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Bar News - April 17, 2009

NH Supreme Court At-a-Glance February 2009, Part 2


NH Supreme Court At-a-Glance February 2009 – Part I

In the Matter of the Liquidation of the Home Insurance Company
February 20, 2009
(No. 2008-440)

· Whether pre-liquidation legal services expended in protecting Home's financial interests constitute costs of "administration" s that term is used within RSA 402-C:44,I.

Sheiness, Scott, Grossman & Cohn, L.L.P (SSGC) rendered legal services between October 2002 and January 2003 to The Home Insurance Company (Home) regarding asbestos-related litigation.Home became insolvent and entered receivership.The superior court ordered Home liquidated in 2003 and appointed the commissioner of insurance as the liquidator of its estate.SSGC filed a claim for $74,784.89 for the legal services it rendered to Home before Home was liquidated.The liquidator allowed the claim and designated it as Class V residual property.However, it soon became clear that there were insufficient assets to make payments to any classes beyond Class II.SSGC appealed the Class V designation, arguing that its claim should have been declared a Class I administrative cost.A court appointed referee affirmed the classification.SSGC moved to recommit.The trial court denied the motion and sustained the referee’s finding.

The court affirmed the referee's finding, holding that "administration" does not include attorneys' fees for legal services rendered pre-liquidation.While the definition of administrative costs listed in RSA 402-C:44,I contains the phrase "reasonable legal fees," the court has held previously that attorneys’ fees and professional services rendered before liquidation is initiated do not have priority.There is no principled way to distinguish between fees for legal services rendered pre-liquidation and other fees for other professional services that generally fall in the residual classification of RSA 402-C:44,V.Lastly, reasonable attorneys fees as defined in RSA 402-C:44,I is limited to those fees that constitute the cost and expenses of the administration of the liquidation.

Nelson, Kinder, Mosseau & Saturley, P.C., of Manchester (William C. Saturley on the brief and orally) and Sheiness, Scott, Grossman & Cohn, L.L.P., of Houston, Texas (H. Miles Cohn on the brief), for the appellant.

Kelly A. Ayotte, attorney general (J. Christopher Marshall, attorney, on the memorandum of law and orally), and Rackemann, Sawyer & Brewster P.C., of Boston, Massachusetts (J. David Leslie and Eric A. Smith on the memorandum of law), for the respondent, the Commissioner of Insurance of the State of New Hampshire as Liquidator of the Home Insurance Company.

Appeal of Brian D. Gagnon
February 20, 2009
(No. 2008-424)

· Whether "gross earnings" is the same as earning capacity, and therefore includes payments to union funds.

Petitioners sustained injuries while working.The benefits paid to the petitioners were based upon an average weekly wage.Both petitioners were denied a request to include an additional $14.80 per hour, which represented their hourly union benefits paid by the employer into various union pension, annuity, and health and welfare funds.Petitioners argue that their average weekly wages should "include payments ‘of funds which provide a direct financial benefit,’" i.e. annuity, local pension, and national pension funds."

The court rejected the petitioners argument that the compensation appeals board (CAB) erred by basing their average weekly wages upon pre-tax wages as opposed to the petitioners individual earning capacity.RSA 281-A:15 computes the worker's weekly wage by dividing the workers' ""gross earnings" over a period of 26-52 weeks ... by that number of weeks."The term "gross earnings" does not mean the same thing as wages or other benefits, but instead is the claimant's "net profit" or pre-tax hourly wage.Both the statute and the collective bargaining agreement the petitioners worked under differentiate between wages and benefits, with benefits including those funds paid by the employer to the union's various funds.Therefore the trial court did not err in calculating the petitioners' weekly wages upon pre-tax wages.

The court also rejected the petitioners argument that the CAB erred by finding that contributions to union funds are not a "similar advantage" under RSA 281-A:2,XV and therefore do not constitute wages.

Stewart & Murphy, P.A., of Manchester (Edward W. Stewart, Jr. on the brief), for the petitioner.

Law Offices of John B. Schulte, of Manchester (John B. Schulte on the brief), for the respondent.

Exeter Hospital, Inc. v. New Hampshire Insurance Guaranty Association
February 20, 2009
(No. 2008-467)

· Whether the trial court erred in determining that the Smith estate alleged the same claim against Exeter and Dr. Wharton.

Dr. Wharton is a cardiologist employed as an independent contractor by Exeter Hospital.In May of 2001, Wharton performed cardiac surgery on Daniel Smith as treatment for Smith’s angina.During the surgery, Smith’s right ventricle became lacerated and he subsequently died.Smiths’ wife brought a medical malpractice action against Wharton and the hospital claiming that "Smith was not advised of [the] risks" of the surgery and that "Exeter hospital lacked the facilities or staff to treat ... complications."Wharton and Exeter reached a settlement agreement with Smith’s estate.Wharton’s professional liability insurance was sufficient to cover the entire amount. However, Wharton only contributed part of the settlement. Exeter paid the balance, which exceeded the $299,999 NHIGA maximum coverage.NHIGA refused to reimburse Exeter’s settlement contribution, citing Exeter’s statutory duty to exhaust Dr. Wharton’s insurance coverage.Exeter petitioned for declaratory judgment seeking indemnification.Both parties moved for summary judgment.The trial court ruled in favor of Exeter concluding that Wharton was an independent contractor and that Exeter was not "vicariously liable" for Wharton’s negligence.The trial court also noted that while the claims against Wharton and Exeter overlapped somewhat, Exeter alone was "alleged to be negligent for its operation of the hospital."

The court rejected NHIGA’s claim that the Smith estate alleged the same claim against Exeter and Dr. Wharton.The Guaranty Act does not allow for duplication of recovery; it requires "any amount payable on a covered claim ... shall be reduced by the amount of any recovery under such insurance policy."The Guaranty Act defines a "covered claim" as "a net unpaid claim, in excess of $50 ... which arises out of and is within coverage and not in excess of the applicable limits of an insurance policy to which this chapter applies issued by an insurer."The phrase "claim against an insurer" is not defined by the Guaranty Act, but the court has construed the phrase to mean, "both an insured’s claim against a solvent insurer and the third-party claim against the insured that gives rise to the insured’s claim against its solvent insurer."Thus the extent to which Count VII consists of the same claim advanced against Wharton, it constitutes a "claim against an insurer subject to the exhaustion of his insurance."Count VII alleges vicarious liability "on the basis of Wharton’s agency relationship with Exeter" and such vicarious liability constitutes a "claim against an insurer."However, Count VII of the original claim claimed theories of liability "unique to Exeter," specifically that Exeter was negligent in permitting Smith’s surgery to take place at its hospital and also that Exeter was negligent in its supervision of Wharton.Since Count VII contains claims that are specific to Exeter, it does not constitute the same claim asserted against Wharton and as such is not a "claim against an insurer" requiring exhaustion of insurance.

Sheehan Phinney Bass + Green, P.A., of Manchester (James Q. Shirley and Karyl R. Martin on the brief, and Mr. Shirley orally), for the petitioner.

Nixon Peabody LLP, of Manchester (Courtney Q. Brooks & a. on the brief, and Mark D. Robins orally), for the respondent.

Hair Excitement, Inc. v. L’Oreal U.S.A., Inc.
February 19, 2009
(No. 2007-920)

· Whether there is a right to jury trial in a claim brought under RSA 358-A:10.

· Whether the trial court erred in finding that L'Oreal did not engage in unfair and deceptive acts under RSA chapter 358-A.

· Whether the trial court erred in finding that L'Oreal did not engage in unfair and deceptive acts under RSA chapter 358-A.

· Whether the trial court erred in finding that L'Oreal did not engage in price fixing.

Hair Excitement is a New Hampshire corporation that owns several salons in New Hampshire, Maine and Massachusetts.L'Oreal makes hair products, including the Matrix line and Redken line of hair care products.In 1993, Hair Excitement entered into a purchase agreement with a Matrix distributor.The contract stipulated that products sold to Hair Excitement were to be used in the salon or sold to legitimate salon clients for home use.Either party could terminate the contract "immediately upon notice."In 1997 Hair Excitement entered into a Redken Products Chain Account agreement, also stipulating that products sold to Hair Excitement were to be used in the salon or sold to legitimate salon clients for home use.Either party could terminate the agreement, "with or without cause, by giving 60 days prior written notice of such termination to the other party."

In January 2002, L'Oreal's director of corporate security learned that Hair Excitement was engaged in product diversion, i.e. selling products to non-clients for resale.L'Oreal conducted a loyalty test by retaining Paul Cosentino who called Hair Excitement and asked to purchase Matrix and Redken hair products for resale.John Langlois, the owner of Hair Excitement, returned his call and discussed the proposed sale.Langlois was aware that Cosentino intended to resell the products at the time of their conversation.The next day, Cosentino arrived at the Rochester salon and bought 150 bottles of Redken and Matrix products at fifty percent of their retail value.On February 8, 2002, L'Oreal notified Hair Excitement by letter of its termination of Hair Excitement's products Chain Account Agreement because of Hair Excitement' participation in the product diversion scheme, and further barring Hair Excitement from purchasing any other L'Oreal hair care products. Hair Excitement brought suit, claiming that L’Oreal violated RSA chapter 358-A, that L’Oreal misrepresented the identity of its agent with the intent to deceive Hair Excitement in order to induce Hair Excitement to sell products in violation of its contract and chain account agreement with L’Oreal. The trial court found in favor of L’Oreal.

The court affirmed the trial court's ruling that RSA chapter 358-A claims are not entitled to a trial by jury.The right to a jury trial is preserved in the New Hampshire Constitution but it "is not without limitation."Nothing in RSA chapter 358-A specifically provides a right for a jury trial.The chapter itself is designed to regulate business practices and protect consumers by "making it unlawful for persons engaged in trade or commerce to use various methods of unfair competition and deceptive business practices."RSA chapter 358-A creates new statutory rights, not common law rights, therefore the constitution does not confer the right to a jury trial for claims under RSA chapter 358-A.Hair Excitement argued that its claim was similar to a common law claim for fraud or deceit.A common law claim of fraud must be proved by clear and convincing evidence.However, a claim brought under RSA chapter 358-A must rise to "a level of rascality that would raise an eyebrow of someone inured to the rough and tumble world of commerce.In addition, RSA chapter 358-A provides for more damages than a common law fraud action, allowing treble damages, attorney's fees and costs.Due to the differing standard of proofs and the differing elements of each claim, the court rejected Hair Excitement's argument.

The court affirmed the trial court's ruling that the trial court did not err in finding that L'Oreal did not engage in unfair and deceptive acts under RSA chapter 358-A.While it is true that Cosentino misrepresented his identification and intent when he approached Hair Excitement, those misrepresentations did not violate RSA chapter 358-A.Hair Excitement was on notice of the penalties for engaging in product diversion from the anti-diversion provisions in both the contract and the products chain account agreement.Such provisions are common in the industry and the anti-diversion campaigns used to enforce them are advertised at trade shows, training seminars and in trade publications.Hair Excitement was aware of the efforts of the industry to combat product-diversion.

The court affirmed the trial court's ruling that the anti-diversion policy contained in its distributor contracts is a legitimate trade practice.While Hair Excitement argued that the policy violated the "first sale" doctrine, under which a "trademark owner cannot control distribution of a trademarked item beyond its first sale," the first sale doctrine is a defense to an infringement action under federal copyright law and thus does not apply to the case at hand.

The court lastly affirmed the trial court's ruling that L'Oreal did not engage in price fixing.Hair Excitement argued that L'Oreal's conduct in terminating its product chain account agreement proved that L'Oreal was attempting to fix prices by prohibiting Hair Excitement from selling L'Oreal products at discount prices.However, the both the purchase contracts and the chain account agreement could be terminated unilaterally without cause.Therefore the evidence did not support a conclusion that L’Oreal"deceived Hair Excitement into selling product with an underlying purpose of illegal price control."

Shaines & McEachern, P.A., of Portsmouth (Robert A. Shaines and Laurie A. Lacoste on the brief, and Mr. Shaines orally), for the plaintiff.

Nixon Peabody, LLP, of Manchester (W. Scott O’Connell and David W. Ruoff on the brief, and Mr. O’Connell orally), for the defendant.

State Employees Association of New Hampshire v. New Hampshire Division of PersonnelFebruary 18, 2009
(No. 2008-257)

· Did the trial court err in determining that creditable service purchased by a state employee pursuant toRSA-A: 4,VII may not be used for purposes of determining eligibility as a retired employee pursuant to RSA 21-I:30.

The petitioners are two state workers who are Group I members of the New Hampshire Retirement System.The benefits payable by NHRS are divided into two categories, retirement allowances and medical care.Both benefits use creditable service to define eligibility for benefits and calculate benefits.RSA chapter 100-A offers limited opportunities for certain members to purchase credit for service rendered for public employers other than the state of New Hampshire or for certain breaks in service.The trial court found that creditable service purchased by a state employee pursuant to RSA-A: 4,VII may not be used for purposes of determining eligibility as a retired employee pursuant to RSA 21-I:30.Petitioners appealed, arguing that "creditable service to the state," while not defined by statute, meant the amount of "credible service" as defined by RSA 100-A a state employee holds.The court rejected this argument, acknowledging that reading "creditable service" and "creditable service to the state" in the same way would render the phrase "to the state" superfluous. Similarly, to interpret "nonqualified service credit" the same as "creditable service" would allow the purchase of creditable service.

However, the court found that "the legislature’s intent to exclude nonqualified service credit purchased under RSA 100-A:4, VII from the ambit of ‘creditable service for the state,’" was reasonable ascertainable, and reviewed the statutory scheme of retirement allowances contained in RSA chapter 100-A, finding that employee contributions to NHRS are credited to the annuity fund, out of which the statutorily defined retirement allowance is paid.Medical benefits are paid out from a separate, different fund.Before purchased service credits could be granted, RSA 100-A, VII required "payment by themember of the full actuarial cost of such credit."Such payment was to be credited to the NHRS annuity savings fund.The court found that the money used to purchase non-qualified service credit was intended to be used to fund the purchasing members' retirement allowances and nothing else.Also, the state did not intend to incur the cost of the purchased credit if it had not received the benefit of the actual service.The court concluded that non-qualified service credit purchased pursuant to RSA 100-A:4, VII applies as creditable service "only with respect to retirement allowances under RSA chapter 100-A" and not to health benefits.

Molan, Milner & Krupski, PLLC, of Concord (Glenn R. Milner on the brief orally), for the petitioners.

Kelly A. Ayotte, attorney general (Michael K. Brown, senior assistant attorney general, on the memorandum of law and orally), for the respondent.
NH Supreme Court At-a-Glance February 2009 – Part I


Courtney Eschbach is a bill drafter in the Office of Legislative Services at the New Hampshire General Court. She is a graduate of the University of Notre Dame Law School and is admitted in New Hampshire and Illinois.

Supreme Court Rule 42(9) requires all NH admitted attorneys to notify the Bar Association of any address change, home or office.

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