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• ADR Agreement’s class action waiver is unconscionable Provisions of T-Mobile USA Inc. service agreements that compel arbitration and force consumers to waive their right to bring class actions are unconscionable and unenforceable under Washington state law, the 9th U.S. Circuit Court of Appeals held on Jan. 22. Lowden v. T-Mobile USA Inc., No. 06-35395. After Kathleen Lowden and John Mahowald executed telephone service agreements with T-Mobile USA, they filed a class action in a Washington state court, claiming breach of contract and violation of the Washington Consumer Protection Act, Wash. Rev. Code � 19.86.010-19.86.920. T-Mobile removed the case to federal court and moved to compel arbitration pursuant to the mandatory arbitration provisions of the service agreements. The court denied T-Mobile’s motion, holding that the mandatory arbitration provisions were unconscionable and unenforceable. Affirming, the 9th Circuit cited the Washington Supreme Court’s opinion, Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007), which stated that a “class action waiver clause was ‘an unconscionable violation of [Washington's] policy to protect the public and foster fair and honest competition because it drastically forestall[ed] attempts to vindicate consumer rights’ and was, therefore, ‘substantively unconscionable.’ ” Moreover, the 9th Circuit held that the Federal Arbitration Act doesn’t pre-empt Washington state law. The court said, “ T-Mobile’s claim . . . that the FAA requires a state to enforce a class action waiver merely because it lies within an arbitration agreement � whereas a state would be free to find the same waiver to be invalid in the litigation context � contravenes the FAA’s mandate of an ‘equal footing’ between arbitration and other forms of dispute resolution . . . .The FAA proscribes states from giving arbitration special treatment.” Full text of the decision • BANKRUPTCY Criminal negligence caps homestead exemption According to the Bankruptcy Abuse and Consumer Protection Act of 2005, the crime of negligent vehicular homicide is a “criminal act” serving to cap a debtor’s homestead exemption, the 1st U.S. Circuit Court of Appeals held on Jan. 23 on a matter of first impression. Larson v. Howell, No. 07-1925. Mary Larson’s car struck the motorcycle of Lloyd Howell, leading to the death his wife, Sherri LaMattina-Howell. A Massachusetts state judge found facts sufficient to find Larson guilty of negligent vehicular homicide. Howell filed a wrongful death suit against Larson, which was settled for $1 million. Larson petitioned for bankruptcy. She claimed a homestead exemption under state law for $500,000. Howell objected, contending that, under the Bankruptcy Abuse and Consumer Protection Act (BAPCPA), 11 U.S.C. 522(q)(1)(B)(iv), the exemption is capped at $125,000 if “the debtor owes a debt arising from . . . any criminal act, intentional tort, or willful or reckless misconduct that caused . . . death to another individual.” The bankruptcy court held the accident was a “criminal act,” triggering the cap. A Massachusetts federal court affirmed. Affirming, the 1st Circuit held that, “where a state court has found the debtor was criminally liable for negligent homicide, such a finding triggers the federal statutory cap on state homestead exemptions under the BAPCPA.” Rejecting Larson’s argument that the statute only applies to criminal acts requiring a level of mens rea beyond mere negligence, the court said “[t]here is no language modifying ‘criminal act’ to indicate that Congress meant to limit the statute’s operation to the subset of crimes defined in part by intentionality, willfulness or recklessness. Nor did Congress say ‘any criminal act except those defined as criminal negligence.’ ” • CIVIL PRACTICE Nonparty nonresidents must obey court order A U.S. court has jurisdiction for contempt proceedings over U.S. citizens whose actions outside of the United States frustrate a U.S. court’s order, the 7th U.S. Circuit Court of Appeals held on Jan. 24. SEC v. Homa, No. 06-3320. Between 1995 and 1999, Charles Homa operated an automobile title lending business, Cash 4 Titles, which was effectively a huge Ponzi scheme. Investors lost more than $165 million. The U.S. Securities and Exchange Commission (SEC) sought, and was granted, an order freezing Homa’s assets. U.S. citizens Paul Jones and David Pollack, bankers who were nonparties to the SEC action and who do not reside in the United States, were subject to the order, but did not comply. In fact, they initiated wire transfers between bank accounts solely to circumvent the freeze order. After a series of transactions outside of the United States, Pollack and Jones ended up with a significant amount of money from a Homa Ponzi scheme. After a show cause order, an Illinois federal court judged them in contempt for failure to comply with the freeze order and ordered that they jointly and severally disgorge more than $7 million plus prejudgment interest and costs. Affirming, the 7th Circuit said, “a person who knowingly circumvents a freeze order is subject to a show cause order and contempt and thereby submits to the jurisdiction of the court for contempt proceedings.” Here, Jones and Pollack undertook activities outside of the United States that were designed to have the purpose and effect within the United States of frustrating the freeze order. As U.S. citizens, they were required, upon notice, to obey the order of a U.S. court directed at them and their activities. • CONSTITUTIONAL LAW Prison can’t bar transport for purpose of abortion A prison policy that prohibits transportation for elective, nontherapeutic abortions violates the 14th Amendment to the U.S. Constitution, the 8th U.S. Circuit Court of Appeals ruled on Jan. 22. Roe v. Crawford, No. 06-3108. Jane Roe’s request for transportation for an elective abortion was denied by the Missouri Department of Corrections, which had a policy that prohibited transporting prisoners for elective, nontherapeutic abortions. A Missouri federal court granted Roe’s request for emergency preliminary injunctive relief. Roe then sought injunctive relief on behalf of a class consisting of all women in the custody of the corrections department who seek elective, nontherapeutic abortions. The court certified the class, and subsequently granted summary judgment to the plaintiffs on the ground that the department’s policy was unreasonable under the 14th Amendment. Affirming, the 8th Circuit found that department’s policy was invalid under the 14th Amendment because it was not “reasonably related to legitimate penological interests.” The policy did not rationally advance legitimate security interests by reducing the number of times prisoners are transported outside the facility, as pregnant inmates will still need to be transported to receive other medical attention. • CRIMINAL PRACTICE Guilty plea doesn’t free man from U.S. subpoenas The absence of A cooperation provision in the plea agreement of a man who pleaded guilty to conspiracy in assisting Palestinian terrorists does not preclude the government from compelling his grand jury testimony, the 11th U.S. Circuit Court of Appeals held Jan. 25. U.S. v. Al-Arian, No. 06-16008. Sami Amin Al-Arian was indicted in Florida on multiple counts of activity related to international terrorism, including, among other things, conspiracy to murder or injure persons outside of the United States and conspiracy to provide material support to a foreign terrorist organization � the Palestinian Islamic Jihad. In 2005, a Florida federal jury acquitted him on some counts and was hung on others. Al-Arian pleaded guilty to one count of conspiracy to make or receive contributions benefiting a terrorist organization, in violation of 18 U.S.C. 371. The plea agreement contained no provisions regarding whether Al-Arian was required to cooperate with the government in the future. In 2006, a Virginia federal issued a grand jury subpoena compelling Al-Arian’s testimony. Al-Arian sought to quash it, arguing that his plea agreement did not require his cooperation. Al-Arian asked the court to enforce the terms of the plea agreement and bar the government from compelling his testimony. The Florida judge denied the motion, holding that the plea agreement did not prevent the government from issuing him with a subpoena to testify. Affirming, the 11th Circuit rejected Al-Arian’s argument that the lack of a cooperation provision was affirmative evidence that the government agreed not to seek future testimony. “The exclusion of a standard plea agreement provision requiring a defendant to cooperate with the government, whether voluntarily or under subpoena, does not establish that the government immunized Al-Arian from future grand jury subpoenas,” the court said. “The plea agreement is clear, unambiguous, and does not grant Al-Arian immunity from a future grand jury subpoena.” • DAMAGES Deterrence alone is no basis for punitives award A North Carolina trial judge correctly dismissed a plaintiff’s claim for punitive damages against the estate of a dead person because such claims are barred as a matter of state law, the North Carolina Supreme Court held on Jan. 25. Harrell v. Bowen, No. 587 PA06. In 2002, Richard Harrell was driving on a highway when his car was struck by an oncoming vehicle that crossed the median. The car was driven by Chelson Earl Perry, who later died. In a civil suit against Melvin Bowen as administrator of Perry’s estate, Harrell alleged that Perry was under the influence of alcohol at the time of the accident and acted negligently in violation of several North Carolina motor vehicle safety laws. Harrell sought compensatory and punitive damages. The trial judge dismissed the punitive damages claim with prejudice. An intermediate appellate court affirmed. Affirming, the North Carolina Supreme Court cited a precedential opinion, Newton v. Standard Fire Ins. Co., 229 S.E.2d 297, 302 (N.C. 1976): “North Carolina has consistently allowed punitive damages solely on the basis of its policy to punish intentional wrongdoing and to deter others from similar behavior.” The plaintiff argued that punitive damages may be awarded to deter others from similar wrongful acts, even if a decedent could neither be punished for any wrongdoing nor deterred from committing similar wrongful acts in the future. The court said there is no authority to support the claim that deterring others is alone a sufficient basis for a punitive damages award. “In fact, when this Court has identified the purpose of deterring others, that purpose has consistently been coupled with the purpose of punishing a wrongdoer,” the court said. Because the decedent can no longer be punished or deterred for whatever “egregiously wrongful acts” he may have committed before his death, the plaintiff can’t assert a claim for punitive damages. • EMPLOYMENT NLRB used ‘thin record,’ ‘unwarranted inferences’ Faulting the National Labor Relations Board for “supplementing the thin record with unwarranted inferences and misinterpretations of testimony,” the 6th U.S. Circuit Court of Appeals ruled on Jan. 22 that three workers were wrongly terminated for writing a letter to their employer’s customer describing their working conditions. Jolliff v. National Labor Relations Board, No. 06-2434. Truckers for TNT Logistics of North America Inc. interested in becoming members of the United Auto Workers sent an unsigned letter to TNT management and to Honda, a TNT customer, expressing complaints about their working conditions. TNT management identified three workers as the letter’s writers and, after interviewing them, placed them all on indefinite suspension and then fired them. The truckers filed a complaint with an administrative law judge, saying TNT violated labor laws by firing them for their union activities. The ALJ ruled that TNT engaged in unfair labor practices. The National Labor Relations Board (NLRB) reversed, ruling that the truckers’ activity was not protected because one of the letter’s claims � that management had asked drivers to “fix” their log book entries � was “maliciously false.” The board found that the letter was intended to disseminate a damaging and false accusation against the company to a vital customer. The 6th Circuit reversed, noting that workers have a right to engage in “concerted communications” with third parties regarding legitimate employee concerns. Such communications lose their protected status if they are made with actual malice � if they are deliberately or recklessly false � but such is not the case here. The log book claim may be defamatory, but the evidence of its falsity is “thin.” Once the board determined that the claim was false, it then erroneously concluded that it was also made in the knowledge that it was false. However, no evidence of the workers’ knowledge of this falsity was ever offered. • FAMILY LAW Court must interview boy on circumcision plan A trial court erred in deciding not to change a custody agreement without first interviewing a child about whether he wanted to be circumcised as his custodial parent wanted, the Oregon Supreme Court ruled on Jan. 25. Boldt v. Boldt, No. S054714. When the Boldt divorced in 1999, Lia Boldt was a member of the Russian Orthodox Church, and James Boldt intended to convert to a conservative branch of Judaism. Boldt had custody of the couple’s son and informed Lia that he wanted the boy, now 9 years old, to convert to Judaism, and to undergo circumcision. Lia Boldt petitioned the court for custody. In the alternative, as a condition of Boldt’s continued custody, Lia sought an order prohibiting him from having the boy circumcised. In addition to her own objections to the procedure, Lia claimed the boy did not want to be circumcised. After hearing the couple’s arguments via a telephone call, the trial court denied the motion to change custody, but enjoined Boldt from having the boy circumcised pending the mother’s appeal. An intermediate appellate court affirmed without opinion. [NLJ, 8-27-07.] The Oregon Supreme Court reversed and remanded. The court said that the decision to circumcise a child lies with the parents. In the case of divorced parents, the decision lies with the custodial parent. Were Lia’s objections the only objections, there would be no question that the decision would be Boldt’s alone. However, because Lia claims that her son does not want the procedure, the trial court erred in making any kind of decision without first interviewing the boy. If the boy does object to the procedure, the trial court must then determine whether that decision will interfere with the father’s ability to care for the boy properly, and, therefore, whether a change in custody is warranted. INSURANCE LAW Risk of relapse no basis for disability benefits A disability insurer covered by the Employee Retirement Income Security Act isn’t unreasonable in denying long-term disability benefits to a nurse anesthetist addicted to a prescription painkiller used in his work, the 4th U.S. Circuit Court of Appeals held on Jan. 23. Stanford v. Continental Cas. Co., No. 06-2006. Robert Stanford, a nurse anesthetist employed by Beaufort Memorial Hospital, became addicted to Fentanyl, a narcotic painkiller used in the practice of anesthesiology. Stanford entered a rehabilitation program, and Continental Casualty Co., the insurer and administrator of Beaufort’s employee benefit plan, paid him long-term disability benefits. Stanford returned to work, but began taking the drug again, and he, once again, applied for long-term disability benefits. After Stanford’s physician determined that he had recovered sufficiently to perform his job, Continental terminated the benefits. Stanford requested an administrative review, arguing that he could not return to work because he ran a risk of relapse if he were exposed to Fentanyl. Continental rejected Stanford’s claim on the ground that the policy did not cover “potential risk.” Stanford filed suit in a North Carolina federal court challenging the denial of benefits. The court granted summary judgment to Continental. Affirming, the 4th Circuit held that Continental’s determination was not unreasonable. Noting that courts were split on the issue of whether the risk of addiction through exposure to drugs was a basis for disability coverage, the court said, “[T]hese cases do not settle the matter, both because they are not authoritative and because there exist directly contradictory cases. This disagreement among the courts demonstrates that reasonable minds can, and do, differ as to whether the risk of relapse renders an addict unable to perform the material and substantial duties of his work. Given this widespread, thoughtful, and reasonable disagreement, Continental’s decision cannot plausibly be termed unreasonable.” REAL PROPERTY City free not to arbitrate annexation plan dispute A landowner whose property is omitted from a city’s annexation plan cannot compel the city to arbitrate the dispute, the Texas Supreme Court ruled on Jan. 25. City of Rockwall v. Hughes, No. 05-0126. The estate of W.W. Caruth owned 405 acres within the extraterritorial jurisdiction of Rockwall, Texas, that the estate wanted to develop into a residential community. The city initiated annexation proceedings, but instead of putting the proceeding on a three-year planning track, as required by Texas Loc. Gov’t Code Ann. � 43.052, the city said the land was exempt from the three-year plan because it was a sparsely populated area. The estate objected. Citing the same statute, which says “if the City fails to take action on the petition to include the area on the [three-year] annexation plan, the landowner may request arbitration of the dispute,” the estate petitioned a trial court to compel arbitration. The city argued that the estate did not have standing because the dispute concerned annexation procedures. The trial court dismissed the case. An intermediate appellate court reversed. The Texas Supreme Court reversed. The court notes two instances in which a landowner might want to compel arbitration: (1) if the city did not bring the landowners’ petition up for consideration or otherwise failed to take action, or (2) if the city denied the petition. The literal language of the statute allows for arbitration only in the first instance, not the second. The literal language can be viewed as a legislative attempt to encourage cities and landowners to resolve their conflicts without court action.

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