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CIVIL PRACTICE Unnamed class members may challenge settlement Unnamed class members have standing to object to a settlement and to appeal from the dismissal of the class action if the outcome goes against their interests, the Nevada Supreme Court ruled on Aug. 2 in a case of first impression. Marcuse v. Del Webb Communities Inc., No. 44508. Irwin and Edith Marcuse owned a house in a Las Vegas development. A group of their neighbors filed a class action against the developer, Del Webb Communities Inc., over defective plumbing. The Marcuses learned that their own plumbing was defective when it caused a flood; by that time, the deadline for them to opt out of the class action had passed. The developer fixed their pipes but not the flood damage. The class, meanwhile, agreed to restrict its claims to homeowners whose houses hadn’t been repaired yet, and the case settled. A trial judge rejected the Marcuses’ objections to the proposed class settlement, and later � at the developer’s urging � cited grounds of res judicata and collateral estoppel in refusing to let them pursue an independent claim. They filed an appeal. The Nevada Supreme Court reversed, saying that the Marcuses should have been allowed to object to a class settlement that went against their interests. The lower court didn’t abuse its discretion in refusing to let them do so because it relied on the developer’s argument that they could litigate outside the class action. Since the developer’s position “was designed to obtain an unfair advantage and did not represent a change in position,” the lower court should have invoked judicial estoppel and rejected its motion to dismiss the second case. Full text of the decision CIVIL RIGHTS Disclosure didn’t amount to a state-created danger A prison’s release of prison officers’ personal information � including Social Security numbers � to inmates did not amount to a state-created danger in violation of the officers’ civil rights, a divided 6th U.S. Circuit Court of Appeals ruled on Aug. 2. Barber v. Overton, No. 05-2014. Officials at the Ionia Maximum Security Correctional Facility in Michigan prepared a summary of an investigation into allegations that correctional officers had sexually assaulted two prisoners. The allegations were deemed baseless, but in subsequent disciplinary proceedings against the prisoners an official turned over a report that included the officers’ names, Social Security numbers and dates of birth. Prisoners, with the help of confederates outside, used the information to collect additional details and used the information to harass the officers and their family members, including their children. The officers sued the three prison officials involved for civil rights violations, but the federal district court dismissed all of the claims, finding that two of the officials were entitled to qualified immunity, and that the hearing officer in the prisoners’ disciplinary proceeding was entitled to absolute immunity. The 6th Circuit affirmed, distinguishing from its own 1998 precedent in Kallstrom v. City of Columbus, which recognized police officers’ liberty interest in the protection of “particularly sensitive” private information to people “particularly dangerous vis-a-vis” the officers. Information such as street addresses is public, the majority said, and “the release of the social security information was not sensitive enough nor the threat of retaliation apparent enough to warrant constitutional protection here.” A dissent noted that the prison was a “Super Max” facility holding hardened and dangerous inmates, and said that trial should proceed against the official who neglected to redact the personal information. CONSTITUTIONAL LAW Murder fantasy merited suspension for student In light of recent episodes of school violence, a Georgia school board did not violate the First Amendment rights of a high school student who was suspended for writing a first-person story about shooting a math teacher to death, the 11th U.S. Circuit Court of Appeals ruled on July 31. Boim v. Fulton County School Dist., nos. 06-14706, 06-14732. In October 2003, Rachel Boim gave one of her notebooks to a classmate during fifth-period art class. Her teacher noticed and demanded to see the notebook. Rachel resisted but eventually turned the book over. The teacher found a story that Rachel had written in the notebook entitled “Dream,” in which she describes coming to school with a gun and shooting a male, sixth-period math teacher who resembled Rachel’s own. School officials considered the story threatening; Rachel dismissed it as fiction. Disciplinary proceedings ended with her suspension, but the school board voted not to expel her. Two years later, Rachel’s parents and a family representative filed two suits alleging that the school board violated Rachel’s First Amendment rights. A federal district judge granted the school board’s motion for summary judgment. The 11th Circuit affirmed unanimously. The court noted that schools may curtail student speech likely to cause a material and substantial disruption, and said that Rachel’s writing clearly met that standard. Because of recent school shootings, the writing “could reasonably be construed as a threat of physical violence” against the math teacher, the court said. “That Rachel does not appear to have purposefully disseminated the narrative is immaterial in this context,” the court said. “By taking the narrative to school and failing to exercise strict control over the notebook in which it was written, Rachel increased the likelihood to the point of certainty that the narrative would be seen by others . . . .Consequently, Rachel created an appreciable risk of disrupting [the school] in a way that, regrettably, is not a matter of mere speculation or paranoia.” States must recognizes same-sex adoptions Oklahoma cannot refuse to recognize out-of-state adoptions by same-sex couples, the 10th Circuit U.S. Court of Appeals held on Aug. 3. Finstuen v. Crutcher, nos. 06-6213 and 06-6216. Oklahoma law generally recognizes parent-child relationships that are created by out-of-state adoptions, but an amendment to its statute on that subject declared that Oklahoma “shall not recognize an adoption by more than one individual of the same sex from any other state or foreign jurisdiction.” Three same-sex couples and their adopted children sued Dr. Mike Crutcher in his official capacity as Oklahoma’s commissioner of health and challenged the amendment. An Oklahoma federal district court held that is was unconstitutional. Affirming, the 10th Circuit held that “final adoption orders by a state court of competent jurisdiction are judgments that must be given full faith and credit under the Constitution by every other state in the nation.” Since the challenged statute categorically rejects a class of out-of-state adoption decrees, it violates the full faith and credit clause and is thus unconstitutional. The Oklahoma State Department of Health argued that requiring recognition of the adoptions is tantamount to giving the sister state control over the effect of its judgment in Oklahoma, and would extend the gamut of rights and responsibilities to the parents and child, including the right of a child to inherit from his parents, and thus would constitute an impermissible, extraterritorial application of out-of state law in Oklahoma. The 10th Circuit rejected these arguments and said that Oklahoma continues to exercise authority over the manner in which adoptive relationships should be enforced in the state as well as the rights and obligations flowing from an adoptive relationship. CONTRACTS Contract was voluntary, and therefore legal A health club contract that allows 36-month financing of what would otherwise be a one-time membership fee, in addition to monthly dues, does not violate Massachusetts law, the 1st Circuit U.S. Court of Appeals held on July 30. Ruiz v. Bally Total Fitness Holding Corp., No. 06-2254. Gisselle Ruiz signed a contract for health club services with a Bally’s subsidiary. It allowed her access to a Bally’s facility for 36 months in exchange for payment of a one-time membership fee of $1,565, followed by monthly dues of $8. Rather than pay the membership fee up front, Ruiz opted to finance it over 36 months. Ruiz was free to quit and stop paying her monthly dues at any time upon written notice. Eventually, Ruiz purported to cancel the contract and requested that Bally refund the balance of her membership fee. Bally’s refused. Ruiz filed a putative class action alleging that the contract violated a provision of the Massachusetts Health Club Services Contracts Act (HCSCA) prohibiting clubs from requiring financing of a contract for more than one month beyond the expiration of that contract. A Massachusetts federal district court granted Bally’s motion to dismiss on the ground that Ruiz lacked standing and that the contract did not offend the HCSCA. Affirming, the 1st Circuit held that Ruiz’s complaint alleged an injury sufficient to confer standing, because if the contract violated her rights under the HCSCA, she would face an economic loss in the form of the obligation to make future payments under the contract. However, the appeal court held that the contract did not violate the HCSCA. “By its plain and unvarnished language, the HCSCA provision only proscribes health-club services contracts that require payments or financing running more than one month beyond the expiration of the contract’s term,” the court said. “The Contract at issue here did not require any such extended payment plan or financing arrangement. Rather, it afforded the plaintiff a choice; she had the option of paying her membership fee in a lump sum when joining the health club or paying the fee in installments by means of a financing arrangement.” EMPLOYMENT Workplace affair didn’t prove sexual favoritism Evidence of a manager’s affair with a female employee is not the same as evidence of widespread sexual favoritism, the 8th U.S. Circuit Court of Appeals ruled on Aug. 3 in a case brought by a male train dispatcher who’d been dismissed for incompetence. McGinnis v. Union Pacific Railroad, No. 06-3453. William M. McGinnis worked as a train dispatcher for Union Pacific Railroad in Omaha, Neb. After receiving six citations for violating dispatching rules, he was required to take a one-month training program, but still failed a proficiency examination. He was fired for poor performance, the rules violations and for failing the test. McGinnis sued Union Pacific for sex discrimination under Title VII of the Civil Rights Act of 1964, alleging sexual favoritism. He alleged that his former employer treated young women, especially the more attractive ones, better than men. He cited the manager’s affair with a female employee, although that particular manager lacked authority to fire him. A U.S. district court judge in Nebraska granted Union Pacific’s motion for summary judgment. Affirming, the 8th Circuit ruled that a single allegation of sexual conduct against a manager who had no responsibility for firing decisions did not constitute evidence of sexual favoritism. Even had McGinnis established a prima facie case of sex discrimination, Union Pacific offered legitimate, nondiscriminatory reasons for his termination that were not proven to be pretextual. INSURANCE LAW Settlement doesn’t bind excess insurance carrier In a case of first impression, the Massachusetts Supreme Judicial Court ruled on Aug. 6 that an excess insurance carrier with a “follow form” policy was not bound by the settlement decision of the primary insurer. Allmerica Fin. Corp. v. Certain Underwriters at Lloyd’s, London, No. SJC-09834. Allmerica Financial Corp. and its primary insurer settled a class action alleging improper sales practices by Allmerica. Underwriters at Lloyd’s of London issued a “follow form” excess policy, under which the excess carrier covers the insured on the same terms as the primary carrier. Allmerica sought indemnification from the underwriters, but the underwriters denied coverage, arguing that they were not bound by the primary carrier’s decision to settle. A trial court granted summary judgment to the underwriters, and Allmerica appealed. Affirming, the Massachusetts Supreme Judicial Court held that the excess carrier was not bound by the settlement decision of the primary carrier. “An excess carrier’s intent to incorporate the same words used in a separate agreement between the primary insurer and the insured does not imply an intent by the excess carrier to accept decisions made by the primary carrier about the extent of its obligations under its own agreement,” the court said. A flood is a flood, Katrina victims are told Nearly 50 New Orleans property owners who sued their insurers to pay for damage arising from Hurricane Katrina flooding cannot collect because the plaintiffs’ policies unambiguously excluded flood damage, a unanimous 5th U.S. Circuit Court of Appeals ruled on Aug. 2. In re Katrina Canal Breaches Litig., No. 07-30119. The appeal involved four of more than 40 pending Katrina insurance-coverage lawsuits consolidated for pretrial proceedings. One of the plaintiffs in the appeal was Xavier University, which alleged that the hurricane caused more than $30 million in damage to insured structures on its campus. After the hurricane struck, levees along three major canals in New Orleans ruptured, inundating much of the city. Insured property owners sought to recover under homeowner, renter and commercial-property policies that contained provisions excluding flood damage. However, the plaintiffs argued that the flood was the result of negligent design, construction and maintenance of the canal levees and that the policies’ flood exclusions were ambiguous. A Louisiana trial judge construed many of the policies in favor of the property owners, including Xavier University, but in other cases ruled for the insurance companies. Reversing, the 5th Circuit noted that even if the plaintiffs could prove that the levees were negligently designed, constructed or maintained and that the breaches were due to this negligence, “the flood exclusions in the plaintiffs’ policies unambiguously” preclude recovery. The court rejected “any attempt on the plaintiffs’ part to avoid the exclusion of the flood exclusion by re-characterizing the flood as negligence.” It rejected the plaintiffs’ distinction between a flood of a natural body of water versus a flood of a man-made canal. “This event was a ‘flood’ within that term’s generally prevailing meaning as used in common parlance, and our interpretation of the exclusions ends there,” the court wrote. INTELLECTUAL PROPERTY Patent law pre-empts local drug-pricing limits A local ordinance prohibiting excessive pricing of prescription drugs within the District of Columbia is pre-empted by federal patent law, the U.S. Court of Appeals for the Federal Circuit ruled on Aug. 1. Biotechnology Indus. Org. v. Dist. of Columbia, No. 2006-1593. The Council of the District of Columbia adopted the Prescription Drug Excessive Pricing Act of 2005, which prohibited “excessive pricing” of patented prescription drugs, although that term was left undefined. Two pharmaceutical trade organizations sued in the U.S. District Court for the District of Columbia to enjoin enforcement of the law. The district court ruled that federal patent laws preempted the local law. The case was appealed to the U.S. Circuit Court of Appeals for the District of Columbia, which transferred it to the Federal Circuit. The Federal Circuit affirmed. The district enjoys general police powers within its jurisdiction, but not if that interferes with or conflicts with federal law, the court said. Here, the local law was a “clear attempt” to penalize high drug prices that federal law treats as an inducement to innovation in pharmaceuticals. “This may be a worthy undertaking on the part of the District government, but it is contrary to the goals established by Congress in the patent laws,” the court said. LEGAL PROFESSION Disbarment breached contract with client A lawyer’s disbarment before his client obtained the divorce for which she retained him resulted in his breach of the retention agreement, meaning that the lawyer was unable to pursue a claim for breach of contract against the client for failure to pay his fees, the Connecticut Supreme Court held on Aug. 7. David M. Somers and Assocs. v. Busch, No. 17839. Lori Busch retained attorney David Somers to represent her in a divorce action, and the two parties signed an agreement for Somers’ services. Somers represented Busch for approximately one year. However, he was disbarred prior to the completion of her divorce. Busch refused to pay Somers’ legal fees and costs of approximately $13,000, and Somers sued for breach of contract. A trial court held that because Somers had been disbarred before completing Busch’s divorce, he himself had breached the contract, meaning he could sue only for unjust enrichment. Because the trial court found that Busch had not received enrichment beyond sums she had paid to Somers already, the trial court held for Busch, and Somers appealed. Affirming, the Connecticut Supreme Court held that Somers’ disbarment meant that it was he who breached the contract. “The trial court found that the plaintiff was in fact precluded, as a result of his disbarment, from rendering any further performance under the agreement,” the state Supreme Court said. “The trial court also concluded that disbarment did not constitute a valid legal excuse for the plaintiff’s inability to perform further, because the disbarment was the result of his own actions . . . .The trial court, therefore, properly concluded that the plaintiff could not recover contract damages under the agreement, because he was unable to perform fully, did not tender performance, and did not have a valid legal excuse for nonperformance.” TORTS Instruction error was not harmless In a case in which there were multiple potential causes, a trial court erred in giving a “but for” jury instruction on causation instead of a “substantial factor” instruction, the Idaho Supreme Court ruled on July 31. Garcia v. Windley, No. 32274. Maria Garcia sued Jay Windley in a civil action, arguing that Windley negligently rear-ended Garcia in an automobile collision. At trial, a jury concluded that Windley’s negligence was a proximate cause of Garcia’s injuries and awarded her damages. Garcia moved for a new trial on several grounds, including the fact that the trial judge gave the jury an instruction that for proximate cause to be established, it had to be shown that, but for Windley’s negligence, the injuries would not have been sustained. The trial judge denied the motion, and Garcia appealed, arguing that, because there were multiple potential causes, the court should have issued an instruction that Windley’s negligence need only be a “substantial factor” in the damages. Reversing, the Idaho Supreme Court agreed that, because there were multiple potential causes of the damages, a “substantial factor” instruction was required. Rejecting Windley’s argument that there was no prejudice because the jury found his actions were a proximate cause, the state high court said, “Windley is correct that Garcia does not know for certain what the jury believed. However, an erroneous instruction is prejudicial when it could have affected the outcome of the trial. Thus, it is unnecessary to know for certain whether the erroneous instruction did affect the outcome of the trial.”

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