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BANKING Court can hear petition to compel arbitration A GEORGIA FEDERAL trial judge erred in dismissing the petition of a bank and its affiliates seeking to compel arbitration with a borrower of a high-interest “payday” loan, the 11th U.S. Circuit Court of Appeals held on April 27. Community State Bank v. Strong, No. 06-11582. In 2004, James E. Strong borrowed $200 from Georgia Cash America Inc., which services payday loans on behalf of Community State Bank of South Dakota. Strong’s loan agreement, which had an arbitration provision, included a $36 finance charge, equivalent to an annual interest rate of more than 250%. Georgia law prohibits such high-interest loans, but the federal Depository Institutions Deregulation and Monetary Control Act permits state-chartered, federally insured banks to export interest rates on out-of-state loans. Because South Dakota doesn’t limit the amount of interest banks can charge, its banks may charge unlimited interest rates in Georgia. Strong filed three suits in Georgia state court against the payday business and its affiliates, alleging violations of usury and racketeering laws. The payday companies removed the suits to a Georgia federal court, where they were consolidated. Separately, the payday companies, together with the bank, filed a federal court petition seeking to compel arbitration under the Federal Arbitration Act (FAA), 9 U.S.C. 4. A federal judge ruled for Strong, granting the motion to return the cases to state court and dismissing the arbitration petitions, finding no subject-matter jurisdiction. The 11th Circuit reversed and remanded, holding that a district court has federal-question jurisdiction over a Section 4 petition to compel arbitration if the dispute to be arbitrated states a federal question. The court said, “Because petitioners’ � 4 FAA arbitration petition alleges facts which demonstrate that Strong could file a federal RICO claim against them . . . the district court would have federal question jurisdiction over a declaratory judgment action by petitioners that the loan is lawful . . . .And because one of the underlying disputes to be arbitrated plainly includes this declaratory judgment action . . . the district court had federal question jurisdiction over petitioners’ action to compel arbitration.”   Full text of the decision CIVIL PRACTICE Judicial intervention in affairs of association OK Judicial intervention is appropriate if a private, voluntary, unincorporated organization suspends one of its members and the organization has rules, the Rhode Island Supreme Court held on April 25. King v. Grand Chapter of Rhode Island Eastern Star, No. 2006-133. The Order of the Eastern Star suspended Carolyn King indefinitely. King filed suit, seeking damages for slander and injunctive relief. King also sought a preliminary injunction that would require the order to reinstate her while the litigation was pending. In a hearing before a Rhode Island trial court judge, King claimed that the organization had denied her the procedural safeguards guaranteed in the order’s constitution and bylaws. The order said the suspension was an internal affair of a private, voluntary, unincorporated association. Also, King hadn’t shown the irreparable harm, clear right and great urgency to warrant a mandatory preliminary injunction. The judge granted the injunction. The Rhode Island Supreme Court vacated and remanded. The court said that when a private unincorporated organization makes rules, it creates mutually enforceable obligations on the organization and its members that sometimes call for judicial remedy. However, a stricter rule applies to preliminary injunctions: They can only be issued upon a showing of “very clear” right and “great urgency.” Because the trial judge didn’t make a finding of “great urgency,” the preliminary injunction must be vacated Medical data alone don’t allow state court remand A federal trial judge erred in remanding to state court a class action because there was insufficient evidence to establish that two-thirds of the plaintiff class were citizens of the state on the day the suit was filed, the 5th U.S. Circuit Court of Appeals held on April 25. Weems v. Touro Infirmary, No. 07-30160, and Preston v. Tenet Healthsystem, No. 07-30132. About one year after Hurricane Katrina, Cheryl Weems, individually and on behalf of her deceased mother and others similarly situated, filed a class action in Louisiana state court against Touro Infirmary and Specialty Hospital of New Orleans. Weems alleged injuries and/or deaths caused by conditions at the medical facilities. Touro removed the case to a Louisiana federal court under the Class Action Fairness Act (CAFA). Then, Weems and Touro sought to remand back to state court under CAFA’s “local controversy” exception, according to which federal courts can decline jurisdiction in class actions if two-thirds of the members of the putative class are local citizens on the date the suit is filed. The judge granted the remand, finding sufficient evidence that more than two-thirds of the proposed plaintiff class were Louisiana citizens. The suit was consolidated with another suit that asked the same first-impression question: Is there sufficient evidence to satisfy the citizenship requirement under CAFA’s exceptions to federal jurisdiction? The 5th Circuit reversed the remand to state court, finding that the plaintiffs’ medical records were insufficient to establish citizenship of the putative class. Noting that the storm caused evacuations and relocations, the court said, “We acknowledge that marshaling evidence of citizenship for the unnamed class members may be a formidable task.” However, “[M]edical records alone cannot form an adequate basis for the district court to make a credible estimate that two-thirds of the proposed class were citizens of Louisiana on August 4, 2006,” the filing date of the class action. CRIMINAL PRACTICE Father able to OK search of adult son’s computer A father had apparent authority to allow agents to search a computer owned by his adult son who lived in his home, the 10th U.S. Circuit Court of Appeals held on April 25. USA v. Andrus, No. 06-3094. Ray Andrus, 51, lived in the home of his father, Dr. Bailey Andrus. Federal agents visited Andrus’ home after linking it with a child pornography Web site. Bailey Andrus consented to a search of the home, including his son’s computer. The agents found images in the computer that were used to support a child pornography indictment of Ray Andrus. A Kansas federal court denied Andrus’ motion to suppress evidence found on his computer. The 10th Circuit affirmed, holding that Bailey Andrus had apparent authority to consent to a search of his son’s computer. The court applied a totality-of-the-circumstances inquiry into whether the facts available at the time of the search would lead a reasonable officer to believe that a third party has authority to consent to the search. The court said that the officers’ belief in Andrus’ authority was reasonable, despite the lack of any affirmative assertion by him that he used the computer and despite a user profile indicating Ray Andrus’ intent to exclude other household members from using the computer. INSURANCE LAW Package labeling isn’t advertising for insurance Shipping a product in a competitor’s container with one’s own name affixed to the outside of the package does not constitute an “advertisement” for insurance purposes, the Michigan Supreme Court ruled on April 25. Citizens Ins. Co. v. Pro-Seal Service Group Inc., No. 130099. Pro-Seal Service Group Inc., a Michigan seller of mechanical seals used in Alaskan oil production, repaired seals made by a New York competitor, Flowserve Corp., and sent them out to customers in Flowserve’s original container, but with the Pro-Seal name affixed to the shipping packaging. Flowserve sued in an Alaskan federal court, saying Pro-Seal’s actions would confuse consumers into thinking that the its seals were actually Flowserve seals. Pro-Seal asked its insurer to represent the company in the Alaska action. The insurer refused and sought a declaration backing its decision. A Michigan trial court granted summary judgment to the insurer, ruling that the insurance policy’s coverage for advertising injuries did not apply. An intermediate appellate court reversed, finding that trade dress and trademark infringement inherently involve advertising activity. The Michigan Supreme Court reversed. To constitute an advertisement under an insurance policy, a defendant must publicly disseminate information about its goods and services for the purpose of attracting patronage of potential customers. The purpose of the Pro-Seal packaging label was merely to alert a “specific customer” of the package’s source. LEGAL PROFESSION Nonselfish ethics breach merits only admonition An admonition rather than a public reprimand is appropriate discipline for an attorney who engages in a conflict of interest to the detriment of a former client, but who has no self-interest or selfish motive, the Massachusetts Supreme Judicial Court held on April 26. In re Disciple of an Attorney, No. SJC-09667. An attorney licensed in the commonwealth of Massachusetts represented a man in a dispute in which he was the mortgagee and his son the mortgagor. Sometime later, the attorney recorded a discharge of the mortgage at the son’s request without consulting his former client, the father. Massachusetts’ bar counsel filed a petition with the Board of Bar Overseers, alleging that the attorney had violated Massachusetts’ ethics rules by representing the son in the same matter that he had represented the father and that the son’s and the father’s interests were materially adverse. A hearing committee recommended a public reprimand, and both bar counsel and the attorney appealed. A justice of the Massachusetts Supreme Judicial Court, the state high court, held that admonition, rather than a public reprimand, was appropriate. Affirming, the Massachusetts Supreme Judicial Court held that, despite the harm to the father, admonition was appropriate because the attorney lacked self-interest or a selfish motive. TAXATION B&O tax may not be passed onto customers A used car dealer may not pass on a business and occupation tax to its customers, the Washington Supreme Court held on April 26. Nelson v. Appleway Chevrolet Inc., No. 77985-6. Herbert Nelson bought a used Volkswagen Cabriolet from Appleway Volkswagen for $16,822. In addition to the purchase price, Appleway charged Nelson a business and occupation (B&O) tax of $79.23, as well as sales tax on the B&O tax. Nelson filed a class action against Appleway seeking a declaratory judgment that the collection of the B&O tax was against Washington law. A trial court granted summary judgment to Nelson. An intermediate appellate court affirmed. The Washington Supreme Court affirmed. Wash. Rev. Code � 82.04.500 states that the B&O tax shall “be levied upon, and collectible from, the person engaging in the business activities herein designated and that such taxes shall constitute a part of the operating overhead of such persons.” The court said that the plain language of the statute makes clear that the B&O tax is not a tax on customers but simply the cost of doing business.

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