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ADR Magnuson-Moss Act no bar to binding arbitration The Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, which establishes standards governing consumer product warranties and service contracts, does not preclude the use of binding arbitration to resolve disputes, the Illinois Supreme Court held on April 1. Borowiec v. Gateway 2000 Inc., No. 94235 Three cases, later consolidated, were filed by consumers who bought computers from Gateway 2000 Inc. that had defects the company was unable to fix. Each suit alleged a breach of express and implied warranties under the Magnuson-Moss Act and sought money damages. Gateway’s standard labor services contract and limited warranty agreement contained a dispute resolution clause in which the parties agreed to resolve any disputes by binding arbitration. Citing that provision, Gateway moved unsuccessfully to compel arbitration. An appellate court affirmed, ruling that the act precludes binding arbitration of consumer disputes. Reversing, Illinois’ highest court said that while the act requires consumers to use “informal dispute settlement procedures” before filing suit, binding arbitration-which is generally considered to be a substitute for filing suit-is not an informal procedure. Neither the text, legislative history nor purpose of the act revealed a congressional intent to bar arbitration of written warranty claims, it added. Full text of the decision BUSINESS LAW Derivative, nonderivative suits defined in Delaware Disapproving of the concept of “special injury” when distinguishing between derivative and direct claims, the Delaware Supreme Court on April 2 found that minority shareholders of an investment company failed to state either a direct or a derivative claim. Tooley v. Donaldson, Lufkin & Jenrette Inc., No. 84,2003. After Credit Suisse Group acquired a majority interest in Donaldson, Lufkin & Jenrette Inc. (DLJ), an investment banking corporation, pursuant to a stockholder agreement with AXA Financial Inc., Credit Suisse looked to acquire the remainder of DLJ through a cash tender offer to holders of publicly held DLJ stock. Although the tender offer was to expire 20 days after it began, Credit Suisse postponed the closing twice by agreement with DLJ, the second time causing a 22-day delay. Two DLJ minority shareholders brought a class action, alleging that members of the board of directors breached their fiduciary duties by agreeing to the delay. The trial court dismissed the complaint based on the shareholders’ lack of standing. Affirming on different grounds, the Delaware high court dismissed the suit without prejudice. The shareholders did not state a derivative claim, it said, because there was no allegation of injury to the corporate entity. It added that they also failed to state a direct claim because their claim will not be ripe until the merger agreement terms are fulfilled. Full text of the decision CIVIL PRACTICE Agreement to delay may excuse late service Agreements to postpone, coupled with periodic requests for factual information, may be good cause for a failure to timely serve process, the Iowa Supreme Court held on April 7. Wilson v. Ribbens, No. 15/02-1632. Shannan Wilson filed a lawsuit alleging that she was hurt in a car accident that resulted from Michael Ribbens’ negligence. In letters signed by Wilson’s attorney and the claims adjuster for Ribbens’ insurer, the parties agreed that service would be withheld in the hope that the case would settle. Over the next year, medical information was requested and provided and there were some talks, but no settlement was reached. When Wilson finally served process, Ribbens moved to dismiss for failure to comply with Iowa’s 90-day service deadline. The trial court granted the motion. In the state Supreme Court, Wilson cited the Iowa rule that if the plaintiff shows good cause for the failure of service, “the court shall extend the time for service for an appropriate period.” She argued that the agreement between counsel and the adjuster constituted good cause. The high court agreed and remanded, noting that good cause is likely to be found when the defendant has engaged in misleading conduct or there are understandable mitigating circumstances. Full text of the decision CIVIL RIGHTS Learning disability does not merit ADA treatment A struggling student was not entitled to accommodation from a medical school for her poorly documented diagnosis of attention deficit disorder and dyslexia, the 2d U.S. Circuit Court of Appeals ruled on April 7. Powell v. National Bd. of Medical Examiners, No. 02-9385. Marie Powell entered the University of Connecticut medical school in August 1992. She performed poorly in her first two years, and did not pass the standardized tests necessary for advance to the third year. After two more years of trying to improve her performance, the school promoted her, conditioned on her passing the standardized test. Powell again failed the test in June 1997. She was eventually dropped from the program. Meanwhile, in 1997, Powell received a tentative diagnosis of dyslexia and attention deficit disorder. She asked the National Board of Medical Examiners for more time to take the June 1997 test, but the NBME refused, arguing that there was insufficient evidence to establish a functional disability necessitating the accommodation. She sued the University of Connecticut and the NBME for violations of the Americans With Disabilities Act. The district court granted the defendants’ motion for summary judgment. Affirming, the 2d Circuit ruled that even if Powell is disabled there is no evidence to show that she is otherwise qualified to continue in medical school. The court said that Powell’s credentials were far below those of other members of her medical school class, so it is likely she was not qualified to be a medical student. Even if she were, it added, there was no proof of discrimination, as the university went out of its way to help Powell by giving her extra time to complete course requirements. Full text of the decision EMPLOYMENT Company, ill-advised by biased worker, is liable A company may be liable for a firing if the decision-makers were misinformed by an employee with age-based discriminatory animus, the 1st U.S. Circuit Court of Appeals held on April 5. Cariglia v. Hertz Equipment Rental Corp., No. 02-2199. John Cariglia, 62, was Boston branch manager for Hertz Equipment Rental. Three Hertz officers decided to fire him at the conclusion of an internal audit and investigation. Cariglia’s replacement was younger than 40. Cariglia sued, alleging age discrimination. A Massachusetts federal court found that his supervisor, James Heard, had age-based animus toward Cariglia and had ordered that the audit be done in a manner that would provide an excuse to fire him. Heard was a key source of information for the firing officers. Nonetheless, the court ruled that the defendants had no liability under state law because, while Heard had misled the officers, he was not a “decision-maker” in the firing. The 1st Circuit reversed and remanded, holding that a corporation can be liable for discrimination when neutral decision-makers, free of any age-based animus, rely on information that is manipulated by another employee who harbors age-based discriminatory animus. Full text of the decision EVIDENCE Psychiatric privilege can’t be breached in suit Ruling that the trial court abused its discretion in ordering a plaintiff in a personal injury action to disclose her mental health records for the past 10 years, the Colorado Supreme Court on April 5 ruled that the plaintiff had not waived her psychotherapist-patient privilege. Hoffman v. Brookfield Republic Inc., No. 03SA361. Nancy Hoffman slipped and fell on property owned by Brookfield Republic Inc. She sued, seeking damages for the physical injuries and emotional distress caused by the accident. During discovery, Brookfield sought all of Hoffman’s mental health records for the past 10 years. When she refused, Brookfield moved to compel production. Ruling that she had injected her mental condition into the case, the trial court ordered her to release the records. Reversing, the Colorado Supreme Court held that Hoffman had only made generic claims for mental suffering caused by her injuries and did not inject her mental condition into the case. It noted that she did not seek significant counseling for emotional distress related to the accident, did not seek compensation for psychiatric expenses and did not plan to call any expert witnesses to testify regarding her emotional distress. Full text of the decision LEGAL PROFESSION Transferring attorney loses retirement benefits A law firm’s retirement agreement that premised benefits upon “permanent retirement,” does not violate the ethics rule prohibiting restraints on trade, the New Jersey Supreme Court ruled on April 5. Borteck v. Riker, Danzig, Scherer, Hyland & Perretti LLP, No. A-31-03. Robert Borteck retired from his law firm at the age of 53, after 11 years of service and joined another firm. He had been a capital partner in Riker, Danzig, Scherer, Hyland & Perretti of Morristown, N.J., so he was paid his portion of the firm’s net worth. He then sought retirement benefits. The firm’s partnership agreement held that benefits were premised on a partner’s “permanent retirement.” When Riker refused to pay the benefits, Borteck sued. The trial court granted Borteck’s motion for summary judgment and the appeals court affirmed, finding that if retirements were not paid out under the agreement, then the agreement would violate Rule 5.6 of the Rules of Professional Conduct, which prohibits partnership agreements that act as impermissible restraints on competition. The state Supreme Court reversed, finding that the agreement was permissible under Rule 5.6. The plan contained all three elements that professional conduct rules stipulate must be present: minimum age and service requirements, provisions dealing with withdrawals independent of retirement and the time period over which benefits are to be paid. Full text of the decision TAXATION Tax man can’t vary rates in same calendar year The Massachusetts Constitution does not allow the imposition of a different capital gains tax rate on different dates in the same calendar year, the Massachusetts Supreme Judicial Court held April 6. Peterson v. Commissioner of Revenue, No. SJC-09096. Massachusetts enacted its Revenue Enhancement Act in 2002. Sec. 32 of the act established an effective date of May 1, 2002, for its � 14 provision, which changes the tax rate of long-term capital gains (i.e., gains from the sale or exchange of capital assets held more than one year). A number of taxpayers realized income from long-term capital gains in the calendar year after May 1, 2002, and consequently are liable for a higher tax than if the same income had been realized in 2002 before May 1. Several of them filed suit claiming that � 32 violated the state constitution, because during 2002 it imposed different tax rates on income derived from the same class of property. The constitution, at art. 44(3), empowers the Legislature to levy a tax on income, but only “at a uniform rate throughout the commonwealth upon incomes derived from the same class of property.” The high court held that income from the sale or exchange of a capital asset is income derived from property within the meaning of art. 44(3). It concluded that only one tax rate may be applied to all long-term capital gains realized in calendar year 2002. After striking the May 1st date as unconstitutional, but not striking the entire statute, the court remanded the case for an answer to the question of whether the effective date of the rate change is Jan. 1, 2002, or Jan. 1, 2003. Full text of the decision

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