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Successful defendants stuck with fees, costs

Two parties who ultimately were cleared of violating a settlement by continuing to engage in fraudulent telemarketing practices are ineligible to recover their attorney fees and costs from the federal government, the 10th U.S. Circuit Court of Appeals ruled on Sept. 28. Federal Trade Commission v. Kuykendall, No. 05-6047.

Following extensive litigation, H.H. Kuykendall Sr. and C.H. Kuykendall persuaded the en banc 10th Circuit in 2004 that they had played no role in the alleged settlement violations. A federal judge in Oklahoma later ruled that the two could recover nearly $168,000 in appeal costs, but refused their request for attorney fees.

A three-judge panel of the 10th Circuit affirmed the denial of attorney fees, ruling that the Kuykendalls failed to produce evidence that the government had brought the claims “for any improper reason.” Their other litigation expenses, including the costs of financing a letter of credit to stay enforcement of the original judgment, were barred by sovereign immunity, the court said.

Full text of the decision

No bad-faith exception to the American Rule

Accident victims are not entitled to collect $43,500 in attorney fees for bad faith because an insurance company balked at their settlement offer for 14 months, the Montana Supreme Court ruled on Sept. 26. Sampson v. National Farmers Union Property and Casualty Co., No. 05-211.

Dolores Sampson and Beverly Cybulski offered to settle for $125,000, but the National Farmers Union Property and Casualty Co., which insured the driver at fault, rejected the offer. After they hired a lawyer, the company finally accepted the deal. They later invoked Montana’s Unfair Trade Practices Act, which bars unfair claims settlement practices, in seeking to recover their attorney fees. A state trial judge granted summary judgment to the insurer.

Affirming, the Montana Supreme Court noted that the state adheres to the American Rule, whereby each litigant pays his or her own expenses. Michigan precedent allows exceptions if a party has to sue his own insurer, but not in third party situations. The state Legislature has not seen fit to change the law. “While we recognize the seeming unfairness of the Claimants’ having to pay $43,500.00 [in fees] for the privilege of recovering the same amount of money they were willing to accept in the first place, we are nonetheless constrained by the terms of the statute and our role in interpreting it,” the court said.

Rejected deal doesn’t invoke no-fees rule

A farm family can seek attorney fees after recovering less at trial than its insurer offered in a settlement for hail storm damage, notwithstanding a state law denying fees to parties that reject offers “to allow judgment,” the Nebraska Supreme Court ruled on Sept. 29. Young v. Midwest Family Mutual Insurance Co., No. S-05-540.

Thomas J. Young and Jennie L. Young claimed damage worth $27,500 from the storm. Their insurer offered a series of amounts shy of that sum in what it called “settlement” offers. The case went to trial, where the jury awarded the Youngs $940. The state trial judge rejected their bid for attorney fees, citing a statute precluding fees when the trial recovery is less than the amount named in an “offer in writing to allow judgment.”

The Nebraska Supreme Court reversed, distinguishing between offers to settle and those to allow judgment to be entered against a party in exchange for money. “An offer to settle does not necessarily result in a judgment” or an “adjudication on the merits,” but simply ends the proceedings, the court said. “We will not resort to interpretation to ascertain the meaning of statutory words which are plain, direct, and unambiguous.”


Litigation threat may qualify as actionable

A debt-collection letter warning that a lawsuit “could result” from failure to pay could violate the Fair Debt Collection Practice Act, the 3d U.S. Circuit Court of Appeals ruled on Sept. 29. Brown v. Card Service Center, No. 05-4160.

Elizabeth Brown filed a class action on behalf of people who received debt-collection letters warning that legal action “could result” unless payment arrangements were made within five days. The letters added that failure to cooperate “could result in our forwarding this account to our attorney.” Brown alleged that because legal action was never taken against the letter recipients, despite their failure to make payment arrangements, the collection agency had violated § 1692e(5) of the act, which bans false, misleading or deceptive communications, including “threat[s] to take any action that cannot legally be taken or that is not intended to be taken.” A Pennsylvania federal district court dismissed the complaint, saying that because the letters used the word “could” instead of “will,” it was unreasonable to think that legal action was actually imminent.

The 3d Circuit reversed. Following its own precedent that lender-to-debtor letters should be construed from the perspective of the “least sophisticated debtor,” the court found it would be deceptive for the agency to assert that it could take an action it had no intention of taking and has rarely if ever taken before. An understanding by the least sophisticated debtor that litigation or referral to a lawyer would be imminent is not “bizarre or idiosyncratic.” If Brown can prove that the agency seldom litigated cases or referred cases to its attorneys, a jury could conclude that the letters were deceptive or misleading.

Ambiguous notice voids mortgage agreement

A borrower is entitled to rescind a mortgage agreement beyond the three-day deadline allowed by the Truth in Lending Act (TILA) and to recover any interest paid because the lender provided confusing notice of the borrower’s right to cancel, the 7th U.S. Circuit Court of Appeals ruled on Sept. 29. Handy v. Anchor Mortgage Corp., nos. 04-3690 and 04-4042.

The lender provided Geneva Handy with a 15-year, fixed-rate loan of $80,500, most of which went to pay off her earlier mortgage. Under TILA, it was obliged to provide her with a form making clear that she had three days to rescind the agreement. The lender actually gave her two forms covering different types of loans. Two years later, she attempted to rescind her loan agreement on the ground that the lender hadn’t “clearly and conspicuously” disclosed her rights. A U.S. district judge in Illinois essentially ruled that the mistake was harmless.

The 7th Circuit reversed on the ground that the notices gave conflicting guidance as to the amount of the obligation Handy was entitled to rescind. The court noted that the lender lacked procedures to prevent such confusion. Since the late borrower’s estate administrator has paid off the loan, the remedy under the act is a refund of the interest paid, attorney fees and statutory damages, the court said.

Notice met the test of ‘reasonableness’

A borrower’s subjective confusion about the deadline for canceling a loan under the Truth in Lending Act (TILA) must be reasonable to hold sway in court, the 1st U.S. Circuit Court of Appeals ruled on Sept. 29. Palmer v. Champion Mortgage, No. 06-1246.

Amy Palmer took out a debt-consolidation loan, secured by her home. The lender sent her a standard notice, required under TILA, of her right to cancel the deal by April 1, 2003, which was three days after the deal closed. However, the notice arrived after April 1. More than a year later, Palmer tried to cancel outside the three-day window on the ground that the notice was confusing. A U.S. district judge in Massachusetts refused to permit it, observing that the notice also informed Palmer that she had the right to cancel within three days of the notice’s arrival.

The 1st Circuit affirmed, ruling that the test was “objective reasonableness, rather than subjective understanding” of the disclosure from the point of view of an average consumer “who is neither particularly sophisticated nor particularly dense.” The court said that “any creditor who uses plain and legally sufficient language ought to be held harmless. In other words, courts ought not to invent ambiguities that do not in fact exist.”


Sentence upheld for endeavor to obstruct

The sentencing range that applies for obstruction of justice also applies for “endeavoring” but failing to obstruct justice, the 2d U.S. Circuit Court of Appeals ruled on Sept. 27. United States v. Giovanelli, No. 04-5763-cr11.

Federico Giovanelli, 73, was an organized crime captain who sought out and passed along details from a grand jury investigation into crimes including murder by an allied crime family. He was convicted of one count of conspiracy to obstruct justice and two counts of endeavoring to do so, and drew a 90-month term under the Federal Sentencing Guidelines. On appeal, he challenged his conviction and sentence.

Affirming, the 2nd Circuit concluded that Giovanelli’s actions met the legal test of having “the natural and probable effect of interfering with the due administration of justice,” regardless whether he succeeded in that endeavor. The court joined four other circuits in ruling that a sentencing enhancement for accessories after the fact can apply when intent to obstruct is clear but is “foiled in some way.”


Hearing transcript flaws don’t decide dispute

Gaps that riddled an administrative hearing transcript were not a good enough reason to rule for a parent in a dispute with local school officials over its education plan for a mildly disabled schoolgirl, the U.S. Circuit Court of Appeals for the District of Columbia held on Sept. 29. Kingsmore v. District of Columbia, No. 05-7156.

Lauren Kingsmore had requested the administrative hearing to challenge the school district’s individual education plan for her child. A hearing officer ruled that the plan complied with the federal Individuals with Disabilities in Education Act.

On appeal to a district judge in Washington, the parties found that the administrative hearing transcript contained more than 100 gaps, labeled “inaudible.” The judge ordered the district to pay private school tuition for Kingsmore’s daughter, holding that its failure to provide a usable transcript denied Kingsmore the opportunity to contest the hearing officer’s ruling.

Vacating the order, the D.C. Circuit held that the flawed transcript did not require the tuition payment because the lack of a transcript did not affect the child’s right to a free, public education. “The District Court has multiple means by which to remedy such a procedural defect,” the appellate court said. “It could itself hear additional evidence to supplement the missing parts of the record.”


Contact alone doesn’t violate protective order

Merely being in the same public place as a protected person does not in itself violate a protective order, the Alaska Supreme Court held on Sept. 29. Cooper v. Cooper, No. sp-6054.

Daniel Cooper was arrested for assaulting his wife, Cynthia Hora. She filed for divorce and secured a protective order that prohibited him from being in her physical presence or communicating directly with her. She later encountered him at the local mall, on the street and during the Alaska Bar Association convention. She said that he made eye contact with her and kept pace with her on the street. A trial judge refused her petition for a long-term protective order but granted a mutual restraining order prohibiting direct contact between the two.

The Alaska Supreme Court affirmed regarding the long-term order, saying that the statute at issue “strongly suggests that nonphysical contact must involve some element of direct or indirect communication and does not merely mean coming within view.” The contact must be repeated and must place the protected person in fear, according to an objective but individualized standard. The court threw out the mutual restraining order for lack of any evidence that Hora would harass Cooper.

Father may teach his child about polygamy

A trial court may not prevent a father from discussing polygamy with his minor daughter, a divided Pennsylvania Supreme Court ruled on Sept. 27. Shepp v. Shepp, No. J-97-2004.

Following his divorce from Tracey Shepp in 2001, Stanley Shepp petitioned to share legal and physical custody of the couple’s 9-year-old daughter. Tracey resisted on the ground that Stanley was a fundamentalist Mormon, excommunicated from the church because of his belief in polygamy. The father indicated that while he would not try to marry the girl into a polygamous relationship, he would tell her that she couldn’t be happy without the choice to do so. The trial court awarded joint legal custody to both parents and physical custody to the mother, but specifically forbade the father from teaching his daughter about “polygamy, plural marriages or multiple wives.” An intermediate appeals court affirmed on the basis of the child’s best interest.

The Pennsylvania Supreme Court voted 5-1 to reverse. Although polygamy is illegal in the state, the trial court order implicated the father’s rights to free expression, free exercise of religion and the ability to raise his daughter. Pennsylvania’s interest in promoting compliance with its anti-polygamy statute is not of the “highest order” that would supersede the father’s interest in talking with his child about a “deeply held aspect of his faith” when there is no grave threat to the child. The dissent faulted the majority for not distinguishing between matters of free expression and immoral, criminal conduct.


Firefighters prevail in suit over overtime pay

Firefighters are entitled under the Fair Labor Standards Act (FLSA) to overtime pay even when substitutes work their shifts for them, the 8th U.S. Circuit Court of Appeals ruled on Sept. 29. Senger v. City of Aberdeen, No. 05-3803.

Firefighters in Aberdeen, S.D., occasionally asked other employees to work shifts, including overtime shifts, for them, with the approval of their supervisors. The custom was for the city to pay the scheduled firefighter, who would in turn pay the substitute. The city agreed to pay straight time under the circumstances, but not the overtime that ordinarily would be due. The firefighters sued, and a federal judge in South Dakota granted partial summary judgment for the city.

Reversing, the 8th Circuit said that the 1985 amendments to the FLSA were crafted to permit the sort of apparently common arrangement at issue in this case for public safety employees. The court noted that the law was crafted to prevent inflation of the substitute’s potential overtime pay, thereby allowing local governments to control their overtime costs. Additionally, the court said, a U.S. Department of Labor regulation requiring that each employee be “credited” for his or her scheduled shift was consistent with congressional intent.


Tribe’s immunity extended to its casino

Because it functioned as the arm of an Indian tribe, a casino owned by the tribe enjoyed sovereign immunity from suit by a former employee, the 9th U.S. Circuit Court of Appeals held on Sept. 29. Allen v. Gold Country Casino, No. 05-15332.

Mark Allen sued Gold Country Casino and the Tyme Maidu Tribe of the Berry Creek Rancheria, an Indian tribe that owned it, alleging that that he was fired in retaliation for reporting rats in the casino’s kitchen and for applying in “a white man’s court” for guardianship of two tribal children. A U.S. district judge in California dismissed Allen’s suit for lack of subject-matter jurisdiction, holding that both the tribe and the casino were entitled to sovereign immunity.

The 9th Circuit affirmed, holding that the casino was immune from suit because it was an arm of the tribe. Although the U.S. Supreme Court has criticized tribal sovereign immunity, it remains the law, the court said. The court rejected Allen’s argument that the casino had waived sovereign immunity by referencing federal law in his employee documents, because waivers of sovereign immunity must be explicit and not merely implied. “Immunity of the Casino directly protects the sovereign Tribe’s treasury, which is one of the historic purposes of sovereign immunity in general,” the court said.


‘Satellite’ litigation is barred under statute

Because a suit by a decedent employee’s estate was barred under Indiana’s Worker’s Compensation Act (WCA), a separate action for spoliation of evidence stemming from the incident also was barred, the Indiana Supreme Court held on Sept. 26. Glotzbach v. Froman, No. 45S03-0511-CV-579.

Drew Froman, an employee of National Industrial Maintenance Inc., was killed in an industrial explosion while performing services for Midwest Material Services Inc. The Indiana Occupational Safety and Health Administration instructed Midland to preserve the equipment in the tank where Froman was killed, but Midland removed and disposed of it. Froman’s estate sued Midland for wrongful death and spoliation of evidence. After the estate conceded that Froman was Midland’s employee for purposes of Indiana’s Worker’s Compensation Act, a trial court dismissed the suit as barred under the act. However, the trial court denied Midland’s motion to dismiss the spoliation claim, and an intermediate appellate court affirmed. The state Supreme Court granted transfer to review the decision.

Reversing, the Indiana Supreme Court held that the spoliation claim was barred because it stemmed from an injury covered under the act. “[T]he employee is entitled to worker’s compensation, and permitting claims of spoliation by the employer would open the door to satellite litigation against the employer that the WCA is designed to foreclose,” the court said.

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