U.S. Supreme Court To Address Whether Prevailing Party Wins Paralegal Fees At Billed Market Rate Rather Than At Cost

The U.S. Supreme Court has granted certiorari in Richlin Security Service Co. v. Chertoff, No. 06-1717 (cert. granted Nov. 13, 2007).

Plaintiff successfully pursued a claim in the Department of Transportation Board of Contract Appeals, and received an award as prevailing party under the Equal Access to Justice Act. However, the Board considered paralegal fees to be counsel’s expenses, reimbursable at cost rather than at the market rates at which the attorney billed his or her clients. The Federal Circuit affirmed, finding that “EAJA only permits reimbursement for paralegal services at cost.” Richlin Security Service Co. v. Chertoff, 472 F.3d 1370 (Fed. Cir. 2007).

The dissent argued that the majority’s holding was at odds with established Supreme Court and Federal Circuit precedent. In addition, the certiorari petition argued that the holding below contradicted the law of four other circuits.

Court Sanctions Party For Over-Designating Documents As Confidential

Parties often stipulate to protective orders under which a producing party is given the right to designate appropriate documents to be treated as "confidential." However, as the court held in Del Campo v. American Corrective Counseling Services, Inc., No. C-01-21151 JW (PVT) (N.D. Cal. Nov. 5, 2007), the designating party must bear the responsibility for determining which documents truly are appropriate for confidential treatment.

The particular order at issue in Del Campo included a specific provision requiring each designating party to “take care to limit any such designations to specific material that qualifies under the appropriate standards,” and noted that indiscriminate designations “expose the Designating Party to possible sanctions.” The court found that the defendants produced thousands of documents with a blanket confidentiality designation in violation of the order, including obviously public documents such as law review articles and Web pages, and then failed to support their designations when challenged. The court ordered defendants to pay plaintiff’s attorney’s fees for challenging the over-designation.

The protective order here made the court's job a little easier because the court needed to look no further than the wording of the order to find violations. It seems likely, however, that even if a protective order lacked an express term concerning over-designation, a court easily could find violation of a protective order that merely permitted designation as "confidential" if the documents challenged clearly were not appropriate for confidential treatment.

Filing Voluntary Dismissal Starts Clock For One-Year Refiling Rule Immediately

The Seventh Circuit has issued an opinion that once again illustrates the dangers of waiting until the last moment under a statute of limitations.

In Jenkins v. Village of Maywood, No. 06-3411, 2007 WL 3239198 (7th Cir. Nov. 5, 2007), plaintiff filed a joint stipulation for voluntary dismissal of his Section 1983 action in federal court pursuant to Fed. R. Civ. P. 41(a)(1)(ii) on March 9, 2004. The court prepared an order of dismissal on the same day, and the clerk entered it on the docket on March 15, 2004.

One year later, on March 15, 2005, plaintiff essentially re-filed the case in federal court. The statute of limitations for Section 1983 actions is derived from the appropriate state statute and its corresponding tolling rules. In this case, Illinois law applied and plaintiff's new case would have been out of time but for the existence of a special tolling statute. Under 735 ILCS 5/13-217, a plaintiff who voluntarily dismisses a case may commence the action again within one year or within the remaining limitations period, whichever is greater. Plaintiff believed that his filing within one year of the dismissal was timely because the Illinois Code of Civil Procedure specifies that a voluntary dismissal is not effective for purposes of the one-year tolling rule until the clerk has entered the order onto the docket.

The Seventh Circuit disagreed, holding that the date that plaintiff filed the stipulation controlled instead. That is because federal, not state, procedural law governs a federal case even if the applicable statute of limitations is derived from state law. Under Fed. R. Civ. P. 41(a), no order is needed to effect a voluntary dismissal. It specifically states that "an action may be dismissed by the plaintiff without order of court ... by filing a stipulation of dismissal signed by all parties who have appeared in the action." Thus, the dismissal became effective as a matter of applicable law when plaintiff filed the stipulation on March 9, 2004, not when the clerk entered it on the docket the following week.

The moral of the story: Don't file a complaint on what you think is the last possible day. Courts might find that you did not count correctly, or that the "mailbox rule" or other tolling rule did not work the way you thought it did, and you will have left no margin for error.

Florida High Court Again Leaves Emotional Distress “Impact Rule” In Place

In Willis v. Gami Golden Glades, LLC, No. SC04-1929, 2007 WL 3024039 (Fla. Oct. 18, 2007), the intermediate appellate court certified questions to the Florida Supreme Court that invited reconsideration of the state’s “impact rule.” Under that rule, Florida treats emotional distress claims differently depending on whether the plaintiff has suffered a physical impact from an external force.

If there was an impact, Florida permits recovery for emotional distress not only from the impact itself but also for distress stemming from the incident during which the impact occurred. Without an impact, a plaintiff can only recover for mental distress manifested by the physical injury and the plaintiff must have been directly involved in the traumatizing event.

Although the certified questions raised important questions about the application of the impact rule, and invited reconsideration of the rule itself, the majority in Willis concluded that the facts of the case -- involving an assault and battery in a parking lot that plaintiff used at defendant’s direction -- so clearly satisfied the rule that none of the other issues argued by the parties needed to be addressed. However, the concurring and dissenting opinions addressed those issues and the underlying policy questions at length.

New York Does Not Recognize Tort Of Negligent Spoliation By Third Parties

In Ortega v. City of New York, No. 118, 2007 N.Y. Slip Op. 07741, 2007 WL 2988760 (N.Y. Oct. 16, 2007), New York’s highest court refused to recognize spoliation of evidence as an independent tort.

Plaintiff had suffered injuries in a vehicle that caught fire, but the City of New York negligently destroyed the vehicle in the ordinary course of its handling of unclaimed vehicles despite plaintiff’s attorney having obtained an order to preserve the car. Plaintiff did not attempt to sue the manufacturer, but sued the city on a theory of negligent spoliation.

The high court joined the majority of other courts considering the question, and ruled that no such cause of action exists. It also observed that here the plaintiff was not without some recourse given that she could pursue at least some damages for the city’s contempt of court.

Internet service providers, computer backup companies, on-line storage outfits and similar companies in New York perhaps heaved a collective sigh of relief, knowing that they could not be sued (at least in New York) for spoliation because of accidental or even intentional deletion of electronic files.

Plaintiff Has Right To Re-Present Evidence At Retrial Before New Judge

In Anderson v. Kohler, No. 2-05-1212, 2007 WL 2964372 (Ill. App. (2d Dist.) Oct. 4, 2007), plaintiffs sued for breach of contract but the court granted defendants’ motion at the close of plaintiffs’ evidence in a bench trial after finding, without making credibility determinations, that plaintiffs had not proven that the contract existed. The appellate court reversed and remanded for “further proceedings.”

However, the successor judge before whom the case was retried did not permit plaintiff to start again. Rather, he relied on the transcript of the first trial and only heard defendants’ case and plaintiffs’ rebuttal live, and then entered judgment for defendants after crediting their testimony over plaintiffs’.

On a second appeal, the appellate court ruled that the refusal to allow plaintiffs to present all evidence through live testimony violated their due process rights. The court held that absent agreement of the parties, a successor judge may not make credibility determinations based on a transcript of proceedings over which another judge presided, even if the new judge heard some live testimony from all the same witnesses.

The opinion did not discuss it, but a serious problem here is that a plaintiff who suffers a directed verdict has put on her entire case, while defendant has not reciprocated. Thus, defendant knows what plaintiff's case is, but plaintiff does not know defendant's case. If remanded for a new trial, a plaintiff must be given the chance to vary how she presented her case, so that the first half of the case is not entirely following a script that defendant has already read.

One might argue that the judge was just trying to save time on remand. But the system should not try to save time at the expense of a party.

State’s Agreement To Federal Venue Clause Waived Immunity Defense

The State of Massachusetts has learned that its agreement to a venue clause in a license agreement had the unintended consequence of waiving its defense of immunity under the Eleventh Amendment.

In Baum Research and Devel. Co. v. Univ. of Massachusetts at Lowell, No. 2006-1330, 2007 WL 2937300 (Fed. Cir. Oct. 10, 2007), a patent owner sued the state university for breach of a patent license agreement in Michigan federal court. The venue was chosen pursuant to a clause that stated “all parties agree to proper venue and hereby submit to jurisdiction in the appropriate State or Federal Courts of Record sitting in the State of Michigan.”

Defendant asserted Eleventh Amendment immunity, but the trial and appellate courts held that the venue clause waived that defense. While the state may have assumed it would be able to assert immunity and the clause simply established Michigan courts would hear that defense, the clause actually had the broader effect of waiving the defense altogether.

New York Savings Statute Does Not Apply To Substituted Plaintiff

New York, like many states, has a statute that allows a plaintiff whose case is dismissed other than voluntarily or upon a final judgment on the merits to re-file the case within a certain amount of time, presumably after correcting defects, which in effect extends the statute of limitations. Under CPLR § 205(a), New York allows such a plaintiff a grace period of an additional six months to re-file after the dismissal.

In Reliance Ins. Co. v. Polyvision Corp., No. 117, 2007 N.Y. Slip Op. 07500, 2007 WL 2947396 (N.Y. Oct. 11, 2007), answering a certified question from the Second Circuit, New York’s highest court held that § 205(a) does not apply if the plaintiff seeking to “re-file” is not the same plaintiff. The lower courts found the particular plaintiff who originally filed in Reliance Ins. Co. was not the correct entity, and a corporate affiliate un­suc­cessfully sought to re-file in reliance on § 205(a) to extend the statute of limitations.

Ninth Circuit Determines Removing Defendant’s Burden

In Guglielmino v. McKee Foods Corp., No. 05-16144, 2007 WL 2916193 (9th Cir. Oct. 9, 2007), the Ninth Circuit determined as a matter of first impression the burden that a removing defendant must meet to establish federal jurisdiction where plaintiff moves to remand but the complaint specifically alleges damages below the diversity amount.

Here, defendants removed a case in which the complaint alleged damages of “less than $75,000,” and plaintiff’s motion to remand under 28 U.S.C. § 1447 attached affidavits with similar disclaimers. The appellate court observed that its precedents have placed three different burdens on removing defendants, depending on the circumstances. First, when the complaint alleges an amount on its face suffucuent to meet the jurisdictional threshold, the Ninth Circuit presumes that federal jurisdiction is satisfied "unless it appears to a 'legal certainty' that the plaintiff cannot actually recover that amount." (That could be called the "we take the plaintiff at his word unless it is undeniably only wishful thinking" rule.) Second, when the complaint is unclear or ambiguous about the jurisdictional amount, the removing defendant must establish by a preponderance of the evidence that the jurisdictional amount is met. Finally, when a complaint specifically alleges an amount in controversy that is less than the jurisdictional threshold, the party seeking removal must prove with legal certainty that the jurisdictional amount is met.

The new wrinkle here is that the complaint did not allege an amount but also pled that, whatever the damages were, they were less than $75,000. The Ninth Circuit concluded that this situation fit the second category of complaints best because the controlling factor was the ambiguity of the allegations. Thus, where a plaintiff specifically alleges damages are below the jurisdictional amount for diversity, but does not allege an actual total amount in controversy, the defendant must support removal by a “preponderance of the evidence.”

I have wondered about why, in a situation in which plaintiff is the movant -- having filed a motion to remand -- the court expresses its view in terms of the burden the non-movant defendant faces. Usually the movant bears the burden on his own motion. Why shouldn't the plaintiff have the burden of demonstrating the lack of federal jurisdiction by a preponderance of the evidence, rather than the defendant having the burden to establish the existence of federal jurisdiction? Perhaps the answer is that federal jurisdiction is never assumed and always must be established to the court's satisfaction. It follows that whoever is the proponent of the federal forum has to bear the burden of estabilshing entitlement to that forum, and in this case it is the removing defendant. That principle apparently trumps the ordinary rule that a movant bears his own burden.

Judge O'Scannlain filed a concurrence in Guglielmino examining the issue of defendants' and plaintiffs' competing burdens that the majority glossed over. He disagreed with the majority's imposition of a "legal certainty" burden on the removing defendant, a party seeking to invoke federal jurisdiction, rather than the moving plaintiff, a party seeking to defeat federal jurisdiction. He concluded that "in all cases where removal to federal court is challeneged in any appropriate way, it is incumbent upon the party seeking federal jurisdiction to prove the facts giving rise to such jurisdiction by a preponderance of the evidence. Only then, and only by proof to a legal certainty, can a party defeat the exercise of federal jurisdiction which those established fact support." He quoted approvingly from Judge Frank Easterbrook's opinion in Meridian Security Ins. Co. v. Sadowski, 441 F.3d 536 (7th Cir. 2006), which he says attempted to organize and clarify that court's removal law into a coherent whole. He observed that his proposal was consistent with the views of the Fifth, Sixth, Seventh and Eighth Circuits, and would resolve the multiple approaches of his own court into a single standard.

Illinois Courts Lacked Jurisdiction To Hear Federal Civil Rights Claims

The intermediate appellate court of Illinois has reversed a judgment upon a jury trial because the trial court lacked jurisdiction.

In Blount v. Stroud, No. 1-06-2428, 2007 WL 2820964 (Ill. App. (1st Dist.) Sept. 28, 2007), the plaintiff sued her former employer for common law retaliatory discharge and for violation of 42 U.S.C. § 1981, ultimately receiving a favorable jury verdict of over $3 million in largely punitive damages.

However, the appellate court held that the Illinois Human Rights Act provided that the Illinois Human Rights Commission was the exclusive venue for hearing civil rights claims in Illinois in the first instance, and that trial courts were authorized only to hear such matters on administrative review.

Intersting footnote: The court noted that the Act has been amended so that beginning in 2008 plaintiffs may bring civil rights claims before either the Commission or the trial courts. Thus, the problem in Blount is not likely to be repeated in the future.

Courts Refuse To Enforce Class Action Waivers In Arbitration Agreements

Many businesses favor requiring contracting parties to agree to arbitration clauses as part of their transactions, particularly in situations involving individuals such as consumers and employees. The clear trend in the courts is to favor arbitration and to enforce properly made agreements to arbitrate, even in some "adhesion" situations. However, courts hae been much less willing to enforce some of the strings businesses attempt to attach. As two recent decisions illustrate, businesses that require agreements to arbitrate may not be able to avoid arbitrations purporting to be brought on behalf of a class.

In Gentry v. Superior Court, 42 Cal.4th 443, 165 P.3d 556, 64 Cal.Rptr.3d 773 (Aug. 30, 2007), for example, the California Supreme Court considered a law suit brought by a Circuit City employee claiming violations of the Labor Code and Business and Professions Code. Plaintiff sued on behalf of a class of similarly situated employees. Circuit City argued that plaintiff was obligated to arbitrate, and to do so only on his own behalf.

The California Supreme Court agreed to take the case to clarify its decision in Discovery Bank v. Superior Court, 36 Cal.4th 148 (2005), in which it held that class action waivers in consumer contracts can be unconscionable and unenforceable. The court noted that Discovery Bank had not involved claims based on statute, but that plaintiff's claims in Gentry were in pursuit of statutory rights. Furthermore, the statute at issue was expressly made non-waivable by the legislature. The court concluded that under some circumstances the class action waiver Circuit City sought to enforce would lead to a de facto waiver of statutory rights provided in wage/hour cna overtime cases, and therefore would be unenforceable.

Firm’s “Continuous Representation” Tolling Ceases When Attorney And Client Leave

I recently discussed New York’s “continuous representation doctrine” under which the limitations period for legal malpractice actions is tolled during the period that the client was represented by defendant counsel. (“New York Declines To Extend ‘Continuous Representation Doctrine’ To Auditor,” posted here). The Supreme Court of California, which had adopted the doctrine, recently examined a variation on the traditional fact pattern.

In Beal Bank, SSB v. Arter & Hadden, LLP, 42 Cal.4th 503, 167 P.3d 666, 66 Cal.Rptr.3d 52 (Cal. Sept. 27, 2007), an attorney rendered legal services to plaintiff while employed by a particular firm. The attorney then left and the client followed him, continuing to engage him for further services in the same matter. Later, the client sued the attorney for malpractice and also named the former firm as a defendant. The original firm argued that once the client followed the attorney to his new firm the statute of limitations resumed running, and had expired by the time the plaintiff filed its lawsuit.

Resolving a split in the intermediate appellate courts, the California Supreme Court held that tolling under the continuous representation doctrine ceases with respect to the original firm when the attorney leaves and the client follows him. Noting that the doctrine is a judicially-created exception to the statute of limitations for legal malpractice actions expressly adopted by the state in reaction to high court precedent, the court refused to assume legislative intent to broaden that exception in the absence of clear textual support.

No Cause Of Action Exists For “Genericide” Or Disparagement Of A Trademark

The Ninth Circuit has rejected a plaintiff’s attempt to sue a defendant who publicly pressed his opinion that the term “freecycle” should be in the public domain.

In Freecycle Network, Inc. v. Oey, No. 06-16219, 2007 WL 2781902 (9th Cir. Sept. 26, 2007), plaintiff brought claims purportedly under the Lanham Act to enjoin defendant from proclaiming that plaintiff had no right to assert that “freecycle” is a trademark, which it termed “trademark disparagement.” Plaintiff also sought to stop defendant from trying to use the term as part of the English language so as to make it a generic term incapable of being registered as a trademark, which it called “genericide.”

The Ninth Circuit refused to recognize that the Lanham Act or common law provided such causes of action. The statute permitted claims for disparagement of a product itself, not the trademark for the product. The court also noted that the means for trademark owners to avoid letting a mark become generic is by using publicity campaigns to encourage the public not to use a mark in common parlance, rather than by suing people who allegedly misuse it.

Admiralty Defendant Still May Demand Jury Based On Counterclaims

A plaintiff bringing a case that satisfies the requirements for both admiralty and diversity jurisdiction can elect to proceed on either basis, the primary difference being that a jury generally is not available if plaintiff files a libel in admiralty rather than an ordinary civil complaint. See In re: Chimenti, 79 F.3d 534, 537 (6th Cir. 1996). A plaintiff might want to exclude a jury for strategic reasons, and therefore could elect the admiralty route.

However, In re: Lockheed Martin Corp., No. 06-1344, 2007 WL 2793112 (4th Cir. Sept. 27, 2007), illustrates that a defendant can frustrate that election by bringing a declaratory judgment counterclaim and filing a jury demand. In Lockheed Martin, plaintiff successfully moved to strike defen­dant’s jury demand, arguing that the declaratory judgment claim was merely the “flipside” of plaintiff’s affirmative claims, and that defendant should not be permitted an end-run around plaintiff’s admiralty strategy. Defendant filed a mandamus petition.

Noting a split in the circuits, the appellate court held that 28 U.S.C. § 1333 and Fed.R.Civ.P. 9(h) permitted a defendant to bring proper non-admiralty counterclaims and to have them tried to a jury. The court granted the writ of mandamus.

Plaintiff's Own Withdrawal Of Federal Claim Ends Jurisdiction Over State Claim

In addition to claims that fall within specific federal subject-matter jurisdiction, federal courts also are permitted to hear state-law claims pled as part of the same case. See 28 U.S.C. § 1367 (the doctrine of supplemental jurisdiction).

It is well-established that if a defendant successfully moves to dismiss all of the claims for which federal jurisdiction exists, leaving only claims based on state law, the district court has the discretion to dismiss the state-law claims (which the plaintiff then might be able to assert in state court). District courts frequently do just that. See, e.g., Sanchez & Daniels v. Koresko, No. 07-1228, 2007 WL 2757761 (7th Cir. Sept. 24, 2007) (district court properly terminated case after dismissing all claims over which it had original jurisdiction).

The Eleventh Circuit recently considered a case in which the termination of all federal claims occurred by plaintiff’s voluntary amendment of the complaint. In contrast to the discretionary standard applicable after granting of a Rule 12 motion, in Pintando v Miami-Dade Housing Agency, 501 F.3d 1241 (11th Cir. Sept. 25, 2007), the court found that when a party voluntarily withdraws all claims over which the district court had original jurisdiction, the judge is required to dismiss the case. Analogizing to Rockwell Int’l Corp. v. Unites States, 127 S. Ct. 1397 (2007) [covered in a previous post], the court held that the withdrawal of allegations in an amended complaint which had formed the basis of federal jurisdiction defeats jurisdiction altogether, and the case cannot continue in federal court.

Thus, if confronted with a situation like this one, a district court may grant a motion for leave to amend, and then must immediately dismiss the case for lack of federal jurisdiction.

Second Circuit Now Requires Parties Jointly To Affirmatively Request Oral Argument

The Second Circuit Court of Appeals has adopted an interim rule, effective August 27, 2007, that imposes a new, ‘opt-in’ procedure for oral argument. It does not appear that any other circuit has adopted such a requirement.

Under Fed.R.Civ.App. 34, oral argument is required unless the court finds that certain conditions are satisfied such that oral argument can be dispensed with and the case decided solely on the briefs. The Rule also specifies that a court “may require by local rule a statement explaining why oral argument should, or need not, be permitted.”

In a new twist on that rule, the Second Circuit’s Interim Local Rule 34 requires the parties to file a joint statement indicating whether they seek oral argument or agree to submit the case on the briefs. If the parties disagree, that must also be indicated. The joint statement is due within 14 days after the due date for the last brief. Any party failing to file the statement will be deemed not to seek oral argument.

The court allowed a one-month comment period, which expires September 27, 2007, and is running simultaneously with the adoption of the rule itself. There does not seem to have been much publicity about this, and because it is a unique and counter-intuitive change (going from an opt-out system to an opt-in system), the new rule seems like a trap for the unwary.

“Original Source” Rule Disqualifying Some Claims Does Not Bar Remaining Claims

I recently reported on the U.S. Supreme Court’s consideration of the jurisdictional nature of the “original source” rule in the False Claims Act. See Rockwell Int’l Corp. v. United States, 127 S. Ct. 1397 (2007), discussed here. The Tenth Circuit recently faced a similar issue.

In United States ex rel. Boother v. Sun Healthcare Group, Inc., 496 F.3d 1169 (10th Cir. Aug. 7, 2007), the Tenth Circuit considered whether a relator bringing a qui tam action alleging several counts could proceed even if some of the counts lacked jurisdiction due to the “original source” rule. The court held as a matter of first impression that a deficiency in one claim does not preclude jurisdiction over all other claims joined in the same lawsuit.

The district court had dismissed the case after finding a jurisdictional defect in three claims. However, following the model of Rockwell Int’l Corp., the appellate court remanded the case for an independent jurisdictional analysis of each of the remaining claims.

Mandamus Granted Against Enforcement of Web-Only Amendments To Contract

The Ninth Circuit has addressed as a matter of first impression at the appellate level the question of whether a court should enforce amendments to a contract where the only notice of the changed terms consisted of the amending party posting the revised contract on its website. The court took the case on mandamus and granted the writ, effectively reversing the district court's decision to enforce.

In Douglas v. U.S. Dist. Ct. for the Central Dist. of California, 495 F.3d 1062 (July 18, 2007) (per curiam), plaintiff Douglas had contracted for long distance telephone service. Subsequently, the provider purported to amend the contract to add provisions unfavorable to Douglas, such as additional service charges, a choice-of-law provision applying New York law, a clause requiring disputes to be arbitrated and a waiver of class actions. The new contract was posted to the company's billing website but Douglas alleged that the company never informed its customers of the changes. Only someone who happened to check the posted contract and compared it to a prior one they had saved would have known of the amendments.

After becoming aware of the changes, Douglas filed a class action in federal court. The company moved to compel arbitration, pursuant to the arbitration clause whose addition to the contract was itself in dispute. The district court gave effect to the amendments and granted the motion. Douglas filed a petition for mandamus because he recognized that no ordinary appellate jurisdiction exists over orders compelling arbitration under the Federal Arbitration Act.

Applying its five-factor test for mandamus petitions, the Ninth Circuit found that the prerequisites for issuance of the writ had been met. Most importantly, the district court's ruling was "clearly erroneous as a matter of law" because a party simply cannot amend a contract without its counter-party's agreement, and it is elemental that such agreement requires knowledge by the counter-party. The appellate court held:

"Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side. FN: Nor would a party known when to check the website for possible changes to the contract terms without being notified that the contract has been changed and how. Douglas would have had to check the contract every day for possible changes. Without notice, an examination would be fairly cumbersome, as Douglas would have had to compare every word of the posted contract with his existing contract in order to detect whether it had changed."

The court distinguished other cases of web-based contractual updates because in each such case the poster had given some form of notice to the counter-party. Moreover, the court found that even if notice of the changes were properly given, the changes probably would not have been enforceable substantively.

The court also found that other mandamus factors were satisfied. Factors amphasizing the absence of remedy on appeal had been met becuase if Douglas were forced to arbitrate he would have had no means to ensure that he could continue as class representative. This case also satisfied the factor favoring mandamus where a district court order raises an issue of law of first impression or raises new and important problems. The Ninth Circuit viewed this case as raising for the first time an issue that would affect a multitude of situations arising from the common practice of communicating with customers through websites.

Remand After Allowing Addition Of Non-diverse Plaintiff Is Not Reviewable

The flood of recent opinions emphasizing that Congress wanted parties to follow remanded cases back into their respective state courts -- rather than spending any time on appealing remands -- continues. Here is a report about a new Second Circuit case on that topic.

Section 1447(e) was added to the Judicial Code in 1988 specifically to allow remand of diversity cases where a non-diverse defendant is added later:

“If after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court.” (28 U.S.C. § 1447(e).)

Price v. J&H Marsh & McLennan, Inc., 493 F.3d 55 (2d Cir. July 6, 2007), analyzed the operation of 28 U.S.C. § 1447(e) under a slightly different scenario -- where the plaintiffs sought to join an additional plaintiff rather than an additional defendant.

After the district court had allowed the additional plaintiff to be added, and remanded the case as a result, defendant appealed. Plaintiffs moved to dismiss the appeal as falling within the scope of the prohibition against appellate review under 28 U.S.C. § 1447(d). Defendant argued that § 1447(d) did not apply because the remand was based on a post-removal event, i.e., the addition of a new plaintiff.

Unfortunately for defendant, while the motion was pending the Supreme Court decided Powerex Corp. v. Reliant Energy Services, Inc., 127 S. Ct. 2411 (U.S. June 18, 2007) (discussed in a previous post). The Second Circuit read Powerex as a complete rejection of the “post-removal event” doctrine, and therefore viewed the appeal as barred. It also held that the collateral order doctrine provided no basis for appellate jurisdiction either.

The Price case has the effect of revising 28 U.S.C. § 1447(e) to cover additional plaintiffs as well as defendants.

Eighth Circuit Examines Circuit Split In Approaches To Foreign Antisuit Injunctions

In Goss Int’l Corp. v. Man Roland Druckmaschinen Aktiengesellschaft, 491 F.3d 355 (8th Cir. June 18, 2007), the district court enjoined a Japanese company within its jurisdiction from pursuing certain claims in Japanese courts. On appeal, the Eighth Circuit reversed the injunction as outside the scope of permissible grounds.

In considering the merits, in a matter of first impression for that jurisdiction, the court examined a split in the over the level of deference that should be afforded to international comity in determining whether a foreign antisuit injunction should issue. Under the “conservative” approach, adopted in the First, Second, Third, Sixth and D.C. Circuits, the movant must demonstrate both that the contemplated action in a foreign jurisdiction would prevent U.S. jurisdiction of threaten a vital U.S. policy, and that the domestic interests outweigh concerns of international comity. In contract, the “liberal” approach, adopted in the Fifth and Ninth Circuits and referenced with approval by the Seventh Circuit, only modest emphasis is to be placed on international comity, and an injunction may be issued when necessary to prevent duplicative and vexatious foreign litigation and to avoid inconsistent judgments.

The Eighth Circuit concluded that the “conservative” approach had the better argument, and particularly emphasized the importance of international comity in the new globalized economy.

Propriety of Strategic Pre-Service Removal in Diversity Will Not Be Tested In Appellate Courts

The Seventh Circuit has just issued a ruling dismissing an appeal from a remand order for lack of jurisdiction. In so doing, the court was forced to hold off deciding a very interesting dispute over removal jurisdiction, which it concluded that Congress excluded from appellate jurisdiction. The ruling follows closely on the heels of an additional district court decision that noted the issue was on appeal.

The underlying issue concerned the "forum defendant" removal rule under 28 U.S.C. § 1441(b). That rule provides that even though diversity jurisdiction may be satisfied because of different citizenship, so it could have been commenced in federal court, a case is still not removable unless "none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." The controversy raised in the appeal concerned the proper interpretation of the "properly joined and served" language.

In Holmstrom v. Harad, No. 05 C 2714, 2005 WL 1950672 (N.D. Ill. Aug. 11, 2005), a New Jersey shareholder brought a putative derivative action on behalf of Home Depot, Inc., a Delaware company, in Illinois state court against 28 officers and directors, two of whom are Illinois citizens. Before plaintiff actually served any of the defendants, one of them (an Ohio citizen) removed the case to the Northern District of Illinois. Plaintiff moved to remand on the ground that removal ran afoul of the forum defendant rule because two of the defendants are citizens of the forum state. The removing defendant responded that the rule was fully satisfied given that neither of the Illinois defendants had yet been "properly joined and served."

The district court granted the motion. It found only one other case on point, Recognition Communications, Inc. v. American Automobile Association, No. Civ. A. 3:97-CV-0945-P, 1998 WL 119528 (N.D. Tex. Mar. 5, 1998), and it agreed with that court's reasoning. It concluded that although the literal language of the rule favors the removing defendant in this scenario, Congress did not intend that a fast-acting defendant should have an end-run through strategic pre-service removal. Rather, Congress created the forum defendant rule to protect defendants from plaintiffs who listed among multiple defendants a resident of the forum state they did not intend to pursue but merely named to defeat removal.

The defendant appealed the remand order to the Seventh Circuit. While that case was being briefed and argued, the same scenario occurred in the district court in another case. In Vivas v. Boeing Co., 486 F.Supp. 2d 726 (N.D. Ill. Mar. 12, 2007), plaintiffs sued Boeing in Illinois state court in connection with a plane crash in another country. Although Boeing was an Illinois citizen, it removed the case before it or any other defendant had been served, as it is permitted to do under 28 U.S.C. § 1446(b). The district court, relying on Holmstrom (which it noted was on appeal), refused to allow Boeing to use the fact that one may file a notice of removal before formal service to defeat the "properly joined and served" language of 28 U.S.C. § 1441(b), and it granted plaintiffs' motion to remand.

When the Seventh Circuit ultimately ruled in Holmstrom v. Harad, 492 F.3d 833 (7th Cir. July 3, 2007), it did not speak to the merits of the district courts' refusal to apply 28 U.S.C. § 1441(b) literally. Following an exhaustive analysis of the legislative history and development of that statute across multiple versions, it concluded that the 1996 amendments made clear that Congress intended to exclude from appellate review any remand order that was based on a defect in removal. The court determined that a remand order based on "failure to comply with the forum defendant rule is a defect in removal subject to § 1447(d)’s jurisdictional bar."

If the Seventh Circuit's reasoning prevails, it will be up to the district courts to establish the common law of whether strategic pre-service removal can be used to avoid the forum defendant rule.

Second Circuit Adopts Local Rule Regarding Non-Precedential ("Unpublished") Opinions

On December 1, 2006, the Federal Rules of Appellate Procedure were amended to add Rule 32.1, which adopted a uniform standard permitting the citation of all judicial dispositions on or after January 1, 2007. The rule had the effect of requiring some courts of appeal to revise their rules to eliminate prohibitions against citing so-called “unpublished” opinions.

In a recent example of meeting the new requirement, on June 26, 2007, the Second Circuit adopted a final version of amended Local Rule 32.1, setting specific requirements for the issuance and citation of such opinions, which the court termed “summary orders.” The court commentary explained its purposes in issuing summary orders, and noted that although such orders are not precedential it “does not mean that the court considers itself free to rule differently in similar cases.”

U.S. Supreme Court Raises Pleading Bar For Securities Fraud

When Congress enacted the Private Securities Litigation Reform Act of 1995 (“PSLRA”), it appeared to resolve a circuit split regarding the threshold required for pleading a securities fraud cause of action. The courts of appeal agreed that securities fraud required scienter, but disagreed over whether a plaintiff must allege more than the conclusion that scienter existed. Congress adopted the most stringent approach, as expressed by the Second Circuit, that a plaintiff must “state with particularity facts giving rise to a strong inference that the defendant acted with the requisite state of mind,” 15 U.S.C. § 78u-4(b)(1). However, Congress did not codify the Second Circuit’s jurisprudence concerning the meaning of the term “strong inference,” and as a result courts diverged regarding the construction of that term.

In resolving that split in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (June 21, 2007), the U.S. Supreme Court said its task was “to prescribe a workable construction of the ‘strong inference’ standard, a reading geared to the PSLRA’s twin goals: to curb frivolous, lawyer-driven litigation, while preserving investors’ ability to recover on meritorious claims.” Its solution was to require a three-step process: (1) accept all factual allegations as true; (2) consider the complaint in its entirety plus documents incorporated into the complaint by reference or available through judicial notice; and (3) determine the plausible opposing inferences regarding scienter and dismiss the complaint unless “a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.” The Court rejected the argument that weighing competing inferences impinged upon the jury’s role, finding that Congress had the power to establish any special pleading requirements, as it had done in the PSLRA.

Tellabs does not represent a further application of the new fact-pleading rules emerging under Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (May 21, 2007) (see previous post), because it involved interpretation of heightened pleading requirements specifically codified into statute, rather than the federal rules of civil procedure or common law.

U.S. Supreme Court Rejects “Post-Removal Event” Theory for Appealing Remands

The U.S. Supreme Court has given a strict reading to 28 U.S.C. § 1447(d) to bar appellate consideration of the substance of most remand orders, rejecting an exception that had developed in some of the circuits.

In Powerex Corp. v. Reliant Energy Services, Inc., 127 S. Ct. 2411 (U.S. June 18, 2007), one of the defendants removed the case based on the theory that it was a “foreign state” for purposes of the Foreign Sovereign Immunities Act (“FSIA”) and 28 U.S.C. § 1441(d) (which permits foreign states under the FSIA to remove). Plaintiffs successfully moved to remand, challenging whether that defendant really was a “foreign state.” Defendant appealed the remand order, and all parties and the Ninth Circuit apparently agreed that appellate jurisdiction existed because the bar to appeal of remand orders contained in 28 U.S.C. § 1447(d) only applied to remands based on a defect in subject-matter jurisdiction at the time of removal. Here, several other removing defendants had proper grounds to remove the whole case that were not part of the FSIA ruling, so the original removal was not defective.

After the Ninth Circuit reached the merits and affirmed, the Supreme Court granted certiorari but dismissed the case for lack of appellate jurisdiction. It held that there was no textual support in the statute for allowing appellate review of removals that were initially proper, and found that Congress specifically intended to bar review of remands even if based on defects in subject-matter jurisdiction that developed later. The Court found that the only task for an appellate court in this type of case is to determine whether the remand was colorably based on a defect in subject-matter jurisdiction, in which case it must dismiss the appeal.

Third Circuit Finds One Panel May Overrule Another When Predicting State Rulings

In Jaworowski v. Ciasulli, 490 F.3d 331 (3d Cir. June 18, 2007), a panel of the Third Circuit took the unusual step of overruling a prior decision of the same court. It acknowledged that ordinarily the only way for the court to overrule its own precedent is for the court to act en banc, but it found that an exception exists for cases based on diversity jurisdiction in which the court predicts how a state’s highest court would decide an issue.

The panel said that in such circumstances an appellate court should be free to reexamine the validity of a previous prediction in light of subsequent decisions of the state’s highest court. It concluded that, although the New Jersey Supreme Court still had not decided the particular matter at issue, there were sufficient new decisions to reveal a “change in the legal landscape” and a clear direction for the Third Circuit to follow to change its prediction.

Federal District Court Examines Evidentiary Issues Concerning Electronic Records

The Chief Magistrate Judge of the federal court in Maryland has issued an important opinion analyzing a myriad of evidentiary issues that parties using electronic documents face in summary judgment and trial situations.

In Lorraine v. Markel American Ins. Co., 241 F.R.D. 534 (D. Md. May 4, 2007), the court denied the parties’ cross-motions for summary judgment on the grounds that courts may only consider on summary judgment those materials that are in the form of admissible evidence, and the electronic evidence offered here was not shown to be admissible. In analyzing the motions, the court published a lengthy opinion studying in detail a variety of means to satisfy federal evidentiary requirements for the admission of electronically stored information (“ESI”).

Of particular interest is the court’s discussion of the need to properly authenticate various forms of ESI, which the movants did not even attempt to do, thereby causing what the court termed “self-inflicted wounds.”

Compliance With Detailed Regulations Does Not Give Rise To Removal Jurisdiction

In a unanimous opinion, Watson v. Philip Morris Cos., Inc., 127 S. Ct. 2301 (June 11, 2007), the Supreme Court rejected application of the “Federal Officer” removal statute to private parties other than govern­ment contractors.

Plaintiffs had filed a state-court class action claiming that Philip Morris violated Arkansas unfair business practice laws in selling so-called “light” cigarettes. Philip Morris removed, citing 28 U.S.C. § 1442(a)(1), which permits removal by any officer of the United States “or any person acting under that officer.” The district court and the Eight Circuit agreed that in following the FTC’s detailed instructions governing cigarette testing and tar/nicotine disclosures in advertising, defendants were “acting under” the agency’s orders for purposes of the removal statute.

However, the Supreme Court found that Congress did not intend to encompass private parties whom a federal regulatory agency directs, supervises, and monitors, even if very closely and in considerable detail. In the Court’s view, such activities amount to nothing more than regulation and compliance, as opposed to “acting under” the direction of a federal officer, and mere com­pliance with regulations does not open the door to federal jurisdiction. It distinguished cases in which removal was permitted by private government contractors, finding that such cases involve helping federal officers fulfill tasks that the government otherwise would have to perform itself.

New York Declines To Extend “Continuous Representation Doctrine” To Auditor

In a matter of first impression, New York’s highest court has held that the statute of limitations applicable to accounting malpractice actions was not tolled under the “continuous representation doctrine” where the parties’ course of dealing was to enter into a separate contract for each year’s annual audit. Williamson v. PricewaterhouseCoopers LLP, 9 N.Y.3d 1, 872 N.E.2d 842, 840 N.Y.S.3d 730 (June 7, 2007).

The court noted that the “continuous representation doctrine” originated in its medical and legal malpractice jurisprudence, and was based on the fact that such actions accrue when the malpractice is committed and not when the client discovers it. Concerned that a cause of action might expire while the plaintiff was still receiving treatment or advice related to the conditions produced by the earlier wrongful acts and omissions, the court developed the doctrine to allow tolling of the statute of limitations for as long as “the course of treatment which includes the wrongful acts or omissions has run continuously and is related to the same original condition or complaint.”

In Williamson, the court held that the doctrine was not available under the circumstances present, but it did not appear to reject its application to accountants altogether. Rather, it emphasized that the doctrine requires a “mutual understanding” between the parties that the relationship with the client would be ongoing, and that no such understanding was present here.

Sixth Circuit Finds State Law Governs Forum Selection Clauses In Diversity Actions

A recent series of transactions involving a company called Norvergence, which entered into contracts promising delivery of telecommunications services, has led to an interesting split among the courts. The Norvergence contracts contained a “floating” forum selection clause under which the choice of law and forum were subject to immediate change if Norvergence assigned the contract. Apparently, Norvergence had a practice of immediately assign­ing contracts to finance companies without customers’ prior knowledge and then not delivering services, which has led to litigation all over the country.

In a Seventh Circuit case, the court held that the floating forum selection clause was enforceable either under federal law or Illinois law, and therefore the court did not need to decide which law controlled. IFC Credit Corp. v. Aliano Bros. Gen. Contractors, 437 F.3d 606 (7th Cir. 2006). However, in Preferred Capital, Inc. v. Sarasota Kennel Club, Inc., 489 F.3d 303 (6th Cir. May 29, 2007), the Sixth Circuit had to contend with the fact that both it and the Ohio Supreme Court had reached opposite conclusions -- the state court found the clause unenforceable as against public policy while the Sixth Circuit had previously upheld the very same clause -- and therefore it had to decide as a matter of first impression whose law should govern a forum selection clause in a diversity case when that clause was the sole basis for personal jurisdiction.

Splitting from the Seventh Circuit, the court analogized to the law of personal jurisdiction and concluded that the law of the forum state should control. It affirmed the finding that the clause was unenforceable and therefore that the Ohio federal court was without jurisdiction.

New U.S. Supreme Court Pleading Standard In Antitrust Case Has Wide Implications

Under existing precedent, a plaintiff claiming violation of Sherman Act § 1 must prove not only that defendant businesses acted in parallel, but also that such conduct was the product of an agreement, combination or con­spiracy. In Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (U.S. May 21, 2007), the Supreme Court analyzed the pleading requirements for such a claim, and concluded that it is insufficient to allege specific parallel anti­competi­tive conduct but describe the underlying agreement merely in conclusory terms.

Finding that Fed. R. Civ. P. 8(a)’s requirement of “a short and plain statement of the claim showing that the pleader is entitled to relief” still must put the defendant on notice of what the claim is “and the grounds upon which it rests,” the Court held that beyond mere legal conclusions enough facts also must be pled “to raise a right to relief above the speculative level” because parallel conduct alone does not imply the existence of illegal conspiracy. In this particular case, the Court concluded that the plaintiff failed to allege the required contract as anything more than a mere conclusion.

Bell Atlantic Corp. v. Twombly carries important implications beyond the antitrust context because of its departure from the traditional notion that, except as provided in Fed. R. Civ. P. 9(b), federal rules require only notice pleading rather than fact pleading. The Court now interprets Fed. R. Civ. P. 8 and Conley v. Gibson, 355 U.S. 41 (1957), as requiring defendants to be put on notice through a certain amount of fact pleading, although the precise degree of fact pleading apparently remains to be explored through further case law.

Federal Courts May Rule On Forum Motions Without First Determining Jurisdiction

Before considering dispositive motions going to the merits of the case, federal courts typically must be satisfied that they have subject-matter and personal jurisdiction.

In Sinochem Int’l Co. Ltd. v. Malaysia Int’l Shipping Corp., 127 S. Ct. 1184 (U.S. Mar. 5, 2007), the Supreme Court confirmed that the same considerations do not apply to a motion to dismiss based on forum non conveniens because such a motion is not a disposition on the merits. Such motions do not entail the court’s assumption of any substantive law-declaring power; therefore, there is no requirement that the court first undertake the discovery necessary to ascertain that it has either subject-matter or personal juris­diction. Here, the Supreme Court characterized the international dispute at issue as being a textbook case for immediate dismissal because the jurisdictional issues would be difficult to determine and the forum non conveniens considerations weighed heavily in favor of dismissal.

U.S. Supreme Court Holds False Claims Act “Original Source” Rule Is Jurisdictional

In Rockwell Int’l Corp. v. United States, 127 S. Ct. 1397 (U.S. Mar. 27, 2007), the Supreme Court noted that the False Claims Act, 31 U.S.C. §§ 3729, et seq., eliminated federal court jurisdiction over qui tam actions brought by a private party “relator” based upon the public disclosure of allegations reported in the news media unless such party is “an original source of the information.” In this case, a former Rockwell engineer named James Stone brought a qui tam action alleging that Rockwell knowingly employed a defective system for disposing of toxic waste, and the Government intervened. Ultimately the case proceeded to trial and the jury found in part for Stone, and the lower courts affirmed.

The Supreme Court reversed for lack of jurisdiction, finding that Stone was not the “original source” of the information upon which the claims were based. The Court held that where claims are brought based on publicly disclosed information, a relator’s status as the original source of that information is jurisdictional and must be considered de novo even where, as argued here, the defendant conceded the issue. Here, Stone had informed Rockwell that its system was faulty due to a defective piping system, but the final pretrial order (which superseded the pleadings), and all the proofs at trial, concerned an entirely different defect. Because Stone had no independent knowledge of the defect that actually was at stake, the district court lacked jurisdiction over the matter.

California’s Unfair Competition Law Now Requires Representative Claimant To Have Injury And Meet Class Action Prerequisites

In 2004, the voters of California approved Proposition 64 to amend the Unfair Competition Law (Bus. & Prof. Code §§ 17200, et al.) (“UCL”). Until that time, the statute permitted individuals to act as private attorneys general to bring lawsuits for alleged unfair competition on behalf of others even if the plaintiffs themselves had not suffered loss of money or property. Because the traditional requirements for class actions and individual standing did not have to be met, the UCL had been the subject of controversy. Proposition 64 added the requirements that the representative have suffered injury in fact, and that the action “complies with Code of Civil Procedure Section 382.”

In Amalgamated Transit Union, Local 1756 v. Superior Court, 55 Cal. Rptr. 3d 585 (Cal. App. (2d Dist.) Feb. 28, 2007, modified Mar. 22, 2007), the court held that that despite the lack of any express language in proposition 64 concerning class actions, the reference to § 382 was meant to engraft onto the Unfair Competition Law the requirement that any representative action proceed as a class action and satisfy traditional certification requirements.

[Note that on June 20, 2007, the California Supreme Court granted review, superceding this opinion. Amalgamated Transit Union, Local 1756 v. Superior Court, 161 P.3d 1, 61 Cal.Rptr.3d 459 (Cal. June 20, 2007).]

U.S. Supreme Court Rejects Ninth Circuit Rule Against Attorney’s Fees In Bankruptcy

In 1991, the Ninth Circuit held that an unsecured creditor is precluded from recovering attorney’s fees authorized by a prepetition contract if such fees were incurred in postpetition litigation involving issues peculiar to bankruptcy law rather than basic contract enforcement questions. In re Fobian, 951 F.2d 1149 (9th Cir. 1991).

Resolving a split in the circuits, the Supreme Court held in Travelers Cas. & Surety Co. of America v. Pacific Gas & Elec. Co., 127 S. Ct. 1199 (U.S. Mar. 20, 2007), that the Fobian rule was not supported by the Bankruptcy Code. Finding that “claims enforceable under applicable state law will be allowed in bankruptcy unless they are expressly disallowed, the Court held that the absence of textual support for the Ninth Circuit’s rule was “fatal,” and it rejected the applicable lower court precedents.

Punitive Damages Limited To Compensatory Award Where Plaintiff Not Vulnerable

In Jet Source Charter, Inc. v. Doherty, 148 Cal. App. 4th 1, 55 Cal. Rptr. 3d 176 (4th Dist. Jan. 30, 2007, modified Feb. 28, 2007), the plaintiffs successfully sued aircraft brokers for breach of fiduciary duty in selling them aircraft while willfully deceiving them concerning the price the brokers had negotiated with the sellers (and thereby making additional money on the side). The jury awarded approximately $5 million in compensatory damages, and more than $25 million in punitive damages against various defendants.

On appeal, the court held, “Where, as here, substantial compensatory damages have been awarded, and the conduct in question only involves economic damage to a single plaintiff who is not particularly vulnerable, an award which exceeds the compensatory damages awarded is not consistent with due process” under State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408 (2003).

Plaintiff May Dismiss Without Prejudice On Eve Of Mandatory Settlement Conference

In Franklin Capital Corp. v. Wilson, 148 Cal. App. 4th 187, 55 Cal. Rptr. 3d 424 (4th Dist. Feb. 28, 2007), the plaintiff attempted to take a voluntary dismissal without prejudice on the eve of a mandatory settlement conference with the court. Nevertheless, the court held the conference, vacated the voluntary dismissal and entered dismissal with prejudice. By that time, plaintiff’s counsel already had a long record of missed court hearings and had been ordered to pay sanctions.

Nevertheless, the appellate court found that a plaintiff has an absolute right pursuant to statute to take a voluntary dismissal without prejudice at any time prior to commencement of “trial” or the pendency of an impending dispositive procedure, and that the mandatory settlement conference did not fall under any of those categories. Thus, the trial court had no authority to convert the voluntary dismissal to one with prejudice.

Establishment Of New Precedent Does Not Start 30-Day Clock For Removal

Under 28 U.S.C. § 1446(b), a case that was not removable when originally filed may still be removed if the defendants receive an “amended pleading, motion or other paper from which it may first be ascertained that the case is one which is or has become removable.” The defendants may file a notice of removal within 30 days of receiving that indication that the case is now removable. Typically such an indication is the filing by one of the parties of an amended pleading or other paper that raises a federal question.

However, in Dahl v. R.J. Reynolds Tobacco Co., 478 F.3d 965 (8th Cir. Feb. 28, 2007), defendants argued that the publication of a new precedent in the Eighth Circuit establishing that cases like the one in Dahl were removable started a new 30-day clock under § 1446(b). The Eighth Circuit rejected that argument, holding that the receipt of an opinion from a different case did not constitute an “amended pleading, motion or other paper” for purposes of the removal statutes.

Expert Testimony Remains Absolutely Privileged Against Being Basis For Claims

Most states recognize an absolute privilege for statements in testimony or pleadings in a judicial proceeding. In MacGregor v. Rutberg, 478 F.3d 790 (7th Cir. Feb. 27, 2007), the plaintiff attempted to carve out an exception for expert testimony. She argued that while acting as an expert for a patient that was suing her for malpractice, defendant neurosurgeon gave testimony that defamed her. Applying Illinois law, the court refused to exempt expert testimony from the absolute testimonial privilege. The court observed, "Litigation is costly enough without judges’ making it more so by throwing open the door to defamation suits against expert witnesses."

Award Of Costs Must Be Charged To Party, Not Counsel

Pursuant to Fed. R. Civ. P. 54(D)(1) and 28 U.S.C. § 1920(6), “costs” are awarded to prevailing parties “as of course” for various trial-related expenses including court fees, reporters, and court-appointed experts.

In In re Cardizem CD Antitrust Litig., 481 F.3d 355 (6th Cir. Feb. 22, 2007), the district court ordered an attorney for an objector to the proposed class-action settlement to pay the compensation of a settlement administrator hired to disburse $80 million in settlement funds to the class. After unsuccessfully objecting to the settlement, the objector took an appeal, which was dismissed for failure to post bond. On remand the class plaintiffs sought sanctions and costs caused by the delay. The district court rejected various sanctions but awarded costs of over $250,000 for the settlement administrator’s fees as a court-appointed expert under 28 U.S.C. § 1920(6).

The Sixth Circuit reversed because the award was charged to objector’s counsel, while the court interpreted the statute and rules to permit awards to be charged only to parties, i.e., the objector here and not her counsel. The court rejected the argument that district courts have inherent or equitable power to charge awards of “costs” to counsel. However, in remanding, the court noted without deciding the question of whether settlement administrators are “court-appointed experts” for purposes of § 1920(6), and cited a circuit split.

U.S. Supreme Court To Consider “Federal Officer” Removal By Tobacco Company

In Watson v. Philip Morris Companies, Inc., 420 F.3d 852 (8th Cir. 2005), plaintiffs brought a class action against a tobacco company for selling “Light” cigarettes allegedly in violation of the Arkansas Deceptive Trade Practices Act. The defendants removed to federal court under 28 U.S.C. § 1442(a)(1), which permits removal by any officer of the United States “or any person acting under that officer.” The district court and the Eight Circuit agreed that in following the FTC’s detailed instructions governing cigarette testing and tar/nicotine disclosures in advertising, defendants were “acting under” the agency’s orders for purposes of the removal statute.

After plaintiffs filed a cert. petition in the U.S. Supreme Court, the Court asked the Solicitor General’s Office to weigh in. The SG concluded that Eighth Circuit made a fact-specific error but recommended that the case was not worthy of decision by the U.S. Supreme Court.

Nevertheless, the Court granted certiorari. The Court has limited the issue on review to the following question: “Whether a private actor doing no more than complying with federal regulation is a ‘person acting under a federal officer’ for the purpose of 28 U.S.C. § 1442(a)(1), entitling the actor to remove to federal court a civil action brought in state court under state law.”

[The Supreme Court issued its ruling on June 11, 2007, and my discussion appears here.]

California Court Finds No Authority To Force Parties Into Private Mediation

In Jeld-Wen, Inc. v. Superior Court, 146 Cal. App. 4th 536, 53 Cal. Rptr. 3d 115 (4th Dist. Jan. 4, 2007), the California Appellate Court held that trial courts do not have the authority to order parties in a complex civil action to attend and pay for private mediation.

In this multi-party construction case, the trial court deemed the matter “complex” within the local rules, and appointed a mediator to conduct settlement conferences for up to 100 hours at $500 per hour. Jeld Wen served objections and did not attend the mediation sessions but invited informal settlement talks. The trial court granted the other parties’ motion to compel Jeld-Wen to attend the mediation, and Jen-Weld appealed.

Reversing, the appellate court noted that although there are certain statutes in place requiring mediation for cases valued at under $50,000, this case exceeded that threshold. It held that in larger cases mediation is purely voluntary, and the trial court must have the agreement of all parties before it can enter an order requiring mediation. Moreover, even after a case is ordered to mediation, the parties have the absolute right to withdraw.

U.S. Supreme Court To Consider Whether Movant Obtaining Preliminary Injunction Is “Prevailing Party” Entitled To Attorneys’ Fees

The U.S. Supreme Court has agreed to resolve an apparent conflict in the federal appellate courts concerning whether a plaintiff who successfully obtains a preliminary injunction is a “prevailing party” for purposes of fee-shifting statutes. Struhs v. Wyner, 127 S. Ct. 1055 (granting cert. Jan. 12, 2007).

The Eleventh Circuit ruled in Wyner v. Struhs, 179 Fed. Appx. 566 (2006), that plaintiffs who sued under 42 U.S.C. § 1983 and obtained a preliminary injunction against enforcement of state rules that would have interfered with their public performance art that featured nudity, but did not prevail on the later facial challenge to those rules, were still “prevailing parties” entitled to attorneys’ fees. In contrast, the Fourth Circuit held in Smyth v. Rivero, 282 F.3d 268 (2002), that a preliminary injunction is not a ruling on the merits and therefore cannot be the basis for considering the movant a “prevailing party.”

Party Performing Contract Under Protest May Bring Declaratory Judgment Act Claim

In the context of a patent dispute, the U.S. Supreme Court has clarified that federal jurisdiction exists under the Declaratory Judgment Act even though a plaintiff actually performs under a disputed contract, as long as the plaintiff maintains that performance is subject to controversy.

In MedImmune v. Genentech, Inc., 127 S. Ct. 764 (U.S. Jan. 9, 2007), Genentech maintained that MedImmune’s primary product infringed on its patent and demanded royalties. MedImmune maintained that the patent was not enforceable but agreed to pay royalties through a license agreement under protest because of the risk of liability for treble damages and attorney’s fees. It then brought a declaratory judgment action, but the trial court and the Federal Circuit held that such claims could not be brought because MedImmune in fact was performing under the contract so there was no dispute for purposes of Article III.

The U.S. Supreme Court held that jurisdiction did exist, and that by enacting the Declaratory Judgment Act, Congress specifically wanted to avoid requiring a party to breach a contract as a precondition to federal jurisdiction. It noted that the Court’s jurisprudence in government cases made this clear (i.e., Congress did not require a party to actually perform an illegal act for there to be jurisdiction for a declaratory judgment action), and agreed with the many lower courts that had reached the same conclusion with respect to disputes among private parties.

Federal Courts Borrowing State Limitations Periods Must Not Borrow Service Rules

It is well-established federal practice that where an action arises under federal law but Congress has not established a specific limitations period, courts borrow the statute of limitations for the most closely analogous action in the relevant state. However, in S.J. v. Issaquah School Dist. No. 411, 470 F.3d 1288 (9th Cir. Dec. 11, 2006), the court noted that this rule does not extend to borrowing state procedural rules that might be included in that statute.

In this case, it was undisputed that the district court properly applied the limitations period in the Washington Administrative Procedure Act (“WAPA”) to plaintiffs’ claims under the federal Individuals with Disabilities Act. However, the appellate court held that the lower court should not also have applied the 30-day limitations period from the WAPA governing the amount of time in which to effect service of process. Instead, it should have applied Fed. R. Civ. P. 4(m), which establishes a 120-day limit for serving process.

Texas Requires New Trial On Attorney’s Fee Award After Damages Cut On Appeal

The Texas Supreme Court has considered the effect on an attorney’s fee award of an appellate ruling that drastically reduced the damages awarded.

In Barker v. Eckman, 213 S.W.3d 306 (Tex. Nov. 17, 2006), plaintiffs sued for multiple breaches of contract going back several years. Over objections that most of the claims were untimely, the court entered judgment on a jury verdict for $112,000 and for attorney’s fees under the contract of $250,000. The intermediate appellate court struck all but $16,180 in damages, but held that appeal of the attorney’s fees issue had been waived. The Supreme Court upheld the reduction in damages, but reversed on the waiver issue.

Finding that there was no proper record on which to base a reduction of the fee award at the appellate level, the court remanded for a new trial on the amount of fees attributable to the upheld claims. The court noted that “[n]ot every appellate adjustment to the damages which a jury considered as ‘results obtained’ when making attorney’s fees findings will require reversal,” but in this case the large reduction in damages showed that the error was not harmless and required a new trial.