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BUSINESS LAW Clearing broker not liable in unregistered stock sale A clearing broker is not secondarily liable for aiding and abetting an originating broker in the sale of unregistered securities, the Kansas Supreme Court held on March 24 in an issue of first impression. Klein v. Oppenheimer & Co. Inc., No. 91, 778. In 1993, L.T. Lawrence and Oppenheimer & Co. Inc., both broker-dealers registered with the Kansas Department of Securities, entered into a clearing agreement whereby Oppenheimer, a larger broker with a seat on the New York Stock Exchange, was to act as a clearing broker for L.T. Lawrence. In October 1996, L.T. Lawrence sold unregistered securities through Oppenheimer to Roger Klein. Oppenheimer did not know at the time of the sale that the securities were not registered with the state of Kansas. In 1999, Klein sued Oppenheimer under sections 17-1268(a) and (b) of the Kansas Securities Act (KSA). A Kansas trial court entered summary judgment in favor of Oppenheimer. The Kansas Supreme Court reversed and remanded. On cross-motions for summary judgment, the trial court once again decided in favor of Oppenheimer. The Kansas Supreme Court affirmed. According to Section 17-1255(a) of the KSA, it is unlawful to offer or sell unregistered securities. Section 17-1268(a) provides that “[a]ny person, who offers or sells a security in violation of K.S.A . . . 17-1255 . . . is liable to the person buying the security from such person.” The court said that Oppenheimer was not liable because it did not qualify under the financial benefit test as a “person who successfully solicits the purchase, motivated, at least in part, by a desire to serve his own financial interests or those of the securities owner.”   Full text of the decision CIVIL PRACTICE Reporting perjury saves GM from harsh sanctions Additional discovery for the adverse party and payment of $556,000-but not an adverse liability judgment-was an appropriate sanction for discovery abuse by General Motors Corp. employees in a trade secret dispute, the Connecticut Supreme Court held on March 28. Evans v. General Motors Corp., No. SC 17420. John Evans, an automotive inventor, sued General Motors Corp. alleging that the company had stolen trade secrets related to his automotive cooling system. On the eve of trial, GM counsel admitted to the court that one GM employee had fabricated evidence about GM’s developing its own version of the cooling system, and that two GM employees had perjured themselves in depositions. Evans moved for an adverse liability ruling as a sanction. Instead, the trial court ordered GM to pay $556,000 in attorney fees and costs and granted Evans additional discovery. Evans appealed, arguing among other things that the trial court erred in not making an adverse liability ruling as a sanction against GM. Reversing and remanding for a new trial on other issues, but affirming the sanctions ruling, the Connecticut Supreme Court held that the GM counsel’s proper conduct in reporting the abuse to the court mitigated the company’s conduct. The court said, “[T]his case is not one in which the defendant showed ‘a deliberate, contumacious or unwarranted disregard for the court’s authority’; but one in which the offending party disclosed the misconduct and cooperated so as to ameliorate its effect on the proceedings.” CIVIL RIGHTS No meals for inmate who breaks rules isn’t cruelty Denying meals to a prison inmate who does not comply with meal rules is not cruel and unusual punishment, the 7th U.S. Circuit Court of Appeals held on March 23. Freeman v. Berge, No. 05-2820. Berrell Freeman, an inmate in Wisconsin’s maximum security prison, disregarded certain rules inmates must follow in order to receive meals: He refused to wear pants or gym shorts, remove a sock from his head and clean up blood and feces smeared on his cell walls. As a result, prison officials refused to give him his meals. Freeman missed so many meals he lost 45 pounds. He sued in a Wisconsin federal court under 42 U.S.C. 1983, alleging cruel and unusual punishment. The jury awarded him $50,000 in compensatory damages and $1.2 million in punitives, but the judge granted judgment as a matter of law to the defendants. The 7th Circuit affirmed. The court acknowledged that denial of food is “an unusual form of punishment nowadays, and in cases in which it inflicts serious harm on the prisoner it is also cruel.” However, the court distinguished “using food deprivation as punishment and establishing a reasonable condition to the receipt of food.” Because Freeman could have eaten had he followed the rules, his food deprivation was “self-inflicted” to an “overwhelming degree.” However, the court said, it does not follow that a prison can allow a prisoner to starve himself to death or to impair his health. CONSTITUTIONAL LAW Ga. garbage law restricts interstate commerce A Georgia state law prohibiting the transportation of garbage across state or county lines without the permission of the jurisdiction receiving the garbage was an unconstitutional restraint on interstate commerce, the Georgia Supreme Court held on March 27. Fulton County v. City of Atlanta, No. S06A0049. The state of Georgia passed Ga. Code Ann. � 36-1-16 (a), which prohibited the shipment of garbage across state or county lines without the permission of the jurisdiction receiving the garbage. The city of Atlanta executed contracts with private companies to transport garbage into Fulton and Cobb counties. Fulton County demanded that the city comply with Section 36-1-16 (a). When the city refused, the county sued. A trial court granted the city’s motion for judgment on the pleadings. Affirming, the Georgia Supreme Court held that the law was an unconstitutional restraint on interstate commerce, whether it was applied as a state-to-state restriction or a county-to-county restriction. Quoting U.S. Supreme Court precedent, the court said, “[O]ur prior cases teach that a State (or one of its political subdivisions) may not avoid the strictures of the Commerce Clause by curtailing the movement of articles of commerce through subdivisions of the State, rather than through the State itself.” Ore. sign-regulation law First Amendment breach Oregon’s Motorist Information Act unconstitutionally restricts expression by treating signs differently based on whether they have a relationship to the premises on which they are located or not, the Oregon Supreme Court ruled on March 23. Outdoor Media Dimensions Inc. v. Department of Transportation, nos. S504858, S49978, S50007, S50003 and S50044. The Oregon Motorist Information Act requires owners of signs visible from state highways to pay a fee and get a permit. The law also regulates permissible placement of the signs, and there is a limit on how many permits are to be granted for particular areas. “On-premises” signs-those that relate to a business or activity at the same location-are exempt from the permitting requirement. The state cited several outdoor advertising firms for displaying one or more off-premises signs without the necessary permits. All of the companies challenged the citations, which were upheld by the agency. An intermediate appellate court affirmed each agency decision. The Oregon Supreme Court reversed. Though ruling that permitting in general is constitutional because permits for off-premises are not conditioned on a sign’s content, the court nevertheless struck down the permit and fee requirements because the exemption for on-premises signs impermissibly distinguishes among messages. A sign owner can display one type of message in one location, but not in another. And there is no historical exception justifying such disparate treatment. CRIMINAL PRACTICE Gang law applies even if victim isn’t intended one A California law providing for the death penalty or life imprisonment as punishment for gang-related murders in which the perpetrator “intentionally killed the victim” applies even if the shooter intended to kill someone other than the victim, the California Supreme Court held on March 27. People v. Shabazz, No. S131048 Samuel Shabazz, a member of the Crips street gang, had been told that a blue Chevrolet in line at a Popeye’s Fried Chicken restaurant in Los Angeles had been used by the Bloods gang in an attack against the Crips. Attempting to kill a Bloods member, Shabazz shot several rounds into the car. The Bloods member ducked, and the shots killed the driver of the car, Lori Gonzalez, a 20-year-old college student and granddaughter of then-Los Angeles Police Chief Bernard Parks. Shabazz was convicted of Gonzalez’s murder and, pursuant to Cal. Penal Code � 190.2(a)(22), enacted as part of California’s so-called, “Proposition 21,” the jury found a special circumstance of an intentional killing of the victim while the perpetrator was engaged in street gang activity. Shabazz appealed, arguing, inter alia, that Section 190.2(a)(22) did not apply to him because he had not intended to kill Gonzalez. An intermediate state appellate court affirmed. Affirming as to the Proposition 21 issue, the court held that the trial court applied correctly the doctrine of transferred intent to the statute. The court said, “Gang-related violence poses a threat to gang members and nonmembers, alike; nothing contained in the history of the statute in question suggests that in enacting Proposition 21, the electorate determined that a gang member who acts with the intent to kill should be deemed less blameworthy simply because his or her ultimate victim was a bystander or other nonmember rather than the perpetrator’s actual, intended victim selected from an opposing gang.” FAMILY LAW Child of divorce can’t sue for child support benefits A child cannot bring suit or intervene in an action to enforce his or her divorced parents’ property settlement agreement, the Pennsylvania Supreme Court ruled on March 20 in a matter of first impression. Chen v. Chen, No. J-169-2004. A Pennsylvania couple with two children divorced in 1983. Under a child support agreement merged into the divorce decree, the father was to pay $25 per week to the mother until their infant daughter turned 18. Though the agreement said the father’s obligation would increase if he received any increase in salary, the mother never sought an increase. When the daughter turned 18, the mother sued to collect arrearages that she said she was owed from the father’s raises over the years. The daughter sought to intervene as a third-party intended beneficiary. The trial court allowed the intervention, and after the mother dropped her action, a jury ruled for the daughter. An intermediate state appeals court affirmed. The Pennsylvania Supreme Court reversed. Where an agreement provides for support payments to be made directly to the custodial parent, a child cannot sue to enforce the agreement. Strong public policy “favors denying a child standing to seek the specific dollars one parent owes the other for the child’s generalized support.” The court said that it was protecting parental rights to contract specifically for the direct payment of benefits to a child while also recognizing the custodial parent’s right to direct the care, custody and control of the child. IMMIGRATION LAW State felony conviction isn’t aggravated felony A state law felony conviction for a crime that is federally a misdemeanor is not an aggravated felony for purposes of the convicted immigrant’s right to seek cancellation of removal, the 7th U.S. Circuit Court of Appeals held on March 22. Gonzales-Gomez v. Achim, No. 05-2728. Rafael Gonzales-Gomez, a lawful permanent resident of the United States, was convicted in Illinois state court of cocaine possession-a felony under Illinois law but only a misdemeanor under the relevant federal law. An immigration judge, seconded by the Board of Immigration Appeals, ruled that the state felony was a “felony punishable under the Controlled Substances Act,” and therefore an “aggravated felony” under the Immigration and Nationality Act. Gonzales-Gomez was ordered removed. He filed a petition for habeas corpus, and an Illinois federal court granted relief. The 7th Circuit affirmed, holding that a state law felony that counts as a misdemeanor under federal law is not an “aggravated felony” for removal purposes. The court said, “Allowing cancellation of removal to depend on how severely a particular state punishes drug crimes would have the paradoxical result of allowing states . . . to impose banishment from the United States as a sanction for a violation of state law. For then if a state made the possession of one marijuana cigarette a felony . . . it would be in effect annexing banishment from the United States to the criminal sanction. States do not have the power to banish people from the United States.” INSURANCE LAW No coverage when gun fires in stationary truck An injury caused by the accidental discharge of a gun while it is being removed from a stationary but running vehicle isn’t an injury arising from the ownership, maintenance or use of that vehicle, the South Carolina Supreme Court ruled on March 20, addressing a question certified by the 4th U.S. Circuit Court of Appeals. Peagler v. USAA Insurance Co., No. 26128. As Kathy Thompson started the engine in her husband’s truck, one of her sons noticed two shotguns in the back seat. She instructed the boy to go in the house and ask her husband to come and remove the shotguns. While her husband was removing the guns, one accidentally went off and Kathy was killed by the shot. Her estate filed an action in South Carolina state court seeking a declaration that the couple’s automobile insurance policy covered the accident. USAA Insurance Co. removed the case to a South Carolina federal court, which ruled for the estate. On appeal, the 4th Circuit certified a question to the South Carolina Supreme Court, asking whether Thompson’s fatal injury arose out of the “ownership, maintenance, or use” of a motor vehicle under S.C. Code Ann. � 38-77-140, which requires all auto insurance policies to contain coverage in such instances. The South Carolina Supreme Court answered “no.” There is no causal connection between the vehicle and the injury. Though the truck had previously been used to transport the guns to a hunting trip-a foreseeable, identifiable use of the vehicle-the truck was not an “active accessory” to the injury. The truck was merely the site of the injury, and an insurance policy would not cover injuries for this or similar circumstances. LEGAL PROFESSION Counseling debtor, bank is a conflict of interest By participating in a refinancing transaction both as counsel for a debtor and as an employee of a bank, an attorney had a per se conflict of interest that could not be waived, the 8th U.S. Circuit Court of Appeals determined on March 24. In re McGregory, No. 05-6054EM. On June 3, 2002, Ross H. Briggs filed a Chapter 13 bankruptcy case for client James McGregory, electing to receive a $1,700 flat fee for his services. On June 1, 2004, Briggs began working as a home mortgage consultant for Wells Fargo Bank N.A., refinancing home mortgages for Chapter 13 debtors. In the spring of 2005, Briggs refinanced McGregory’s home loan with Wells Fargo and also acted as Wells Fargo’s agent in the transaction. Briggs filed a motion on McGregory’s behalf in Missouri bankruptcy court seeking permission to incur debt to refinance the home loan, claiming that the debtor had consented to Briggs’ representation of both him and Wells Fargo. The bankruptcy trustee opposed the motion. While the bankruptcy court granted the motion to incur debt, it also granted the trustee’s motion to deny attorney fees and disgorge any fees already paid. The 8th Circuit affirmed. When an attorney represents multiple parties with different interests in a single transaction, the conflict can’t be cured by consultation and consent because it forecloses alternatives that would otherwise be available to the client and presents an “unavoidable appearance of impropriety.” REAL PROPERTY Oral deal to sell property isn’t a listing agreement An oral agreement between a property owner and a real estate broker to find a buyer for the property without listing it was not a listing agreement, the Iowa Supreme Court ruled on March 26. Stewart v. Sisson, No. 21/04-1323. Jeffery Sisson, the owner of a sports bar and restaurant, contacted Larry Stewart, a licensed real estate broker, about selling his property without listing it. They orally agreed that Stewart would receive 10% of the sales price if he found a buyer. Stewart got in touch with a prospective buyer, Michael Walter, and had him sign a confidentiality agreement to prevent him from negotiating directly with Sisson. However, Sisson sold the property directly to Walter without telling or involving Stewart. Stewart sued Sisson for breach of contract. An Iowa trial court dismissed his suit. An intermediate appellate court reversed and remanded. The trial court granted summary judgment in favor of Sisson based on Iowa Admin. Code r. 193E-1.23, which requires that all listing agreements be in writing. The Iowa Supreme Court reversed and remanded. A listing agreement is a type of brokerage deal in which a client agrees to disclose the property to the public by having it placed on the list of broker’s properties for sale. The court said that an agreement not to have a property “listed” is not a listing agreement, and it remanded the case for a determination as to whether it might be a brokerage agreement that similarly requires writing.

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