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ADR Arbitration panel should have arbitral immunity Arbitral immunity applies to an arbitral panel accused of misconduct in handling evidence in an arbitration, the 10th U.S. Circuit Court of Appeals held on Feb. 20 in an issue of first impression. Pfannenstiel v. Merrill Lynch, No. 04-1274. Robert Pfannenstiel accused Merrill Lynch & Co. Inc. of inaccuracies relating to his account with them. He submitted this claim to a three-member panel of National Association of Securities Dealers (NASD) arbitrators, seeking damages. The panel denied his claim. Two months later, Pfannenstiel discovered that boxes of evidence and hearing tapes were missing. Pfannenstiel then filed a “complaint and request for federal intervention” against Merrill Lynch and the NASD, requesting vacation of the arbitrators’ ruling and damages due the loss of evidence, alleged failure to manage his case properly and breach of arbitration contract. A Colorado federal court upheld a magistrate judge’s recommendation that the doctrine of arbitral immunity bars an action against NASD for damages. The 10th Circuit affirmed. The doctrine of arbitral immunity is grounded in the notion that arbitrators are the functional equivalent of judges and entitled to similar protection. The doctrine of arbitral immunity does not necessarily protect arbitrators from all claims asserted against them. The key question is: Does the claim effectively seek to challenge the decision of an arbitrator? If so, then the doctrine of arbitral immunity should apply. If not, the doctrine would not apply. The court said, “Ultimately, the complaint sought damages against the NASD in the amount of $217,785, the identical amount Pfannenstiel sought from Merrill Lynch in the underlying arbitration proceeding . . . .[W]e conclude that Pfannenstiel’s claim is little more than a veiled attack on the decision rendered against him by the arbitration panel, and that, accordingly, the NASD is entitled to arbitral immunity from that claim.”   Full text of the decision Trustee can’t make claim against debtor’s attorney A bankruptcy trustee does not have standing to pursue a claim against a debtor corporation’s attorneys for aiding and abetting a breach of fiduciary duty, the Colorado Supreme Court held on Feb. 20. Alexander v. Anstine, No. 05SC367. Builder’s Home Warranty, a corporation that sold warranties for newly constructed homes, discovered that it had bought fraudulent insurance policies on warranties issued to its customers. Builder’s Home hired attorneys Hugh Alexander, Kevin M. Kuznicki and the Alexander Law Firm, who helped the president of Builder’s Home place the premiums in an escrow account while searching for replacement coverage. After a competitor sought an injunction against Builder’s Home, the company, with the help of the attorneys, transferred the escrow funds to an offshore trust account. A Colorado federal court enjoined Builder’s Home from selling warranties, and the company filed for bankruptcy. Glen Anstine, the bankruptcy trustee, sued the attorneys for aiding and abetting the president’s breach of fiduciary duties to the company’s creditors. A Colorado trial court found the attorneys liable. An intermediate appellate court affirmed, holding that (1) a bankruptcy trustee has standing under Section 544(a) of the Bankruptcy Code to pursue a claim against a debtor corporation’s attorneys for aiding and abetting a breach of fiduciary duty, and (2) a corporation’s attorneys owe a duty to the corporation’s creditors to refrain from aiding and abetting a corporate officer in breaching his fiduciary duty. The Colorado Supreme Court reversed and remanded. Section 544(a) gives a trustee the power to step into the shoes of a hypothetical creditor with a judgment lien against the debtor. A trustee’s standing under Section 544(a) is determined by the rights of a judgment lien creditor under state law. A hypothetical judgment lien creditor may only bring claims in the name of the corporation in limited circumstances. Under Colorado law, the creditors of an insolvent corporation are not owed fiduciary duties by the corporation’s officers and directors. Officers and directors of an insolvent corporation owe creditors a duty to avoid favoring their own interests over creditors’ claims. Since this wasn’t the violation alleged in this case, Anstine lacked standing to sue the attorneys. Harassment suit against N.J. school district is OK Under the New Jersey Law Against Discrimination, the parents of a child harassed by other students because of his perceived sexual orientation have a cause of action against the school district, the New Jersey Supreme Court ruled on Feb. 21. L.W. v. Toms River Regional Schools Board of Education, No. A-111-05. Starting in the fourth grade, students at South Toms River Elementary School taunted a fellow student, L.W., with homosexual epithets. School officials occasionally talked to specific students about their inappropriate behavior, and the Toms River regional school district used a progressive discipline system for all peer discrimination and harassment cases. When L.W. was physically assaulted in high school, he withdrew from school. L.W.’s mother filed a complaint against the district with the state Division of Civil Rights, claiming that the district’s failure to take corrective action violated the New Jersey Law Against Discrimination. The matter was referred to the Office of Administrative Law. An administrative law judge (ALJ) dismissed the case, saying that, under the statute, there was no cognizable cause of action against a school district for student-on-student sexual harassment. The division’s director reversed. An intermediate appellate court affirmed in part, finding that the claim could be brought under the New Jersey anti-discrimination law, but reversed the award of cash to the mother because she was not an “aggrieved person” under the statute. The New Jersey Supreme Court affirmed and remanded to the ALJ. The statute recognizes a cause of action against a school district over allegations of student-on-student affectional or sexual orientation harassment that is not being reasonably addressed by the school district. “When a student is subjected to severe or pervasive bullying on the school bus, in the classroom, or at the playground, and a school district fails to adequately respond to that misconduct, that student has a right to redress. However, school districts will be shielded from liability, when their preventive and remedial actions are reasonable in light of the totality of the circumstances.” The court remanded so that parties could submit evidence on the reasonableness of the school district’s response to the student’s harassment. Connection to defendant nullified judge’s warrant A trial court erred in refusing to suppress evidence seized pursuant to a search warrant issued by a magistrate judge who had a personal relationship with the owner of the property being searched, the Connecticut Supreme Court held on Feb. 27. State v. Edman, No. SC17516. Eric Edman was a chief judicial marshal at the courthouse where William Wollenberg was a magistrate judge. Edman and Wollenberg had a friendly relationship, but, after Edman was forced to resign, he told Wollenberg that he was considering suing everyone involved in his forced resignation, including Wollenberg. After this incident, Wollenberg approved a search warrant for Edman’s home, where police discovered narcotics. Charged with possession, Edman moved to suppress the evidence, arguing that due to his personal relationship with Wollenberg, the issuance of the search warrant deprived him of his Fourth Amendment right to a neutral and detached magistrate. A trial court denied Edman’s motion, holding that neither a social relationship with Edman nor the circumstance of his job loss indicated a lack of neutrality. An intermediate appellate court reversed. The Connecticut Supreme Court affirmed, holding that the trial court erred in failing to suppress the evidence. The court said, “[W]e reject the state’s contention that, because Judge Wollenberg was independent of law enforcement, and because he did not participate in the criminal investigation or execution of the warrant, we must conclude that he was a neutral and detached magistrate in satisfaction of the fourth amendment when he signed the search warrant in this case. The cases do not dictate such a myopic approach to this question, and, indeed, they confirm otherwise.” Internal police inquiry record not for grand jury A federal district court committed no error in holding that a federal grand jury was not entitled to review the records of an internal police investigation of an excessive force claim, the 4th U.S. Circuit Court of Appeals held on Feb. 22. In re Grand Jury Subpoena, No. 06-4612. At the behest of federal prosecutors, a grand jury sought the records of a city police department’s internal investigation of an excessive force claim. The city moved to quash the subpoena, arguing that production of the records was unreasonable under the Federal Rules of Criminal Procedure because it would threaten the confidentiality of the internal investigation and would violate the questioned officers’ Fifth Amendment rights against self-incrimination. A Virginia federal court quashed the subpoena. Affirming, the 4th Circuit held that the district court did not abuse its discretion in quashing the subpoena. The court said, “[T]he district court took the City’s two interests-in preserving confidentiality and forestalling possible self-incrimination problems-together, and weighed those interests as a whole against those of the United States. This circumstance distinguishes this case from the Ninth and Tenth Circuit cases relied upon by the United States, which involved assertions of officers’ Fifth Amendment rights but not the confidentiality interests of their departments.” FISA-allowed intercepts usable in domestic cases Conversations intercepted by wiretap can be admitted to support conviction for a domestic crime if affidavits supporting the intercept order indicate a substantial international objective at the time of inception, the 7th U.S. Circuit Court of Appeals held in an opinion that was amended on Feb. 21. USA v. Wen, No. 06-1385. Ning Wen was convicted in a Wisconsin federal court of violating export control laws by providing militarily useful technology to China without the required license. He was sentenced to 60 months in prison. His conviction was supported in part by information the government obtained from wiretaps approved under the Foreign Intelligence Surveillance Act (FISA). Wen argued that evidence gathered under FISA can’t be used in domestic criminal prosecutions, once that international investigation has “fizzled out.” The 7th Circuit affirmed. FISA applies to interceptions for which the “primary purpose” is foreign intelligence. As amended in 2001 by the USA Patriot Act, the statute applies to interceptions that have international intelligence as a “significant purpose.” The Foreign Intelligence Surveillance Court of Review has said that the amended statute allows domestic use of intercepted evidence as long as a “significant” international objective is in view at the intercept’s inception. The 7th Circuit said that probable cause to believe that a foreign agent is communicating with his foreign controllers makes an interception reasonable. If, while conducting this surveillance, agents discover evidence of a domestic crime, they may use it to prosecute for that offense. It is enough that the intercept is adequately justified without regard to the possibility that evidence of domestic offenses will turn up. Interception of Wen’s conversations was adequately justified under FISA. County deed registers can be sued over records County deed registers in Michigan are not immune from suit regarding limits on the sale and distribution of their deed records, the 6th U.S. Circuit Court of Appeals ruled on Feb. 22. First American Title Co. v. DeVaugh, No. 06-1171. Four title companies doing business in Michigan sued five county registers of deeds over their records-distribution policies. The registers refused to provide duplicate deed records in nonpaper format, or paper records at a bulk discount, unless the title companies agreed not to sell or give duplicate records, unofficial copies of the copies or the information in the records, to anyone else. The companies argued the practice was anti-competitive and violated the Sherman Antitrust Act. A Michigan federal court granted the registers’ motion to dismiss on the ground of state-action immunity. The 6th Circuit reversed. The court said, “The registers’ practice of conditioning bulk discounts, non-paper reproduction, or reproduction of records generally, on the purchaser’s agreement not to sell the official certified copies . . . to third parties does not qualify for state-action immunity.” It was not foreseeable that the powers expressly granted to registers would result in their adopting policies limiting the distribution of their records. Lycos immune from suit over its message board Under federal law, Lycos Inc., which operates a network of Web sites, is immune from a defamation suit arising from postings by users of one of its Internet message boards, the 1st U.S. Circuit Court of Appeals held on Feb. 23. Universal Communication Systems Inc. v. Lycos Inc., No. 06-1826. Universal Communication Systems Inc. sued Lycos Inc. over allegedly false and defamatory postings made on one of the Web sites Lycos operates, www.RaginBull.com, which hosts financially oriented message boards, including ones designed to allow users to post comments about publicly traded companies. The postings disparaged the financial condition, business prospects and management integrity of Universal. The company sued Lycos and its corporate parent, Terra Networks Group, as well as some alleged authors of the material. A Massachusetts federal district court dismissed the claims against Lycos and Terra citing the immunity provision of the Communications Decency Act, 42 U.S.C. 230. The 1st Circuit affirmed. Section 230 provides that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Thus, the 7th Circuit explained, Lycos is immune from a state law claim if: (1) Lycos is a “provider or user of an interactive computer service”; (2) the claim is based on “information provided by another information content provider”; and (3) the claim would treat Lycos “as the publisher or speaker” of that information. Lycos’ operation of the Raging Bull Web site “fits comfortably within the immunity intended by Congress.” Lycos is a provider “of an interactive computer service”; message board postings constitute “information provided by another information content provider”; and immunity extends beyond publisher liability in defamation law to cover any claim that would treat Lycos “as the publisher.” D.C. Bar’s rejection of attorney well-grounded The district of Columbia Bar’s Committee on Admissions properly applied the burden of proof in concluding that a bar applicant accused of cheating on the bar exam had failed to meet his burden of demonstrating by clear and convincing evidence that he possessed the moral character and fitness to practice law, the District of Columbia Court of Appeals held on Feb. 22. In re Bedi, No. 02-BG-977. Sukhbir Bedi failed the D.C. bar examination a number of times, but eventually passed the test. However, he was accused of cheating on one of his unsuccessful attempts and accused also of falsely claiming that he had dyslexia in order to gain special accommodations for the bar exam. Despite passing the exam, the District of Columbia Bar Committee on Admissions recommended to the district high court, the Court of Appeals, that it deny Bedi admission to the bar because he had failed to meet his burden of demonstrating by clear and convincing evidence that he possessed the moral character and fitness to practice law. Bedi appealed, arguing that the committee had unfairly shifted the burden of proof onto him to prove that he did not commit the alleged wrongful acts. The Court of Appeals rejected Bedi’s argument about the burden of proof and denied him admission to the bar. The court cited Rule 46(e) of the Rules of the District of Columbia Court of Appeals, which states, “The applicant shall have the burden of demonstrating, by clear and convincing evidence, that the applicant possessed good moral character and general fitness to practice law” in the district. The court said, “Contrary to Bedi’s argument, the Committee’s Report shows that it did not require him to prove by clear and convincing evidence that he did not engage in misconduct, but rather held him to that standard on the ultimate burden of proof of good moral character and fitness as required by Rule 46(e).”

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