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CIVIL PRACTICE Collateral estoppel badly applied to findings of fact The “necessary and essential” requirement of collateral estoppel was applied too broadly to 352 findings of fact in the federal antitrust suit against Microsoft Corp., the Iowa Supreme Court found on Jan. 27. Comes v. Microsoft Corp., No. 145/05-0097. In 1998, the United States and several states sued Microsoft for violations of the Sherman Act. A District of Columbia federal court bifurcated the trial, first making 412 findings of fact “proved by a preponderance of the evidence,” then, five months later, finding in favor of the plaintiffs. The U.S. Circuit Court of Appeals for the District of Columbia affirmed in part, reversed in part and remanded for a new trial. The decision did not refer to many of the factual findings. On remand, a District of Columbia federal court determined that the court had not relied upon many of the 412 findings of fact in imposing liability. Based in part on the allegations in the federal case, Joe Comes and Riley Paint Inc. sued Microsoft in state court alleging violation of Iowa Competition Law. The trial court granted the plaintiffs’ motion requesting the use of collateral estoppel to prevent Microsoft from relitigating 352 of the 412 factual findings made in the federal case. The Iowa Supreme Court reversed and remanded. One of the four prerequisites before collateral estoppel may be invoked is that “the determination made of the issue in the prior action must have been necessary and essential to the resulting judgment.” The lower court had misapplied the doctrine in determining that 352 of the 412 findings of fact in the federal case were necessary and essential to the present case because it included subsidiary facts that were not crucial to the ultimate issue of whether Microsoft violated antitrust laws.   Full text of the decision CONSTITUTIONAL LAW Warrantless search code permit is constitutional A municipal ordinance providing for warrantless inspections of rental property doesn’t violate the Fourth Amendment of the U.S. Constitution, the Indiana Supreme Court held on Jan. 25. City of Vincennes v. Emmons, No. 42S02-0504-CV-131. The city of Vincennes, Ind., sued Kevin Emmons and other landlords for failing to pay the city’s rental unit registration fee of $18 per unit. Emmons and the other landlords moved to dismiss, arguing that because the ordinance provided for warrantless inspection of rental units, the entire ordinance was an unconstitutional violation of the Fourth Amendment. A trial court granted the landlords’ motion to dismiss, and an intermediate appellate court affirmed. Reversing, the Indiana Supreme Court held that there was no Fourth Amendment breach because tenants had a right to demand a warrant and landlords had no expectation of privacy. The court said, “Landlords do not themselves occupy the rental units as either personal residences or as commercial space. Their interests are therefore substantially further down the scale of protected interests than either the residential or commercial tenant, and in most circumstances fall off the scale altogether . . . by leasing the property, the landlord has abandoned any expectation of privacy in the leased space and common areas because the tenant has full access to them.” CONSUMER PROTECTION Statute permits sale of credit report to creditor A consumer had made out a prima facie claim under the Fair Credit Reporting Act (FCRA) by alleging that a credit reporting agency provided his credit report to a former creditor with whom he no longer had an open or active account, the 11th U.S. Circuit Court of Appeals ruled on Jan. 27. Levine v. World Financial Network National Bank, No. 04-16428. Stephen Levine opened a credit card account with Structure Inc., a clothing company operated through World Financial Network National Bank (WFNNB). Levine’s credit report from Experian Information Solutions Inc., a consumer reporting agency, showed that he paid the account in full and closed it in 1998. In 2002, Experian sold Levine’s report to Structure, ostensibly for account review purposes. Levine sued Structure, Experian and WFNNB for violation of the FCRA. A Georgia federal court granted motions to dismiss. The claims against Structure and WFNNB ultimately settled, leaving the one against Experian. The 11th Circuit reversed and remanded. Section 1681b(a)(3)(F)(ii) of the FCRA permits the sale of a credit report to a creditor in order to “review an account to determine whether the consumer continues to meet the terms of the account.” However, the statute is silent on whether the account review includes accounts that have been paid in full and closed. Finding that Levine is entitled to proceed with discovery, the court determined that a question of fact exists as to whether Experian had reasonable grounds to know that the request for Levine’s credit report was for an impermissible purpose. CRIMINAL PRACTICE Statute of limitations change is retroactive Prosecution of Michael Skakel for the 1975 murder of 15-year-old Martha Moxley was not time-barred because the Connecticut Legislature repealed the statute of limitations for murder before the Moxley murder’s five-year statute of limitations had expired, the Connecticut Supreme Court held on Jan. 24. State of Connecticut v. Michael Skakel, No. SC 16844. Fifteen-year-old Martha Moxley was murdered in Greenwich, Conn., in 1975. In 2000, Michael Skakel, nephew of Ethel Kennedy-Skakel and Moxley’s teenage neighbor at the time of her death, was convicted for her murder. Skakel appealed on several grounds, including the trial court’s denial of his motion to dismiss in which he argued that the applicable statute of limitations had expired. Specifically, he argued that, at the time of the murder, Connecticut had a five-year statute of limitations for murder, which was not repealed until 1976, the year after the murder. He argued that in 1983 the Connecticut Supreme Court had held in State v. Paradise that such statute of limitations changes could not be applied retroactively. Affirming, the Connecticut Supreme Court rejected its own holding in Paradise, and held that the change could be applied retroactively to the Moxley murder because the five-year statute of limitations had not expired at the time the law was changed. The court said, “Upon reconsideration, we are persuaded that Paradise was wrongly decided . . . .[W]e are convinced that, with respect to those offenses for which the preamendment limitation period has not expired, it is far more likely that the legislature intended for the amended limitation period to apply to those offenses.” Counsel’s phone into plea hearing improper A criminal defendant was deprived of his Sixth Amendment rights when his attorney phoned in his “appearance” at a change of plea hearing, the 7th U.S. Circuit Court of Appeals held on Jan. 24. Van Patten v. Deppisch, No. 04-1276. Joseph Van Patten was charged with first-degree intentional homicide. His attorney, James B. Connell, phoned him in jail and advised him to plead no contest to first-degree reckless homicide, with a penalty enhancement for using a dangerous weapon. Because he had appearances in two other counties that day, Connell “appeared” for Van Patten via speakerphone. Van Patten pleaded as advised and was sentenced to a maximum term of 25 years in prison. Van Patten then moved to withdraw his plea, claiming that Connell’s failure to appear in person at the hearing violated his Sixth Amendment right to counsel. His motion was denied, an intermediate appellate court affirmed and the Wisconsin Supreme Court denied review. On his subsequent habeas petition, a Wisconsin federal court found that the appellate court had properly analyzed the matter under Strickland v. Washington, 466 U.S. 668 (1984), and called the failure to appear in person a harmless error. The 7th Circuit reversed and remanded, holding that the state had erred in applying Strickland rather than U.S. v. Cronic, 466 U.S. 648 (1984), to the Sixth Amendment claim. The court said that Van Patten was denied assistance of counsel under Cronic, and held that the district court had erred in applying a harmless-error analysis to the failure to appear in person. The “arrangements under which the hearing was conducted, with defendant and counsel unable to see or communicate privately with each other, prevented Van Patten from receiving the assistance the Sixth Amendment guarantees.” EMPLOYMENT ADEA doesn’t apply to river pilot associations Under the Age Discrimination in Employment Act (ADEA), Mississippi River pilot associations are not employers, the 5th U.S. Circuit Court of Appeals held on Jan. 24. Coleman v. New Orleans and Baton Rouge Steamship Pilots’ Association, No. 04-30666. In Louisiana, state law requires that local pilots guide foreign ships along Louisiana waterways that include the Mississippi River. In order to become a commissioned pilot, candidates must fulfill certain requirements, including a six-month apprenticeship. Terry Coleman, an experienced ship captain, wanted to become a pilot and submitted applications for the apprenticeship program to the New Orleans and Baton Rouge Steamship Pilots’ Association (NOBRA) and the Crescent River Port Pilots Association. In order to have a place in the apprenticeship program, candidates must be elected by a majority vote of the pilots’ association for a given stretch of the river. The NOBRA board requires that apprentices be younger than 45 years old, while the Crescent board requires that they be younger than 40. Coleman was 49 at the time of the NOBRA election and 47 at the time of the Crescent election. His name did not appear on the ballot as a certified candidate for apprenticeship for either association. Coleman sued NOBRA and Crescent under the ADEA. A Louisiana federal court granted the defendants’ motions for summary judgment. The 5th Circuit Court affirmed. Under 29 U.S.C. 630 of the ADEA, the prohibition against arbitrary age discrimination in employment is limited to employers, employment agencies and labor organizations. While the pilots’ associations have the power to grant commissions that allow pilots to work in the profession, they cannot hire or fire, decommission or supervise pilots. Furthermore, pilots as equal shareholders in their respective associations retain personal liability for their own negligence. FAMILY LAW His support offer refused, man has no adoption say A birth father’s consent to the adoption of his child is not required if the birth mother had rejected his sporadic offers of financial support, the North Carolina Supreme Court held on Jan. 27. In re Adoption of Baby Girl Anderson, No. 448PA04. Kristine Anderson and Michael Avery conceived a child. Anderson wanted to place the child for adoption. Avery disagreed. The adoptive parents petitioned the court to state whether North Carolina law required Avery’s consent. A state statute directs putative fathers who want a role in adoption to provide reasonable and consistent payments for the support of the mother during, or after, the pregnancy. Anderson said that the father had never provided financial assistance to her or the child, but Avery claimed that he had repeatedly offered the mother money, which she refused. The court allowed the adoption to proceed without Avery’s consent. An intermediate appellate court reversed and remanded for more findings. The adoptive family petitioned the North Carolina Supreme Court for discretionary review. Avery said that requiring actual payment of support as opposed to offers of support permits birth mothers to thwart fathers’ rights. The North Carolina Supreme Court reversed, holding that because the father “merely offered support but did not provide the actual support mandated under” North Carolina law, his consent to the adoption is not required. The court accepted the trial court’s findings that the father could have provided support but instead bought a car for himself. The court added that if the father had opened a bank account or established a trust fund for the child, the mother’s intransigence would not have prevented him from creating a payment record that might have met the requirement. INTERNATIONAL LAW Sex with kids ban is no commerce clause breach Provisions of the Prosecutorial Remedies and Other Tools to End the Exploitation of Children Today (Protect) Act, which criminalize sex with minors by U.S. citizens and resident aliens in foreign countries, do not exceed Congress’ authority under the foreign commerce clause, the 9th U.S. Circuit Court of Appeals held on Jan. 25 in a case of first impression. U.S. v. Clark, No. 04-30249. Michael Clark, a U.S. citizen, was arrested in Cambodia for having sex with minor boys. Cambodian authorities released Clark to U.S. authorities, extraditing him to the United States, where he was prosecuted for violating 18 U.S.C. 2423(c), a section of the Protect Act that prohibits U.S. citizens from engaging in commercial sex acts with minors. Clark pleaded guilty, reserving his right to appeal his pretrial motion to dismiss. He appealed, arguing that Section 2423(c) exceeded Congress’ authority under the foreign commerce clause of the U.S. Constitution. Affirming, the 9th Circuit held that Section 2423(c) was within Congress’ power under the foreign commerce clause. The court said, “The combination of Clark’s travel in foreign commerce and his conduct of an illicit commercial sex act in Cambodia shortly thereafter puts the statute squarely within Congress’s Foreign Commerce Clause authority.” LEGAL PROFESSION Post-conviction relief is needed for claim accrual A convicted criminal defendant has to receive post-conviction relief before his cause of action for legal malpractice accrues, the New Hampshire Supreme Court ruled on Jan. 27 in a matter of first impression. Therrien v. Sullivan, No. 2005-290. Robert Therrien was convicted of sexual assault against a child in 1995. The New Hampshire Supreme Court affirmed the conviction in 1997, ruling that though the trial court erred in various respects, Therrien hadn’t properly secured an objection. Therrien filed a post-conviction petition based on ineffective assistance of counsel, which the trial court granted, vacating Therrien’s conviction. By that time, in 2002, Therrien had served five years in prison. Therrien sued his original trial attorney for legal malpractice in 2004. The attorney argued that Therrien’s suit was barred by the three-year limitations period for personal injury actions. The trial court asked the New Hampshire Supreme Court for a ruling on when a criminal defendant’s legal malpractice claim accrues. The New Hampshire Supreme Court ruled that the limitations period does not accrue until a defendant gets direct or collateral relief from his underlying criminal conviction. As long as a valid criminal conviction is in place, a legal malpractice cause of action based on counsel’s ineffective assistance resulting in that conviction should be dismissed. TAXATION Employees’ life insurance policy gets no deduction Corporate-owned life insurance policies (COLI) that do not have any practicable economic effects other than the creation of income tax losses are “economic scams” that cannot be deducted from a corporation’s income tax, the 6th U.S. Circuit Court of Appeals ruled on Jan. 23. The Dow Chemical Co. v. U.S., No. 03-2360. Dow Chemical bought COLI policies on 4,051 employees in 1988 and another 17,061 in 1991. From 1988 to 2000, Dow paid premiums and interest to the policy insurers from loans it took from those insurers using the cash values of the policies as collateral and from partial withdrawals on policy dividends. From 1989 to 1991, Dow claimed deductions of more than $33 million for interest paid on the loans used to pay the COLI premiums and for fees related to the administration of the policies. The Internal Revenue Service (IRS) did not allow these deductions, imposing instead $22 million in deficiencies and interest. Dow paid the amounts under protest, then sued to recover the total amount paid. A Michigan federal court ruled that the IRS should not have refused the deductions. The 6th Circuit reversed, holding that the COLI plans were economic shams because without the benefit of claimed interest deductions, the plans generated negative cash flow, regardless of whether Dow intended to inject large amounts of cash into the plans at a later date. The plans ensured that at regular intervals, their net equity would be adjusted to zero or less. And the plans contained features designed to neutralize Dow’s ability to realize mortality gains.

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