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BANKRUPTCY Worker with asbestosis wasn’t a known creditor A manufacturer of asbestos-containing products need not give notice of bankruptcy to a worker who subsequently died from asbestos-related disease, the Washington Supreme Court held on Aug. 9. Herring v. Texaco Inc., No. 78774-3. Beginning in the 1960s, Roger Herring worked for subcontractors of Todd Shipyards. In 1986, Herring was diagnosed with pleural thickening, which developed into asbestosis three years later. In 1987, Todd filed for bankruptcy. The bankruptcy court announced the last day claims could be filed against Todd a year later. Prior to discharge, Todd had given actual notice of its bankruptcy to all known creditors. However, actual notice was never given to the unions of subcontractors. In 1989, Todd was discharged from bankruptcy. That same year, Herring brought suit against several manufacturers of asbestos-containing products but did not include Todd as a defendant. In 2002, Herring was diagnosed with mesothelioma, which ultimately killed him. Prior to his death, he brought another lawsuit based on that diagnosis. Todd only became aware of Herring’s claims at this time. The trial court granted Todd’s motion for summary judgment. An intermediate appellate court reversed, finding that Herring was entitled to actual notice of Todd’s bankruptcy. Reversing, the Washington Supreme Court determined that Herring was not a known creditor because Todd had no knowledge of Herring’s claim. While, ideally, Todd could have given notice to Herring’s union, there was no duty to do so under federal law since the union was not itself a creditor and actual notice to the union would not necessarily have meant notice to Herring. Full text of the decision BUSINESS LAW Nonprofits law doesn’t pre-empt common law Iowa’s statute imposing personal liability on the directors of nonprofit corporations does not pre-empt common law rights, the 8th U.S. Circuit Court of Appeals ruled on Aug. 10. HOK Sport Inc. v. FC Des Moines L.C., No. 06-2433. Kyle Krause was the majority owner of Des Moines Menace Soccer Club, a minor league soccer club in Urbandale, Iowa. Krause created TSF, a nonprofit corporation, to build a new soccer stadium in Urbandale for Des Moines Menace. As TSF’s president, sole officer and only member of its board of directors, Krause did not always follow corporate formalities. Des Moines Menace contracted with HOK Sport Inc. to design the new stadium. After several months, Krause ordered HOK Sport to stop work when a cost estimate exceeded the construction budget. HOK Sport sued TSF and Des Moines Menace and sought to hold Krause personally liable for disregarding corporate form. An Iowa federal jury awarded HOK Sport $436,800 in damages. On appeal, Krause argued that the jury instructions were faulty in stating that Iowa Code � 504A.101 does not pre-empt common law rights such as the alter ego doctrine and the remedy of piercing the corporate veil. Piercing the corporate veil is a common law remedy whereby an entity’s corporate form is disregarded to prevent an injustice. The 8th Circuit affirmed. Krause had argued that piercing the corporate veil is inapplicable to nonprofit corporations because Iowa Code � 504A.101 is the exclusive means of imposing personal liability on the directors of nonprofits. The 8th Circuit said that unless the language of a statute directly negates the common law, the statute must be interpreted in conformity with the common law. Krause had complete control over TSF, and used it as part of an elaborate plan to build a stadium to maximize his profits while shedding any liability or risk. A reasonable jury could conclude that Krause incorporated TSF as a nonprofit corporation to avoid risk and the payment of legal obligations. CIVIL PRACTICE Insufficiency of service defense was not waived When asserting the affirmative defense of insufficiency of process in responsive pleadings, litigants do not waive that defense by actively participating in litigation, the Ohio Supreme Court held on Aug. 8. Gliozzo v. Univ. Urologists of Cleveland Inc., No. 2006-1166. Frank Gliozzo filed a medical malpractice suit against University Urologists of Cleveland Inc. and Dr. Martin Resnick. Service was unsuccessful by certified mail, and no further attempt was made to serve the defendants. Despite lack of service, the defendants actively participated in the case. They filed an answer denying the allegations and raising several affirmative defenses, including insufficiency of service. The defendants filed a motion to dismiss on the ground that service of process was never perfected. The trial judge granted the motion. The plaintiff appealed, contending that, because the defendants had actively participated in the case, they had waived the insufficient service defense. An intermediate appellate court reversed. The Ohio Supreme Court reversed, holding that, when the affirmative defense of insufficiency of service is properly raised and preserved, a party’s active participation in litigation of a case does not constitute waiver of that defense. Here, the defendants had answered the complaint and raised the affirmative defense of insufficiency of service. CONSTITUTIONAL LAW Vote-swap Web sites’ free speech right violated California’s secretary of state violated the First Amendment rights of organizers of “vote-swapping” Web sites during the 2000 U.S. presidential election by threatening to prosecute them criminally for their activities, but he had qualified immunity because the law was unsettled at the time of his threat, the 9th U.S. Circuit Court of Appeals held on Aug. 6. Porter v. Bowen, No. 06-55517. During the 2000 presidential election, voters devised a system according to which voters supporting third-party candidates in states in which the election was expected to be close would “swap” their votes with voters supporting the Democratic candidates in states in which the election was not expected to be close. Because selling votes is illegal, California’s secretary of state threatened to prosecute criminally the operators of the Web sites, www.voteswap2000.com and www.votexchange2000.com. The operators filed suit, arguing that the threatened prosecution violated their First Amendment rights. A California federal court held that the case was moot because the secretary of state had written to the state Legislature asking for clarification of the state election code provisions. Reversing in part, the 9th Circuit held that the case was not moot because the state could prosecute in the future. In addition, the court held that the secretary of state had violated the Web site operators’ First Amendment rights because “Both the websites’ vote-swapping mechanisms and the communication and vote swaps that the mechanisms enabled were constitutionally protected.” However, because the law was unsettled at the time of the prosecution threat, the secretary of state had qualified immunity. CONSUMER PROTECTION Satellite TV ads on HD quality of cable are false DIRECTV’s television and internet advertisements claiming that its high-definition picture quality was better than the HD picture generated by Time Warner Cable were false under the Lanham Act, the 2d U.S. Circuit Court of Appeals ruled on Aug. 9. Time Warner Cable Inc. v. DIRECTV Inc., No. 07-0468. In 2006, satellite television company DIRECTV Group Inc. disseminated TV ads featuring celebrity Jessica Simpson saying “You’re just not gonna get the best picture” without DIRECTV. The ad, along with another one featuring TV star William Shatner, concluded with the statement, “For picture quality that beats cable, you’ve got to get DIRECTV.” After an initial objection by Time Warner Cable, DIRECTV altered the tag line to say, “For an HD picture that can’t be beat, get DIRECTV.” Internet ads featured so-called side-by-side comparisons of DIRECTV’s and Time Warner’s HD picture quality. Time Warner obtained an injunction in a New York federal court under the Lanham Act, forbidding DIRECTV from disseminating in Time Warner’s market area ads that disparage the video or audio quality of Time Warner or its HD signal. The 2d Circuit affirmed the injunction, modified parts for it clarity and took the opportunity to clarify its position on claims of false advertising. Adopting the “false by necessary implication” doctrine, the court concluded that the Simpson and Shatner ads were literally false, even though they do not explicitly make false assertions, because the words or images, considered in context, necessarily and unambiguously implied a false message that it is impossible to get the best picture from cable. The likelihood of irreparable harm may be presumed in a case in which the plaintiff demonstrates a likelihood of success in showing that the defendant’s comparative advertisement is literally false and that it is targeted at the plaintiff, even though the plaintiff is not identified by name. CRIMINAL PRACTICE Motorist broke no law, but traffic stop was legal Despite an arrestee’s not having committed any infraction, police officers’ mistaken belief that he had was objectively reasonable, the U.S. Circuit Court of Appeals for the District of Columbia held on Aug. 10. U.S. v. Booker, No. 06-3030. Frederick Booker was operating a vehicle with a license plate displayed on the front dashboard. Police noticed the plate, and, believing Booker to be violating District of Columbia law by not displaying the plate on his bumper, they followed him. Police did not apprehend him until he had parked his vehicle. In fact, Booker had a temporary dealer tag affixed to his rear bumper, meaning that, under district law, he was not required to display a front plate. Police searched the car, finding weapons and marijuana. Booker was charged with possession of marijuana. The district federal court initially granted Booker’s motion to suppress the marijuana evidence, holding that the stop was illegal. However, after the U.S. Supreme Court’s ruling, Thornton v. U.S., 541 U.S. 615 (2004), the district court reconsidered and denied the motion to suppress. In Thornton, the justices ruled that police can search the inside of a car in the course of arresting a suspect who is standing outside the car. Affirming, the D.C. Circuit held that, although Booker had broken no law, the police were objectively reasonable in stopping him. The court said, “The officers . . . conducted a traffic stop because they mistakenly believed that license plates must be displayed on the front and rear bumpers of a vehicle. Notwithstanding Booker had in fact committed no traffic violation � a dealer’s tag was properly displayed on the rear of the vehicle � the officers’ mistaken belief to the contrary when they first saw the license plate displayed in Booker’s windshield was objectively reasonable.” Needless search can get false distress conviction Conviction for the felony offense of making a false distress call to the U.S. Coast Guard doesn’t require proof that a defendant specifically intended to request a needless rescue, the 11th U.S. Circuit Court of Appeals held on Aug. 6 in a case of first impression. U.S. v. Haun, No. 06-14556. Steven Wayne Haun invited four friends to join him on a late-night boat ride off Panama City, Fla. Riding on a raft behind the boat, Haun donned a life jacket and told the driver to head into the Gulf of Mexico. After pulling Haun a short distance the driver cut the motor, and saw that he was not on the raft. The passengers found his life jacket and made a distress call. The Coast Guard conducted a 12-hour search. Months later, Haun was discovered by Indiana State Police in the sleeper berth of a tractor-trailer. Haun told a Coast Guard investigator that as soon as the raft started moving, he jumped off, removed his life jacket and swam to a nearby island where he had left a jet ski earlier in the day. Haun said he staged his disappearance to avoid facing criminal charges in state court. Haun waived his right to a jury trial, and a Florida judge convicted him for knowingly and willfully communicating a false distress message to the Coast Guard. The judge rejected Haun’s argument that the government had failed to show he intended the Coast Guard to receive a false distress call. The 11th Circuit affirmed. The panel cited a U.S. House of Representatives committee report noting that Congress sought to penalize not only people who make false distress calls but also those whose actions indirectly cause the Coast Guard to conduct unnecessary searches. “Buoyed by our common sense, which we do not throw overboard,” the court wrote, “we conclude that the purpose of the statute is to penalize those who cause the Coast Guard to become involved when no help is needed, regardless of whether the individual who precipitated the drama in the open seas knew with certainty that the Coast Guard would needlessly answer the distress call.” FAMILY LAW Conceived after father’s death, child can’t inherit A child conceived via artificial insemination after her father’s death is not eligible to inherit from her father’s estate under state intestacy laws, the New Hampshire Supreme Court ruled on Aug. 9, in answer to a certified question from a New Hampshire federal court. Khabbaz v. Commissioner, No. 2006-751. After being diagnosed with a terminal illness in April 1997, Rumzi Khabbaz began banking his sperm for his wife to use for artificial insemination after his death. Khabbaz died in May 1998, and his wife was successfully inseminated with his sperm in late 1999. Shortly after Christine Khabbaz’s birth, her mother filed for Social Security survivor’s benefits on her child’s behalf. The commissioner of the Social Security Administration denied her application, citing N.H. Rev. Stat. Ann. � 561:1, the state’s intestacy distribution statute. An administrative law judge and the Appeals Council of the Social Security Administration affirmed. A New Hampshire federal court held that, because benefits are based on whether the child can inherit from her father under state intestacy law, the state high court must determine whether New Hampshire would allow Christine to inherit from her father’s estate. The New Hampshire Supreme Court ruled Christine cannot inherit from her father’s estate. State intestacy laws repeatedly refer to the “surviving issue” of the decedent, “that is, those who remain alive at the time of the decedent’s death.” A child conceived after the father’s death isn’t the father’s “surviving issue.” To conclude otherwise would undermine the finality and orderly distribution of estates because “on a practical level, children may be conceived posthumously several years after an individual’s death.” HEALTH LAW Teen can get Medicaid for breast-reduction surgery An overweight teenager should not have been denied Medicaid for breast-reduction surgery, the Delaware Supreme Court ruled on Aug. 10. Urban v. Meconi, No. 439, 2006. Kandase Urban, a 5-foot-2-inch, 198-pound Medicaid recipient, was referred by her primary care physician to a plastic surgeon as a candidate for breast-reduction surgery. She was suffering from chest and back pain, rashers, “shoulder grooving” and depression. The plastic surgeon sent a letter requesting coverage to the state’s Medicaid administrator, describing her condition and indicating that she would benefit from the surgery, but also saying that she would benefit from losing nearly 40 pounds. The state denied authorization for the surgery, saying it did not meet the state definition of medical necessity and that weight loss was Urban’s better course of treatment. Urban filed an administrative appeal in which doctors and family described Urban’s painful condition. The state still denied coverage. A trial court affirmed. The Delaware Supreme Court reversed. Federal courts require administrative decision-makers in Medicaid coverage cases to give “substantial weight” to the opinions of treating physicians, something the state did not do in this case. There was no evidence disputing the necessity of the surgery and that it was the standard of care for Urban’s type of medical condition. And though the doctors agreed she would benefit from losing weight, none said that losing the weight would also eliminate the need for the breast-reduction surgery. LABOR LAW Union nonmembers pay for bargaining litigation Extra-unit litigation may be charged to a union’s nonmembers if it satisfies the “germaneness test” that applies to other pooled resources, the 1st U.S. Circuit Court of Appeals ruled on Aug. 8 on an issue of first impression. Locke v. Karass, No. 06-1747. The Maine State Employees Association (MSEA) is a union designated by the state as the exclusive bargaining agent for certain employees of its executive branch. Under MSEA’s collective bargaining agreement, it must provide certain administrative services for all of these employees, even nonmembers. Thus, MSEA charges nonmember employees with their share of all expenditures related to its services as the exclusive bargaining agent. Expenditures that only benefit members may not be charged to nonmembers. MSEA advised nonmembers that they were contributing, through their service fees, to litigation that was not undertaken specifically for their own bargaining unit, but on behalf of other units or the national affiliate. Some nonmembers brought suit, arguing that under the First Amendment to the U.S. Constitution, the union should not be allowed to charge nonmembers for litigation expenses incurred by its national affiliate, even if that litigation is substantially related to the bargaining process and is funded through a pooling arrangement. A Maine federal court granted summary judgment to the union. Affirming, the 1st Circuit held that according to the U.S. Supreme Court’s Lehnert v. Ferris Faculty Ass’n, 500 U.S. 507 (1991), extra-unit litigation may be charged to union nonmembers, subject to the “germaneness test” that applies to other pooled resources. The Lehnert Court stipulated a three-part test for determining whether a particular union expenditure is chargeable to nonmembers: “chargeable activities must (1) be ‘germane’ to collective-bargaining activity; (2) be justified by the government’s vital policy interest in labor peace and avoiding ‘free riders’; and (3) not significantly add to the burdening of free speech that is inherent in the allowance of an agency or union shop.” Here, the extra-unit litigation costs were funded through a pooling arrangement and were substantively related to the bargaining process, and thus chargeable to nonmembers without offending the First Amendment.

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