowledge is important to implementing a comprehensible regulatory scheme, such as environmental protection and pharmaceutical regulation. Supporters also fear that the lack of such expertise on the part of the courts will result in policymaking on a case-by-case basis. See generally, Hon. Antonin Scalia, Judicial Deference to Administrative Interpretations of Law, 1989 Duke L.J 511 (1989).

Parties on both sides of the debate recognize how the Chevron doctrine can impact the judiciary’s role in a system of government based on the separation of powers.  The debate is more than academic as the breadth of Chevron deference is often called into question by Justices on the Supreme Court. See Michigan v. E.P.A., 135 S.Ct. 2699, 2712 (2015) (Thomas, J., concurring) (Chevron deference “wrests from Courts the ultimate interpretative authority to ‘say what the law is’ Marbury v. Madison, 1 Cranch 137 (1803), and hands it over to the Executive.”); Arlington v. FCC, 133 S.Ct. 1863, 1877-1878 (2013) (Roberts, C.J., dissenting) (“Although modern administrative agencies fit most comfortably within the Executive Branch, as a practical matter they exercise legislative power, by promulgating regulations with the force of law; executive power, by policing compliance with those regulations; and judicial power, by adjudicating enforcement actions and imposing sanctions on those found to have violated their rules.”). Even the above-cited Justice Scalia, widely known as a supporter of Chevron during his tenure with the Supreme Court, questioned its bounds. See Talk America, Inc. v. Michigan Bell Telephone Co., 564 U.S. 50, 68 (2011) (Scalia, J., concurring) (questioning the validity of the related doctrine of Auer deference under which the Chevron doctrine was expanded to require courts defer to agency interpretations of ambiguous regulations).

Those opposed to Chevron deference also raise due process concerns. As explained by Judge Shepard in Pedraza v. Reemployment Assistance Appeal, etc. et al, 208 So.3d 1253, 1257 (Fla. 3d DCA 2017),

It ordinarily would be outrageous for a judge in a case to defer to the views of one of the parties. And it ordinarily would be inconceivable for judges to do this regularly by announcing ahead of time a rule under which judges should defer to the interpretation of one of the parties in their cases, let alone the most powerful of parties, the government. Nonetheless, this is what the judges have done. It therefore is necessary to confront the reality that when judges defer to the executive’s view of the law, they display systematic bias toward one of the parties.

(Shepard, J., concurring).

Newly appointed Supreme Court Justice Neil Gorsuch also expressed concerns over the effects of Chevron on the constitutional system of separation of powers during his time as judge on the Tenth Circuit Court of Appeals. As explained by Justice Gorsuch, “Chevron . . . permit[s] executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the Constitution of the framers’ design.” Gutierrez-Brizuela v. Lynch, 834 F.3d 1142 (10th Cir. 2016) (Gorsuch, J., concurring).

In his brief time on the Supreme Court, Justice Gorsuch has not shied away from questioning the bounds of Chevron deference. Recently, during oral argument in Digital Realty Trust, Inc. v. Somers, Docket No. 16-1276, Justice Gorsuch raised the question of whether it is proper to give deference to an otherwise reasonable agency interpretation if that interpretation was not the end product of proper notice and comment rulemaking under the APA. While such a question may blur the line between the issues of deference afforded to an agency in interpreting its statutory mandate and whether such interpretations were improperly promulgated under the APA, and thus unenforceable because of procedural defects, the extent to which Justice Gorsuch’s questioning results in an exception to Chevron remains to be seen.

C. Legislative and Constitutional Attempts to Eliminate Chevron Deference at the Federal and State level.

On January 11, 2017, the United States House of Representatives passed the Regulatory Accountability Act of 2017. Among its various provisions, section two of the bill, the Separation of Powers Restoration Act, would effectively repeal the judicially created doctrine of Chevron deference, which is considered a bedrock in modern administrative law jurisprudence. A copy of the House Act can be read here. Similarly, on July 18, 2017, S. 1577, also titled the Separation of Powers Restoration Act of 2017 was introduced in the Senate. The bill is currently before the Senate Committee on the Judiciary and a copy of the can be read here.

Both the House and Senate acts address Chevron deference. Specifically, instead of deferring to an agency’s reasonable construction, the Acts would amend the Administrative Procedure Act to require courts to conduct de novo review of “all relevant questions of law, including the interpretation of constitutional and statutory provisions and rules” when evaluating federal regulations. However, critics are concerned that de novo review could wreak havoc on the rulemaking process and result in courts being split on issues which would affect the uniform application of regulations. It should be noted that similar legislation was passed in the House of Representatives in 2016 but did not make it out of the Senate.

Chevron deference has also seen attacks at the state level. For example, Florida’s Constitutional Reform Commission has proposed the addition of § 21 to Art. V. of the Florida Constitution. (Under the Florida Constitution, since 1968, every twenty (20) years the Constitutional Revision Commission is required to convene and examine the Florida Constitution for possible changes. Those proposals are then put forth to the public for a vote in the next upcoming election.). Proposal 6 would amend the Florida Constitution to add § 21 to Art. V which would read: “In interpreting a state statute or rule, a state court, or an administrative law judge may not defer to an administrative agency’s interpretation of such statute or rule, and must instead interpret such statute or rule de novo.” Proposal 6 has already received a favorable vote from the CRC’s Judicial Committee and is currently before the CRC’s Executive Committee. Whether Proposal 6 ultimately makes the ballot for voter approval in 2018 remains to be seen.

Fuerst Ittleman David & Joseph will keep a keen eye on develops of this important issue. The administrative law attorneys at FIDJ have represented clients before numerous agencies at both the federal and state level. For more information on our administrative law practice group, you can email us at contact@fidjlaw.com or call us at 305.350.5690.

Federal Litigation Update:

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On October 19, 2017, the United States District Court for the Southern District of Florida issued Administrative Order 2017-60, announcing several amendments to the Local Rules of the Southern District of Florida. The amendments impact procedures for filing trial and hearing exhibits, treatment of motions to seal, submissions of proposed orders with emergency and ex parte filings, page limits, requirements in pretrial scheduling conference reports regarding electronic discovery, timing of scheduling orders, requirements for filing a Mediation Report, notices of settlement, Attorney Discipline Rules, Local Admiralty Rule Governing Vessel Seizure, among other things. The amendments to the Local Rules went into effect December 1, 2016. A copy of Administrative Order 2017-60 and the amended rules can be read here and significant amendments are discussed in summary below.

A. S.D. Fla. L.R. 5.3 – Files and Exhibits

S.D. Fla. L.R. 5.3 was amended to describe the procedure for electronically filing trial and hearing exhibits, including new sections on mandatory electronic filing, exemptions from mandatory electronic filings, a required Certification of Compliance, sanctions for failure to comply, when compliance is not necessary, and the procedure for removal of exhibits. More specifically, pursuant to amended S.D. Fla. L.R. 5.3(b)(2), within ten (10) days of the conclusion of a hearing or trial, a party must file via CM./ECF: a) an electronic version of each documentary exhibit that the party offered or introduced into evidence; and b) a digital photograph of each non-documentary physical exhibit that the party offered or introduced into evidence unless otherwise ordered by the Court or if exempt under 5.3(b)(3). Upon such filing, the attorney for the filing party shall also complete and file a Certification of Compliance Re. Admitted Evidence form. S.D. Fla. L.R. 5.3(b)(4). The failure to timely comply with either the electronic filing requirements or the certification requirement may result in sanctions. S.D. Fla. L.R. 5.3(b)(5).

B. S.D. Fla. L.R. 5.4 Procedure for Filing Under Seal in Civil Cases

S.D. Fla. L.R. 5.4(b) was amended to clarify procedural ambiguities regarding the proper time for filing proposed sealed materials and addresses public filing of pleadings, motions, memorandum, or other documents that attach or reveal the content of the proposed sealed material. For example, under the amended version of S.D. Fla. L.R. 5.4(b)(1), in cases not otherwise sealed in their entirety, a party seeking to file documents under seal shall file a motion to file under seal in which the party shall describe the information or documents to be sealed “with as much particularity as possible, but without attaching or revealing the content of the proposed sealed material.” The rule was further amended to make clear that “[t]he proposed sealed material shall not be filed unless the Court grants the motion to file under seal.”

C. S.D. Fla. L.R. 7.1(a)(2) Motions, General

S.D. Fla. L.R. 7.1(a)(2) was amended to include “motions seeking emergency or ex parte relief or temporary restraining orders” as motions requiring proposed orders to be filed and submitted via e-mail to the Court.

D. S.D. Fla. L.R. 7.1(c)(2) Memorandum of Law; Page Limits

S.D. Fla. L.R. 7.1(c)(2) was amended to clarify that title pages preceding the first page of text, including “tables of contents, tables of citations,” shall not be counted as pages for purposes of this rule.

E. S.D. Fla. L.R. 16.1(b) Pretrial Procedure In Civil Actions

S.D. Fla. L.R. 16.1(b)(2)(K) was amended to require issues regarding disclosure, discovery, or the preservation of electronically stored information, as well as whether the parties have agreed to use the ESI checklist, be included in the Pretrial Conference Report. The ESI checklist has been added at the end of the local rules, although its use is only encouraged.

F. S.D. Fla. L.R. 16(b)(3) Timing of Scheduling Orders

S.D. Fla. L.R. 16(b)(3) has been amended to reduce the number of days within which the Court shall enter a Scheduling Order ninety (90) to sixty (60) days after the appearance of a defendant and from 120 to ninety (90) days after the complaint has been served on a defendant.

G. S.D. Fla. L.R. 16.2(f) Mediation Report; Notice of Settlement

S.D. Fla. L.R. 16.2(f)(1) was amended to provide for the filing of mediation reports by mediators who are not authorized CM/ECF users. Additionally, S.D. Fla. L.R. 16.2(f)(2) was amended to require notice of settlement to the Court pursuant to the requirements of S.D. Fla. L.R. 16.4 which was added in the recent amendments.

H. S.D. Fla. L.R. 16.4 Notices of Settlement

S.D. Fla. L.R. 16.4 was added to describe the requirements for notices of settlement. Under S.D. Fla. L.R. 16.4, should parties reach a settlement, then within two (2) days of the agreement being reached, a notice of settlement shall be filed jointly by counsel for all parties to the settlement. Alternatively, the parties may file a notice or stipulation pursuant to Fed R. Civ. P. 41, if applicable, but unless such notice or stipulation is filed within two Court days of the parties reaching a settlement, the parties are still required to file a separate notice of settlement.

I. Revisions to Rules Governing the Admission, Practice, Peer Review, and Discipline of Attorneys.

Attorney discipline rules and disciplinary proceedings have been substantially revised into a single procedure in Rule 6. Under the amended rules, peer review and discipline rules have been combined into a single procedure. In addition, the rules regarding attorney reinstatement have been amended to require that an attorney seeking reinstatement after disbarment or suspension must first certify their good standing with the Florida Bar. Rule 12.9(b) has also been amended regarding the time frame in which a disbarred attorney may apply for reinstatement. Rule 12.9(c) has been amended to permit the Chief Judge to rule on petitions for reinstatement or submit it to the active Judges to be determined by majority vote.

Fuerst Ittleman David & Joseph’s litigation practice has a long record of successfully resolving high stakes cases on behalf of clients across a wide range of industries and in numerous forums. If you or your company is in need of representation in a case involving a complex legal dispute, contact us at (305) 350-5690 or contact@fidjlaw.com for a free consultation.

OFAC Compliance Update: OFAC Settlement with Cartier Highlights Need for Robust Due Diligence by Retailers to Ensure Compliance With OFAC Regulations

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On September 26, 2017, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced a $344,800 settlement with Richemont North America, Inc. d/b/a Cartier (“Cartier”) to settle Cartier’s potential civil liability for four alleged violations of the Foreign Narcotics Kingpin Sanctions Regulations (“FNKSR”) found at 31 C.F.R Part 598. The settlement is an important reminder to retailers that, although retailers of goods which are at a high risk of use in trade-based money laundering may not be specifically required to maintain an Anti-Money Laundering (“AML”) compliance program to prevent money laundering, they may still be required to conduct due diligence on their customers to ensure that they are not engaging in business with prohibited persons or entities and committing violations of US law in the process. A copy of the settlement announcement can be read here.

Generally speaking, pursuant to the FNKSR, US persons (which include corporations) are prohibited from engaging in business transactions with persons and entities identified as “Specifically Designated Narcotics Traffickers.” 31 C.F.R. § 598.203. As explained in 31 C.F.R. § 598.314, the names of persons identified as Specifically Designated Narcotics Traffickers are incorporated into OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”) which is available for review on OFAC’s website here.

According to OFAC, Cartier violated 31 C.F.R. § 598.203 when it exported four shipments of jewelry to Shuen Wai Holdings Limited in Hong Kong, an entity which has appeared on the SDN List since November 13, 2008. As explained by OFAC, on four separate occasions, an individual purchased jewelry from a Cartier boutique in California or Nevada and provided Shuen Wai’s name and mailing address as the ship-to party. Although the information provided to Cartier included the same name, address, and country location for Shuen Wai as appears on the SDN List, Cartier did not identify any sanctions-related issues prior to exporting the goods. In short, had Cartier taken steps to verify whether the entity to which it was asked to ship goods to was on the SDN List, it would have identified Shuen Wai and determined that such transactions were impermissible under the OFAC sanctions regime. In determining the settlement amount, OFAC considered this lack of minimal due diligence in light of the fact that Cartier deals in goods (jewels) that have long been at high risk of being used for trade-based money laundering.

The Cartier settlement highlights the importance of US retailers who export goods or conduct international business to implement basic due diligence programs to ensure OFAC sanction regime compliance. This is particularly true in industries whose products are at a high risk of use in trade-based money laundering. While the full scope of trade-based money laundering is beyond the scope of this article, generally speaking, trade-based money laundering occurs where: 1) a party attempts to launder narcotics proceeds by purchasing items (such as jewels or electronics) in the United States using US Dollars obtained through the sale of drugs, 2) exports those items overseas to the overseas supplier of narcotics or a shell company owned by the supplier, and 3) the overseas narcotics supplier then resells the goods for local currency. In this way the proceeds of the illicit sale of narcotics are not only moved overseas to the supplier but are also converted into local currency at the time of the goods’ eventual sale.

Additionally, the Cartier settlement demonstrates how OFAC sanctions compliance is separate and distinct from other obligations, or lack of obligations, under the Bank Secrecy Act. Put simply, the Bank Secrecy Act’s implementing regulations found at 31 C.F.R. Chapter X  require certain industries to maintain robust AML compliance programs in order to reduce money laundering risks. However, most US retailers either do not fall under the scope of the BSA or, as in the case of Cartier, are specifically exempted. See 31 C.F.R. § 1027.100(b)(2). Thus, although not mandated by federal law to maintain such programs, US retailers which engage in international transactions should develop policies and  procedures to identify prohibited transactions in order to ensure compliance with OFAC regulations, and avoid being unwittingly used in money laundering transactions.

Fuerst Ittleman David & Joseph’s Anti-Money Laundering practice covers a wide range of businesses and legal issues. Our AML attorneys advise a wide variety of financial institutions regarding their licensing and anti-money laundering requirements as set forth by the Bank Secrecy Act and individual state laws. The anti-money laundering law firm of Fuerst Ittleman David & Joseph has represented a wide array of financial services providers in IRS-BSA audits, OFAC licensing issues, grand jury investigations, state investigations, criminal and civil litigation, and commercial transactions. For more information regarding the Bank Secrecy Act or if you seek further information regarding the steps which your business must take to become or remain compliant, you can reach an attorney by emailing us at contact@fidjlaw.com or by calling us at 305.350.5690.