Contingency Fee Payments to Attorneys Not Taxable to Oregon Plaintiffs

When plaintiff Sigitas Banaitis won $8.7 million after a successful appeal of his wrongful termination action, $3.8 million of his award was paid directly to counsel to satisfy his attorney’s contingency fee. On his federal tax return, Banaitis claimed that the $3.8 million was not includable in his gross income, but the IRS disagreed. In Banaitis v. CIR, No. 02-70421 (9th Cir. Aug. 27, 2003), the Ninth Circuit sided with the taxpayer because of state law. While federal law governs taxation of particular legal interests and property rights, state law defines those interests and rights. Here, unique features of Oregon law established that fees paid directly to counsel should be excluded from Banaitis’ gross income. The court distinguished its own decisions applying California or Alaska law, noting that Oregon law was substantially different and controlling.

Sixth Circuit Joins Other Circuits In Requiring Defendants’ Unanimity In Removal

Although not expressly contained in the removal statue, 28 U.S.C. § 1446, federal courts have required that all defendants unanimously join in a petition to remove a state case to federal court. Adopting the position of the Third, Fifth, Seventh, Eighth, Ninth and Tenth Circuits, the court in Loftis v. United Parcel Service, Inc., 342 F.3d 509 (6th Cir. Aug. 26, 2003), held that “all defendants in the action must join in the removal petition or file their consent to removal in writing within thirty days of receipt of (1) a summons when the initial pleading demonstrates that the case is one that may be removed, or (2) other paper in the case from which it can be ascertained that a previously unremovable case has become removable.” Otherwise, they lose the opportunity for removal under § 1446.

Defendant Corporation’s Officer Not Sued Individually Could Be Liable for Contempt

After judgment was affirmed against Gary’s Electric Service Co. in a labor proceeding, plaintiff moved to hold the company’s owner in contempt for violation of the judgment. The district court denied the motion, citing the fact that the owner was not an actual party in the case. However, in Elec. Workers Local 58 Pension Tr. Fund v. Gary’s Elect. Serv. Co., 340 F.3d 373 (6th Cir. Aug. 18, 2003), the appellate court reversed. Because “a command to the corporation is in effect a command to those who are officially responsible for the conduct of its affairs,” Wilson v. United States, 221 U.S. 361, 376 (1911), a person intentionally causing the company to take specific actions to avoid compliance with the judgment (here, the company’s owner) could be held in contempt.

Eleventh Circuit Adopts “Revenue Rule” Abstention Doctrine

The Eleventh Circuit recently considered a group of consolidated cases in which the countries of Honduras, Ecuador and Belize alleged that American tobacco companies violated RICO by engaging in tax avoidance schemes. In Republic of Honduras v. Philip Morris Companies, Inc., 341 F.3d 1253 (11th Cir. Aug. 14, 2003), the court affirmed the district court’s decision to abstain under the “revenue rule,” which prevents the courts of one sovereign from enforcing or adjudicating tax claims from another sovereign. Observing that the doctrine has a long history, the appellate court adopted it as law of the circuit and held that plaintiffs could not avoid the rule by invoking the RICO statute.

Seventh Circuit Clarifies Screening Process For Proposed Amicus Briefs

In National Organization for Women, Inc. v. Scheidler, 223 F.3d 615 (7th Cir. 2000), the Seventh Circuit announced that it would not automatically grant leave to file amicus briefs. The court recently clarified its position on the subject. In Voices for Choices v. Illinois Bell Telephone Co., 339 F.3d 542 (7th Cir. Aug. 6, 2003) (Posner, J., in chambers), the court noted that the test for allowing amicus briefs is “whether the brief will assist the judges by presenting ideas, arguments, theories, insights, facts, or data that are not to be found in the parties’ briefs.”