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BUSINESS LAW LLC said to be citizen of states of all its members A limited liability company is a citizen of the states of all of its members, the 8th U.S. Circuit Court of Appeals held on Feb. 6, in a matter of first impression. GMAC Commercial Credit LLC v. Dillard Department Stores Inc., nos. 03-2514, 2850. Invoking diversity jurisdiction, GMAC, a New York limited liability company with a New York principal office, brought a breach of contract action against Dillard’s, a Delaware corporation with an Arkansas principal office, in an Arkansas federal court. After Dillard’s defeated the suit by partial summary judgment and then by jury verdict, GMAC-with new counsel-moved to vacate the judgment, arguing that because of a lack of actual diversity the district court did not have subject-matter jurisdiction. Vacating and remanding, the 8th Circuit said that diversity jurisdiction only applies when the matter in controversy is between “citizens of different States.” Generally, diversity for unincorporated entities is decided by the citizenship of “all the members,” the court explained. Since a limited liability company is not a corporation, it does not fit within the “corporation exception,” whereby a corporation is considered a legal person residing in its state of incorporation and its principal place of business. An “LLC’s citizenship is that of its members for diversity jurisdiction purposes,” it added. Because the record did not indicate the citizenship of GMAC’s members, the court remanded the matter to determine whether any of GMAC’s members are citizens of Arkansas or Delaware.   Full text of the decision Limitations statute starts from notice of violation A sharp decline in the price of a stock while an analyst continues to recommend purchase does not, alone, prove inquiry notice of the analyst’s fraud so as to start the limitations period for a securities fraud suit, the 11th U.S. Circuit Court of Appeals held on Jan. 30. LaGrasta v. First Union Securities Inc., No. 02-16215. Carolyn Trabuco, a research analyst at First Union Securities, recommended the stock of Ask Jeeves Inc., an Internet search engine, as a “strong buy” with a target price of $230 per share. In November 1999, it traded at $172.75 per share. In January 2000, Trabuco and First Union learned that Ask Jeeves was considering a second public offering and using First Union to handle the investment banking. First Union did not disclose this potential conflict of interest and Trabuco continued recommending Ask Jeeves stock through October 2000, when it was valued at just $10.75 per share. In June 2000, Smart Money magazine reported on First Union’s conflict of interest. Three investors who had lost heavily on Ask Jeeves sued First Union on May 14, 2001, alleging that they had bought stock on Trabuco’s recommendations unaware of her potential bias. A Florida federal court dismissed the claim as time-barred. Reversing, the 11th Circuit said that the complaint was timely, because the relevant securities fraud time limit is one year from “discovery of the facts constituting the violation,” which, in this case, was June 2000, when the Smart Money story ran. A price drop may be relevant to arouse investor suspicion, but doesn’t create inquiry notice as a matter of law.   Full text of the decision CIVIL PRACTICE Puerto Rico bench trials can’t decide jurisdiction A Puerto Rican federal court erred in using Puerto Rican commonwealth court judgments as a basis for determining whether a plaintiff had met the $75,000 claim requirement for federal diversity jurisdiction, the 1st U.S. Circuit Court of Appeals held on Feb. 2, because Puerto Rican commonwealth trials are bench proceedings, not jury trials. Stewart v. Tupperware Corp., No. 03-1401. Keith Stewart, a New York City policeman, and his bride, Diana Ramirez, traveled to Puerto Rico for their honeymoon. After leaving an event sponsored by Tupperware Corp., Ruth Fuente Alicia drove the wrong way down a one-way street, striking the newlyweds’ car and injuring them. Alleging injuries, including inability to have sexual relations on their honeymoon and to breast-feed their newborn child, the couple sued Tupperware and Fuente in a federal district court, claiming damages in excess of $75,000. Basing itself on Puerto Rican commonwealth court decisions, the court dismissed the suit, holding that it lacked subject-matter jurisdiction because the amount in controversy was below the $75,000 required for diversity jurisdiction. Stewart and Ramirez appealed. Reversing, the 1st Circuit held that the district court erred in using Puerto Rican commonwealth court decisions to predict damages in federal jury trials. The court said, “Damages in a Puerto Rico civil case are determined by a judge, not a jury. In contrast, in the federal courts, ‘the task of estimating money damages, especially intangible, noneconomic loss, constitutes a core jury function.’”   Full text of the decision CONSUMER PROTECTION Lack of inducement fells deceptive ads action The Illinois deceptive trade practices law does not permit causation to be established in a deceptive advertising case when the plaintiff can’t prove that he was induced to buy the product by the allegedly deceptive ads, the Illinois Supreme Court ruled on Feb. 5. Shannon v. Boise Cascade Corp., No. 95854. Eight homeowners filed a class action against Boise Cascade, alleging consumer fraud and deceptive business practices. They claimed that the composite wood siding made by Boise Cascade and used in the construction of their homes was defective and falsely advertised. A trial court granted summary judgment to Boise Cascade on the grounds that it had not made any representations about the quality of the siding and that the alleged damages were not proximately caused by Boise. The state’s intermediate appellate court reversed. The Supreme Court reversed again. It remanded the case to the appeals court for reconsideration in light of Oliveira v. Amoco Oil Co., which rejected the “market theory” of proximate cause if the plaintiff could not establish that he was in any way deceived by the defendant’s advertisements. The appeals court again reversed the trial court. Again reversing, Illinois’ high court held that Oliveira showed that deceptive advertising cannot be the proximate cause of damages under the state deceptive practices act unless it actually deceives the plaintiff. The court rejected the plaintiffs’ argument that Boise’s deceptive ads had created a market for their product that would not otherwise have existed. While it was true that the sidings used on the plaintiffs’ homes would not have been installed, it did not follow that the ads had induced the plaintiffs to accept the sidings on their homes.   Full text of the decision EVIDENCE ‘Daubert’ bars expert’s link of Zoloft to suicide A district court did not abuse its discretion in striking expert testimony on general and specific causation between the anti-depressant drug Zoloft and a 13-year-old boy’s suicide, the 10th U.S. Circuit Court of Appeals ruled on Feb. 4. Miller v. Pfizer Inc., No. 02-3092. Matthew Miller’s parents sued Pfizer, claiming that their son’s use of Zoloft caused his suicide. The Millers enlisted Dr. David Healy, a neuropsychopharmacologist, as their expert and submitted a preliminary report he prepared. Anticipating that Pfizer might challenge Healy’s views, the Millers moved for appointment of independent experts. The experts submitted a report discrediting Healy’s theory and methodology and Pfizer moved to strike his testimony. Applying standards outlined in Daubert v. Merrell Dow Pharmaceuticals Inc., 509 U.S. 579 (1993), for determining whether expert testimony is admissible under Federal Rule of Evidence 702, the court ruled that Healy could not testify, leaving the Millers with no expert to prove causation. The court then granted summary judgment for Pfizer. The Millers appealed, claiming that the court did not give them a fair opportunity to provide material in support of Healy’s conclusions, particularly his Powerpoint presentation. But, finding no abuse of discretion, the 10th Circuit affirmed. It noted that rather than restrict Healy’s opinions to his first statement filed under Fed. R. Civ. P. 26, the trial court had repeatedly allowed the Millers to supplement his report. It also said that the parents had failed to explain why Healy could not have submitted his Powerpoint presentation before the Daubert hearing, when they knew that the independent experts were questioning his conclusions and methodologies.   Full text of the decision LEGAL PROFESSION High contingency fee for undisputed will is OK In a de novo review of a bar complaint against an attorney who charged a one-third contingency fee in an uncontested probate matter, the Oklahoma Supreme Court on Feb. 3 rejected the Oklahoma Bar Association’s claim that the attorney should be disciplined for charging an unreasonable fee where there was no fraud, misrepresentation or concealment in the execution of the fee agreement. Oklahoma ex rel. Oklahoma Bar Ass’n v. Flaniken, No. SCBD 4722. Dewey Hughes named Peggy Hepler, an employee of the bank where he was a customer, as the sole beneficiary of his approximately $451,000 estate. Believing a will contest was almost certain, Robert Flaniken, an attorney Hepler had contacted to represent her, entered into a one-third contingent fee agreement with Hepler. There was, however, no contest and when Flaniken stood by his retainer agreement, Hepler paid him, then filed a complaint with the state bar. The bar association argued that Flaniken should be disciplined for charging an unreasonable fee. An Oklahoma professional responsibility tribunal held that the bar failed to meet its burden. Reviewing the matter de novo, Oklahoma’s Supreme Court agreed that discipline was inappropriate. “No evidence has been presented that shows impropriety involved in the execution of the contract between the Respondent and Hepler. The evidence shows that when the probate took less time and did not involve the anticipated will contest, the client became dissatisfied with the bargain she had made . . . .We reject the proposed ‘hindsight’ test of the Bar Association where a lawyer has lawfully contracted for a percentage of a client’s recovery, and reject the Complainant’s recommendation of discipline for the Respondent,” it said.   Full text of the decision TORTS Parol evidence failure leads to retaliatory suit The termination of litigation based on the parol evidence rule creates the necessary conditions for a malicious prosecution suit to go forward, the California Supreme Court ruled on Feb. 2. Casa Herrera Inc. v. Beydoun, No. S111998. Casa Herrera sold a tortilla oven to Am Mex Food Industries, owned by Nasser Beydoun. The sales contract stated that the oven would produce between 1,500 to 2,000 dozen tortillas, ranging in weight from 6 ounces to 10 ounces, per hour. After a trial period and after Casa Herrera made some repairs, Beydoun signed an acceptance of the oven. Later, Am Mex was put into receivership and its assets were sold. Soon after, Beydoun sued Casa Herrera for breach of contract and fraudulent misrepresentation on the ground that Casa Herrera had promised the oven would produce 1,500 dozen 16-ounce tortillas per hour. The trial court ruled for Casa Herrera on standing principles. The Court of Appeal affirmed, but for a different reason: the contract did not contemplate the making of 16-ounce tortillas, and Beydoun was barred by the parol evidence rule from trying to show otherwise. Casa Herrera then filed a malicious prosecution suit against Beydoun and Am Mex. The trial court dismissed the claim with prejudice, saying the parol evidence ruling in Casa Herrera’s favor was not the type of “favorable ruling” necessary for a malicious prosecution case. The Court of Appeal reversed. Affirming, California’s high court noted that a favorable termination for malicious prosecution purposes does not occur every time a defendant prevails. For instance, most favorable procedural decisions do not constitute favorable terminations. The parol evidence rule is not, however, a procedural mechanism; it is a substantive termination. And unlike the statute of frauds, it is not merely an evidentiary rule. In this case, without parol evidence, only the terms of the contract could be reviewed and it was clear from that review that there was no breach. The trial court reached the merits of the dispute and found in favor of Casa Herrera.   Full text of the decision

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