Avoiding the Urkel defense (did I do that?): how Safeco has (and has not) begun to provide an affirmative defense against statutory willfulness.

• Author: Owens, S.L.
• Position: American sitcom character Steve Urkel

"DID I do that!" is a popular catchphrase used by American sitcom character, Steve Urkel. (1) Urkel was a clumsy but well-intentioned character on the sit-com Family Matters. At the center of the show's playful gags were Urkel's genius inventions and klutz performances. (2) These gags usually caused Urkel to break furniture, injure bystanders, and try the patience of his neighbors, the Winslow family. Translated into litigious American legal culture, Urkel's highly risky conduct was undoubtedly reckless. (3) Federal common law recklessness holds defendants civilly liable for creating "an unjustifiably high risk of harm that is either known or so obvious that it should be known." (4) Unlike Urkel, defendants must compensate plaintiffs who are injured by their reckless conduct. (5)

In Safeco Insurance Company of Am. v. Burr (6) the United States Supreme Court held that when a statute left undefined the standard of willfulness, the objective common law recklessness standard should be applied. In Safeco, the Court applied this objective standard to determine whether insurance companies had engaged in conduct that was reckless under the Fair Credit Reporting Act ("FCRA"). (7) A class of auto insurance applicants argued that defendant insurers violated FCRA by willfully failing to provide them with notice of an adverse action as required by the FCRA. The Court disagreed, holding that notice provisions under the FCRA were ambiguous about timelines. Legislative history revealed that Congress had not proposed to require insurance companies to notify applicants of unforeseen adverse actions at the time of their initial application. (8) Because the defendant insurance companies interpreted the FCRA's ambiguous statute reasonably, they did not willfully violate the law.

At first blush, Safeco appears to be a win for defendants eager to prevail against statutory recklessness, as the Supreme Court has created an affirmative defense that would shift the burden back onto plaintiffs who allege willfulness once defendants have met an objective standard. This article cautions defendants, however, against prematurely crafting a defense around an aggressive reading of Safeco in an attempt to quickly dispose of claims for civil statutory recklessness. Although Plaintiffs must show evidence of a defendant's objectively risky conduct, lurking beneath these cases is the concern that Safeco may have permitted what this article calls the "Urkel Defense." Under the Urkel Defense, regardless whether a defendant knowingly engaged in wrongful conduct, a defendant may attempt to escape liability by showing objectively reasonable conduct.

In circumstances beyond the FCRA, circuit courts have hesitated or even refused to apply Safeco if this would give rise to the Urkel Defense. For example, most other courts have declined to follow the Eighth Circuit, which dismissed claims against defendants under Safeco as early as the pleadings when they were accused of willfully violating the False Claims Act ("FCA"), (9) waiting to rule on a defendant's recklessness under the FCA until the parties have established an evidentiary record.

This article provides an overview of Safeco and the ways in which appellate courts have extended (or declined to extend) the Supreme Court's holding in Safeco to other federal statutes lacking a statutorily defined standard of willfulness, including the FCA, the Patent Act, the Clean Water Act, the Gun Control Act, the Fair And Accurate Credit Transactions Act, and the Uniformed Services Employment And Reemployment Act. This article argues that defendants can best leverage Safeco as an affirmative defense against undefined statutory willfulness after credible evidence is established in the record. Successful Safeco defenses entail a four-step analysis of the claim by which defendants prove that they: (1) reasonably interpreted the law; (2) objectively aligned with Congress's intent; (3) fairly allocated burdens; and (4) efficiently disposed of the claim as a matter of law. Congress's intent under each federal law varies from one context to another. Defendants should pay particular attention to whether the logic of Safeco is inappropriate to specific statutory goals.

1. Restrained Statutory Punitive Damages--Safeco. Ins. Co. of Am. v. Burr

   In Safeco Ins. Co. of Am. v. Burr, the Supreme Court ruled in favor of two insurance companies accused of willfully violating notice requirements under the Fair Credit Reporting Act ("FCRA"). (10) Under the FCRA, willful conduct triggers punitive damages, however the term willful is not defined in the statute. (11) The plaintiffs alleged that a set of insurance companies had failed to inform insurance applicants of an "adverse action" against them based on their credit reports. General Insurance Company ("GEICO") and Safeco Insurance Company of America ("Safeco"), the defendants, countered that they had interpreted ambiguous provisions in the FCRA to not require notice during an initial application period, and that their interpretation was reasonable. (12) The Court agreed on both points. (13)

   First, the Court undertook to interpret what notice requirements Congress intended to impose on companies under the FCRA and whether these notice requirements were ambiguous. The disputed notice requirements were in [section] 1681m(a) of the act. The Court held that these provisions were unclear about when the companies had to provide notice of an adverse action. (14) Specifically, uncertainty existed around the phrase "based on." (15) Because of the companies' conflicting readings, the Court looked to the legislative record to surmise Congress's intent.

   The Court found that the legislative history indicated that Congress intended to link "based on" to a practical adverse consequence. The Court thus used the FCRA's legislative record to distinguish practical consequences to consumers as opposed to merely adverse and inevitable occurrences. GEICO and Safeco had interpreted the statute to mean they had no duty to inform applicants of unidentifiable effects. (16) Neither defendant knew the applicants' credit scores would come into play at the time of their initial applications. The Court concluded that by consulting applicants' credit reports, Safeco and GEICO had not placed the applicants in a worse position. (17) Nor had their conduct contravened the FCRA's chief policy goal--to protect consumers. (18) As a result, the Court held that Safeco and GEICO had reasonably interpreted an ambiguous federal statute.

   Second, the Court had to decide what willfulness means when Congress has not defined a statutory standard. Congress did not define "willful" under the FCRA's punitive provisions. (19) This prompted the Court to define willful in accordance with its common law meaning of reckless conduct. Nothing within the FCRA's legislative history reflected that Congress intended to give willful a meaning different from term used in common law. The Court also addressed the inequity of lower courts who may choose to apply various legal standards to define willful conduct. (20) Consequently, the Court determined a uniform common law standard for willful behavior, objectively reckless conduct. When the term willful is used in a statute but not therein defined, as in the case of the FCRA, the common law standard would control.

   This provides an affirmative defense against statutory recklessness, and plaintiffs who seek punitive and statutory damages face a new roadblock. Many other federal statutes punish willful conduct, but neglect to define willfulness. Following Safeco, U.S. federal court dockets have been inundated with arguments about whether Safeco set the correct standard for civil statutory recklessness. Moreover, questions loom over whether Safeco should apply outside of the FCRA, outside of civil law statutes, or prior to summary judgment.

2. The Patent Act- In re Seagate Tech, LLC

   The Federal Circuit was among the first appellate circuits to apply Safeco beyond the FCRA context when it relied on Safeco to reverse its twenty-year-old definition of willful infringement under the Patent Act. (21) By doing so, the court also reversed the affirmative defense of counsel doctrine. (22)

   Before Safeco, the Federal Circuit had defined willful infringement by employing a standard similar to negligence. (23) The Federal Circuit evaluated willful infringement of a patent under a 'totality of circumstances' standard. (24) Defendants could combat willfulness using the defense of counsel doctrine by showing their reasonable reliance on the advice of counsel. (25) Opinion of counsel usually advocated that a patent was either invalid or unenforceable, which showed that the infringer had exercised a duty of care in good faith. (26) In In re Seagate Tech, LLC, (27) the Federal Circuit redefined willful infringement found in Section 284 of the Patent Act by applying an objectively reckless standard.

   Seagate presented a dispute between competitors over computer disk drive technology. (28) On a writ of mandamus to the Federal Circuit, the defendants sought to prevent disclosure of its opinion of counsel as attorney work product and as privileged attorney-client communication. (29) Tension brewed because the defendant had to choose between losing a "lawful assertion of attorney-client privilege" or asserting an opinion of counsel defense. (30) However, the Federal Circuit ruled beyond the evidentiary issues raised by the defendants and increased the standard for willfulness in light of Safeco.

   As in many federal statutes, the Patent Act does not define willfulness. (31) Therefore, the Federal Circuit applied Safeco to define willful infringement with a two-prong test: (1) an objective inquiry into whether the defendant acted despite a high likelihood that [the defendant's] actions would infringe a valid patent; and (2) a subjective inquiry into whether the defendant knew or should have known that they were...