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BANKING Arm’s-length bank owes client no fiduciary duty Absent special circumstances, a bank dealing at arm’s length with a prospective borrower does not have a fiduciary duty to that prospective borrower, the Ohio Supreme Court held on March 29. Groob v. KeyBank, No. 2004-0214. In anticipation of buying Oldfield Equipment Co. Inc., a company that sold and rented hydraulic pumps, Jeffrey Groob and Lowell Bowie met with Caroline Sapinsley, a loan officer with KeyBank National Association and KeyCorp, to discuss how to secure financing. Bowie and Oldfield had an existing relationship with KeyBank, while Groob did not. Following KeyBank’s refusal to provide financing, Groob and Bowie failed to purchase Oldfield. In the meantime, Sapinsley told another KeyBank customer, Clark Sarver, about Oldfield. Sarver and Sapinsley’s husband sent an offer to purchase Oldfield. Sapinsley resigned from KeyBank a few months later and took control of Oldfield along with Sarver. Groob and Bowie sued KeyBank for breach of fiduciary duty. The Ohio trial court entered a directed verdict in favor of KeyBank on the breach of fiduciary duty issue. An Ohio intermediate appellate court reversed. The Ohio Supreme Court reversed. A fiduciary duty exists where there is a “special confidence and trust is reposed in the integrity and fidelity of another and there is a resulting position of superiority or influence, acquired by virtue of this special trust.” The court said that there was nothing special about a request for a loan and no evidence of anything other than an arm’s-length transaction that would have created a fiduciary relationship.   Full text of the decision CIVIL PRACTICE Legal malpractice suit on without appeal of verdict A defendant’s decision not to appeal an adverse judgment does not equitably estop it from pursuing a legal malpractice action against its attorney, the 5th U.S. Circuit Court of Appeals ruled on March 29. American Reliable Ins. Co. v. Navratil, No. 05-30583. American Reliable Insurance Co. (ARIC) hired Boris Navratil to defend it and its insured, Eli Prudhomme, in a suit in Louisiana state court. The jury returned a verdict in favor of the plaintiff, awarding damages of the $25,000 policy limit as well as $420,198.30 against Prudhomme. Navratil wrote a letter to ARIC indicating that, while an appeal might reduce the amount of the judgment as a whole, it would likely not benefit ARIC given the $25,000 policy limit and the unlikelihood of a reversal. However, Navratil made clear that ARIC still had a duty under state law to appeal an adverse judgment against its insured, even if the insurer itself would not benefit. ARIC terminated Navratil’s representation before the final judgment. It then settled the case for $550,000, which was more than the jury award but less than the expected amount of the judgment against Prudhomme. ARIC then sued Navratil for malpractice. A Louisiana federal court dismissed with prejudice. Reversing, the 5th Circuit concluded that a client’s duty to mitigate damages caused by attorney malpractice does not mandate pursuit of an appeal, an expensive and possibly risky venture, in the hopes of reducing or eliminating a judgment. Taking advantage of the fleeting opportunity to make a reasonable settlement is often a better method of damage mitigation. CONSTITUTIONAL LAW Town smoking ban can apply to private groups A town did not exceed its authority in passing an anti-smoking regulation that prohibited smoking in private associations, the Massachusetts Supreme Judicial Court held on March 22. American Lithuanian Naturalization Club v. Board of Health, No. SJC-09501. After the commonwealth of Massachusetts passed anti-smoking laws, Mass Gen. Laws. ch. 111, � 31 and ch. 270, � 22 (j), Athol, Mass., passed a regulation that banned smoking in private associations. Multiple private associations sued, claiming that the ban exceeded the town’s authority and arguing that it violated the associations’ constitutional rights. A trial court held for the associations, holding that the regulation was “unreasonable, arbitrary and capricious” as applied to “private clubs,” and that it exceeded the board’s authority under commonwealth law. Reversing, the Massachusetts Supreme Judicial Court held that the town was within its rights, in part, because the associations were open to members of the general public. The court said, “The plaintiffs acknowledge that their premises are open to members of the public during fundraisers or when they are rented, and members of the Athol community (among others) are invited as guests to the premises even when the general public is not invited. Even if smoking members choose to disregard the overwhelming evidence of the serious health consequences of smoking, the board rationally could be concerned about the exposure of nonsmokers to a ‘known human carcinogen.’ ” Public school fee violates U.S., Ind. constitutions A $20 fee a local public school district imposed on students amounted to a requirement to pay tuition, and was thus unconstitutional, the Indiana Supreme Court held on March 30. Nagy v. Evansville-Vanderburgh School Corp., No. 82S01-0409-CV-428. In an attempt to address a budget shortfall, Evansville-Vanderburgh School Corp. (EVSC), a public school district, imposed a $20 student services fee on all kindergarten to 12th grade students. Frank Nagy, and other parents of children in the district sued, arguing that the fee-which was imposed on students regardless of whether they qualified for free lunch and books-violated the Indiana and U.S. constitutions. The trial court held for the parents on its claim under the 14th Amendment to the U.S. Constitution, but held for the school district on the Indiana Constitution claim. Both sides appealed, and an intermediate appellate court reversed, holding that the fee violated the Indiana Constitution as well. The Indiana Supreme Court affirmed the intermediate appellate court on the Indiana Constitution issue. The court said, “The Indiana Constitution does not prohibit EVSC from charging individual students for their participation in such extracurriculars or for their consumption of such services. However the mandatory fee EVSC imposed generally on all students, whether the student avails herself of a service or participates in a program or activity or not, becomes a charge for attending a public school and obtaining a public education. Such a charge contravenes the ‘Common Schools’ mandate as the term is used in Article 8, Section 1 and is therefore unconstitutional.” CRIMINAL PRACTICE Right to public defender is waived by misconduct A criminal defendant can waive and/or forfeit his right to appointed counsel by verbally abusing his court-appointed attorney, the Delaware Supreme Court ruled on March 30 in an issue of first impression. Bultron v. State, No. 62, 2005. Attorney Edmund Hillis was appointed to represent Luis Bultron against charges of second-degree burglary and misdemeanor theft. Bultron asked the state trial court to appoint a new attorney for him because he did not think Hillis believed in his innocence and refused to subpoena a number of witnesses. But his requests were denied. At trial, Hillis told the court that Bultron had been verbally abusive to him. The trial court determined that Bultron had waived or forfeited his right to counsel by serious misconduct involving abuse of his attorney. The court permitted Hillis to withdraw and refused to appoint a new attorney for Bultron. Proceeding pro se, Bultron was convicted as charged. The Delaware Supreme Court affirmed. The right to court-appointed counsel can be waived by conduct, but a defendant must be warned of his conduct before a waiver is found. That did not happen here. The right to counsel can also be forfeited, though, without prior warnings, if the defendant’s conduct is sufficiently egregious. Such was the case here. “Intentional misconduct for the purpose of forcing counsel to withdraw so that the trial cannot proceed is plainly obstructive to the administration of justice,” the court held. Rights restoration annuls felon-possession charge Although he had been convicted of a felony, prosecutors had improperly charged a man with being a felon in possession of a handgun because the man’s civil rights had been restored after the conviction, the 9th U.S. Circuit Court of Appeals held on March 27. U.S. v. Simpson, No. 04-10363. In 1988, Raymond Simpson was convicted of attempted sexual abuse of a minor, a felony. He was sentenced to two years’ probation and, pursuant to statute, his civil rights were restored upon successful completion of the probation. In 2003, Simpson was indicted in federal court for being a felon in possession of a firearm, in violation of 18 U.S.C. 922(g)(1) and 924(a)(2). Simpson moved to dismiss the indictment, arguing that because his civil rights had been restored, he wasn’t a felon in possession. The district court granted Simpson’s motion. Affirming, the 9th Circuit held that because Simpson’s civil rights had been restored, he was not a felon for purposes of the statute. The court said, “Simpson’s civil rights were fully restored after he successfully completed his probation and Arizona law did not expressly prohibit him from possessing a firearm. Accordingly, under Arizona law, he was not properly considered ‘convicted’ for purposes of � 922(g).” DAMAGES Last-minute retraction of lower damages claim OK A plaintiff’s last-minute withdrawal of his election to claim lower damages and submit to less discovery is permissible, the Alaska Supreme Court held on March 31. Kay v. Danbar Inc., No. S-11008/11017. Steven Kay sued real estate firm RE/MAX of Wasilla for personal injuries that he suffered in a fall in a duplex that he rented through the firm. He initially limited his claim to damages of less than $100,000, thereby securing the advantage of limited discovery under Alaska R. Civ. P. 26(g). However, upon learning that he would need further medical care, Kay, 55 days before trial was scheduled to begin, attempted to claim additional damages and unsuccessfully moved to withdraw his election to proceed under Rule 26(g). The jury returned a verdict for Kay exceeding $400,000, but the trial court reduced the judgment to conform to the rule’s $100,000 damages cap. Kay and RE/MAX cross-appealed. The Alaska Supreme Court reversed the order declining to lift the damages cap, vacated the jury’s verdict and remanded for a new trial, so as to enable both parties to conduct full discovery. The court said that Kay’s attempt to withdraw his election cap is analogous to a claimant’s motion for leave to amend a complaint under Alaska R. Civ. P. 15, which is normally granted, absent a showing that it would result in injustice. The court said, “[W]e have endorsed rulings of the United States Supreme Court emphasizing that, under the parallel Federal Rule, amendments should be freely be granted [i]n the absence of any apparent or declared reason such as undue delay, bad faith or dilatory motive on the part of the movant.” GOVERNMENT Term-limit provision in county charter is OK State law allows a county charter to include a term-limit provision, and the state Legislature had constitutionally delegated the authority to counties to impose such limits, the Tennessee Supreme Court ruled March 29 in a matter of first impression. Bailey v. County of Shelby, No. W2005-01508-SC-R11-CV. The Tennessee Constitution provides for various forms of local government and gives the Legislature the power to create new forms, including county government that operates by charter. State law requires counties operating under charters to provide for a legislative branch, such as a board of county commissioners, and to set the qualifications for holding office in that branch. The Shelby County charter includes a term-limit provision that prevents county commissioners from serving more than two consecutive four-year terms. Three commissioners whose terms are set to expire this year challenged the ordinance in state trial court. The trial court ruled that state law allowed for term limits in a county charter, and also ruled that the delegation of such authority by the state legislature was legal. An intermediate Tennessee appellate court reversed. The Tennessee Supreme Court reversed. Term limits constitute a qualification for holding office. Giving charter governments the power to set the qualifications of its governing board is well within the state constitution’s broad grant of authority to the legislature to create new forms of local government. INSURANCE LAW Puerto Rico’s Insurance Code is unconstitutional Portions of Puerto Rico’s Insurance Code that restrict activities of nonresident insurance agents and brokers are unconstitutional, the 1st U.S. Circuit Court of Appeals held on March 30. Council of Insurance Agents & Brokers v. Juarbe-Jimenez, No. 05-2607. Parts of the Puerto Rico Insurance Code impose restrictions on the ability of nonresident licensed insurance agents and brokers to participate in the Puerto Rico insurance market. The Council of Insurance Agents and Brokers sued Puerto Rico’s commissioner of insurance. The commissioner moved for summary judgment on the ground that the council lacked standing because it had not demonstrated that any of its members had suffered an injury in fact. Because it had not shown that at least one of its members would otherwise have standing to sue in its own right, the council’s claim of associational standing must fail. A Puerto Rico federal court denied the motion and granted the council’s cross-motion, holding that the council has standing to assert the claims of its individual associates, and that the challenged provisions are unconstitutional under the privileges and immunities clause of the U.S. Constitution. The 1st Circuit affirmed, rejecting the commissioner’s denial of the council’s claim of associational standing. The commissioner had claimed that because none of the council’s members had a license to operate in the Puerto Rico market, the members could not have been harmed by the challenged provisions. In addition, because they had suffered no injury in fact, the members had no third-party standing to raise the rights of the members’ individual associates. The 1st Circuit said that, in fact, some council members that are based outside of Puerto Rico are licensed as nonresident agents and brokers in Puerto Rico, and that they had suffered injuries such as losing business because of the prohibition on certain activities and having to engage in burdensome administrative efforts to arrange for resident countersigning agents for permitted transactions. Insurance policy protects unwanted-faxes sender An insurer has a duty to defend its insured in a suit alleging unsolicited faxing, the 10th U.S. Circuit Court of Appeals held on March 27. Park University Enterprises Inc. v. American Cas. Co. of Reading, No. 04-3197. JC Hauling Co. filed a suit in Illinois state court against Park University Enterprises Inc. on behalf of a class consisting of “all individuals who received unsolicited advertisements” via fax from or on behalf of Park University. The suit alleged violations of the Telephone Consumer Protection Act (TCPA), 47 U.S.C. 227, which bans unsolicited fax ads. Under the TCPA, recipients of unwanted faxes can seek injunctions and damages and get treble damages if a sender has acted “willfully or knowingly.” JC Hauling alleged that Park’s actions were “willful and knowing,” and sought treble damages. Park’s insurer, American Casualty Co., refused to provide a defense or coverage. Park filed suit seeking a declaratory judgment that American has a duty to defend it, under two different provisions of its policy: “property damage” liability coverage and “advertising injury” liability coverage. On cross-motions for partial judgment on the pleadings, a Kansas federal court held that American must defend. The 10th Circuit affirmed, holding that Park’s policy required American to defend it. The court said that in determining for insurance purposes whether the property damage resulting from an insured’s acts were accidental and therefore an occurrence under a policy, the test is whether an insured’s intent to injure can be inferred if the resulting injury, from the standpoint of the insured, is the natural and probable consequence of the act ultimately causing the injury. Because Park University believed it was transmitting a fax to a recipient who wished to receive it, it didn’t intend to injure the recipient. Consequently, the alleged injury was potentially an occurrence within the meaning of the policy, requiring American to defend Park University. The advertising injury provision of the insurance policy covers injuries “arising out of . . . [o]ral or written publication of material that violates a person’s right of privacy.” The court rejected American’s contention that the policy defines a personal-privacy violation as the disclosure of secrets rather than the invasion of one’s seclusion, whereas the TCPA allows recovery only for injuries arising from an invasion of seclusion. The circuit court said that “[t]he plain and ordinary meaning of privacy includes the right to be left alone.” Thus, a TCPA invasion of seclusion claim may be covered by the policy’s advertising-injury provision, since receipt of an unwanted fax can constitute an invasion of privacy. JUDGES Benefiting from official misconduct is criminal A judge’s violation of judicial conduct rules by receiving a reward for violating his or her public duty can be used to support a later criminal conviction, the New York Court of Appeals ruled on March 30. People v. Garson, No. 28. Among more than 12 charges brought against a judge in the Kings County, N.Y., matrimonial division, six were for second-degree receipt of reward for official misconduct under N.Y. Penal Law � 200.25. Five of those counts involved a payment-for-client-referrals scheme between the judge and an attorney, and the sixth involved gifts from the same attorney in exchange for advice on strategy in a case pending before the judge. The state alleged that the conduct underlying all of the counts violated judicial conduct rules that prohibit judges from accepting benefits for violating his or her duty as a public servant. The trial court granted the judge’s motion to dismiss on the ground that the evidence that judicial conduct rules were violated was legally insufficient to support the charge. An intermediate appellate court affirmed. The New York Court of Appeals, New York’s high court, affirmed, holding that the judicial conduct rules impose a constitutionally mandated duty on the judiciary that, when combined with evidence of receiving a reward, may serve as a basis for prosecution under Section 200.25.

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