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ATTORNEY FEES Share of future royalties agreement with firm OK An attorneys fee agreement, under which an attorney receives a percentage of the funds his client periodically receives, is generally permissible, the West Virginia Supreme Court of Appeals ruled on April 5. Schrader Byrd & Companion v. Marks, No. 33184. The law firm Schrader, Byrd & Companion of Wheeling, W.Va., represented two sisters, Josephine Luther and Mary Catherine Marks, who challenged the validity of a coal mining lease. The litigation concluded in 1998 with a $3.5 million lump-sum payout to the sisters, plus the execution of a new lease. Under the new lease, the sisters’ guaranteed minimum royalty rose from $6,000 per year to $30,000 per year, and the production royalty rose from a flat 12.5 cents per ton to a minimum of $1.50 per ton, or a percentage of the gross sale price, whichever is higher. As a fee for its work, the law firm received one-third of the $3.5 million lump sum, plus 30% of the increase in future coal royalties. From 1998 to 2004, the sisters paid the 30% as agreed. In 2004, the sisters questioned the propriety of the agreement. The law firm filed a declaratory judgment action in a state trial court. The court upheld the agreement. The West Virginia Supreme Court of Appeals affirmed. The fee agreement, the court said, does not inherently create an impermissible relationship or entanglement between the attorney and the client. Factors to consider in determining propriety are the actual terms of the agreement and whether, in the context of the entire legal relationship, the fees are fair and reasonable. The original retainer agreement said that the fee would be “30% of the amount collected” as a result of a settlement. The agreement did not say “collected and paid at the time of settlement.” Thus, the retainer agreement did not preclude an arrangement whereby a portion of the fee would be paid from money resulting from the settlement, but collected at a future time. Full text of the decision Bankruptcy Third parties colluding with debtor can be liable A bankruptcy trustee has standing to sue third parties who colluded with the debtor’s agents to injure the debtor, the 8th U.S. Circuit Court of Appeals held on April 2. In re Senior Cottages LLC, No. 05-3867. In 1998, Senior Cottages of America LLC, a business that developed, built and managed senior citizen housing projects, became insolvent. Murray Klane, governor, manager and majority owner of Senior Cottages, formed Millennium Properties LLC, transferring to it most of the assets of Senior Cottages. Millennium did not pay anything in return, merely assuming the debt on the properties. The trustee for the bankruptcy estate of Senior Cottages sued the attorneys for Senior Cottages and Klane for malpractice and the aiding and abetting of Klane’s breach of fiduciary duty. The bankruptcy court dismissed the suit because the alleged injuries were sustained by the creditors, not Senior Cottages. A Minnesota federal court affirmed based on the trustee’s lack of standing. The 8th Circuit reversed and remanded. Under 11 U.S.C. 704(1) and 11 U.S.C. 541(a)(1), a bankruptcy trustee is allowed to assert causes of action belonging to the debtor. In a 1999 case, the 8th Circuit had found that “To have standing, a plaintiff must allege an injury that is fairly traceable to the defendant’s conduct, and the requested relief must be likely to redress the alleged injury.” In the present case, the circuit court said that the trustee had standing because of Senior Cottages’ allegation that its lawyers had assisted Klane in arranging the transaction between Senior Cottages and Millennium that harmed Senior Cottages. Business law Influence not actionable in nontransfer of stock The allegation that someone unduly influenced another not to transfer stocks he would otherwise have transferred isn’t actionable in law or equity, the Rhode Island Supreme Court held on April 3. Lavoie v. North East Knitting Inc., No. 2006-51-Appeal. Louis Lavoie and Rosalie DaRosa formed North East Knitting Inc., with Lavoie as majority shareholder and DaRosa as one of the shareholders. A shareholders’ agreement provided that, upon a shareholder’s death, his or her stock would be sold back to the company, but Lavoie had the exclusive right to transfer his stock to his sons. Lavoie told his son Scott that he would eventually transfer his shares to him. He never did so. When Lavoie died, his shares were sold back to North East. His sons sued, alleging, among other things, that DaRosa, who was Lavoie’s girlfriend, unduly influenced him not to transfer his stock to his sons. A Rhode Island trial court granted summary judgment to the defendants. The Rhode Island Supreme Court affirmed, holding that undue influence is not a cause of action law entitling Scott Lavoie to a damages award. Undue influence has long been recognized in equity as a means of challenging the validity of a will, deed or contract. But there is no undue influence in “tort,” and there is no right to damages, as distinct from restitution, because of such influence. Further, an action in equity in this case would be unavailing because there is no operative transaction for equity to set aside; rather, there is the allegation that DaRosa unduly influenced Lavoie not to do what he otherwise intended to do. Concern for juror safety trumps First Amendment A newspaper does not have a First Amendment right to the names and addresses of jurors in a murder trial, the Massachusetts Supreme Judicial Court held on April 5. Commonwealth v. Silva, No. SJC-09750. Manuel Silva, an alleged street gang member, was charged with first degree murder and conspiracy. At trial, one of the principal witnesses against him was his girlfriend. Prior to her testimony, she was attacked by an unknown individual who fired shots at her that, however, left her unharmed. The trial judge discharged one of the empaneled jurors because she “had become so fearful of the circumstances surrounding the case that she could not fairly continue.” The jury ultimately acquitted Silva. Almost immediately, an unknown assailant sprayed Silva’s mother’s house with bullets. Standard-Times Publishing Co., publisher of the New Bedford Standard-Times, filed a motion to obtain the names and addresses of the jurors. The trial court denied the motion, citing juror safety. Affirming, the Massachusetts Supreme Judicial Court, the state’s highest court, held that concern for juror safety outweighs the First Amendment right to information. The court said, “We recognize the cases cited by the Standard-Times . . . have been protective of the public’s right to access juror information. We find significant . . . the acknowledgment in several of these cases that ‘First Amendment rights may have to bow to a court’s needs to protect its essential processes, including the jury system, from violence, fraud and other influences that threaten the objectivity and independence of jurors.’ It goes without saying that no case has been called to our attention in which a public right to juror information was held to override a legitimate concern for juror safety.” Fifth Amendment shields defendant’s gun handover The surrender of an unlicensed gun is privileged if the process of surrender reveals a defendant’s subjective thoughts about his knowing possession of the weapon, the New York Court of Appeals ruled on April 3. People v. Havrish, No. 31. In connection with assault, burglary and kidnapping charges pending against him, William Havrish was ordered to “surrender any and all firearms [he] owned or possessed.” Havrish turned over his “long guns,” and told police he also had a handgun he could not locate. Eventually, he found and turned over the handgun, for which he did not have a license. The police charged Havrish with fourth-degree criminal possession of a weapon. Havrish moved to suppress the gun, saying that, because he was compelled to hand over the gun, his Fifth Amendment right against self-incrimination protected him from criminal charges. A state trial court refused to suppress, holding that the Fifth Amendment doesn’t apply because the gun is physical evidence and not communicative or testimonial in nature. The New York Court of Appeals, the state’s highest court, reversed. Havrish was ordered to surrender his weapons; failure to do so would have placed him in criminal contempt. Under the Fifth Amendment, evidence is deemed testimonial if it reveals a defendant’s subjective knowledge or thought processes. The surrender of evidence is testimonial if it results in a defendant’s tacitly conceding that the item demanded is in his possession when the authorities have no independent means of discovering this. In this case, the handover of the gun was testimonial because it revealed the defendant’s subjective thought processes, namely his knowing possession of the weapon. His statements about the gun was the only source of evidence on which the weapon-possession prosecution was based. Increasing of withholding from prisoner’s pay is OK Increasing the percentage of a prisoner’s pay that is withheld for purposes of restitution payment doesn’t violate the ex post facto clause of the U.S. Constitution, the 9th U.S. Circuit Court of Appeals held on April 6. Quarles v. Kane, No. 06-16308. As part of Alvin Quarles’ 1989 plea agreement, he agreed to a restitution payment of $10,000, to be paid pursuant to Calif. Penal Code � 2085.5, which, at the time of Quarles’ plea, provided for a maximum withholding of 20% from a prisoner’s pay. Section 2085.5 was later amended to allow the withholding of up to 50%. When the authorities began withholding a larger amount, Quarles sued, arguing that the increased percentage violated the ex post facto clause of the U.S. Constitution. A California federal court dismissed Quarles’ suit. Affirming, the 9th Circuit held that there was no constitutional violation because the amount of Quarles’ payment did not increase. “The amendment to section 2085.5 . . . increased the permissible rate at which restitution payments may be collected. This amendment did not violate the Ex Post Facto Clause because it did not impose additional punishment on Quarles,” the court said. The plea agreement didn’t specify an exact percentage to be deducted from Quarles’ wages. “Having agreed to have the restitution payments governed by statute, he assumed the risk that the statute might be amended.” CRIMINAL PRACTICE Attorney’s deceit tolls habeas limitations period Egregious attorney misconduct justifies equitable tolling of the Antiterrorism and Effective Death Penalty Act’s one-year limitations period for filing a habeas corpus petition, the 10th U.S. Circuit Court of Appeals held on April 3. Fleming v. Evans, No. 06-6110. Kipton Fleming was convicted of assault and battery with a dangerous weapon, and sentenced to 30 years in an Oklahoma state prison. His attorney agreed to petition for a writ of habeas corpus. Fleming inquired several times about the status of his petition and was assured that it was being prepared. Aware that the one-year limitations period was fast approaching, Fleming drafted his own petition. He submitted the draft to his counsel for review and filing, but his counsel failed to file it until after the Antiterrorism and Effective Death Penalty Act (AEDPA) limitations period had expired. An Oklahoma federal court denied the petition as untimely. Fleming sought a certificate of appealability (COA) to appeal the denial of his habeas petition. The 10th Circuit vacated and granted Fleming’s application for a COA. The court said it agrees with those circuits that hold that sufficiently egregious misconduct on the part of a habeas petitioner’s counsel may justify equitable tolling of the AEDPA limitations period. Here, the misconduct alleged transcends negligence, because the attorney is alleged to have deceived Fleming into believing that he was actively pursuing legal remedies when in fact he was not. EVIDENCE Confession is admissible even if tape is missing The interrogation of a criminal suspect doesn’t have to be taped to be admissible as evidence, the Idaho Supreme Court held on March 29. State v. Lewis, No. 33069. After being arrested on an outstanding warrant following a routine traffic stop, Jon Lewis admitted to police that the methamphetamine found in the car belonged to him. Police recorded the interrogation, but were unable to produce the recording at trial. Lewis moved to exclude his confession. The trial court granted the motion, holding that the loss of the recording violated Lewis’ right to due process. An intermediate appellate court reversed. Affirming, the Idaho Supreme Court held that the confession was admissible despite the missing recording. Declining to follow Alaska law requiring confessions to be taped to be admissible, the court said, “An inadvertent departure from normal practice . . . does not rise to the level of bad faith. The district court’s statement that the loss of the recording ‘although in good faith’ was not ‘in accord with the normal practice of the police department’ and therefore ‘cuts against’ due process does not constitute the finding of bad faith required to substantiate a due process violation.” INSURANCE LAW SLUSA doesn’t pre-empt children’s term rider A ‘children’s term rider’ is not a “covered security” pre-empted by the Securities Litigation Uniform Standards Act from attack in a class action, the 2d U.S. Circuit Court of Appeals ruled on April 6. Ring v. AXA Financial Inc., No. 05-0616. Shirley Ring bought an adjustable whole life insurance policy, which included a “children’s term rider” for her 12-year-old daughter. The rider promised benefits if the child died before she turned 25 or before the rider expired. Though the daughter turned 25 in 1994 and was no longer covered by the rider, the policy issuer, Equitable Life Assurance Society of the United States, continued to bill Ring for the nonexistent benefit. Ring brought a class action against Equitable, challenging the practice in a New York state court. Equitable removed the case to a New York federal district court, and Ring moved to remand the case back to state court. The district court denied the motion and granted the issuer’s motion to dismiss on the ground that Securities Litigation Uniform Standards Act (SLUSA) pre-empted the case, as it does all state and federal cases alleging state-law violations premised on deception “in connection with the purchase or sale of a covered security.” In doing so, the district court ruled that since the rider was attached to, and part of, the underlying insurance policy, which is a covered security, it too was a covered security. The 2d Circuit reversed, remanding the matter back to state court. The court ruled that the rider and the underlying policy must be reviewed separately to determine if either is a covered security. Calling the rider a “classic insurance product” with the underwriting risks borne by the insurer, the court said that the rider does not take on the qualities of the insurance or annuity with which it must be purchased simply because the rider cannot be sold alone.

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