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• ATTORNEY FEES Court must scrutinize plan to divide up fees A trial judge acted improperly in allocating $6.9 million in attorney fees without a factual basis, sealing documents and issuing a gag order, the 5th U.S. Circuit Court of Appeals held on Feb. 4. In re High Sulfur Content Gasoline Products Liability Litigation, No. 07-30384. Shell Oil Co. settled a federal class action stemming from allegations that a Louisiana refinery produced contaminated gasoline that damaged motorists’ fuel gauges. In the settlement, Shell agreed to pay $6.9 million to the plaintiffs’ attorneys. The trial judge appointed a five-member committee to propose award allocation among the 32 law firms and 79 plaintiffs’ attorneys. At an ex parte hearing, the committee gave the judge a list of recommended individual attorney awards and a proposed order that placed the list under seal and issued a gag order prohibiting lawyers from disclosing their awards. The judge sealed the hearing transcript and signed the order. The order awarded nearly half of the $6.9 million to the five members of the fee committee and their firms. Lawyers who received less than what they requested sought reconsideration and filed motions to unseal the documents. The judge refused to lift the seals. Vacating the award, the 5th Circuit called the trial judge’s procedures an abuse of discretion. The judge had deviated from established class action principles, the Federal Rules of Civil Procedure and 5th Circuit case law. A trial judge may appoint a committee of plaintiffs’ counsel to recommend how to divide up an award. Yet appointing a committee does not relieve a district court of its responsibility to scrutinize closely the proposed allocation, especially when the attorneys recommending the allocation have a financial interest in the awards. “The lack of transparency about the individual fee awards supports a perception that many of these attorneys were more interested in accommodating themselves than the people they represent,” the court said.   Full text of the decision • BANKING Incompetent audit isn’t poor banking practice The comptroller of the currency exceeded statutory authority in issuing a $300,000 civil penalty against accounting firm Grant Thornton LLP over its audit of First Keystone National Bank, which regulators shut down after discovering fraud, the U.S. Circuit Court of Appeals for the District of Columbia held on Feb. 8. Grant Thornton v. Office of the Comptroller of the Currency, No. 07-1003. First Keystone National Bank bundled subprime or high loan-to-value loans and sold them as securities. From 1992 to 1997, the bank’s assets had soared from $100 million to $1 billion. In an agreement with regulators, Keystone hired an independent accounting firm, Grant Thornton, to conduct an audit. Grant Thornton’s April 1999 opinion said the bank’s financial statements for 1997 and 1998 were free of material misstatement. Four months later, Office of the Comptroller of the Currency (OCC) examiners uncovered Keystone’s fraud: interest income overstated by $98 million and assets inflated by $450 million. The claimed assets belonged to another bank. OCC closed the bank and, invoking the Financial Institutions Reform, Recovery and Enforcement Act, fined Grant Thornton $300,000 for its audit failures. Regulators found the audit inadequate for, among other things, relying on oral representations about Keystone’s owning $236 million of the $450 million at issue, though documents suggested otherwise. The OCC found that Grant Thornton had effectively participated in an unsound banking practice. Vacating, the D.C. Circuit found that OCC had exceeded its statutory authority. Under 12 U.S.C. 1818(i)(2)(B)(i)(II), the comptroller of the currency may impose civil monetary penalties when an “institution affiliated party” recklessly engages in an unsound practice in conducting the affairs of an insured institution. The OCC’s penalty rested on its finding that reckless audit practices constitute an unsound practice in conducting the bank’s business. “But however incompetently or recklessly the audit may have been performed, conduct of the audit cannot be shoehorned into the controlling statutory language,” the court held. An audit like the one Grant Thornton performed is not a banking practice, the court said. • CIVIL PRACTICE Contractor isn’t entitled to sovereign immunity A private contractor that is conducting a diversion program for a district attorney’s office is not entitled to sovereign immunity from civil suits for alleged actions taken in the course of its work for the government entity, the 9th U.S. Circuit Court of Appeals held on Feb. 6. Del Campo v. Kennedy, No. 07-15048. The Santa Clara County, Calif., District Attorney’s Office contracted with American Corrective Counseling Services Inc. (ACCS) to operate a pretrial diversion program for people accused of issuing bad checks. The district attorney’s office agreed not to prosecute those who completed a program run by ACCS in which the check writer repaid the recipient the amount of the check, paid a fee and completed a class conducted by ACCS. Elena Del Campo bounced a check for $95.02; ACCS informed her that she could participate in the program or face criminal charges. Del Campo paid only the amount of the check. ACCS then wrote to her on district attorney’s office stationery, informing her that, to avoid criminal prosecution, she would have to attend the class and pay a total of $262.02, including class and administrative fees. Rather than participate, Del Campo sued the district attorney and ACCS, alleging violations of state and federal law. ACCS moved to dismiss, arguing it was entitled to sovereign immunity because it was acting on behalf of the state. A California federal court denied the motion. Affirming, the 9th Circuit declined to extend sovereign immunity to private actors such as ACCS. The court said, “[W]e should be extremely hesitant to extend this fundamental and carefully limited immunity to private parties whose only relationship to the sovereign is by contract. A contractor like ACCS may perform some functions for the state, but is certainly more removed from state power, and from democratic control, than a county or a Compact Clause organization.” • EVIDENCE Med-mal suit can go on without expert testimony The general requirement of expert testimony in medical malpractice cases applies equally to suits against psychiatrists, but such testimony is potentially subject to the common knowledge exception, the Utah Supreme Court held on Feb. 5. Bowman v. Kalm, No. 20060986. Dr. Michael Kalm, a psychiatrist, prescribed sleeping pills to Ann Davis Menlove. Menlove died of asphyxiation after apparently ingesting more than the prescribed amount of the pills. She died of asphyxiation after a bedroom dresser fell over and pinned her. Kim Bowman, Menlove’s ex-husband, brought medical malpractice and wrongful death claims against Kalm on behalf of Menlove’s minor heirs. Though Bowman provided expert testimony showing that Kalm had breached the standard of care in treating Menlove’s anorexia and evidence to show that Menlove had proclivities to overdose on sleeping medication, he failed to provide any expert testimony on the issue of whether Kalm’s alleged malpractice was the proximate cause of Menlove’s death. The trial court granted Kalm’s motion for summary judgment. The Utah Supreme Court reversed and remanded. The court said that the “general requirement of expert testimony to prove proximate causation is . . . as applicable to psychiatrists as it is to other medical professionals.” But the general requirement doesn’t apply to all medical malpractice cases. There is a limited “common knowledge exception” that eliminates the need for expert testimony � for both psychiatrists and other doctors � when the causal link between the negligence and the injury would be clear to a lay juror with no medical training. Here, that exception applies. Bowman claimed that Kalm had negligently prescribed sleeping pills to Menlove when he should have known she would abuse them and would become clumsy. Her death was caused by her knocking the dresser onto herself after abusing the pills. This connection requires no specialized medical knowledge. • INTELLECTUAL PROPERTY Memorized client list counts as trade secret A memorized confidential client list is a trade secret protected by state law from copying, the Ohio Supreme Court held on Feb. 6. Al Minor & Assoc. Inc. v. Martin, No. 2008-292. While employed by Al Minor & Associates Inc., an actuarial firm that designs and administers retirement plans, pensions analyst Robert E. Martin organized his own company intending to offer competing services. After resigning, he successfully solicited 15 clients of his previous employer, using only his memory of client lists. Al Minor sued Martin under Ohio’s Uniform Trade Secrets Act, Ohio Rev. Code Ann. � 1333.61. A magistrate determined that Martin had misappropriated the client list in violation of the trade secrets law and recommended that he pay $25,973 in fees that his former employer would have earned from its former clients. A trial judge adopted the magistrate’s findings and entered judgment in favor Al Minor. Martin appealed, claiming that a memorized client list does not satisfy the definition of a trade secret. An intermediate appellate court affirmed and certified a question for the state Supreme Court: Can customer lists compiled by former employees strictly from memory be the basis for a statutory trade secret violation? Affirming, the Ohio Supreme Court said that the Ohio Legislature enacted legislation in 1994 defining a trade secret, but no provision of the law distinguishes between information reduced to tangible form and that which is memorized, the court said. The “determination of whether a client list constitutes a trade secret pursuant to [Section] 1333.61(D) does not depend on whether it has been memorized by a former employee. It is the information that is protected by the [statute], regardless of the manner, mode, or form in which it is stored � whether on paper, in a computer, in one’s memory, or in any other medium.” • REAL PROPERTY Buddhists not immune from land-use regulation Neither the Federal Religious Land Use and Institutionalized Persons Act of 2000 nor Connecticut state law prohibits a municipality from denying an application for the construction of a Buddhist temple, the Connecticut Supreme Court held on Feb. 12. Cambodian Buddhist Soc’y v. Town of Newtown, No. SC17690. The Cambodian Buddhist Society of Connecticut applied for a special exception to build a Buddhist temple on its property in a residential area in Newtown, Conn. Newtown’s Planning and Zoning Commission denied the application on the ground that the temple violated town zoning regulations: The temple would be inconsistent with a “quiet single-family residential neighborhood with a rural setting.” The commission cited additional concerns, including the proposed septic system and published reports that the Buddhists might build a health center on the property in violation of the town’s zoning regulations for residential areas. The Buddhists challenged the town’s decision, claiming the denial to be a violation of Conn. Gen. Stat. � 52-571b1 and the federal Religious Land Use and Institutionalized Persons Act of 2000 (RLUIP), 42 U.S.C. 2000. The trial court held for the town. Affirming, the Connecticut Supreme Court rejected the Buddhists’ claim that the denial of their application placed a “substantial burden” on the practice of their religion in violation of the RLUIP. Quoting from a statement in the RLUIP’s legislative history by the bill’s co-sponsors, senators Orrin Hatch, R-Utah, and Edward Kennedy, D-Mass., the court said that the RLUIP does “not provide religious institutions with immunity from land use regulation, nor does it relieve religious institutions from applying for variances, special permits or exceptions, hardship approval, or other relief provision in land use regulations, where available without discrimination or unfair delay.” • TORTS Suit over failure to warn about child molester fails Under the discretionary function exception, a government agency has no duty to warn a mother before placing a child molester in her home, the 8th U.S. Circuit Court of Appeals held on Feb. 5. Hinsley v. Standing Rock Child Protective Services, No. 07-1435. T.C., a young man with a history of sexually abusing children, was in the custody of a child protective services agency run by the Standing Rock Sioux Tribe. An investigator for the agency contacted T.C.’s half-sister, Jessica Hinsley, to see if T.C. could live with Hinsley upon his release after turning 18. Although the investigator was familiar with T.C.’s history, he did not inform Hinsley, who had three children. Hinsley agreed to let T.C. move into her home. While Hinsley was working, T.C. allegedly sexually assaulted her 3-year-old daughter, K.M. Hinsley, personally and as guardian ad litem for K.M., sued the agency under the Federal Tort Claims Act. A North Dakota federal court granted the agency’s motion for summary judgment, holding that the agency’s actions fell within the discretionary function exception to the FTCA. The 8th Circuit affirmed. The FTCA contains waivers to the government’s broad sovereign immunity that equally apply to claims against a tribal organization. 28 U.S.C. 2680(a) provides that no liability shall lie for “the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency.” The court said no statute or regulation mandated the agency to warn the public or a third party about the sexual abuse history of someone it was discharging and the lack of such mandate evidenced the agency’s policy to maintain the confidentiality of a sexual abuser’s past actions.

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