April 16, 2021 - This Week at the Ninth

This Week at the Ninth: Sand Dredgers and the Duty to Defend

This week, we take a look at a decision addressing the proper reading of “because” in federal discrimination statutes, and another addressing a California law precluding insurers from covering defense costs in litigation brought by the state.

THOMAS v. CALPORTLAND COMPANY
The Court holds that the Mine Safety and Health Act sets forth a “but-for” standard of causation for retaliation claims, rejecting the Mine Safety and Health Review Commission’s contrary interpretation.

Panel:  McKeown, Hunsaker, and Bumatay, with Judge Hunsaker writing the opinion.

Key Highlight:  “The Supreme Court has instructed multiple times that the word ‘because’ in a statutory cause of action requires a but-for causation analysis unless the text or context indicates otherwise. Section 105(c) contains no such indication. And we drop anchor there because it is for the Commission to apply the but-for standard to this case in the first instance on remand.”

Background: Petitioner Robert Thomas worked on CalPortland’s sand dredger, a boat that is classified as a surface mine.  Thomas complained to his supervisor about the long hours he was forced to work due to the lack of other crew members – which Thomas believed to be a safety issue.  A few months later, a federal inspector caught Thomas working without wearing a personal flotation device.  CalPortland suspended Thomas while it investigated this safety violation, and he was later terminated.

Thomas filed a discrimination claim with the Mine Safety and Health Review Commission, contending CalPortland had discriminated against him for raising safety concerns.  An ALJ found for him, but the Commission reversed.  In doing so, the Commission applied what is known as the “Pasula-Robinette” framework, asking whether Thomas was “subject to an adverse action motivated at least partially by his protected activity,” and then allowing CalPortland to counter by showing that Thomas was not engaged in protected activity, the adverse action was not even partially motivated by that activity, or that it would have taken the adverse action regardless.

Result:  The Ninth Circuit granted Thomas’s petition for review, vacating the Commission’s decision and remanding for further proceedings.  Its decision turned on the standard for assessing causation for discrimination cases under the Mine Act, a question the Ninth Circuit had not previously addressed.  Both parties in their briefing had argued that the Pasula-Robinette standard should not apply.  Instead, they contended that recent Supreme Court decisions interpreting parallel federal statutes required that the “simple and traditional standard of but-for causation” should apply.  Bostock v. Clayton Cnty, 140 S. Ct. 1731, 1739 (2020).

The Ninth Circuit agreed.  As it explained, recent precedent supported reading the term “because” to require a “but-for” causation analysis.  That ordinary meaning should control unless there is “textual or contextual indication to the contrary.”  And, the Court continued, nothing in the Mine Act – which prohibits a mine operator from “in any manner discriminat[ing] against” a miner “because such miner” engaged in protected activity – provided such an indication.  Rather, the Court concluded:  “The lack of modifiers before or after ‘because,’ and the ordinary meaning of ‘because,’ plainly indicate that Section 105(c) incorporates the ‘simple and traditional standard of but-for causation.’” 

The Court observed that no other Circuit had reconsidered Pasula-Robinette in light of more recent Supreme Court decisions like Bostock, and that the Commission itself had refused to do so.  But the Ninth Circuit declared that the Commission’s interpretation warranted no deference under Chevron because the statutory text was unambiguous, and that the Commission’s emphasis on the Mine Act’s legislative history was fundamentally flawed.  Because the Commission had therefore failed to apply the correct test, the Ninth Circuit granted the petition.

ADIR INTERNATIONAL, LLC v. STARR INDEMNITY & LIABILITY CO
The Court holds that a California statute forbidding an insurer from providing coverage for legal costs in certain consumer protection cases brought by the state does not violate Due Process, and applies even where the state seeks injunctive relief.

Panel: Judges N.R. Smith, Lee, and Kennelly (N.D. Ill.), with Judge Lee writing the opinion.

Key Highlight: “In civil cases, courts have recognized a denial of due process only if the government actively thwarts a party from obtaining a lawyer or prevents it from communicating with counsel. Adir has made no such allegation. While it cannot tap into its insurance coverage, Adir has managed to obtain and communicate with counsel.”

Background: Adir operates Curacao, a retail chain with stores in California, Nevada, and Arizona. In 2017, California’s Attorney General sued Adir and its CEO for allegedly violating California’s Unfair Competition Law (UCL) and False Advertising Law (FAL). The AG sought a variety of relief, including a permanent injunction barring Adir from making any false or misleading statements or engaging in unfair competition. 

Adir’s insurance policy from Starr Indemnity provided that Starr would defend Adir from certain claims alleging wrongful acts.  Starr initially defended Adir in the AG suit.  But in March 2019, the AG informed Starr that it was violating California Insurance Code § 533.5, which prohibits insurance policies from providing “any coverage or indemnity for the payment of any fine, penalty, or restitution … in any action or proceeding brought pursuant to [the UCL or FAL] by the Attorney General,” and from providing “any duty to defend” a claim in “any action or proceeding brought pursuant to [the UCL or FAL] in which the recovery of a fine, penalty, or restitution is sought by the Attorney General.” Under § 533.5, “[a]ny provision in a policy of insurance which is in violation of” those terms “is contrary to public policy and void.”  Starr stopped paying for Adir’s defense. 

Adir sued Starr, alleging that § 533.5 did not apply and, in any event, violated the Due Process Clause.  The district court granted summary judgment to Starr.  Without addressing the constitutional issue, the court concluded that § 533.5 barred Starr’s coverage of Adir’s legal defense and held that Starr was entitled to reimbursement of defense costs.

Result: The Ninth Circuit affirmed. First, the Court rejected Adir’s Due Process challenge to § 533.5’s prohibition on providing a duty to defend.  Civil litigants are not constitutionally guaranteed counsel.  And while Adir had a due process right to retain and fund the counsel of its choice, the Court noted that right is fairly narrow:  in civil cases, it applies “only in extreme scenarios where the government substantially interferes with a party’s ability to communicate with his or her lawyer or actively prevents a party who is willing and able to obtain counsel from doing.”  Because Adir did not “allege[] that the government actively thwarted it from obtaining counsel, or that the law precluded it from communicating with counsel,” § 533.5 did not violate the Due Process clause. 

Next, the Court held that § 533.5 applied to the suit against Adir even though that suit sought injunctive relief, rejecting Adir’s reading of the statute to apply only to actions seeking damages.  The Court reasoned that Adir’s reading of the phrase “any claim . . . in which the recovery of a fine, penalty, or restitution is sought” would “require the court to impermissibly read” the word “only” into the statute.  And the phrase “in which” did “not at all imply that only monetary relief is sought.” In addition, the statute’s reference to “duty to defend . . . any claim,” the Court said, “seems to most naturally refer to coverage (or not) for particular causes of action within a larger action or proceeding.”  The Court also pointed out that “it would be illogical to conclude that the legislature intended to carve out an exception to allow for the defense for the primary form of equitable relief (injunctions) but not the others (fine, restitution, or civil penalty).”   The Court also rejected Adir’s argument that Starr’s reading would improperly render the duty to indemnify broader than the duty to defend, because Adir’s insurance policy does not cover the costs of injunctive relief (if there were any) to begin with.  Finally, the Court held that Starr could seek reimbursement for its improperly rendered legal dense costs under the insurance policy, which expressly provided that “payments by the Insurer shall be repaid” in the event that “the Insureds shall not be entitled to payment.”