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BANKRUPTCY No interpleaded funds for unpaid subcontractor A BANKRUPTCY COURT and a federal court both erred in awarding a subcontractor interpleaded funds owed to a bankrupt government contractor because, although the funds were payment for work performed by the subcontractor, they were part of the bankruptcy estate, the 4th U.S. Circuit Court of Appeals held on Feb. 9. In re Baltimore Marine Indus. Inc., No. 06-1206. Baltimore Marine Industries Inc. had a contract with Maersk Line Ltd., operator of the M/V PFC William B. Baugh, a ship owned by the U.S. government, to repair the ship. Baltimore then subcontracted with Ocean Technical Services Inc. for some of the work on the ship. After Baltimore filed for Chapter 11 bankruptcy protection, Maersk filed an interpleader action seeking to deposit with the bankruptcy court $245,989, the amount it owed Baltimore for the work on the ship. Ocean filed a claim against the interpleaded funds for $110,405, claiming that Baltimore owed it that amount for the work it did on the ship. Other parties made claims against the funds, and both Ocean and the bankruptcy trustee moved for summary judgment, with the trustee arguing that the funds belonged to the bankruptcy estate. The bankruptcy court held for Ocean, and a Maryland federal court affirmed. Reversing, the 4th Circuit held that the funds belonged to the bankruptcy estate. Distinguishing the instant case from Pearlman v. Reliance Ins. Co., 371 U.S. 132 (1962), the U.S. Supreme Court on which the bankruptcy court had relied, the court said, “The right of a surety like that in Pearlman-who has fully paid all subcontractors-to retained funds is greater than that of an unpaid subcontractor, like [Ocean Technical], because the surety combines the subcontractor’s interest in the funds with those of the Government and the general contractor. Unlike an unpaid subcontractor, a surety steps into the shoes of the general contractor and thus acquires his legal title and any other rights he has to the withheld funds, legal and equitable.”   Full text of the decision No homestead exception for yacht used as home A MOTORIZED waterborne vessel, used as a primary residence and otherwise fulfilling all of the requirements of a homestead except attachment to land, does not, under Texas law, qualify for the homestead exemption to bankruptcy, the Texas Supreme Court ruled on Feb. 9 on a certified question from the 5th U.S. Circuit Court of Appeals. Norris v. Thomas, No. 05-0476. Thomas Norris filed for Chapter 7 bankruptcy in September 2003 and claimed that his 68-foot yacht, valued at $399,000, as exempt property under the Texas homestead exemption. Norris claimed that the postal address he used was merely a postal center, and that the yacht was his permanent residence. The bankruptcy court refused to allow the exemption. A Texas federal court affirmed. The 5th Circuit certified for the Texas Supreme Court the question of whether the yacht could be claimed as a homestead under Texas law. The Texas Supreme Court answered no. To qualify as a “homestead” under Texas statutes or the state constitution, the claimed residence must be sufficiently attached to land so as to make the property a permanent part of the realty. “Movable chattels do not possess the characteristics of a fixture attached to real property and do not acquire the character of realty.” Amended judgment date governs interest accrual PREJUDGMENT INTEREST ceases to accrue and post-judgment interest begins to accrue on the date of an amended judgment, the 11th U.S. Circuit Court of Appeals ruled on Feb. 5. SEB S.A. v. Sunbeam Corp., No. 06-10157. SEB S.A. filed a patent infringement suit in a Florida federal court against Sunbeam Corp., Sunbeam Products Inc. and Pentalpha Enterprises Inc. Pentalpha filed a counterclaim against Sunbeam for breach of contract. On Jan. 16, 2004, the jury awarded Pentalpha $6.66 million. The court entered judgment on Feb. 11, 2004, and granted $32,910 in prejudgment interest from the date of the jury verdict to the date of the judgment. The 11th Circuit affirmed the jury verdict but remanded for additional prejudgment interest. The lower court amended its judgment on Dec. 12, 2005, to correct its error and declared that prejudgment interest ceased to accrue and post-judgment interest began to accrue on the date of the original judgment. The 11th Circuit vacated and remanded, instructing the lower court to determine both prejudgment and post-judgment interest according to the date of the amended judgment. Fed. R. App. P. 37 holds that post-judgment interest “is payable from the date when the district court’s [original] judgment was entered.” Under the default rule, if an appellate court modifies a monetary judgment with no instructions about interest, post-judgment interest begins on the entry of the amended judgment. Under Florida case law there is no gap in the award of prejudgment and post-judgment interest. Possible federal diversity jurisdiction under TCPA ALTHOUGH THERE IS no express congressional intent to pre-empt federal diversity jurisdiction over claims under Telephone Consumer Protection Act (TCPA) claims, consumer groups lack standing to sue under the act over the receipt of unwanted faxes, the 10th U.S. Circuit Court of Appeals held on Feb. 7. US Fax Law Center Inc. v. IHire Inc., No. 05-1325. US Fax Law Center Inc. and Consumer Crusade Inc. filed six separate lawsuits in a Colorado federal court seeking damages for unsolicited faxes in violation of 47 U.S.C. 227(b)(1)(C) of the TCPA. All six suits were dismissed based on lack of jurisdiction, lack of standing or both. According to Section 227(b)(3) of the TCPA, “A person . . . may, if otherwise permitted by the laws or rules of court of a State, bring in an appropriate state court of that State.” Thus, the court ruled that TCPA claims must be made in state court. Also, such claims are unassignable under Colorado law because they are “personal-injury privacy claims” and penal in nature. The plaintiffs appealed, claiming that there is federal diversity jurisdiction over TCPA claims and that they have representational standing. The 10th Circuit affirmed the dismissals based on the plaintiffs’ lack of standing but reversed the decision that diversity jurisdiction is unavailable under the TCPA. Diversity jurisdiction is based on a grant of jurisdictional authority from Congress. Even if federal-question jurisdiction is proscribed, diversity jurisdiction may still exist. Accordingly, absent an explicit indication that Congress intended to create an exception to diversity jurisdiction, one may not be created by implication. The 10th Circuit agreed with the 2d Circuit in holding that “[n]othing in � 227(b)(3), or in any other provision of the statute, expressly divests federal courts of diversity jurisdiction over private actions under the TCPA.” The court said, “Congress’ apparent purpose in divesting federal courts of federal question jurisdiction over TCPA claims was that small claims are best resolved in state courts designed to handle them. But this purpose has little force in a diversity suit, which by definition involves an amount in controversy exceeding $75,000.” However, the 10th Circuit agreed with the lower court that “TCPA claims are unassignable because they are in the nature of personal-injury, privacy claims.” The plaintiffs lack representational standing because they had no injury in fact. OK to condition release on not mixing with Nazis CONDITIONING A criminal defendant’s supervised release on his not associating with known neo-Nazis, white supremacists or organizations advocating the overthrow of the U.S. government did not violate federal law or the defendant’s liberty interests, the 9th U.S. Circuit Court of Appeals held on Feb. 8. U.S. v. Ross, No. 06-30204. James Ross was court-martialed by the U.S. Army after attempting to mail a submachine gun from Iraq and hiding weapons and white-supremacist literature in his military quarters in Iraq. When he returned to the United States, Ross allegedly distributed fliers for a neo-Nazi white-supremacist organization and purchased a firearm for a convicted felon who was a police informant. Ross pleaded guilty to making a false statement regarding the acquisition of firearm in violation of 18 U.S.C. 924(a)(1)(A). As a condition of Ross’ supervised release, a Washington federal court prohibited him from associating with known neo-Nazis, white supremacists and organizations advocating the overthrow of the government. Ross appealed, arguing the conditions violated his constitutional liberty interests and deviated from the sentencing guidelines in 18 U.S.C. 3553. Affirming, the 9th Circuit held that the conditions did not violate the federal statute or Ross’ liberty interests. Distinguishing Ross’ conditions from those involving the taking of anti-psychotic drugs, the court said, “[A]s the Supreme Court and we have recognized, freedom from unwanted drugs undoubtedly is a significant liberty interest. So, before imposing such a serious infringement of liberty, we held that a district judge should conduct a thorough consideration of the � 3553(a) factors and articulate a justification. Here, however, the infringement of liberty is far more modest. We have frequently permitted restrictions on supervised release that infringe on fundamental rights, including First Amendment rights.” Kansas consumer law applies to physicians UNDER THE KANSAS Consumer Protection Act (KCPA), a physician may be held liable for deceptive acts and practices in involved in providing treatment, the Kansas Supreme Court held on Feb. 9. Williamson v. Amrani, No. 95,154. In 1999, Dr. Jacob Amrani performed two back surgeries on Tracy Williamson for a disabling back injury that occurred 14 years earlier. After the first surgery failed to alleviate her lower back and leg pain, Amrani recommended and performed a second surgery. Williamson sued Amrani under the KCPA, alleging that he had recommended surgery that he knew had been unsuccessful in the majority of cases. The trial court denied Amrani’s motion for summary judgment on the ground that the KCPA does not apply to a physician’s professional conduct in providing care and treatment to patients. On reconsideration, the trial court granted summary judgment to Amrani. The Kansas Supreme Court reversed. The KCPA stipulates that one of its objectives is “to protect consumers from suppliers who commit deceptive and unconscionable practices” and covers consumer transactions that include “disposition[s] for value of property or services.” The high court said that the broad and unambiguous language in the statute encompasses the medical care or treatment that a physician provides. Under ADEA, retaliation can’t be cause of action THE FEDERAL AGE Discrimination in Employment Act (ADEA) does not provide a cause of action for retaliation by federal employers, the 1st U.S. Circuit Court of Appeals held on Feb. 9. G�mez-P�rez v. Potter, No. 06-1614. Myrna G�mez-P�rez filed an ADEA suit against the U.S. Postal Service and the postmaster general alleging that she was retaliated against after filing an age discrimination complaint against her supervisors at the postal service. A Puerto Rico federal court granted summary judgment to the defendants on the ADEA claim on the ground of sovereign immunity. The 1st Circuit affirmed, but on a different ground. The court said that although the postal service and the postmaster general enjoy immunity from suit, they can be sued if there is an “unequivocal” waiver of immunity, expressed in “specific” statutory language. The Postal Reorganization Act waives immunity for the postal service by giving it the power “to sue and be sued” in its official name. However, G�mez-P�rez’s suit fails because Congress did not intend for the ADEA’s prohibition on age discrimination to allow a plaintiff to bring a cause of action against the federal government for retaliation. Since Congress has clearly treated discrimination and retaliation differently, it declined to recognize a retaliation cause of action under ADEA. Tree removal law doesn’t apply to a developed lot A CITY ORDINANCE governing tree removal doesn’t apply to the owners of a developed lot, the Washington Supreme Court said on Feb. 8. Sleasman v. City of Lacey, No. 77590-7. Stephen and Barbara Sleasman own a single-family residence on a quarter-acre lot in Lacey, Wash. When they cut down 18 trees on their property without first getting a permit, the city of Lacey fined them $16,861 (the assessed value of the trees) for violating a municipal ordinance that regulates tree removal. A hearings examiner said the Sleasmans breached the ordinance, but reduced the fine. The trial court and an intermediate appellate court affirmed. The Washington Supreme Court reversed. The Lacey municipal code prohibits land clearing without a prior receipt of a permit, approval or exemption. The code defines land clearing as “direct and indirect removal of trees and/or ground cover from any undeveloped or partially developed lot.” The court determined that the Sleasmans’ property was a developed lot because, in accordance with the dictionary definition of the term, it is a lawful building site ready for sale or use. D.C. bar rules can’t block crime-fraud exception NEITHER THE ATTORNEY-client privilege nor local bar rules constitutes a sufficient basis for quashing a subpoena for information because of the crime-fraud exception to the attorney-client privilege, the U.S. Circuit Court of Appeals for the District of Columbia held on Feb. 9. In re Grand Jury, No. 05-3126. In a case in which names were changed due to an ongoing grand jury investigation, John Doe, an officer of a corporation, is alleged to have taken part in the corporation’s illegal campaign contributions. After an internal investigation, the corporation referred the matter to the U.S. Department of Justice (DOJ). Doe retained a personal attorney, and Doe and the corporation entered into a joint defense agreement. When questions arose about the authenticity of documentation Doe provided, DOJ began an obstruction of justice investigation and subpoeanaed information from Doe, his attorney and the corporation. The corporation’s counsel filed a motion to quash the subpoena, and Doe and his personal attorney intervened in support of the motion, claiming attorney-client privilege. A The District of Columbia federal court denied the motion, holding that the information was subject to the crime-fraud exception to the privilege. Doe and the personal attorney appealed, arguing that the crime-fraud exception did not apply and that the district Rules of Professional Conduct prohibited disclosure. Affirming, the D.C. Circuit held that the crime-fraud exception applied and that the district’s bar rules couldn’t prevent disclosure. The court said, “Even assuming appellants are correct in arguing that the D.C. Rules cover this evidence, appellants have offered no authority for the proposition that an exclusionary remedy would apply. We doubt that one would. Given that the crime-fraud exception would expose the controverted evidence even in light of the common law attorney-client privilege, it would be odd beyond contemplation that a D.C. local bar rule could thwart the grand jury’s access to the same evidence.” Social host to be liable for underage drinking AN ADULT SOCIAL host who knowingly and intentionally serves alcohol to a person he has reason to know is between 18 and 20 years of age owes a duty to that person and others hurt in a subsequent alcohol-related incident, the South Carolina Supreme Court ruled on Feb. 5. Marcum v. Bowden, No. 26259. In one of two separate cases, 19-year-old Justin Michael Parks drank alcohol at Donald and Gloria Bowden’s afternoon cookout. He left the party, went to a friend’s house to “sober up,” then drove himself home. He was killed in a one-car accident. In another case, 19-year-old Orin Tilman Feagin drank alcohol at a company party. He joined a group that drove to other locations, and was killed in a two-car collision. The families of both men sued the party hosts. In the Parks case, the trial court ruled for the party host, and this ruling was affirmed on appeal. In the Feagin case, trial court ruled against the party hosts, a ruling that was also affirmed on appeal. The South Carolina Supreme Court affirmed the appellate court in the Parks case and reversed in the Feagin case. The court created a new common law tort that places liability on social hosts who serve alcohol to people they know to be underage, though not minors, but said that the ruling will affect future causes of action only. The court said, “Although we find no duty in the statutes, we do find in them support for our decision to extend the common law and impose liability on adult social hosts who knowingly and intentionally serve underage guests. In determining whether to adhere to our current common law rule that a social host owes no duty, we look to the numerous statutes prohibiting the furnishing of alcohol to persons under 21, and to other legislation governing driving under the influence.” Defendant can’t choose to say petition is deficient A DEFENDANT IN a medical malpractice case is required to answer an otherwise timely petition, notwithstanding any deficiencies in the supporting affidavit of merit, the Michigan Supreme Court ruled on Feb. 6 in a matter of first impression. Saffian v. Simmons, No. 129263. Kim Saffian sued Dr. Robert Simmons alleging that he had performed root canal negligently. When Simmons did not answer the complaint before the deadline, Saffian successfully had Simmons defaulted. Simmons had the default set aside, then filed an answer asking for summary judgment based in part on the argument that Saffian’s affidavit was deficient because it included a statement from an expert in endodontics, not general dentistry. The trial court decided that its order setting aside the default was an error and reinstated the default. An intermediate appellate court affirmed. The Michigan Supreme Court affirmed. Nothing in the med-mal statutes that require the filing of an affidavit of merit allows a defendant “to determine unilaterally” whether a plaintiff’s affidavit is legally sufficient. The petition is presumed valid until it is rebutted in subsequent judicial proceedings.

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