What is Lilly Law?
Lilly Law refers to the doctrine arising from the case of Lilly v. Brown, which provides an exception to the general rule that a property owner has no responsibility for the criminal acts of third parties on or near their property. The law arises from the 1974 Tennessee Supreme Court decision in the case of Lilly v. Brown, where a service station clerk was robbed and shot , and the Court determined that the injury to the clerk was foreseeable in light of evidence that prior robberies had occurred at the same station. The decision in Lilly v. Brown ultimately led to what we now know as Lilly Law, which is applicable when a third party commits a crime on premises (such as an apartment, shopping center, or other complex or development). Property owners and managers may be held liable for damages if their negligence is found to be the proximate cause of the injury in question.
History and Background
The Lilly Ledbetter Fair Pay Act of 2009 (often referred to as "Lilly Law") was the first bill signed into law by President Barack Obama. The law was named after Lilly Ledbetter, who was an employee at Goodyear Tire & Rubber Company. When she retired in 1998, Ledbetter learned that she was paid less than her male counterparts throughout her entire career. In 1998, she sued the company for gender discrimination under Title VII of the Civil Rights Act of 1964 (Title VII), claiming that the company had violated the Act by paying her less than male managers. After her case wound its way up to the Supreme Court, the U.S. Supreme Court held that the federal law barring pay discrimination violated by employers on the basis of sex, age, ethnicity, or disability, did not bar Ledbetter’s claim, because the lawsuit was brought on the grounds that the discrimination was ongoing and that each paycheck was in itself a discriminatory act. The statute of limitations for bringing such a claim under Title VII was 180 days (later extended to 300 days) from the time of each individual paycheck. On May 29, 2007, the Supreme Court ruled in a 5-to-4 decision that Ledbetter missed the filing deadline on each of the allegedly discriminatory paychecks and therefore could not continue to sue her former employer. Five months later, on October 29, 2007, Ledbetter respectfully requested to Congress to amend the law to extend the statute of limitations for all employees who claim discrimination based on wage disparities faced by women and minorities in the workplace. Then, on January 30, 2008, Senator Tom Harkin introduced the Fair Pay Restoration Act of 2008 in response to Ledbetter’s request. Making its way through Congress, the Fair Pay Restoration Act of 2008 failed to achieve enough support in the U.S. House of Representatives and Senate to survive a presidential veto, when President Bush had taken a stance against the bill. However, with regulatory reform added to President Bush’s January 9, 2009 Executive Order, President Obama successfully reversed the order enabling the negotiation of union contracts and federal legislation provided in the new Lilly Ledbetter Law.
Essentials of the Law
The Lilly Law codifies a comprehensive body of regulations, penalties, and procedural guidelines that apply to all appropriate private educational institutions (APIEs) within its jurisdiction. The scope of the Dutch law’s application expands beyond higher educational contexts to also incorporate postsecondary vocational institutions as well as preparatory secondary vocational programs. The law itself focuses upon three core components: the initial regulatory framework established by a school’s enrollment contract, the related student rights, and the authority and process surrounding the issuance of fines to noncompliant institutions.
An APIE is any institution that provides postsecondary education that is supported in any manner by the government. Under the primary provisions of the law, these schools are required to identify and set forth in a clear, distinct manner the following essential elements of their enrollment terms and conditions:
The comprehensive requirements incorporated into newly designed enrollment contracts disallow hidden fees or unexpected terms throughout the enrollment process. If a school fails to meet the registration requirements under the law, it may not validly collect financial fees from enrolled students.
The law also grants the Dutch Education Inspectorate significant oversight and responsibility in relation to its regulatory powers. The Inspectorate of Education is given unilateral authority to impose fines upon noncompliant institutions. Fines can be levied without necessity of a formal court citation, and the Inspectorate is able to issue such fines before, during, and after review of an institution’s enrollment terms and conditions.
The imposition of fines under this provision of the law seeks to both indicate wrongdoing and act as a rapid deterrent to future clerical violations. A fine can be imposed on either an institution or a single entity or branch of a multi-branch institution. This allows the Inspectorate of Education to target multiple locales of an institution with a single action, in turn reducing duplicative proceedings that ultimately waste time and the trust of the regulated entities.
Implications for Corporations and Individuals
Lilly Law, and the judicial opinions that interpret it, have both widely and profoundly affected the landscape of benefit plan regulation in the United States. While Lilly Law does not impose any direct obligations on employers per se, it will often make an employer’s failure to comply with another law all the more perilous. For example, a violation of the tax code may be considered an ERISA fiduciary violation if that violation also results in a material financial detriment or ends to a plan. Likewise, a person may be held liable as a defender for the actions of another. In one case, a business’s post-ERISA changes to its health insurance policies were found to merit fiduciary liability because of the manner in which the policies were rolled out. A vendor that provides retirement plan services may also be found liable as a fiduciary, even though it is not an employer.
Lilly Law’s most direct effect on business is as a source of litigation risk. The federal courts’ continuing expansion of Lilly Law means that an employer’s conduct may invite liability in areas that were not formerly thought to be covered by Lilly Law. Commercial employers that offer benefit plans should be particularly wary, as a great deal of Lilly Law involves commercial and business interests. In addition, Lilly Law has proven to be a popular basis for plaintiffs to challenge common provisions in insurance and benefits contracts, whether individually negotiated, collectively bargained, or employer-union. Because Lilly Law will often be applied to the interpretation of such contracts, litigants may even face the risk that their contract will not be enforced as written, but will instead be deemed subject to Lilly Law’s requirements.
Lilly Law does nothing to reduce ERISA and fiduciary-related liability for individual plaintiffs. Some of the most aggressive case law sought by disability benefit plaintiffs has been grounded in Lilly Law. The most significant of these involves what is known as the "heightened arbitrary and capricious" standard of review. The standard provides that a court must uphold an administrator’s decision to deny benefits unless the plaintiff can prove that the decision was not supported by substantial evidence or that the actual decisionmakers did not meet the reasonable decisionmaker standard. Lilly Law has lowered this bar to the point where an administrator’s decision is often treated as conclusive when there is evidence supporting it. In addition, Lilly Law has released litigants from the confines of formerly clear contractual parameters over waiver and estoppel arguments. A complete elaboration of the current state of Lilly Law and its related doctrines is beyond the scope of this particular article; however, it is critical to keep in mind the significant effect that Lilly Law will have on plaintiff strategies and litigation risks for those who sponsor benefit plans or otherwise are subject to ERISA’s standards and requirements.
Examples and Practical Applications
Lilly cases frequently involve pregnant mothers, which generates concerns of liability in a product liability setting. For instance, in Utts v. Bristol-Myers Squibb (BMS), No. 18-CV-15467, 2018 WL 6427560 (D.N.J. Dec. 6, 2018), the plaintiff was a child born in utero to a mother who took the metabolite of Plavix, a blood thinner manufactured by BMS, during pregnancy. Id. at *1. The Utts case is a good example of how plaintiffs misapprehend, or misconstrue, Lilly law.
Plaintiff claimed that the drug Plavix, taken by the mother during pregnancy, caused the plaintiff to be born with five congenital heart defects, which require a battery of surgeries, costing over $100,000. Id. BMS moved for summary judgment, contending that it could not be liable as a matter of law because there was insufficient evidence of causation to support plaintiff’s claim. Id. at *3. After confirming that New Jersey law applies Lilly to a failure-to-warn claim that involves direct claims of the injured child, the court explained that Lilly required that the defendant must have had actual knowledge that the drug had caused, or was highly likely to cause, teratogenic effects before the plaintiff was conceived in order to prevail on summary judgment. Id. at *2-3.
The court then held that BMS was entitled to summary judgment because there was no evidence of BMS’s actual knowledge of a causal link between Plavix and congenital heart defects before the time that plaintiff was conceived. Id. at *3. Plaintiff relied upon Kessler v . Amgen, Inc., 748 F.3d 100 (3rd Cir. 2014), arguing that Lilly did not apply because that case involved a "failure-to-pull drug from the market" rather than a failure-to-warn, and did not involve an alleged failure to pull the drug from the market in the United States. Id. Noting the distinction, the court nevertheless concluded that plaintiff could not make "out a prima facie case of medical malpractice based on the failure to inform a physician of a drug’s birth-defect risk where there is no evidence that the drug manufacturer had actual knowledge of that potential risk at the time the physician used the drug." Id. Again citing Kessler, the court emphasized that Lilly "should not be limited to misbranding claims under § 202(i) of the [FDCA]." Id.
Kessler compels this conclusion because it strikes at the heart of product liability litigation involving birth defects. This makes sense because it would obviously be unfair—and almost certainly not the intent of Lilly—for a manufacturer to be liable where it did not truly have knowledge of the risk at the time of conception. See, e.g., Duran v. Merck & Co., Inc., 952 So. 2d 217, 227 (La. 2007) ("Under the reasoning of Lilly, the question of actual knowledge of teratogenic effect is a threshold issue whether the manufacturer is guilty of defective marketing, defective design or defective manufacture.") (emphasis added). Without exposure to evidence of actual knowledge, neither the jury nor the judge is in a position to assess culpability.
Controversies and Criticisms
Critiques of Lilly Law reveal a mix of agreement and concern among stakeholders looking out for employee rights. For some critics, the principle underlying the law—that an employers’ injury and wage record should not foreclose future growth for injured workers—has a chilling effect on employer conduct. Although Lilly Law opens up avenues for greater compensation, it does so at the expense of new businesses. Small, new companies may choose to not expand or hire at all, in order to avoid the additional expenses tied to maintaining workers’ compensation insurance. In some cases, the employer may reduce employment prospects for injured workers by terminating those who make claims, in order to avoid the expense of future possible claims. Critics contend that Lilly Law punishes successful employers and sends them packing if an injured employee is able to recover from an injury and find work 5 years after gaining skills, forcing them to compete against more-lethal competition in their State-of-Origin.
It is also criticized by employers who fear the effects of this new negotiation power in the hands of transactional lawyers, and see it as favoring the injured workers’ attorney at the expense of their small business client. In the search for efficiency in legal costs, these employers seek to minimize litigation-driven expenses in favor of alternative fee structures. They believe Lilly Law makes this more difficult to achieve, as workers’ compensation becomes a litigation issue in every situation, not just the most egregious cases.
Some critiques point to a lack of dispute resourcing in the marketplace, allowing defendants to build a critical mass of experience in litigating cases (possibly even by creating batches of similar cases using providers with unduly favorable opinions aligned in the employer’s favor) to intimidate plaintiffs into settling for less than they would if the market had a sufficient number of plaintiffs’ attorneys to level the playing field. Defendants have an interest in blocking this increase by seeking to eliminate or restrict the pooling of litigation risk. This would shrink the pool of possible expert opinions. woundedbird.com argues that "The LI Global Market exposes an insurer to large risk that the claim’s outcome will significantly exceed the predicted value at the time of the claim’s approval. Based on data collected from PII markets and statistical probing of the AIFs provided by insurers, rujub.conditionsclaims.com argues that insurers have a strong incentive to block pooling efforts and for good reasons: It can lead to more accurate pricing of the products. For instance, a pooling arrangement is unlikely to withstand the insureds’ class action lawsuit because: (I) pooled liability cap; (II) mutual cooperation clause that precludes a lawsuits against a direct insurer unless a previous lawsuit against the reinsurer has been resolved; (III) all reinsurance problems are restricted to direct insurers and not extended to direct insureds; (IV) a clause that expressly states that the Condonement of or failure to enforce any provision of the Direct Insurance Policies does not invalidate or modify any of the provisions of the Direct Insurance Policies; (IV) there is no waiving of the right not-to-arbitrate in the reinsurance contract; and (V) all reinsurance contracts contain explicit right to go to court (and not to arbitrate) to seek specific performance of the terms of the contract. In other words, the defendant is motivated to keep the pool from expanding and limit the effect of pooling on their lead in the market.
Future of the Law and What to Expect
As the legal landscape for privacy and the digital economy continues to evolve, Lilly Law could see significant developments in several areas. For example, as the use of Third-Party Apps evolves, Lilly Law’s applicability to new technologies will need to be considered. As technology shifts toward bio-informatics and cybernetics, courts will have to address whether such technologies will attract Lilly Law liability.
There is also the potential that Lilly Law will be expanded beyond the Ninth Circuit. Due to the Ninth Circuit’s history of Lilly Law case law and the expansive, "free-ride" nature of this theory, other jurisdictions may adopt the Lilly Law standard in the years to come.
Rapid technological advancement, consumer expectation, and federal legislation on data privacy are likely to have an effect on how Lilly Law is applied. However, at least for the foreseeable future, Lilly Law will remain an important tool for consumers to hold app developers accountable for concealing material information from their users.
Conclusions and the Need to Understand Lilly Law
The consideration of Lilly Law when determining whether to pursue a claim is obviously beneficial to a claimant. Undoubtedly, there will be cases where Lilly Law does not apply but understanding the principles embodied within Lilly Law will give you a great advantage with respect to your contemplated litigation. Lilly Law can be an overwhelming concept for a claimant . Typical concerns are, "what type of damages am I entitled to," "what is the incentive to settle my case early" or "why does the defense want to settle so early?" When a potential claimant understands the concepts behind Lilly Law, they can make more educated and informed choices with respect to their potential litigation matters. Because Lilly Law applies to all aspects of the case, if a claimant does not understand Lilly Law then they are at an inherent disadvantage. Both plaintiff and defense counsel have a duty to their clients to ensure that they understand Lilly Law and its impact on their respective cases.