Statute Awarded Fees On Motions To Enforce Even Though Judgment Was Silent

Under California Corporations Code § 15634, a limited partner has the right to inspect the partnership’s books and records. In Berti v. Santa Barbara Beach Properties, 145 Cal.App.4th 70, 51 Cal.Rptr.3d 364 (2d Dist. Nov. 27, 2006), plaintiffs brought litigation under § 15634 that ultimately was settled under an agreement that was merged into a judgment that did not provide or attorneys’ fees.

When plaintiff brought various motions to enforce the settlement and then sought attorneys’ fees for those efforts, the trial court denied the motion as there was no fee provision in the judgment. However, the appellate court found that the statutory right to fees was superior, and entitled plain­tiffs to fees notwithstanding the absence of a provision for fees within the judgment.

This case illustrates a principle the federal courts have grappled with for some time as well under fee-shifting statutes and offers of judgment. The lesson here is -- before you settle, make sure you know whether attorney's fees snuck their way into the settlement by operation of law.

State Court Default Judgment Estopped Debtors From Re-Litigating Dischargability

In Evans v. Ottimo, 469 F.3d 278 (2d Cir. Nov. 20, 2006), the debtors attempted to litigate whether their debts were nondischargeable under § 523(a) of the Bankruptcy Code. The debt involved a default judgment for Evans for $400,000 entered by a New York state court in which the court found that the debtors had committed fraud. The debtors never appealed that judgment, and commenced bankruptcy proceedings five years later.

Evans argued that the debtors were collaterally estopped from contesting that a judgment for damages due to fraud was nondischargeable, but the bankruptcy court disagreed because the judgment in issue was entered in default.

The district court reversed and the Second Circuit agreed, finding that collateral estoppel principles are applicable even in default judgment situations. The two key conditions for estoppel were satisfied here -- the issue was identical between proceedings, and the estopped party had a full and fair opportunity to litigate the issue in the prior action.

Mandamus Not Warranted To Prevent Trial From Improperly Being Tried To Jury

The Seventh Circuit has denied mandamus in a case involving a late jury demand.

In In re Linee Aeree Italiane (Alitalia), 469 F.3d 638 (7th Cir. Nov. 27, 2006), the plaintiff demanded a jury trial after the defendants’ status changed from a state-controlled entity (for which a non-jury trial is provided by statute) to a privatized company. Alitalia claimed that the district court should not have allowed plaintiff to make a jury demand based on facts that developed after the initial filing of the case, and sought mandamus. However, the Seventh Circuit concluded that even if Alitalia’s argument about the timing of a jury demand were correct, having to wait to appeal that issue after the entry of final judgment on a jury verdict would not cause Alitalia the sort of irreparable harm required to support mandamus relief. Instead, the appellate court could vacate the judgment and order a bench trial.

Seventh Circuit Reaffirms Allowing Excusing Indigents From Taxation Of Costs

Federal Rule of Civil Procedure 54(d) provides that costs other than attorneys’ fees “shall be allowed as of course to the prevailing party unless the court otherwise directs.” Most courts have held that the final part of that clause gives district courts the discretion to excuse indigent persons from having to pay costs.

In Rivera v. City of Chicago, 469 F.3d 631 (7th Cir. Nov. 21, 2006), the City of Chicago asked the appellate court to abolish its precedent creating the indigence exception. The court refused to do so.

Instead, the Seventh Circuit provided guidance to district courts regarding the exercise of their discretion. First, they must make a threshold factual finding that the losing party is incapable of paying the court-imposed costs at this time or in the future. Second, the court should consider the amount of costs, good faith of the losing party, and the closeness and difficulty of the issues raised by a case. Finally, the court must have and state an explanation for its decision to make an exception and deny costs.

Trial Attorney’s Role In Settlement Insufficient To Warrant Reversal Of Jury Verdict

Sometimes the settlement of litigation itself becomes the subject of its own litigation. When that happens, the parties face a risk that if they choose to be represented in the second case by the same counsel who negotiated the settlement of the first case, the other side may claim that such counsel is a fact witness and should be disqualified.

However, in Fonten Corp. v. Ocean Spray Cranberries, Inc., 469 F.3d 18 (1st Cir. Nov. 17, 2006), the district court denied a motion to disqualify and the attorney was permitted to participate in the trial, and the appellate court affirmed.

The First Circuit concluded that the mere fact that the attorney participated was not sufficiently prejudicial to justify ordering a new trial. Rather, the actual conduct had to be evaluated, and here it did not involve implying that any witness’ version of events was inaccurate based on the attorney’s inside knowledge.

Award Of Costs That Exceeded Authorized Categories Reversed

Under U.S. Supreme Court precedent, absent specific statutory authorization for recovery of additional expenses, district courts are limited in taking costs against the losing party in federal litigation by Fed.R.Civ.P. 54(d) and 28 U.S.C. § 1920. Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 445 (1987).

The Eleventh Circuit recently applied that principle in Corwin v. Walt Disney Co., 468 F.3d 1329 (11th Cir. Nov. 2, 2006), to disallow $120,000 of a total award of $171,000, despite the losing party’s failure to timely object to the cost award. The court specifically found that there was no authority to award costs for (a) expert witness fees beyond the statu­tory $40 per diem; (b) travel expenses for attorney travel; (c) mediation expenses; (d) various discovery expenses; and (e) paralegal services.

[Note: This opinion was vacated and superseded at 475 F.3d 1239.]

Voluntary Dismissal For Lack Of Jurisdiction Not With Prejudice Under Rule 41(a)(1)

The Seventh Circuit has clarified the interaction between Fed.R.Civ.P. 41(a)(1) and 12(h)(3).

In Murray v. Conseco, Inc., 467 F.3d 602 (7th Cir. Oct. 25, 2006), defendants moved to dismiss for failure to state a claim and for lack of subject-matter jurisdiction. Plaintiffs conceded the jurisdictional point and filed a “notice of consent to dismiss.” Defendants convinced the district court that this was both a voluntary dismissal under Rule 41(a)(1) and also the second time plaintiffs dismissed, and therefore the dismissal was required to be with prejudice under that rule.

On appeal, the Seventh Circuit reversed because this was not a voluntary dismissal within the definition of Rule 41(a)(1) due to its being filed later in the proceedings. Instead, plaintiff was complying with the mandate that the court be advised as soon as becoming aware of jurisdictional problems. The court’s dismissal was made in compliance with Rule 12(h)(3), not Rule 41(a)(1), and the two-dismissal rule was not implicated.

Ohio Complaint Was Timely Despite Clerk’s Improper Practice Of Delaying Service

The Supreme Court of Ohio has confirmed a bright-line rule that the filing of a complaint commences the action for statute of limitations purposes.

In Seger v. For Women, Inc., 110 Ohio St.3d 451, 854 N.E.2d 188 (Oct. 4, 2006), plaintiff filed a medical malpractice action days before the expiration of the statute of limitations, but requested the Clerk not to effect service yet because she was still investigating the identity of an additional defendant. The Clerk served the complaint four months later when plaintiff requested it.

Defendants argued that the Clerk violated Rule 4(A), which requires the Clerk to effect service “forthwith,” causing the action to be commenced out of time. While the court agreed that Rule 4(A) was violated, and it condemned the Clerk’s apparent practice of allowing counsel to request delays of service contrary to that rule, it held that Ohio Civil Rule 3(A) establishes an absolute rule that a civil action is commenced the day the complaint is filed “if service is obtained within one year.” It rejected construing Rule 4 as affecting Rule 3 because that would lead to case-by-case evaluations of what “forthwith” meant in particular circumstances, whether delay was intentional, and what the consequences should be.

Reinstatement Under Rule 60(b) Tolls Statute Of Limitations As Of Original Filing

In Stanley v. Foster, 464 F.3d 565 (5th Cir. Sept. 12, 2006), the court considered as a matter of first impression the interplay between two rules dealing with the effect of a dismissal.

In general, if a court dismissed a complaint without prejudice the statute of limitations may continue to run. As a result, the action that the plaintiff was hoping to pursue through an amended complaint may have become time-barred. However, another legal concept holds generally that if a dismissal order is later set aside, the cause is reinstated as though the judgment had never been entered. Taken literally, that would mean that the reinstatement date has no independent significance.

The court in Stanley apparently agreed. Examining the effect upon the statute of limitations of a successful Rule 60(b) motion that reinstated a complaint, the court held that in such a situation the date of the original filing, not of the 60(b) ruling, is the proper date for purposes of the statute of limitations.

Jury Demand Violated Contractual Waiver Of Jury Trial

The Texas Supreme Court has enforced contract language under which a borrower waived the right to a jury trial on any claim or cause of action arising from a promissory note. In re General Electric Capital Corp., 203 S.W.3d 314 (Tex. Sept. 22, 2006).

General Electric brought a non-jury action on the amount remaining unpaid on a note. The trial court originally posted the case to its non-jury docket, but at some point the borrower filed a jury demand and the court moved the case to its jury calendar. The company never received notice from the borrower of the jury demand, but it did receive forms from the court showing the jury docket was being used. Ten months after the jury demand, the company moved to strike the jury demand due to lack of notice and the violation of the contract.

The trial court denied the motion and the appellate court denied relief, but the high court granted mandamus. It found that the contractual language was conspicuous and enforce­able, that the company never waived it, and that the trial court abused its discretion in failing to enforce the contract by striking the jury demand.

Moving To Strike Portions Of Appellate Brief Is Sanctionable In The Seventh Circuit

In Custom Vehicles, Inc. v. Forest River, Inc., 464 F.3d 725 (7th Cir. Sept, 25, 2006), Judge Easterbrook of the U.S. Seventh Circuit Court of Appeals issued an opinion as motions judge to publicize his practice of denying all motions to strike portions of appellate briefs and penalizing the moving party by reducing the size allowed for their merits brief.

He noted that the Federal Rules of Appellate Procedure contain no provision for a motion to strike, and that such a motion improperly attempts to have the motions judge decide part of the merits of the case in advance, as if he or she were a fourth member of the merits panel, through the act of editing the offending brief.

Judge Easterbrook announced that from now on he will penalize parties who move to strike by reducing the allotted length of their merits briefs by double the amount consumed by the motion papers.

Forum-Selection Clause In International Contract Must Be Interpreted Pursuant To Choice-of-Law Clause

In a matter of first impression, the Tenth Circuit recently held that “when an international commercial agreement has both choice-of-law and forum-selection provisions, the forum-selection provision must ordinarily be interpreted under the law chosen by the parties” instead of the law where the suit is pending.

In Yavuz v. 61 MM, Ltd., 465 F.3d 418 (10th Cir. Sept. 20, 2006), plaintiff Turkish citizen entered into a contract with a Swiss corporation to receive funds in resolution of a dispute involving Oklahoma real estate. It contained a paragraph stating, “This convention is governed by the Swiss law. . . . Place of courts is Fribourg” (Switzerland).

When plaintiff sued in Oklahoma state court, defendants removed and then moved for dismissal on the grounds of improper venue. The district court granted the motion, and in doing so implicitly interpreted the contract according to United States law, holding that the forum selection clause was enforceable and meant that the dispute was required to be litigated in Fribourg, Switzerland.

Noting that the issue of forum selection clauses in international agreements “has received virtually no attention from the federal courts or even scholars,” the Tenth Circuit looked to several Supreme Court cases arising in the international context. Concluding that the parties’ chosen law should govern the whole contract, including the forum selection clause, it held that the district court should have looked to Swiss law to interpret whether the apparently permissive language “Place of courts is Fribourg” required the claims to be brought in Swiss courts.

Clerk’s Entry Of Judgment Started Appeal Countdown Even Without Court Approval

Federal Rule of Civil Procedure 58 requires that judgments be entered on a separate piece of paper, which is docketed by the clerk. The intent of the rule was to make it very clear when the time would begin to run for filing a notice of appeal. However, the “Rule 58 judgment” concept created some unique problems. For example, if the Rule 58 judgment was never created, the time for appeal could last forever.

In an effort to address that problem, the rule was revised in 2002 to provide that certain types of judgments need not be memorialized in a separate document but are to be docketed by the clerk automatically. All other types of judgments must be placed in a separate document under Rule 58(B)(1), but the clerk must also record on the docket the substance of the judgment. If the separate document is never created, an absolute cap of 150 days from the time the clerk notes the substance of the judgment on the docket under Rule 79(a) limits the time to appeal.

The Fifth Circuit recently applied this rule in Burnley v. City of San Antonio, 470 F.3d 189 (5th Cir. Sept. 15, 2006). There, the clerk entered the fact of a judgment on the docket, but the court never prepared a required Rule 58 judgment. The defendant argued that the clerk’s docketing was “not authorized” and therefore a nullity, but the court held that a clerk has “independent authority and a duty to enter the judgment based on the verdict in the civil docket.” When 150 days passed without the filing of a separate Rule 58 judgment, the clerk’s entry became the judgment as a matter of law. The appellant did not file its appeal within 30 days of that entry, so the appeal was dismissed.

Skeletal Rule 59(e) Motion Fails To Extend Time For Filing Appeal

Under Fed. R. App. P. 4(a)(4)(A), certain post-judgment motions, including motions under Fed. R. Civ. p. 59(e), extend the time in which to file a notice of appeal. However, in Goodspeed v. Quechee Lakes Corp., 463 F.3d 195 (2d Cir. Sept. 13, 2006), the court held that a Rule 59(e) motion that is so “skeletal” that it fails to raise proper grounds for relief under Rule 59(e) does not qualify to extend the time for appeal.

The motion in this case was clearly perfunctory. It merely stated that counsel required an extension of time to support the motion itself so that counsel could perform a review and determine whether there was something there to bring to the court’s attention. The Second Circuit held that such a motion fails to “state with particularity” the grounds for relief, as required under Rule 7(b)(1), and also seeks an improper end-run around the prohibition in Rule 6(b) against extending the time for taking any action under Rule 59(e).

Viability Of Claim For Conversion Of Electronic Data Certified To New York Court

The Second Circuit has asked the highest court of New York state to clarify the law regarding whether a claim of conversion can exist where the property converted consists solely of electronic data.

In Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400 (2d Cir. Aug. 21, 2006), a former insurance agent who leased a computer system from his principal sued for conversion when the insurance company reclaimed the computer. The agent had installed various software of his own on the leased system and created electronic documents with that software, all of which he alleged were converted when the company took the computer.

The district court dismissed conversion claims based on the fact that the company owned the computer, but the Second Circuit disagreed that such ownership interest alone was a barrier to the claim. However, it analyzed New York law concerning the applicability of conversion claims to intangible property and found the matter “unsettled.” It certified the question of whether “a claim for the conversion of electronic data [is] cognizable under New York law.”

Sixth Circuit Finds Rule 26(a)(2) Requires Disclosure Of All Information Provided To Testifying Experts

In Regional Airport Authority v. LFG, LLC, No. 05-5754, 2006 WL 2368323 (6th Cir. Aug. 17, 2006), the Sixth Circuit became the second court of appeals to hold that the 1993 amendments to Fed. R. Civ. P. 26(a)(2) created a bright-line rule mandating disclosure of all information provided to testifying experts, even if such materials included attorney work product.

Since 1993, courts have split over the issue of whether work product that attorneys provide to their retained testifying experts must be disclosed. Beginning with Haworth, Inc. v. Herman Miller, Inc., 162 F.R.D. 289 (W.D. Mich. 1995), some district courts have held that work product shared with a testifying expert does not necessarily need to be produced because Rule 26(b)(3) and (4) retain some protections for work product.

However, in Regional Airport Authority the Sixth Circuit overruled the Haworth rule and found that amended Rule 26(a)(2) trumps Rule 26(b)(3) and (4).

Third Circuit Examines Split Regarding Preclusive Effect Of Alternative Findings

The doctrine of collateral estoppel holds that a ruling on a particular issue has preclusive effect and may not be re-litigated in a later proceeding where the identical issue was actually adjudicated, there was a full and fair opportunity to litigate the issue, and the determination by the adjudicator was necessary to the decision in the case. However, courts are split over whether this doctrine applies to a ruling based on alternative findings because of the difficulty in concluding that any one alternative finding was any more “necessary to the decision” than the others.

In Jean Alexander Cosmetics, Inc. v. L’Oreal USA, Inc., No. 05-4321, 2006 WL 2337267 (3d Cir. Aug. 14, 2006), the Third Circuit observed that the First Restatement of Judgments adopted the view that any alternative findings should be given equally preclusive effect, but 40 years later the Second Restatement reached the opposite conclusion, refusing to give preclusive effect to alternative findings that were each independently sufficient to support the judgment. The federal courts of appeal have split behind those two positions, with the majority following the First Restatement.

The Third Circuit rejected the Second Restatement position and sided with the Second, Seventh, Ninth and Eleventh Circuits.

Time To Appeal Of Class Certification Ruling Not Extended By Renewed Motion

Interlocutory appeal of rulings on class certification motions is available, at the discretion of the appellate court, by filing a petition under Fed. R. Civ. P. 23(f) within ten days of the ruling.

In Carpenter v. Boeing Co., No. 04-3334, 2006 WL 2244242 (10th Cir. Aug. 8, 2006), the Tenth Circuit held that the 10-day period is not subject to extension through the filing of a motion seeking the district court’s reconsideration of its ruling. In the Carpenter case, plaintiffs filed a petition within 10 days after the district court denied their “renewed” motion for class certification. The appellate court viewed that motion as a motion to reconsider, and dismissed the petition as untimely.

Substitution Of Correct Defendant After Expiration Of Statute Of Limitations Denied

In Locklear v. Bergman & Beving AB, No. 04-2506, 2006 WL 2244532 (4th Cir. Aug. 7, 2006), a plaintiff sued a company it named “Hassleholms Mekanisk AB” in a products liability complaint filed shortly before the statute of limitations expired. Plaintiff claimed that company was the manufacturer of equipment responsible for his personal injuries.

Subsequently he learned that the manufacturers actually were entities called “Luna AB” and “Bergman & Beving AB.” After allowing him to amend the complaint to substitute those parties as defendants, the court dismissed the complaint as time-barred because the original complaint did not toll the statute of limitations against the new defendants under Fed. R. Civ. P. 15(c)(3).

In affirming, the Fourth Circuit noted that where the Rule speaks in terms of relation-back in the case of a “mistake concerning the identity of the proper party,” courts distinguish between “mistake due to a lack of knowledge and mistake due to a misnomer.” A complaint amended to correct a mere misnomer relates back to the original complaint for limitations purposes, but a correction such as the one in Locklear to add a new party that the plaintiff simply did not know about “drags a new defendant into the case” and does not relate back.

Defendant May Not Substitute Diverse Party Where Plaintiff Sued “Wrong” Entity

In Salazar v. Allstate Texas Lloyd’s, Inc., No. 04-41043 (5th Cir. July 10, 2006), plaintiff sued for breach of contract and bad faith the entity he believed was his insurer. That entity was a Texas resident, and plaintiff sued in state court. In fact, however, the issuer of the policy was Allstate Illinois, and if plaintiff had sued that company instead Allstate could have removed based on diversity.

Allstate Texas filed removal papers and then moved to add Allstate Illinois and dismiss Allstate Texas. The district court granted those motions and refused to remand the case.

The Fifth Circuit held that this type of substitution is improper. While Rules 17, 19 and 21 might apply in a typical misjoinder or fraudulent joinder case, here only one party had ever been named as a defendant. In that situation, the district court lacked jurisdiction at the outset and substitution could not be used to create federal jurisdiction.

Federal Government Is A “Person” Amenable To Service Of A Rule 45 Subpoena

The Court of Appeals for the District of Columbia Circuit has rejected the assertion by the federal government that it is not subject to Rule 45 because it is not a “person.”

In Yousuf v. Samantar, No. 05-5197, 2006 WL 1651050 (D.C. Cir. June 16, 2006), plaintiffs served a third-party subpoena on the State Department seeking certain documents relevant to their tort claims against another individual. The government objected that Rule 45(a)(1)(C) authorizes service of a subpoena only upon a “person” and that it was not within the scope of that word as used in the rules.

After an exhaustive analysis of the government’s statutory construction arguments, the court held that litigants indeed may serve third-party subpoenas upon the government because the framers of the rules intended the term “person” to include non-natural persons including the U.S. government.

Administrative Closure Not Final Disposition Allowing Appeal

Appellate courts sometimes get very technical about the finality requirement for appeals.

In CitiFinancial Corp. v. Harrison, No. 04-60979, 2006 WL 1644828 (5th Cir. June 15, 2006), a financial services consumer brought claims in state court concerning a contract that included an arbitration clause. CitiFinancial removed the case.

While it was pending before one judge, CitiFinancial filed its own lawsuit before another judge seeking an order to compel arbitration and to stay the first case. The court granted that motion and the judge in the original case complied, “administratively closing” the case that was now stayed.

The consumer appealed the order staying the first case and compelling arbitration. The Fifth Circuit concluded that under normal circumstances it has jurisdiction over an appeal from an order compelling arbitration because such an order essentially is final. Here, however, part of the dispute was still ongoing in the original court. The Fifth Circuit ruled that the “administrative closure” did not count as ending the case, because such closures merely stay the case while removing the case from the court’s active docket for statistical purposes, without permanent dismissal.

Federal Arbitration Act Does Not Authorize Nationwide Service Of Process.

In Dynegy Midstream Services, LP v. Trammochem, 451 F.3d 89 (2d Cir. June 13, 2006), several parties arbitrated a dispute before a New York panel of arbitrators. One of the parties sought to subpoena Dynegy, a Texas-based third-party, and the panel served a subpoena for documents to be produced in Houston.

After Dynegy ignored the subpoena, the interested party successfully moved to compel compliance with the subpoena in New York federal court, and Dynegy appealed.

The Second Circuit held that the Federal Arbitration Act does not authorize nationwide service of process. While it empowers arbitrators to “summon in writing any person to attend before them” and to bring documents, it also requires that service of such a summons be made in the same manner as a Rule 45 subpoena. In this case, the New York panel could not have served the Houston company under the geographic limitations of Rule 45, and the district court lacked personal jurisdiction.

Appellate Court Affirming Jury Verdict Still Must State Reasoning

The Texas Supreme Court has remanded an appeal for preparation of a more informative opinion.

In Gonzalez v. McAllen Medical Center, Inc., No. 03-0939, 2006 WL 1562847 (Tex. June 9, 2006), a jury rejected the claims of medical negligence plaintiffs. On appeal, the court affirmed the verdict and disagreed with plaintiffs’ argument about the sufficiency of the evidence. However, its rejection of that argument in a single sentence that the evidence was sufficient without stating any reasons why.

In Texas, an appellate court reversing a jury verdict on sufficiency grounds must detail the evidence and clearly state why the jury’s findings were factually insufficient. Even though in affirming a verdict a much lower level of detail is needed, the Supreme Court held that the court still must provide the “basic reasons” for the decision, and not merely recite that the evidence was sufficient.

U.S. Supreme Court Holds No Private RICO Action Available For Tax Underpayment

The U.S. Supreme Court has limited the reach of the Racketeer Influenced and Corrupt Organizations Act in certain private disputes.

In Anza v. Ideal Steel Supply Corp., 126 S. Ct. 1991 (June 5, 2006), a steel supplier brought RICO claims against a competitor that it alleged had unfairly obtained market share by not charging its customers a state tax that plaintiff did charge, thereby undercutting plaintiff’s prices.

Reversing the Second Circuit, the Supreme Court held that a RICO plaintiff must allege some direct relation between the injury alleged and the injurious conduct at issue, and that here the direct victim of the tax fraud was the State of New York. The court rejected the claim here as too attenuated to satisfy the fundamental proximate cause requirement.

U.S. Supreme Court Rejects Presumption Favoring Patent Infringement Injunction

The Federal Circuit, which is often the court of last resort in patent disputes because the U.S. Supreme Court accepts so few cases for review, has developed a line of authority under which plaintiffs who establish patent validity and infringement enjoyed a presumption in favor of injunctive relief “absent exceptional circumstances.”

However, in eBay Inc. v. MercExchange, L.L.C., No. 05-130 (May 15, 2006), the U.S. Supreme Court held that the four-factor test traditionally applied by courts of equity in deciding whether or not to grant injunctive relief applied equally to disputes arising under the Patent Act.

Regardless of the fact that a case involves alleged patent infringement, a district court should not issue an injunction unless it finds (1) that plaintiff has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

State Taxpayers Lack Standing To Challenge State Tax Or Spending Decisions

The U.S. Supreme Court historically has restricted the standing of plaintiffs suing the federal government to invoke Article III “case or controversy” jurisdiction merely based on their status as taxpayers.

In DaimlerChrysler Corp. v. Cuno, No. 04-1704 (May 15, 2006), the Court extended that jurisprudence to cases involving state taxpayers suing state governments to challenge state tax or spending decisions.

Moreover, while the Court has permitted municipal residents to sue municipalities to challenge the illegal use of public funds by the municipal corporation, the Court held that such precedents did not confer standing on municipal residents to challenge state tax or spending decisions.

U.S. Supreme Court Curtails Probate Exception To Federal Jurisdiction

As reported in January 2005, the Ninth Circuit held in In re Marshall, 392 F.3d 1118 (9th Cir. Dec. 30, 2004), that the probate exception to federal jurisdiction applied in Bankruptcy Court. However, the Supreme Court has now reversed that decision as extending the probate exception too broadly.

The Ninth Circuit read the probate exception to exclude from federal jurisdiction “not only direct challenges to a will or trust, but also questions which would ordinarily be decided by a probate court in determining the validity of the decedent’s estate planning instrument.” The court also held that a State’s vesting of exclusive jurisdiction over probate matters in a special court (in this case the Texas Probate Court) strips federal courts of jurisdiction to entertain any “probate related matter,” including claims respecting “tax liability, debt, gift, [or] tort.”

However, the Supreme Court found that this broad reading lacked any basis in statute or Supreme Court precedent. Marshall v. Marshall, No. 04-1544 (U.S. May 1, 2006).

Clarifying its juris­prudence in this area, the Court said the probate exception only reserves to state probate courts the probate or annulment of a will and the administration of a decedent’s estate, and precludes federal courts from disposing of property that is in the custody of a state probate court. The probate exception does not bar federal courts from adjudicating matters outside those confines that otherwise are within federal jurisdiction.

Tobacco Company Punitive Damages Exceeding Single-Digit Ratio Upheld

The California intermediate appellate court has upheld a significant punitive damages award against Philip Morris.

In Bullock v. Philip Morris USA, Inc., No. B164398 (Cal. App. (2d Dist.) Apr. 21, 2006), the jury awarded a smoker $850,000 in compensatory damages and $28 billion in punitive damages based on findings of defective design, intentional and negligent misrepresentation and fraudulent concealment about the health effects of smoking, and findings that Philip Morris was guilty of malice, fraud, or oppression with respect to each of plaintiffs’ claims. The trial court reduced the punitive award to $28 million (about 33 times compensatory damages) on remittitur.

The appellate court found that a sufficient record was presented to the jury of extensive efforts by Philip Morris to mislead the public about the adverse effects of smoking, and that it was not necessary to prove that defendant made any specific misrepresentation directly to the plaintiff when it had every reason to expect its misrepresentations to find plaintiff indirectly.

The court acknowledged that the California Supreme Court in Simon v. San Paolo U.S. Holding Co., Inc., 35 Cal.4th 1159 (2005), read State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003), as establishing a presumption that a ratio of punitive to compensatory damages greater than a single digit violates due process, but left open that in cases of “extreme reprehensibility” a greater award might be appropriate. Here, the court found this standard satisfied based on the record, and upheld the award.

American Subpoena In Connection With European Proceedings Quashed As Attempt To Circumvent Foreign Rules

Microsoft Corporation recently attempted to use a subpoena issued through Massachusetts federal court under 28 U.S.C. § 1782(a) to obtain certain documents from competitor Novell Inc. for use in connection with European antitrust proceedings. In re Application of Microsoft Corp., No. 06-10061-MLW (D. Mass. Apr. 17, 2006).

The European regulator found that Microsoft failed to comply with an earlier order, and it provided a set of documents to Microsoft in support of its finding. Microsoft subpoenaed Novell to obtain additional documents not provided by the regulator, but the subpoena was quashed.

The federal court relied heavily on the views of the European regulator, who took the position that the use of American third-party discovery techniques circumvented the balance struck under the European system designed to avoid a chilling effect on third-party cooperativeness in antitrust investigations. Finding that § 1782(a) was designed to aid foreign tribunals, not interfere with them, the court refused to enforce the subpoena.

Non-ISP Lacks Standing To Challenge Party Seeking Identity Of Internet Poster

As computer users have embraced the apparent anonymity of the Internet, businesses who find themselves the targets of online disparagement have attempted to sue the responsible parties for defamation. To do so, they often bring third-party discovery against the Internet service provider (“ISP”) to reveal the identity of the account holder who posted the defamatory remarks.

In Matrixx Initiatives, Inc. v. Doe, No. H028699 (Cal. App. (6th Dist) Apr. 18, 2006), the court observed that in a typical such case, the anonymous party normally steps forward to oppose the disclosure of his or her identity, and clearly has standing to do so. In Matrixx, however, the plaintiff was able to trace users who posted allegedly defamatory comments on a Web site to a hedge fund called Barbary Coast Capital Management, and in a deposition the principal of that company refused to answer direct questions about the identity of the posters.

The California court held that the witness in this case had no protected interest in the matter and lacked standing to assert the First Amendment rights of the anonymous posters. The court ordered the witness to answer plaintiff’s questions.

U.S. Supreme Court Allows Citation To Unpublished Opinions

One of the procedural issues that has been debated in the federal courts for many years involves the citation of so-called “unpublished” opinions.

The federal courts of appeal have disposed of many appeals with abbreviated opinions that are not published in the official reports (i.e., West’s Federal Reporter), and have in varying degrees prohibited the citation of such opinions. However, those opinions have long been available through Lexis and Westlaw, and in recent years through the courts’ own Web sites.

On April 12, 2006, the U.S. Supreme Court approved new Fed. R. App. P. 32.1 to allow citation of unpublished opinions. The new rule, which becomes effective on December 1, 2006 unless Congress intervenes, prohibits federal courts from restricting the citation of federal unpublished opinions released beginning on January 1, 2007. If a party cites an unpublished opinion, it must furnish copies along with its brief. The new rule only speaks to citation rules, and does not prohibit courts from assigning such opinions different precedential weight.

Seventh Circuit Retracts Higher Standard For Diversity Jurisdiction

In Meridian Security Ins. Co. v. Sadowski, No. 05-2855 (7th Cir. Mar. 22, 2006), the Seventh Circuit examined and curtailed the development of a line of cases that had misconstrued a 1993 case to raise the barrier to diversity jurisdiction.

Shaw v. Dow Brands, Inc., 994 F.3d 364, 366 (7th Cir. 1993), had stated that defendants seeking removal must prove that they meet the jurisdictional amount through “proof to a reasonable probability that jurisdiction exists.” This language has since been construed within the Seventh Circuit to mean that uncertainty about the jurisdictional amount must be resolved against the removing defendants.

In Meridian, the court overruled that interpretation, which has not been adopted outside of the circuit. The court held that a proponent of federal jurisdiction must, if material jurisdictional facts are contested, prove those facts by a preponderance of the evidence. Once those facts have been proven, federal jurisdiction is satisfied and any uncertainty about whether the plaintiff will be able to prove its substantive claim has no effect on jurisdiction.

Texas Restricts Voir Dire Questions About Weight Jurors Will Give Relevant Evidence

The Texas legislature has guaranteed through statute that jury trials shall be conducted by panels of impartial jurors free from bias or prejudice. And of course one of the purposes of voir dire is to attempt to exclude jurors who are biased or prejudiced. In interpreting that rule, the Texas Supreme Court has adopted a general rule that it is improper to ask prospective jurors what their verdict would be if certain facts were proved.

In Hyundai Motor Co. v. Vasquez, No. 03-0914 (Tex. Mar. 10, 2006), the court extended that holding to prohibit voir dire questions addressed to the weight a juror would give to a relevant piece of evidence.

In this case, the court reversed an intermediate appellate court that had found the trial court to have abused its discretion in refusing to permit plaintiff’s counsel to ask prospective jurors whether the fact that plaintiff was not wearing her seat belt would have been determinative of their verdict.

Award For Discovery Violation Not Successful Outcome Supporting Attorneys’ Fees

A plaintiff who brings a “successful action to enforce” liability under the Fair Debt Collection Practices Act is entitled to an award of attorneys’ fees. But sometimes the question is how one defines success.

In Dechert v. Cadle Co., No. 04-4213 (7th Cir. Mar. 16, 2006), the district court awarded $1,000 to plaintiff for discovery violations by the defendant, but then the plaintiff abandoned his statutory claims under the FDCPA. Ultimately, the district court awarded $60,000 in attorneys’ fees and the defendant appealed.

The appellate court revered the fee award, finding that the FDCPA claim on the merits was never proven and nothing was awarded under plaintiffs’ substantive claim. The award of a discovery sanction was insufficient to support characterizing the case as a “successful action” under the statute and trigger fee-shifting.

No Sovereign Immunity From Bankruptcy Trustee’s Preference Action Against State

In Central Virginia Community College v. Katz, No. 04-885 (U.S. Jan. 23, 2006), the U.S. Supreme Court considered the intersection between the federal law of bankruptcy and the doctrine of sovereign immunity.

In this case, a book-seller transacted business with a state university before filing for bankruptcy. The court-appointed liquidating trustee commenced proceedings in Bankruptcy Court to avoid and recover alleged preferential transfers made to state parties when the debtor was insolvent. The state parties moved to dismiss on the basis of sovereign immunity, but the motions were denied.

In a 5-4 ruling, the Court held that Congress properly abrogated the states’ sovereign immunity in the Bankruptcy Code (11 U.S.C. § 106(a)), although the majority also held that the enactment of that particular statute was not necessary in this case because the Bankruptcy Court already was authorized to conduct preference avoidance proceedings involving state creditors.

U.S. Supreme Court Holds Failure To Renew Rule 50(a) Motion Waives Appeal

Parties to a federal jury trial may attempt to avoid having the jury decide particular issues pursuant to Rule 50. Under Rule 50(a), a party may file a motion for judgment on particular issues as a matter of law after the close of the evidence. If the court denies the motion and the issues proceed to jury verdict, the party has ten days to renew its motion for judgment as a matter of law under Rule 50(b) and/or to move for a new trial under Rule 59(e).

It turns out that renewing the motion for judgment as a matter of law is the only way to preserve the issue for appeal.

In Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc., No. 04-597 (U.S. Jan. 23, 2006), the U.S. Supreme Court held that if a party fails to renew its motion after the jury reaches its verdict, that party waives the right to appeal the sufficiency of the evidence. The Court cited precedent finding that courts of appeals only have jurisdiction to overturn a jury verdict if the appellant asked the district court to do so first.

Federally Chartered Banks Are Citizens Only Of Their Main Branch’s State

A party’s citizenship is a critical issue when federal jurisdiction is being claimed on the basis of diversity. While it is well-settled that, for example, a corporation is a citizen of both the state of its incorporation and the state in which it has its principal place of business, and that limited partnerships are citizens of every state in which each partner is a citizen, the law was not settled concerning national banks.

Congress attempted to provide the answer by statute, but the language of 28 U.S.C. § 1348 (national banks deemed citizens of the state “in which they are respectively located”) has caused a split in the circuits.

In Wachovia Bank, N.A. v. Schmidt, No. 04-1186 (U.S. Jan. 17, 2006), the Court held that Congress intended that a national bank be a citizen only of the state in which its main branch, as specified in the charter, is located. The Court rejected the Fourth Circuit’s position that national banks be deemed citizens of each state in which they have any branch.

Supreme Court to Address Whether Experts' Fees Included In Fee Award

A number of federal statutes permit the district court to award attorneys’ fees and costs to the prevailing party. In Murphy v. Arlington Central School Dist. Bd. of Educ., 402 F.3d 332 (2d Cir. 2005), the court allowed the award not only of attorneys’ fees but also the fees of an expert “educational consultant” under the fee-shifting provisions of the Individuals With Disabilities Education Act.

The U.S. Supreme Court has granted the school district’s petition for certiorari, limited solely to the question of whether the statute allowing the court to “award reasonable attorneys’ fees as part of the costs” to the prevailing party also allows the award of experts’ fees. Arlington Central School Dist. Bd. of Educ. v. Murphy, No. 05-18 (Jan. 5, 2006).

Ninth Circuit Upholds Long-Arm Jurisdiction From Obtaining Foreign Court Orders

A recent Ninth Circuit opinion considered whether long-arm jurisdiction can be triggered through a party’s bringing foreign court proceedings against an American citizen.

In Yahoo! Inc. v. La Ligue Contre Racisme et L’Antisemitisme, No. 01-17424 (9th Cir. Jan. 12, 2006), the popular Internet company Yahoo! brought an action in California federal court seeking a declaration that several orders entered against it in France were of no force and effect. The defendants had obtained orders from a French court finding that Yahoo! had permitted its users to use the site to sell Nazi memorabilia in violation of French law, and requiring Yahoo! to set up filters to prevent users in France from browsing the offending pages.

Eight of the eleven judges on the Ninth Circuit panel agreed that the district court had personal jurisdiction over the French defendants. Applying principles of long-arm jurisdiction, the majority concluded that the defendants “purposefully availed” themselves of the privilege of conducting activities in California and/or “purposefully directed” activities with a California party by bringing proceedings against that party in the French courts.