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BANKRUPTCY Kmart can’t pick which creditors to pay first A bankruptcy court order allowing the discount retailer Kmart to pay prepetition “critical vendor” debts at its own discretion was properly reversed, the 7th U.S. Circuit Court of Appeals held on Feb. 24. In re Kmart Corp., nos. 03-1956, et al. Kmart had asked the bankruptcy court to let it pay the prepetition claims of vendors it deemed “critical,” contending that without those relationships remaining intact, Kmart would go out of business, injuring all of its creditors. The court entered the order without notifying any disfavored creditors. Capital Factors Inc. appealed the order, while Kmart paid off about $300 million in prepetition debts to suppliers it deemed critical. The roughly 2,000 noncritical vendors and 43,000 unsecured creditors eventually got about 10 cents on the dollar, mostly in stock of the reorganized Kmart. On the eve of the confirmation of Kmart’s reorganization plan, an Illinois federal district judge reversed the prepayment order. Some critical vendors appealed, arguing that it was too late to give back the money they had received. The 7th Circuit nonetheless affirmed, holding that nothing in the bankruptcy code establishes detrimental reliance as a defense to disgorging preferential payments. It also held that there was no proof that any of the vendors would have stopped doing business with Kmart if those payments had not been made. Full text of the decision CIVIL PRACTICE French plane maker may be sued in Arkansas An Arkansas federal court has in personam jurisdiction over Dassault Aviation S.A., the French jet plane maker, the 8th U.S. Circuit Court of Appeals held on March 4. Anderson v. Dassault Aviation, No. 03-2422. A flight attendant, hurt while working on a Dassault-made business jet, filed a products liability suit against the plane maker in Michigan, where she was a resident and where the accident occurred. Dassault has an Arkansas subsidiary that completes many of its jets. After a Michigan federal court dismissed the case for lack of personal jurisdiction, the woman refiled in an Arkansas federal court, which also dismissed for the same reason. Reversing, the 8th Circuit found that the parent company has sufficient minimum contact with Arkansas. It noted that Dassault has close ties to the Arkansas subsidiary and that the two entities share a Web site, directors and a unified marketing strategy. Full text of the decision CONSTITUTIONAL LAW Child-support rules don’t breach supremacy clause Technical noncompliance with federal regulations does not render Georgia’s child-support guidelines unconstitutional, the Georgia Supreme Court held on March 1. Ward v. McFall, No. S03A1365. When Christopher Ward and Laura McFall divorced, Ward was granted custody of their children. A consent modification order was entered requiring her to provide child support and medical insurance. A few years later, McFall filed to modify the support order and moved for a declaration that Georgia’s child-support guidelines are unconstitutional. The trial court adjusted the support order and declared the statute invalid under the supremacy clause in that it failed to meet some federal code mandates. Specifically, Georgia participates in the federal Aid to Families with Dependent Children program and received corresponding federal funds. It gets that funding on the condition that its support program comports with certain Social Security Act requirements, including the establishment of child-support award guidelines. The trial court found that the state had failed to do so. Georgia’s high court reversed, holding that the only way pre-emption would apply is if the guidelines stood in the way of congressional goals. The court held that Georgia’s alleged failure to review its guidelines in the “manner stated” in the statute does no “major damage” to any federal interest. Also, the U.S. Secretary of Health and Human services had approved Georgia’s plan and hadn’t reduced the state’s federal grant. Full text of the decision CONTRACTS Motor vehicle board can’t impose fraud penalties The Texas Motor Vehicle Board lacks the authority to impose civil penalties on an auto dealership’s principal and general manager for statutory violations they had committed, the Texas Supreme Court held March 5. Pretzer v. Motor Vehicle Board & Motor Vehicle Div. of Texas Dep’t of Transportation, No. 03-0333. The board had found that Scott Bossier and his car dealership “Bossier Country,” as well as the dealership’s general manager, Randy Pretzer, were involved in a fraudulent scheme that included falsifying documents, lying about customer incomes and forcing customers to agree to unwanted terms. The board, an independent entity within the Texas Department of Transportation, imposed civil penalties, ordered the parties to cease and desist and restricted Pretzer’s future involvement in marketing vehicles. On appeal, a lower court found that the board lacked jurisdiction over some of the violations, and remanded. An intermediate appellate court affirmed. Agreeing, Texas’ high court said that the only violations Bossier and Pretzer committed of “the Act or a Board rule or order” were violations of sections that apply only to licensees and applicants. Since Bossier and Pretzer were neither, the board lacked authority to sanction them individually. Full text of the decision CRIMINAL PRACTICE Failure-to-register crime requires proof of intent Deciding an issue certified as one of great public importance, the Florida Supreme Court held on March 4 that a culpable mental state is a prerequisite to a conviction for failure to comply with Florida’s sex offender registration laws. State v. Giorgetti, No. SC02-1812. Victor Giorgetti was convicted of indecent assault and sentenced to two years in prison. Several years after his release, police discovered that he was a sex offender listed at a different address. Giorgetti was arrested and charged with failure to report a change of address as required by Florida’s sex offender registration laws. At trial, the judge ruled that the state did not have to prove that the statutes had an element of knowledge or that Giorgetti intended to violate them. The jury convicted him. An intermediate appellate court reversed. Noting that the law was silent as to a mens rea requirement, it held that “violation of the sexual offender registration statutes is a felony, absent express contrary intent by the legislature, we must presume that mens rea is an element of the crime.” The intermediate appellate court then certified the question to the state’s highest court. Florida’s Supreme Court affirmed and remanded the case to the trial court. Holding that there was a culpable mental-state requirement, it said, “In numerous decisions, the U.S. Supreme Court has held that knowledge or mens rea holds a special place within criminal law, and it must be clear that a legislative body intended to dispense with it before courts will assume that it is not required.” Full text of the decision No downward departure in cross-burning case A North Carolina federal court erred in granting a downward departure from the U.S. Sentencing Guidelines in a civil rights conviction of a white man who burned a cross near the home of a black neighbor because the black man’s alleged activities-a factor in the downward departure-posed no danger to the white man, the 4th U.S. Circuit Court of Appeals held on March 4. United States v. May, No. 03-4589. Anthony Sanders, a black man, moved into the home of a white woman in Robert May’s neighborhood. Neighbors alleged that Sanders made obscene gestures, that he was a drug dealer and that he had discharged a firearm. There was no finding of fact on any of Sanders’ behavior. May and another neighbor who lived next to Sanders burned a cross on the neighbor’s property while holding a firearm. May was convicted of violating Sanders’ civil rights in violation of 18 U.S.C. 241. In accordance with the victim conduct provisions of guidelines � 5K2.10, the trial court granted May a downward departure in his sentence based on Sanders’ wrongful conduct, and sentenced him to one month in prison plus home detention. The government appealed. Reversing, the 4th Circuit relied on the six factors articulated in the Sentencing Guidelines for determining whether a victim’s conduct “contributed significantly to the offense behavior.” Finding that Sanders’ behavior did not present a danger to May-a requirement in three of the factors-the circuit court held that the trial court erred in granting the downward departure. It said, “even if the hearsay regarding Sanders’s reputation in the neighborhood . . . is accepted, there is no evidence that he was violent or that any violence was directed at May.” Full text of the decision EMPLOYMENT 42-year-old’s replacing of 49-year-old is not ageism In pleading a prima facie case of age discrimination, the Ohio Supreme Court on March 3 said, the claim must contain an allegation that the plaintiff was replaced by a person “substantially younger” than himself-even if that phrase can only be defined on a case-by-case basis. Coryell v. Bank One Trust Co. N.A., No. 2004-Ohio-723. James Coryell, 49, was fired by Bank One and replaced by a 42-year-old. When Coryell sued, the trial court granted the bank’s motion for judgment on the pleadings ruling that Coryell had failed to plead a prima facie case under the state’s ageism law. Specifically, he failed to allege that his replacement was outside the class of individuals protected by the statute, Ohio Rev. Code 4112.14(A). An intermediate appellate court affirmed. Reversing, the Ohio Supreme Court opined that the “substantially younger” test is more logically connected to age-based discrimination than a test based on whether a replacement is outside the statutory protected class. Full text of the decision GOVERNMENT E-mail exchange in city council is no meeting An e-mail exchange between members of a city council about a possible nomination to the local library board did not amount to an electronic meeting under the state’s Freedom of Information Act, the Virginia Supreme Court ruled on March 5. Beck v. Shelton, No. 030723. At least three members of the Fredericksburg city council exchanged e-mails about a library board appointment. The time elapsed between the e-mails was anywhere from four hours to two days. A group of ex-councilmen and political opponents filed suit under the Freedom of Information Act, claiming that the exchange amounted to an electronic meeting, which is prohibited at the local level. The trial court ruled for the plaintiffs, holding that council members had used e-mails to reach consensus on a matter of public business. Virginia’s high court reversed, holding that the e-mail exchange could not be considered a meeting because it was not a near-simultaneous discussion. Instead, the exchange was more like an exchange by letter, courier or fax because there was no “assemblage” of members, part of the statutory definition of “meetings.” Full text of the decision INTELLECTUAL PROPERTY Web site hit firm, used name, but broke no law A Web site, created solely to complain of a bad experience with a business, that used the nontrademarked name of this business as a domain name does not violate the Anticybersquatting Consumer Protection Act (ACPA), the 6th U.S. Circuit Court of Appeals ruled on March 5. Lucas Nursery and Landscaping Inc. v. Grosse, No. 02-1668. Unhappy with the landscape work done at her home by Lucas Nursery, Michelle Grosse registered the domain name “lucasnursery.com,” and used the Web site solely to recount her experience with Lucas. On receipt of a cease-and-desist letter, Grosse removed the content from the Web page, but after learning that there was no trademark registration for Lucas Nursery, she relaunched the site. When Lucas sued Grosse under the ACPA, a Michigan federal court granted summary judgment to Grosse. The 6th Circuit affirmed. Central to liability under the ACPA is a finding that the defendant acted in bad faith. Eight factors can be considered in assessing bad faith. The court found that some were favorable to Lucas, such as the Web site’s name being identical to Lucas’ legal name, but more were favorable to Grosse, such as lack of interest in benefiting commercially from use of the domain name. She did not try to divert consumers away from Lucas’ site by confusion or make an offer to sell the domain name to Lucas. Full text of the decision TORTS Signed waiver on danger fells racetrack injury suit A trial court properly granted summary judgment to the operator of Mississippi’s Columbus Motor Speedway in an action brought by a pit area spectator who was injured by an out-of-control car, the Mississippi Supreme Court held on March 4. Massey v. Tingle, No. 2002-CA-00870-SCT. While attending a dirt track race at the speedway, Rhonda Massey, a veteran auto racing fan, went near the pit area. A racecar went out of control, striking a guardrail which, in turn, hit Massey, seriously injuring her. Massey sued Ross Tingle, the operator of the track, alleging negligence in allowing her to be in a highly dangerous area. Tingle moved for summary judgment, arguing that Massey had executed a waiver warning her of the dangerousness of the activity. The trial court granted the motion. Affirming, the Mississippi Supreme Court held that it was irrelevant if Massey signed the document without reading it. The court said, “Although Massey admitted that she did not read the document, there is no evidence that she was prevented from reading it had she chosen to do so.” Full text of the decision

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