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BUSINESS LAW No interference without full subsidiary ownership A parent company doesn’t retain a qualified privilege to interfere in the contractual relations of a subsidiary it does not wholly own, the Tennessee Supreme Court ruled on Dec. 14 on a certified question from the 6th U.S. Circuit Court of Appeals. Cambio Health Solutions LLC v. Reardon, No. M2006-00007-SC-R23-CQ. When Thomas Reardon took over Cambio Health Solutions LLC as its chief executive officer, he was entitled to severance pay if he were terminated for good reason upon a “change in control” at Cambio or Intensive Resource Group, which owned 80% of Cambio’s stock. Reardon owned 10%. At the time, Intensive Resource was a wholly owned subsidiary of Quorum Health Resources, which in turn was a wholly owned subsidiary of Quorum Health Group. Nineteen months later, Triad Hospitals acquired Quorum Health Group and the two merged. Reardon resigned, called Triad’s acquisition a “change in control” and asked for severance pay. Triad directed Cambio to sue Reardon in a Tennessee federal court for a declaration that he wasn’t entitled to severance pay. Reardon, in turn, sued all of the related entities for tortious interference with a contract. The court awarded Reardon more than $5.8 million in compensatory and punitive damages. The companies appealed the punitive damages award to the 6th Circuit, which in turn certified a question to the Tennessee Supreme Court: “Does a parent company’s qualified privilege to interfere in the contractual relations of a wholly owned subsidiary apply when the parent company has a majority interest in the subsidiary?” The Tennessee Supreme Court answered no. A parent company does not have the same qualified privilege to interfere when it owns less than 100% of its subsidiary. The qualified privilege is justified by the identity of interests between the parent company and its wholly owned subsidiary. That justification does not exist when a third party owns an interest in the subsidiary.   Full text of the decision CIVIL PRACTICE Removing party has to prove federal jurisdiction Interpreting a provision of the Class Action Fairness Act of 2005 (CAFA) for the first time, the 3d U.S. Circuit Court of Appeals ruled on Dec. 15 that parties seeking removal must prove that the elements justifying federal subject-matter jurisdiction have been met. Morgan v. Gay, No. 06-4497. A group of plaintiffs filed a class action in a New York federal court against the makers of the skin cream StriVectin-SD. When the court granted the motion to move the case to Utah, where other cases were pending, the plaintiffs voluntarily dismissed the case and filed a similar case in New Jersey state court, asking for a refund of the purchase price of StriVectin-SD, punitive damages and costs, not to exceed $5 million. The defendants removed the case to federal court, citing diversity jurisdiction, but the plaintiffs successfully remanded the case back to New Jersey state court because, according to the district court, the amount in controversy had not been met for federal court jurisdiction. The defendants appealed the remand order to the 3d Circuit, arguing that the district court had improperly placed the burden on them to establish federal subject-matter jurisdiction under CAFA. The 3d Circuit affirmed, holding that the district court had properly placed the burden on the parties seeking removal “to prove to a legal certainty that the amount in controversy exceeds the statutory minimum.” Though burden-shifting might have been preferred by some in Congress, the legislative history does not support the notion that Congress intended to shift the burden of proof from the party seeking removal to the party seeking remand. “We see no reason to create an exception for CAFA to the well-settled practice in removal actions.” The court then confirmed that the defendants in this case had not met their burden. No lex loci public policy exception for nonlocals Out-of-state residents who lived in Florida several months of the year but who executed their automobile insurance contracts in their home states were not entitled to invoke Florida’s public policy exception to the rule of lex loci contractus (the law of the place the contract was executed), the Florida Supreme Court held on Dec. 14. State Farm Mut. Auto. Ins. Co. v. Roach, No. SC04-2313. Indiana residents Ivan and Betty Hodges purchased a second home in Florida, where they lived several months each year. The Hodges executed an insurance contract in Indiana covering their automobile. The Hodges’ car was involved in a collision in Florida. A passenger, one of the Hodges’ neighbors, was killed. The neighbors sued the Hodges, and they settled for their insurance policy limits. The neighbors continued the suit against the Hodges’ carrier, State Farm, to collect under the Hodges’ underinsured motorist coverage, which was allowed under Florida, but not under Indiana, law. A trial court granted summary judgment to State Farm, but an intermediate appellate court reversed, holding that Florida’s public policy exception to the rule of lex loci contractus applied due to the Hodges’ significant contacts with Florida. Reversing, the Florida Supreme Court held that the public policy exception applied to Florida residents only. The court said, “The public policy exception to the lex loci contractus rule is narrow. It applies only when necessary to protect ‘our own citizens,’ not visitors or even temporary residents, and then only when necessary to promote a paramount public policy of this state.” CONSTITUTIONAL LAW School facility-use policy First Amendment breach A public school district’s policy of charging certain groups to use campus facilities, but permitting school administrators to grant fee waivers to other groups if such waivers were deemed “to be in the district’s best interest,” violated the First Amendment, the 4th U.S. Circuit Court of Appeals held on Dec. 15. Child Evangelism Fellowship of South Carolina v. Anderson Sch. Dist. Five, No. 06-1819. Anderson School District Five in Anderson County, S.C., had a policy of allowing certain groups, including the Boy Scouts, to use campus facilities free of charge, while charging other groups for use of the facilities. The district had a policy of granting the fee waivers if it deemed them “to be in the district’s best interest.” The Child Evangelism Fellowship of South Carolina paid to use the district’s facilities after being denied a waiver, but then sued under 42 U.S.C. 1983, arguing that the district’s policy of allowing certain groups to use the facilities without charge violated the First and 14th amendments to the U.S. Constitution. A South Carolina federal court held that the “best interest” test could be used to discriminate against certain views. But the court ruled for the district, holding that, because the district had amended its policy to give waivers only to long-standing users of the facilities, its policy was content-neutral. Reversing, the 4th Circuit held that the district’s best-interest policy violated the First Amendment because it did not prevent school administrators from discriminating against content through the imposition of fees. Quoting prior precedent, the court said, “[S]peech is not to be selectively permitted or proscribed according to official preference. The ‘best interest’ guidelines are ‘a virtual prescription for unconstitutional decision making,’ and permit officials to regulate speech ‘guided only by their own ideas’ of what constitutes the good of the community.” DAMAGES No compensation for lost profits in a ‘taking’ In a condemnation action a jury may not consider quantified lost business profits in determining the fair market value of the land on which the business is located, the North Carolina Supreme Court held on Dec. 15. Department of Transportation v. Fowler, No. 305PA05. To accommodate increased traffic and promote safety, the North Carolina Department of Transportation proposed improvements at an intersection in Durham County. The department filed an eminent domain action to condemn a portion of land owned by M.M. Fowler Inc. The property housed a gas station and a convenience store. The condemnation included a right-of-way, temporary construction easement and permanent easement. In the action to determine just compensation for the taking, the department moved to exclude evidence of lost profits, loss of good will and business interruption. The trial court denied the motion. The department estimated that Fowler was entitled to approximately $169,000 to $225,700. The jury returned a verdict awarding Fowler $375,000 as damages for the permanent taking and $75,000 for the temporary construction and slope easements. The department appealed, arguing that the court had improperly admitted lost profits as evidence. An appellate court affirmed. The North Carolina Supreme Court reversed, saying that injury to a business, including lost profits, is a noncompensable loss. Constitutional mandates “require that the government pay just compensation . . . .They do not require expenditure of taxpayer funds for losses remote from governmental action or too speculative to calculate with certainty.” HEALTH LAW There’s no property right to organ for transplant An organ donee who would not have benefited from an organ originally promised him, doesn’t have a cause of action against the organ donation agency that arranged for the transplant, the New York Court of Appeals ruled on Dec. 14 in answer to questions certified by the 2d U.S. Circuit Court of Appeals. Colavito v. New York Organ Donor Network Inc., No. 106. A man’s widow arranged with New York Organ Donor Network (NYODN) to transport one of her husband’s kidneys to a Miami hospital to be transplanted in her husband’s longtime friend Robert Colavito. Before the transplant, a Miami physician noticed an aneurysm on the kidney, making it unsuitable. He asked NYODN for the other kidney, but NYODN reported that it had already allocated the other kidney to another patient. The Miami doctor later discovered that neither kidney would have been a proper match for Colavito. Colavito sued NYODN in a New York federal court, charging fraud, conversion and violation of New York public health laws. The court granted the defendants’ motion for summary judgment, ruling that a conversion claim was ill-suited to organ donations and that New York public health law does not give standing to organ donees. Colavito appealed to the 2d Circuit, which, in turn, certified questions to the New York Court of Appeals on the issue of whether organ donees have a common law conversion claim, whether they have standing under New York’s public health laws for various common law actions and whether they can recover nominal or punitive damages if no pecuniary loss is shown. The New York Court of Appeals, New York’s highest court, ruled that conversion is not an appropriate cause of action in the realm of organ donation, based on the same line of cases that rejects recognition of property rights in dead bodies. In light of that, answers to the remaining certified questions are “academic.” IMMIGRATION LAW Alien’s refugee status is no bar to removal An alien who arrived in the United States as a refugee may be removed even if the alien’s refugee status has not been terminated, the 9th U.S. Circuit Court of Appeals ruled in a case of first impression. Kaganovich v. Gonzales, No. 04-70625. Vitaliy Kaganovich, a Ukranian national, was admitted to the United States as a refugee in the early 1990s, and later became a lawful permanent resident. In 2001, Kaganovich was stopped at the U.S.-Mexican border with a Ukranian national passenger who presented false identification to border patrol officers. Kaganovich was charged with alien smuggling, and an immigration judge ordered him removed. The Board of Immigration Appeals (BIA) affirmed. Kaganovich appealed, arguing that because he was admitted as a refugee under 8 U.S.C. 1157 and his refugee status was not terminated pursuant to 8 U.S.C. 1157(c)(4), he could not be removed. Affirming, the 9th Circuit applied the test for interpreting statutes articulated by the U.S. Supreme Court in its 1984 opinion, Chevron USA Inc. v. National Resources Defense Council Inc., and the BIA’s 2005 decision in In re Smriko, and held that there was no error in ordering Kaganovich’s removal despite his refugee status. “The BIA’s interpretation of the statutory scheme as a whole is reasonable . . . .The BIA observed that it is difficult to imagine that Congress intended validly admitted refugees to be shielded permanently from removal, regardless of the person’s acts in the United States.” TORTS Slaves’ descendants can’t sue slaveowners’ heirs Descendants of African-American slaves lack standing to sue the successors to the involved slaveowners, the 7th U.S. Circuit Court of Appeals held on Dec. 13. In re African-American Slave Descendants Litigation, No. 05-3265. Ten suits seeking monetary relief under federal and state law for harms stemming from the practice of slavery were consolidated in a multidistrict litigation panel at an Illinois federal court. The slaves’ descendants’ class action alleged that the defendants or their corporate predecessors owned slaves or provided services to slaveowners. They allegedly violated the law of Northern states in transacting with slaveowners and/or partook in occasional enslavements after passage of the 13th Amendment. The complaint, based on 42 U.S.C. 1982, sought disgorgement of profits derived from dealings with slaveowners. Section 1982 provides that all U.S. citizens have the same right as white citizens “to inherit, purchase, lease, sell, hold and convey real and personal property.” The court dismissed the claim on the ground that the plaintiffs lacked standing to sue. The 7th Circuit affirmed, holding that it would be impossible by the methods of litigation to connect the defendants’ alleged misconduct with the financial and emotional harm the plaintiffs claim to have suffered as a result of that conduct. The court further said “[i]f one or more of the defendants violated a state law by transporting slaves in 1850, and the plaintiffs can establish standing to sue, prove the violation despite its antiquity, establish that the law was intended to provide a remedy . . . to lawfully enslaved persons or their descendants, identify their ancestors, quantify damages incurred, an persuade the court to toll the statute of limitations, there would be no further obstacle to the grant of relief.”

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