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ATTORNEY FEES Fee agreement based on custom unreasonable An agreement for 5% attorney fees based on local custom and practice is not per se reasonable, the Nevada Supreme Court held on Dec. 29. In the Matter of the Estate of Bowlds, No. 40482. When John Bowlds died, his will gave his estate, valued at more than $7 million, to the American Cancer Society (ACS). In an agreement between the executors of the estate and Kyle & Kyle, the law firm retained to administer the estate, attorney fees were set at 5% of the gross value of the estate, based on the custom and practice in Clark County, Nev. The executors filed an amended accounting seeking approval of the fee agreement, while ACS objected to the accounting. The trial court approved the fee. The Nevada Supreme Court reversed. Nev. Sup. Ct. R. 155(1) lists several factors for determining whether attorney fees are reasonable, including the time and labor required, the likelihood that acceptance of the case will preclude other employment and the fee customarily charged in the area for similar legal services. Because the trial court relied solely on local custom and practice in approving the fee agreement, the court reversed the lower court’s decision and remanded for a determination of reasonableness based on the factors in Rule 155. Full text of the decision BUSINESS LAW Treasurer liable over company’s unpaid taxes A company treasurer who followed his superiors’ instructions to delay paying federal taxes is personally liable for the penalty for willful nonpayment, the 1st U.S. Circuit Court of Appeals held on Dec. 29. Lubetzky v. USA, No. 01-2357. In June 1996, Itamar Lubetzky was hired as MediaForum’s treasurer and chief financial officer. Lubetzky informed his superiors that taxes for the March 1996 return hadn’t been paid. He was told to delay payment. Despite reminders about the unpaid taxes, he received no authorization to make payments through 1996 and 1997. Eventually, the Internal Revenue Service (IRS) assessed a penalty of more than $78,000 against Lubetzky for willful failure to pay the withholding taxes. Lubetsky made partial payment and sued for refund and abatement. The IRS counterclaimed. A jury found that Lubetzky was a “responsible person” who had willfully failed to pay taxes. The 1st Circuit affirmed, explaining that statutorily, the United States can collect the penalty for unpaid taxes from any person who is “required,” but willfully fails, to pay them. The court said that the jury could have found that Lubetzky was a “responsible” person, with the “major exception” that Lubetzky reasonably understood that his superiors expected him to pay only bills they approved, and that they hadn’t approved the tax payments. Though the verdict “depends on the legal proposition that someone in Lubetzky’s position had to confront top management” and maybe resign, the court said that the party most directly responsible was MediaForum’s parent company’s president, who may be liable to Lubetzky. Full text of the decision CIVIL PRACTICE Philippines can’t appeal Marcos settlement orders The republic of the Philippines had no standing to appeal two orders pertaining to a settlement between the estate of former Philippines President Ferdinand Marcos and alleged victims of human rights abuses by his government, the 9th U.S. Circuit Court of Appeals held on Dec. 28. Hilao v. Estate of Marcos, No. 03-16934. Maximo Hilao�and other members of a certified class claiming human rights abuses by the government of Marcos�obtained a $1.96 billion jury verdict against Marcos’ estate in a Hawaii federal court. After experiencing difficulty collecting on the verdict, the class settled the case for $150 million. In 2003, the Philippines Supreme Court ruled that the estate assets were “ill-gotten wealth” stolen from the republic, and ordered the transfer of certain estate bank funds. In response, a Hawaiian federal court issued two orders: one reinstating the settlement agreement between the class and the estate and another enjoining banks from transferring estate assets. Though the republic was not a party, it appealed the orders as a real party in interest. Dismissing the appeal, the 9th Circuit held that the republic had no standing to appeal because it was not a party to the action. Neither was it a banking institution threatened with contempt for violating the orders nor did equity weigh in favor of hearing the appeal. Rejecting the republic’s argument that the district court’s order interfered with its rights under the Philippines Supreme Court judgment, the 9th Circuit said, “That inconvenience . . . does not rise to the level of an ‘exceptional circumstance’ justifying nonparty standing to appeal. Were we to hold otherwise, any judgment creditor whose interests may be adversely affected by a district court’s decision in wholly separate litigation, to which the creditor is not a party, would have nonparty standing to appeal.” Full text of the decision CONSTITUTIONAL LAW Order limiting complaint filings denies free speech A protective order restricting a person from filing a local, state or federal complaint is unconstitutional, the South Dakota Supreme Court ruled on Dec. 29. Hobart v. Ferebee, No. 2004 SD 138. Steve Hobart and George Ferebee were feuding owners of neighboring ranches in rural South Dakota. Each had restraining orders against the other over a series of complaints. Hobart later learned that Ferebee had been making complaints to the U.S. Forest Service about Hobart’s grazing of his cattle. Ferebee also complained to the state game, fish and parks department, which forced Hobart to close a snowmobile trail on his property, and to the local planning and zoning board. Hobart secured a protective order against Ferebee compelling him to submit any future complaints to local, state or federal agencies to a court for approval. The South Dakota Supreme Court reversed in part, ruling that the trial court had abused its discretion in issuing the order limiting Ferebee’s access to the government. The limitation is an advance restraint on speech and it exceeds permissible bounds by burdening more speech than necessary to accomplish its objective. The order was not narrowly drawn when it failed to distinguish between complaints that were lawful and supported. The remainder of the protective order was upheld. Full text of the decision EMPLOYMENT Ignoring U.S. guidelines leads to equitable tolling A pension fund’s failure to follow federally mandated notice guidelines may entitle a plaintiff to rely on equitable tolling in bringing a cause of action related to the denial of benefits under the fund, the 2d U.S. Circuit Court of Appeals ruled on Dec. 27. Veltri v. Building Service 32B-J Pension Fund, No. 03-0287. Alfred Veltri worked as a doorman and elevator operator in New York City from 1957 to 1969, and again from 1980 to 1992. Veltri received pension benefits from the Building Service 32B-J Pension Fund, but he questioned why the amount seemed low. The fund said he was not given credit for his work in the 1950s and 1960s because of the fund’s break-in-service rule. The fund sent him a pension booklet, but did not refer him to any section dealing with administrative appeals or tell him that he had a right to appeal the fund’s determination. Veltri accepted the reduced benefits for 11 years until the fund finally explained the basis for its decision. A year later, Veltri sued the fund for back benefits. The district court ordered the fund to recalculate the benefits, rejecting the fund’s argument that Veltri’s claim was barred by limitations. The 3d Circuit affirmed. In light of Congress’ express policy of protecting employee interests in their pensions, failure to comply with the applicable regulatory obligation to disclose the existence of a cause of action to the plan participant whose benefits have been denied is the type of concealment that entitles Veltri to equitable tolling of the statute of limitations. Full text of the decision IMMIGRATION LAW Aggravated fleeing is crime of moral turpitude Fleeing from an officer at more than 20 mph above the speed limit is a crime involving “moral turpitude” for purposes of an immigration statute, the 7th U.S. Circuit Court of Appeals held on Dec. 29 in an issue of first impression. Mei v. Ashcroft, No. 03-1961. Wei Cong Mei, an alien, was convicted of aggravated fleeing from a police officer in violation of a statute that makes fleeing at more than 20 mph above the speed limit “aggravated.” He was sentenced to a year in prison. The United States sought his removal, based on an immigration statute that makes removable a person convicted of a “crime involving moral turpitude committed within five years” after the date of admission, and of a crime for which a sentence of one year or more may be imposed. “Moral turpitude” is not defined in the statute. The Board of Immigration Appeals (BIA) ordered Mei’s removal. The 7th Circuit affirmed, declaring that it agrees with other courts that BIA’s interpretation of a “crime involving moral turpitude” is entitled to Chevron deference. (The U.S. Supreme Court’s ruling in Chevron USA Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984), requires reviewing courts to give substantial deference to agency interpretations of its statute and regulations if they are ambiguous or silent on the matter.) But the courts are split on whether the BIA’s decision to classify a particular crime as one involving moral turpitude is entitled to such deference. The issue, the 7th Circuit held, is “whether the character, the gravity, the moral significance of particular crimes is a topic that Congress, had it thought about the matter, would have wanted the Board to decide rather than the courts.” Cases defining “moral turpitude” point in opposite ways. The court held that one “who deliberately flees at a high speed from an officer who, the fleer knows, wants him to stop, thus deliberately flouting lawful authority and endangering the officer, other drivers, passengers, and pedestrians, is deliberately engaged in seriously wrongful behavior.” Full text of the decision INSURANCE LAW Voiding of anti-stacking law applies retroactively A ruling that Montana’s anti-stacking statute is unconstitutional must be applied retroactively, the Montana Supreme Court held on Dec. 30. Dempsey v. Allstate Ins. Co., No. 04-032. Tyler Dempsey, whose Allstate insurance policy had medical-payment coverage limits of $2,000 for each of four vehicles named in the policy, was injured in a car accident on Jan. 1, 2000. His medical expenses were more than $10,000, but Allstate only paid the liability limit of $2,000 due to anti-stacking language in the policy and Montana’s anti-stacking statute. On April 13, 2003, the Montana Supreme Court ruled in Hardy v. Progressive Specialty Insurance Co., 315 Mont. 107, that Montana’s anti-stacking law was unconstitutional, and that an insurer had to “stack” and pay underinsured motorist benefits for each coverage for which the insured had paid a separate premium. Allstate claimed that Hardy only applied prospectively. Dempsey and others brought a class action in a Montana federal court to force stacking of all claims arising before the Hardy decision. The class alleged that retroactive application of Hardy entitles them to additional payments from past insurance claims that were not allowed when auto insurance policies did not permit stacking. The court denied Allstate’s motion to dismiss. The Montana Supreme Court affirmed. Based on previous case law, the court concluded that all civil decisions of the court apply retroactively to cases pending on direct review or not yet final, except those meeting the three Chevron factors (if the case establishes a new principle of law, if retroactive application will retard its operation and if a substantial inequity would result from retroactivity). Since none of the factors was present, Hardy applies retroactively. Full text of the decision Under policy, chartered jet isn’t passenger service The family of a woman killed in a plane crash on the way back from a gambling junket in Atlantic City, N.J., cannot recover under the accidental death provisions of the woman’s life insurance policy, the 3d U.S. Circuit Court of Appeals ruled on Dec. 28. J.C. Penney Life Ins. Co. v. Pilosi, nos. 02-4204 and 02-4298. Elaine Pilosi was a passenger on an Executive Airlines flight, a bi-weekly shuttle from Scranton, Pa., to Atlantic City, operated on behalf of Caesars Casino in Atlantic City. Following an air crash in which Pilosi was killed, her survivors sought $1 million under Pilosi’s life insurance policy, which provided coverage for accidental death in “a public conveyance . . . operated by a duly licensed common carrier for regular passenger service.” The insurer, J.C. Penney Life, sued for a declaration that it did not owe the Pilosis anything under that provision. A Pennsylvania district court ruled for the Pilosis. The 3d Circuit reversed. Though the chartered jet was a public conveyance, Executive Airlines was not conducting a regularly scheduled passenger service within the meaning of Pilosi’s policy. When the time and destination of airline service is dictated by the convenience or business of the entity that charters the airline, and the airline’s license specifically prohibits regularly scheduled service at authorized airports, the service does not qualify as “regular passenger service.” Full text of the decision 9/11-related hotel income losses are not insured An insurance policy does not cover its insured hotel management companies for business income losses linked to the Federal Aviation Administration’s plane-grounding order following the Sept. 11, 2001, terrorist attacks, the 10th U.S. Circuit Court of Appeals held on Dec. 30. Southern Hospitality Inc. v. Zurich American Ins. Co., No. 03-6294. Southern Hospitality Inc. and other companies manage hotels throughout the United States “that are highly dependent on air travel.” Their profits plummeted following the 9/11 attacks, because the FAA’s grounding of all planes in the United States meant that their customers could not travel by air to their hotels. Southern American filed a claim with Zurich American Insurance, seeking coverage for business-income losses. Zurich denied the claim, and Southern American sued for coverage and bad faith in an Oklahoma federal court, where Zurich won summary judgment. The 10th Circuit affirmed, applying Oklahoma law. One policy provision the insured cited covers loss of business income “caused by action of civil authority that prohibits access to the described premises.” The 10th Circuit said the “FAA’s order stopped airplanes from flying; it did not close hotels,” thus the required “direct nexus” was missing “between the civil authority order and the suspension of the insured’s business.” The other cited provision covers loss of business income due to the necessary suspension of “operations” due to “direct physical loss or damage to ‘dependent property.’ ” The court said that the insured had failed to identify the allegedly affected property and may have failed to bring this issue to the court’s attention. Full text of the decision LEGAL PROFESSION Client’s time in court not compensable under law Where a federal court sanctioned an attorney and held him liable for an opposing party’s costs and expenses, the opposing party’s time in court was not a compensable expense, the U.S. Circuit Court for the District of Columbia held on Dec. 28. Manion v. American Airlines Inc., No. 03-7165. Roy Kreiger, an attorney representing American Airlines Inc. in a tort action brought by Christopher Manion, made comments in closing arguments that defied specific orders of a federal district court. The trial court granted Manion’s motion for a new trial, and sanctioned Kreiger, ordering him to compensate Manion for his expenses pursuant to 28 U.S.C. 1927, a federal statute holding an attorney personally liable for unreasonable and vexatious extension of litigation. Kreiger conceded that his conduct was sanctionable but contested the $2,600 payable to Manion for “client time,” a reimbursement of $65 per hour for the 40 hours Manion spent in court. Affirming in part and reversing in part, the D.C. Circuit upheld the sanctions against Kreiger, but reversed the award for Manion’s time in court. The court held that Manion’s time in court was not compensable as attorney fees, nor was it compensable as an expense. Adopting the reasoning of a Federal Circuit decision (Pickholtz v. Rainbow Techs. Inc., 284 F.3d 1365) refusing to compensate a pro se litigant under Section 1927 for time worked on discovery, the court held that the term “incurred” in the statute was controlling, and said, “We agree with our colleagues on the Federal Circuit that ‘one cannot incur fees payable to oneself, fees that one is not obliged to pay.’ . . . Nor can one’s time constitute a ‘payable expense,’ as there is no direct financial cost or charge associated with the expenditure of one’s own time.” Full text of the decision

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