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ADVERTISING Company wasn’t vilified by ‘truth’ about tobacco The “Truth” advertising campaign criticizing tobacco manufacturers does not violate a ban against “vilification” or “personal attack” in the master settlement agreement (MSA) with the tobacco industry, the Delaware Supreme Court ruled on July 17. Lorillard Tobacco Co. v. American Legacy Foundation, No. 579, 2005. Under the 1998 settlement with the various states, Lorillard Tobacco Co. pays $300 million annually to help finance a public education fund run by the American Legacy Foundation (ALF). The settlement requires that the advertising concern only the “addictiveness, health effects, and social costs related to the use of tobacco products.” Lorillard claimed violations of the agreement by four ads that accused executives of lying and getting rich off other people’s suffering, and by a fill-in-the-blank letter generator on the ALF Web site that ridiculed executives. A Delaware trial court ruled that the ads did not violate the settlement but that the Web site letter did. The trial court awarded no damages, however, finding the harm de minimis. The state Supreme Court affirmed. Based on dictionary definitions cited by Lorillard, the court said, a “personal attack” refers to a verbal assault that is invidious, disparaging, belligerent, offensive and fiercely or severely critical. “Vilification” refers to a slanderous, defamatory or abusive statement that unjustly denounces its target. The court said that none of the ads fits either definition. “Merely drawing attention to the past conduct of tobacco companies . . . is not a personal attack or vilification prohibited by the MSA,” the court said.   Full text of the decision BUSINESS LAW Investors must specify how audits were false Investors who sue auditors over inaccurate financial reports need not plead intentional wrongdoing, but nevertheless must show how the auditors’ opinion was false and misleading, the 10th U.S. Circuit Court of Appeals held on July 21. Deephaven Private Placement Trading Ltd. v. Grant Thornton & Co., No. 05-4187. Three investors sued Daw Technologies’ former independent auditors at Grant Thornton under � 18(a) of the Securities Exchange Act of 1934. They alleged that Grant Thornton had guaranteed Daw’s 1999 financial statements when in fact they were not presented fairly and in conformity with generally accepted accounting principles. The plaintiffs claimed that this constituted a materially false and misleading statement that contributed to the devaluation of Daw’s stock. A Utah federal district court ruled that the allegations failed to satisfy the pleading standards in the Private Securities Litigation Reform Act (PSLRA) and were filed outside the limitations period. The 10th Circuit affirmed, although it disagreed with the district court’s holding that the investors were required under the PSLRA to show scienter-that is, that Grant Thornton knew its statements were false. The court said the problem was that the investors read Grant Thornton’s audit report statements out of context. In fact, the court said, the auditors expressed an “opinion” about the financial reports, but did not guarantee or certify them. The investors’ case fails because they failed to sufficiently specify the reasons why Grant Thornton’s opinion was false or misleading in the context of its declared basis. Regarding a contrary holding by the 1st U.S. Circuit Court of Appeals in In re Stone & Webster Sec. Litig., 414 F.3d 187 (2005), the court said it “must respectfully disagree.” EMPLOYMENT Independent managers still count as employees A business owned by someone who delegates its management to her relatives must count those relatives as “employees” against the 15-employee minimum for bringing Title VII litigation, the 7th U.S. Circuit Court of Appeals held on July 18. Smith v. Castaways Family Diner, No. 05-3467. Cyndee Smith sued her former employer under Title VII of the Civil Rights Act of 1964, alleging discrimination based on sex, race and national origin and claiming retaliation. An Indiana federal district court entered summary judgment against her on the ground that the restaurant did not meet the 15-employee requirement under the act. The court had not counted the sole proprietor’s mother and husband, who managed the restaurant while the owner worked full time at an unrelated job. The 7th Circuit reversed and remanded, holding that the relatives were indeed employees within the meaning of Title VII. The court noted that the U.S. Supreme Court has looked to the common law master-servant relationship in interpreting the definition of “employee” under the act. In this case, the mother and husband each received regular paychecks like other employees, and whatever authority they held was delegated by the sole proprietor. FAMILY LAW No laches defense to child support obligation A California law prohibiting the use of laches as a defense in child support cases could be applied retroactively to force a father to pay $26,000 based on a 17-year-old support order, the California Supreme Court ruled on July 20. In re Fellows, No. S127874. In 1985, a New York court ordered Darrin Fellows to pay Mary Ann Moyse $50 per week in child support. More than 17 years later, Moyse registered the child support order in California and demanded $26,000 plus interest in back support. Fellows moved to vacate the registration, arguing that it was barred on equitable grounds because the demand for payment came so late. Also in 2002, California enacted Calif. Fam. Code � 4502(c), which barred the defense of laches in child support actions brought by individuals. A trial court denied Fellows’ motion and ordered him to pay $20,800, holding that the law barring laches could be applied retroactively. Fellows appealed, but a state intermediate court affirmed. Affirming, the California Supreme Court held that the state Legislature intended the law to apply retroactively. Such an application did not violate Fellows’ due process rights because his reliance on laches was unreasonable, the court said, and because the state had a significant interest in the payment of child support. “Eliminating the defense necessarily advances the state’s interest in securing payment of all child support obligations,” the court said. “Moreover, to the extent obligor parents benefit from their efforts to evade support obligations through the use of the defense, section 4502(c) cures this ‘rank injustice of the former law.’ ” Parent stripped of rights may not seek custody A parent who has lost permanent custody of a child may not petition as a nonparent for custody of that child, the Ohio Supreme Court ruled on July 19. In re McBride, No. 2004-1917. Peggy Fugate was incarcerated when county authorities found her 6-year-old daughter and an older child living on their own. Eventually, Fugate’s parental rights were severed. Later, after discovering that the daughter had not been adopted, Fugate filed a petition as a nonparent for her custody. A state magistrate dismissed the petition but a juvenile court judge disagreed, and an intermediate state appeal court declined to bar Fugate’s petition. The Ohio Supreme Court reversed, citing state law stripping parents who lost their parental rights of standing in subsequent actions. Allowing Fugate to petition for custody would be tantamount to allowing her to seek modification or termination of the order that terminated her parental rights, the court said. However, state law expressly excludes parents in her position from doing so, reserving that standing for state officials or child placement agencies, the court said, adding that “we are following the statutes as they are written.” Judge lacked authority to backdate divorce A woman who remarried before her divorce from a previous marriage was final cannot have the problem cured via a nunc pro tunc order, the Nevada Supreme Court ruled on July 20. McClintock v. McClintock, No. 42703. Kelly McClintock filed an uncontested petition to divorce John Tolas on Sept. 2, 1993, and married Steve McClintock the next day. However, the court didn’t sign her petition until Sept. 21. The problem came to light when she filed for divorce from Steve McClintock in November 2002. He sought an annulment of their marriage and the pair stipulated that their marriage was void. She later moved to withdraw the stipulation, but in the meantime he remarried. A judge entered a nunc pro tunc order on the ground that the McClintocks had acted in good faith, and moved the date of her original divorce to Sept. 2, 1993. That invalidated Steve McClintock’s marriage to his new wife. Reversing, the state Supreme Court ruled that a nunc pro tunc, or “now for then,” order is available to clear up clerical errors but not to change a judgment rendered or not rendered. The case law “cannot be interpreted so broadly as to allow nunc pro tunc modification of divorce decrees, regardless of how simple the proceedings might have been,” the court said. “The district court’s decision to approve a petition for divorce is not equivalent to the exercise of a clerical duty that the court may later amend at its discretion.” LEGAL PROFESSION Noncompete agreement enforced if reasonable Noncompete agreements that provide financial disincentives to attorneys who leave a law firm are enforceable as long as the penalties are reasonable and don’t amount to a de facto bar to their practicing in a particular area, the Arizona Supreme Court held on July 18. Fearnow v. Ridenour, Swenson, Cleere & Evans, No. CV-05-0217-PR. The Phoenix law firm Ridenour, Swenson, Cleere & Evans attempted to enforce language in its partnership agreement requiring partner William Fearnow to forfeit his share in the firm when he left to join a competitor. He sued, citing Ethical Rule 5.6(a) of the Arizona Rules of Professional Conduct, which prohibits any restriction on the right to practice upon termination of a law firm relationship. A state trial court judge agreed and ordered the firm to repurchase Fearnow’s stock. The appellate court concurred that the provision was unenforceable, but said language in the state Professional Corporations Act barred Fearnow from recovering his stake in his old firm. This was the Arizona Supreme Court’s first review of a rule, patterned after the American Bar Association’s 1983 Model Rules of Professional Conduct, that has met mixed interpretations in the various states. The Arizona high court concluded that the rule “should not be stretched to condemn categorically all agreements imposing any disincentive upon lawyers from leaving law firm employment.” Rather, such agreements should be examined under the same fact-based reasonableness analysis that applies to similar agreements between other professionals. The justices remanded to the trial court, saying that if the terms prove unreasonable the court could order the firm to repurchase Fearnow’s share of his old firm for the original price. In a dissent, Justice W. Scott Bales said, “This result may help law firms tighten the golden handcuffs on their lawyers; it will not promote autonomy on the part of individual attorneys or the freedom of clients to be represented by the lawyer of their choice.” TORTS No duty of care for commercial landlords Declining to extend to commercial landlords the same duty of reasonable care owed by residential landlords, the Massachusetts Supreme Judicial Court held on July 21 that a commercial landlord was not liable for a tenant’s employee’s fall from an allegedly faulty stairwell. Humphrey v. Byron, No. SJC-09449. The employee fell at a workplace leased from Florence and Joanne Byron, sustaining serious injuries to his right hand. He sued the Byrons, arguing that they were negligent in maintaining the stairwell. A trial court granted summary judgment to the Byrons, holding that the duty of reasonable care residential landlords owe to their tenants did not extend to commercial landlords. The employee appealed, arguing that the rule should apply to commercial landlords as well-or at least to commercial landlords renting to small businesses. Affirming, Massachusetts’ highest court declined to extend the rule it established in for residential leases in Young v. Garwacki, 380 Mass. 162 (1980), noting important differences between residential and commercial tenants, including a commercial lessee’s greater bargaining power and sophistication. The court added that “modern notions of consumer protection” including the warrant of habitability “have no applicability to dealings between businesses. In view of the significant differences between residential and commercial tenancies, we decline to extend Young v. Garwacki.” TAX LAW Dam’s owner didn’t own the land that it flooded In a case of first impression, the Maine Supreme Judicial Court held on July 21 that a hydroelectric company that owned a dam was not liable for municipal taxes on land submerged by the dam, over which it held only a flowage-rights easement. Town of Waltham v. PPL Maine LLC, No. 2006 ME 88. Bangor-Hydro Electric Co. built the Graham Lake Dam in the 1920s, and paid municipal property taxes on the land flooded by the dam. Bangor-Hydro sold the dam in 1999 to the predecessor company of PPL Maine LLC. The new owner did not pay the property taxes on the submerged land, reasoning that it held only an easement, not the land itself. The town of Waltham sued to collect the taxes, but a trial court granted summary judgment to PPL Maine, holding that it was not a “person in possession” for tax purposes. The town appealed. Affirming, Maine’s highest court held that possessing a flowage-rights easement created no municipal tax liability. “Because PPL’s interest in the submerged land located in the Town is a non-possessory interest, the Town cannot impose a property tax upon PPL as a person in possession of the land,” the court said. TORTS Parents cannot waive liability on child’s behalf A parent cannot sign away a child’s right to sue a skateboarding park or other commercial facility for alleged negligence, a partially divided New Jersey Supreme Court ruled on July 17. Hojnowski v. Vans Skate Park, No. A-17/45-05. Andrew Hojnowski’s parents sued on his behalf after the 12-year-old broke his leg at a skateboarding facility. The park pointed to the release Andrew’s mother signed the month before the accident, requiring that all claims go to arbitration and limiting the park’s liability for injury. A state trial court granted the park’s motion to compel arbitration. An intermediate appellate court agreed that parents may sign arbitration agreements on behalf of their children, but cannot sign away claims of negligence. Affirming, the state Supreme Court said the same public policy that frowns on letting parents sign away a child’s post-injury claims should apply to pre-injury waivers. “[C]hildren deserve as much protection from the improvident compromise of their rights before an injury occurs as [state law] affords them after the injury,” the court said. TRADEMARK Postal Service met its test of good faith The standard definition of “good faith” applies when testing a good-faith defense to alleged trademark infringment, the 11th U.S. Circuit Court of Appeals held on July 18. Specifically, the test is “whether the alleged infringer intended to trade on the good will of the trademark owner by creating confusion as to the source of the goods or services.” International Stamp Art Inc. v. United States Postal Service, No. 05-13492. International Stamp Art held a 1994 trademark on note cards and other products bearing a perforated border edge design similar to the flat-edged perforation of an older postage stamp. After the U.S. Postal Service began marketing similar products, the company sued to assert its trademark. A federal judge in Georgia granted summary judgment to the Postal Service on the ground that any infringement was in good faith. Affirming, the 11th Circuit adopted the standard prevailing in four other circuits. It found no evidence that the Postal Service intended to benefit from the good will associated with International Stamp’s mark. The court noted that the design was used only to identify images on the card as postage stamps and not to confuse consumers as to the source of the stamp art cards. As for the company’s claim that its idea had been stolen, the court said, “trademark law does not protect against misappropriation of business concepts.”

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