Avidan Stern's Civil Procedure Blog

Counting Days for Statutes of Limitation

2011-11-21T15:11:00.008-06:00

My understanding has long been that in counting out time for a statute of limitations, one begins with the day aftrer the triggering event. The Federal Rules of Civil Procedure tell us to do that (Fed. R. Civ. P. 6(a)(1)(A)), and my state jurisdiction, Illinois, has a statute that seems to say so as well (the Statute on Statutes, 5 ILCS 70). The Illinois provisions states:

"The time within which any act provided by law is to be done shall be computed by excluding the first day and including the last, unless the last day is Saturday or Sunday or is a holiday as defined or fixed in any statute now or hereafter in force in this State, and then it shall also be excluded. If the day succeeding such Saturday, Sunday or holiday is also a holiday or a Saturday or Sunday then such succeeding day shall also be excluded." (5 ILCS 70/1.11.)

Federal Rule 6(a)(1)(A) uses similar language, telling us to "exclude the day of the event that triggers the period".

This seems straightforward enough. However, as Joseph R. Marconi recently wrote in an article published by ISBA Mutual (a provider of lawyers' professional liability insurance), it may not be as clear as we thought. One intermediate appellate court and one Justice of the Illinois Supreme Court have treated the issue as subject to debate, raising the possibility that a limitations period actually expires on the day before the anniversary date of a triggering event. See his article, "What Can You Count On These Days?" for details.

One thing is clear -- don't wait until the last day to file. While the law seems to be settled for now, even the mere possibility that the ultimate day is really the penultimate day should be enough incentive to file earlier.

Illinois Supreme Court Requires Redaction of Social Security Numbers in Filings Starting in 2012

2011-11-02T07:45:00.007-05:00

Pursuant to Section 40 of the Identity Protection Act, 5 ILCS 179/40, passed in 2010 and designed to protect Social Security numbers, the Illinois Supreme Court has adopted new Rule 138 requiring parties not to include Social Security numbers within any filings "unless required for a particular filing". Presumably that means you can't include a Social Security number unless there is a good reason that the number itself matters to a particular filing. Such a situation is hard to imagine because a filer generally should be able to refer to a number's existence without actually spreading the number itself of record. For example, a claim about identity theft could be drafted to satisfy pleading requirements without revealing to the world the actual Social Security number at issue. In any event, if you must include the number the rule requires that you use just the last four digits in the public filing, and accompany it with a sealed filing disclosing the full number.

The rule does not specify how documents that the filer did not create (e.g., photocopied exhibits) that include embedded Social Security numbers should be brought into compliance. However, the wording of the rule implies that the filer should redact the document to make the number unreadable.

Filers should take care that their redaction technique actually accomplishes the redaction, becuase sometimes when you think something has been redacted, the supposedly covered-up information is still accessible. See the Administrative Office of U.S. Courts' admonition here, and an interesting discussion of failed redaction at this blog. The National Security Agency has published some tips on ways to properly redact documents, available here and here. Some district courts have posts about it, such as the District of New Jersey.

The new rule also states that the Illinois courts are not responsible for checking individual filings for compliance. In other words, a clerk is not supposed to take on the responsiblity of checking your filing to see whether you let a Social Security number slip through. The only policing mechanism is that "a party or identified person" who sees that a Social Security number has been publicly filed can move the court to order compliance, and if they prove the infraction was "willful" then they can be awarded fees and costs for bringing the motion. This rule should not spawn a cottage industry of 'file scrubbers' who troll the dockets looking for infractions because only a party to the actual case or the person whose Socual Security number was disclosed appear to have standing to file the motion.

The new rule originally was to be effective starting November 1, 2011. However, the court has now changed the effective date to January 1, 2012.

This rule brings the Illinois courts in line with federal courts, whose Judicial Conference began addressing this issue in 2000 (see their report here), which led to the adoption of rules such as Fed. R. Civ. P. 5.2 (effective Dec. 1, 2007) requiring redacted filings.

Experts in Federal Practice

2011-10-05T22:35:00.012-05:00

Today I spoke at the annual federal civil procedure update seminar presented in Chicago by the Practising Law Institute. This year's program was entitled “Federal Civil Practice Update 2011: A Practical Guide to New Developments, Procedures & Strategies.” I presented two topics relating to experts in federal practice: (1) methods of challenging an opponent’s experts, and (2) the 12/1/2010 amendments to the Federal Rules of Civil Procedure regarding expert discovery. I authored two articles that were published in the PLI Handbook for the seminar, which I am making available for download here:

"Challenging An Expert’s Opinion and Testimony"

"The 2010 Amendments to the Expert Discovery Rules"

I hope you find these materials useful.

Seventh Circuit Examines Pleading Requirements After Twombly/Iqbal

2010-08-03T11:07:00.023-05:00

The Seventh Circuit has issued an opinion in Swanson v. Citibank, N.A., No. 10-1122, 2010 WL 2977297 (7th Cir. July 30, 2010), that explores the nature of federal civil pleading after Bell Atlantic Corp. v. Twombly, 500 U.S. 544 (2007), Erickson v. Pardus, 551 U.S. 89 (2007), and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009). In an opinion by Judge Wood, joined by Judge Easterbrook, the majority evaluated the Supreme Court's new "plausibility" standard and ruled that the district court had raised the bar too high in dismissing plaintiff's complaint. In dissent, Judge Posner said that the majority's ruling was difficult to square with Iqbal because the plaintiff's allegations of housing discrimination were implausible.

Swanson clarified the Seventh Circuit's pleading standard, and should be required reading for all practitioners with civil cases in Illinois, Indiana and Wisconsin federal courts.

In Swanson, the majority held that the Supreme Court's movement away from the long-standing rule of Conley v. Gibson, 355 U.S. 41, 45-46 (1957), meant that it is now clear "that a plaintiff must do better than putting a few words on paper that, in the hands of an imaginative reader, might suggest that something has happened to her that might be redressed by the law." However, the "question with which courts are still struggling is how much higher the Supreme Court meant to set the bar" when it decided Twombly, Erickson and Iqbal. The majority framed the issue this way: "On the one hand, the Supreme Court has adopted a 'plausibility' standard, but on the other hand, it has insisted that it is not requiring fact pleading, nor is it adopting a single pleading standard to replace Rule 8, Rule 9, and specialized regimes like the one in the Private Securities Litigation Reform Act."

The majority emphasized that Rule 8 has never been abandoned, and that the Supreme Court "was not engaged in a sub rosa campaign to reinstate the old fact-pleading system." This was shown by the pronouncement in Erickson that the short-and-plain-statement required under Rule 8 "need only give the defendant fair notice of what the . . . claim is and the grounds upon which it rests" and "[s]pecific facts are not necessary." Erickson, 551 U.S. at 93. It also is evident from the Court's reaffirmance of the validity of Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002), cited with approval in Twombly, 550 U.S. at 556, under which the Court struck down attempts to impose heightened pleading requirements not listed in Fed. R. Civ. P. 9(b).

Given the continued validity of notice pleading, the majority held that under the new requirement that a pleader "state a claim to relief that is plausible on its face" (Twombly, 550 U.S. at 570; Iqbal, 129 S. Ct. at 1949), plausibility "does not imply that the district court should decide whose version to believe, or which version is more likely than not." It set forth the Seventh Circuit's view of what the requirements now are for pleading in civil cases not governed by Fed. R. Civ. P. 9(b) or special statutory pleading requirements:

"As we understand it, the Court is saying instead that the plaintiff must give enough details about the subject-matter of the case to present a story that holds together. In other words, the court will ask itself could these things have happened, not did they happen. For cases governed only by Rule 8, it is not necessary to stack up inferences side by side and allow the case to go forward only if the plaintiff’s inferences seem more compelling than the opposing inferences."

Judge Posner disagreed with the majority because in his view the plaintiff's housing discrimination claim simply was implausible, and the majority gave too much leeway to allow pleading of a mere possibility. He emphasized that while Iqbal stated, "The plausibility standard is not akin to a 'probability requirement'" (quoted by the majority), the rest of the sentence said, "but it asks for more than a sheer possibility that a defendant has acted unlawfully." As I read Posner's dissent, he seems to be saying that the majority's holding that a district court "will ask itself could these things have happened, not did they happen," would allow the "sheer possibility" that Iqbal expressly rejected.

The case also includes an interesting discussion of the role of discovery in this debate. The majority acknowledged that "one powerful reason that lies behind the Supreme Court’s concern about pleading standards is the cost of the discovery that will follow in any case that survives a motion to dismiss on the pleadings." It noted that the Supreme Court's new standard was intended to make it more difficult to earn the right to engage in discovery. But it drew the line at using judicial interpretation to impose higher pleading standards than Rules 8 and 9 contemplate, which is what the majority evidently thought was the consequence of the dissent's approach.

In his dissent, Judge Posner wrote that the asymmetrical nature of much discovery in a pure notice-pleading regime was a structural flaw that helps explain and justify the Supreme Court's new approach. "It requires the plaintiff to conduct a more extensive precomplaint investigation than used to be required and so creates greater symmetry between the plaintiff’s and the defendant’s litigation costs, and by doing so reduces the scope for extortionate discovery." To those who argue that a restrictive interpretation of the "plausibility" requirement would close the courthouse door too easily, Judge Posner offered an intriguing suggestion:

"If the plaintiff shows that he can’t conduct an even minimally adequate investigation without limited discovery, the judge presumably can allow that discovery, meanwhile deferring ruling on the defendant’s motion to dismiss. Miller v. Gammie, 335 F.3d 889, 899 (9th Cir. 2003) (en banc); Coss v. Playtex Products, LLC, No. 08 C 50222, 2009 WL 1455358 (N.D. Ill. May 21, 2009); Edward A. Hartnett, 'Taming Twombly, Even After Iqbal,' 158 U. Pa. L. Rev. 473, 507-14 2010); Suzette M. Malveaux, 'Front Loading and Heavy Lifting: How Pre-Dismissal Discovery Can Address the Detrimental Effect of Iqbal on Civil Rights Cases,' 14 Lewis & Clark L. Rev. 65 (2010)."

Judge Posner also offered an interesting opinion, echoing Judge Easterbrook of the majority, on the practical aspects of the use of magistrate judges to handle discovery disputes. It appears that in his view, district courts do not limit discovery as effectively as a restrictive interpretation of the "plausibility" requirement would:

"It is true, as critics of Twombly and Iqbal point out, that district courts have authority to limit discovery. [Citations omitted.] But especially in busy districts, which is where complex litigation is concentrated, the judges tend to delegate that authority to magistrate judges. And because the magistrate judge to whom a case is delegated for discovery only is not responsible for the trial or the decision and can have only an imperfect sense of how widely the district judge would want the factual inquiry in the case to roam to enable him to decide it, the magistrate judge is likely to err on the permissive side. 'One common form of unnecessary discovery (and therefore a ready source of threatened discovery) is delving into ten issues when one will be dispositive. A magistrate lacks the authority to carve off the nine unnecessary issues; for all the magistrate knows, the judge may want evidence on any one of them. So the magistrate stands back and lets the parties have at it. Pursuit of factual and legal issues that will not matter to the outcome of the case is a source of enormous unnecessary costs, yet it is one hard to conquer in a system of notice pleading and even harder to limit when an officer lacking the power to decide the case supervises discovery.' Frank H. Easterbrook, 'Discovery as Abuse,' 69 B.U. L. Rev. 635, 639 (1989)."

The court's split illustrates the great difficulty encountered in attempting to apply a "plausibility" standard without straying into evaluating probabilities, which Iqbal said was not the proper approach, or flat-out requiring fact pleading, which the Court repeatedly rejected. The majority's view in Swanson is that it is better to apply plausibility by applying a sliding scale of factual detail, varying with the particular case, so that there is just enough to tell a coherent story from which the legal conclusions plausibly could flow.

Illinois Supreme Court Considering Allowing Discovery Depositions at Trials

2010-07-28T05:52:00.002-05:00

I previously reported on the Illinois practice of differentiating between "discovery depositions" and "evidence depositions, and the unfortunate consequences that sometimes result -- as in the case of Berry v. American Standard, Inc., 382 Ill. App.3d 895 (2008). Motivated by the situation discussed in Berry and the strict result mandated under the current version of the applicable rule, the Illinois Supreme Court Rules Committee has proposed an amendment to Supreme Court Rule 212 to allow the use of a discovery deposition transcript as trial evidence in a very limited set of circumstances. The Committee's comments for the proposal state:

"The Committee believes that a trial court should have the discretion under Rule 212(a)(5) to permit the use of a party’s discovery deposition at trial. The current version of the Rule is absolute in its prohibition against the use of a party’s discovery deposition at trial. It appears, however, that there may be rare, but compelling circumstances under which a party’s discovery deposition should be permitted to be used. In the Committee’s view, Berry presents such circumstances. Given that in most cases, counsel will have the opportunity to preserve a party’s testimony via an evidence deposition, it is expected that the circumstances that would justify use of a discovery deposition would be extremely limited."

Click here for the proposed rules change. The Rules Committee is holding public hearings on the proposal in Chicago on July 28, 2010.

New Seventh Circuit Appellate Court Nominee Receives Senate Confirmation

2009-11-20T06:16:00.004-06:00

The U.S. Court of Appeals for the Seventh Circuit will be adding a new judge to its roster. The Blog of the Legal Times of Washington, D.C. reports that David Hamilton, Chief Judge of the U.S. District Court for the Southern District of Indiana in Indianapolis, and President Obama's first judicial nominee, was confirmed by a vote of 59 to 39. According to his page on the District Court's website, Judge Hamilton was appointed in 1994, and previously was a partner at Barnes & Thornburg in Indianapolis. He served as Counsel to the Governor of Indiana from 1989 to 1991 and from 1984 to 1989 was an associate at Barnes & Thornburg.

U.S. Supreme Court Hears Argument On Corporation's Location For Diversity Purposes

2009-11-11T12:20:00.015-06:00

The U.S. Supreme Court heard argument yesterday in Hertz Corp. v. Friend, No. 08-1107 (U.S.), cert. granted at 129 S. Ct. 2766 (June 8, 2009). The case concerns the vexing question of which state(s) constitute a corporation's state of citizenship for purposes of federal diversity jurisdiction under 18 U.S.C. §1332. Section 1332(a)(1) specifies that diversity exists between "citizens of different States," and §1332(c)(1) expressly provides that for purposes of diversity "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business."

That begs the question of how one should determine where a corporation has its principal place of business. The federal appellate courts have taken multiple approaches to deciding that question, and it appears that Hertz Corp. will allow the Supreme Court to resolve the split in the circuits. In the opionion below, Friend v. Hertz Corp., 297 Fed. Appx. 690 (9th Cir. Oct. 30, 2008), the Ninth Circuit held that its "place of operations" test was corerctly applied. Under that framework, if the conglomeration of a corporation’s business activity in one State is significantly larger than that in any other state in which the corporation conducts business, that State is the corporation’s principal place of business. The entirety of the unpublished opinion below is reprinted here:

Hertz's Notice of Appeal makes clear that Hertz removed this class action under the Class Action Fairness Act (CAFA). 28 U.S.C. § 1453(c). Therefore, even assuming we lack authority “to accept an appeal from the denial of a motion to remand when a class action has been removed to federal court on the basis of traditional diversity jurisdiction,” Saab v. Home Depot U.S.A., Inc., 469 F.3d 758, 759 (8th Cir.2006), rather than pursuant to CAFA, we have jurisdiction over Hertz's timely appeal from the district court's order remanding this class action to state court. 28 U.S.C. § 1453(c)(1).

The district court correctly applied the “place of operations” test to determine Hertz's principal place of business. Tosco Corp. v. Communities for a Better Env't., 236 F.3d 495 (9th Cir.2001); Industrial Tectonics v. Aero Alloy, 912 F.2d 1090 (9th Cir.1990).

Taking the facts as set forth in the Declaration of Krista Memmelaar, Hertz's relevant business activities are “significantly larger” in California than in the next largest state, Florida. Although the difference between the amount of Hertz's business activity in California and the amount of its activity in Florida is not as large as the difference deemed to be significant in Tosco, California nevertheless “contains a substantial predominance” of Hertz's operations. Tosco Corp., 236 F.3d at 500.

Neither Tosco nor Industrial Tectonics supports Hertz's argument that we must consider the comparative population of states in which a corporation operates to determine whether activities are significantly larger in one state than another. Id.; Industrial Tectonics, 912 F.2d at 1092. Nor do policy concerns mandate the application of a per capita calculation. With its extensive California contacts and business activities, Hertz is not in jeopardy of being mistreated in California courts.

Because California is Hertz's principal place of business under the “place of operations” test, we do not apply the nerve center test. Tosco, 236 F.3d at 500.

In contrast, the "headquarters" or "nerve center" test looks for the location at which the corporation operates its headquarters. Illinois Bell Tel. Co. v. Global NAPs Ill., Inc., 551 F.3d 587, 590 (7th Cir. 2008). Hertz argued that the headquarters test should be applied instead of the conglomeration method used in the Ninth Circuit. The question presented in its petition for certiorari was "Whether, for purposes of determining principal place of business for diversity jurisdiction citizenship under 28 U.S.C. §1332, a court can disregard the location of a nationwide corporation's headquarters - i.e., its nerve center."

The NLJ reported that at yesterday's oral argument, the Court appeared to be sympathetic to a "headquarters" standard. See their pair of interesting articles posted yesterday and today. Click here to download the Supreme Court brief of Hertz, the opposition brief of Friend, the reply brief of Hertz, and the amicus brief supporting Hertz.

2009-08-16T23:52:00.000-05:00

I have moved my blog to be hosted in a different way. In the near future I will be consolidating all of my civil procedure blog files in once place, rather than the patchwork that exists now. Hopefully this will improve service and make it easier to maintain this blog. Meanwhile, a large number of older posts will be reappearing here.

Winning the Battle But Losing the War

2008-10-01T18:33:00.005-05:00

When confronted with a discovery request, it often is a lawyer's instinct to react that the request is too broad. "That's outrageous and must be reigned in! I can't ask my client to find all of that!" However, you must be careful not to limit the opponent's discovery so much that you end up failing to produce documents that your own side needs to prove its claims or defenses.

A recent case from the Eighth Circuit illustrates the importance of not taking discovery-limiting positions that hurt your own case. In Gander Mountain Co. v. Cabela's, Inc., 540 F.3d 827 (8th Cir. Aug. 27, 2008), the parties disputed the meaning of a trademark license agreement. The key disputed provision gave defendant the right to license certain of plaintiff's trademarks, provided the license was "evidenced by a separate written agreement in form and content customary to licenses of the type described above." When defendant presented plaintiff with the required payment and a license agreement, plaintiff balked and brought a declaratory judgment action to find that defendant was not entitled to the license.

During discovery, plaintiff served an interrogatory requesting defendant's explanation of what the contract meant by "customary form and content of licenses." Defendant responded that the license it had tendered (but which plaintiff rejected) was the only example that was needed. Plaintiff moved to compel a more informative answer but defendant prevailed. Plaintiff filed a second motion to compel a further response, but defendant countered with a motion for protective order, claiming the issue had been decided. The district court agreed with defendant.

Defendant succeeded in shutting down plaintiff's attempt to get defendant to explain what it thought the contract meant beyond merely saying that it believed its proposed license was satisfactory. So far so good. Defendant was saving itself the trouble of answering plaintiff's troublesome discovery requests, right?

Not so fast. Plaintiff moved for summary judgment, contending that the contract language did not provide definite enough terms. Because the single example of a license agreement that defendant offered could not be determinative of what constitutes customary form and content of licenses, plaintiff argued, there was no evidence in the record from which one could conclude that the tendered license satisfied the contract's requirements. The defendant must have been surprised when the district court agreed, and granted summary judgment. It appealed, requesting among other things that the matter be remanded with directions to re-open for additional fact and expert discovery.

The Eighth Circuit affirmed, finding that the district court had not committed error "by granting [plaintiff's] motion for summary judgment without allowing [defendant] an opportunity to conduct discovery that it had previously declined to conduct." The lesson here is that defendant was too good at shutting down plaintiff's discovery attempts. Without allowing information to find its way into the record that defendant needed to prove its own interpretation of the contract, defendant deprived itself of any defense to the summary judgment motion. As this was a situation of defendant's own creation, defendant apparently found little sympathy with the district court or appellate court.

It is interesting to note that on appeal defendant argued that the district court had somehow violated the law-of-the-case doctrine. Apparently, defendant claimed that the fact that the district court had refused to compel defendant to produce the evidence concerning trademark license agreements generally rendered any such evidence, if it had been produced in response to the summary judgment motion, inadmissible for purposes of establishing a genuine issue of material fact. The appellate court disagreed, finding that refusal to compel was in no way a ruling on admissibility.

I tend to see the law-of-the-case argument as better fitting the other side's argument because that doctrine, like other branches of judicial estoppel, is intended to force parties to live with the consequences of their litigation strategy choices. If a defendant argues that it shouldn't be put to producing something in discovery, it must accept that if the court accepts that argument defendant will be barred from producing it later should it turn out to be needed. So before you set out to win a discovery battle, be sure that you aren't setting yourself up to lose the war.

Recent Developments Making Privilege Waivers Less Likely

2008-09-18T04:55:00.003-05:00

The past few weeks have seen some extraordinary developments in the area of waiver of attorney-client privilege and attorney work product protection.

First came the news that the Department of Justice has reversed course after pursuing a policy for many years in which it has pressured corporations to waive privilege if they want to be credited with being cooperative in a DOJ investigation. That policy had been embodied in a memorandum by Deputy Attorney General Larry D. Thompson entitled "Principles of Federal Prosecution of Business Organizations," dated January 20, 2003. A short memorandum, entitled "Waiver of Corporate Attorney-Client and Work Product Protections," by Acting Deputy Attorney General Robert D. McCallum, Jr., was published on October 21, 2005, which recognized the need to develop some procedural controls that were absent from the Thompson Memorandum. The policies embodied in those memoranda were highly controversial because they represented a systematic assault on the confidentiality of the lawyer-client relationship that forms a central backbone of our adversarial judicial system. The DOJ in effect was saying that it could pressure corporations to waive confidentiality during an investigation, even though such a waiver could have disasterous consequences for individual corporate employees who also were targets of the same investigation and for the company and its employees in companion civil litigation brought by private parties.

The controversy led to a revised memorandum by Deputy Attorney General Paul J. McNulty entitled "Principles of Federal Prosecution of Business Organizations," dated December 13, 2006, but that memorandum brought little real change in policy. Although it imposed new internal approval procedures that prosecutors had to follow when requesting that a corporate target waive privilege, the fundamental issue remained: Prosecutors were empowered to make requesting waiver of privilege a part of their arsenal whenever they felt justified in doing so.

However, all of that changed on August 28, 2009 when newly-appointed Deputy Attorney General Mark R. Filip announced the promulgation of a new policy. Bowing to pressure from a wide range of sources, the DOJ adopted a formal policy generally directing prosecutors not to seek privilege waivers from companies as part of their cooperation efforts. Rather than continue the string of less formal internal memoranda, the new policy formally was incorporated into Chapter 9-28 of the U.S. Attorneys' Manual. This change likely will moot efforts in Congress to legislatively direct a change in DOJ policy regarding a waiver-based quid pro quo.

Second, and coincidentally on the same day, the Second Circuit published United States v. Stein, 541 F.3d 130 (2d Cir. Aug. 28, 2008). In addition to pressuring companies to waive privilege to the detriment of individual employees (often ex-employees), the DOJ also had a policy of pressuring corporations not to pay the legal fees of accused employees. Among other things, this represented a different kind of erosion of attorney-client privilege and work product protection, i.e. by preventing company employees from hiring lawyers so that attorney-based privileges never arose in the first place. In Stein, the Second Circuit held that it was improper for the DOJ to have pressured KPMG into refusal to pay defense costs for numerous individuals at KPMG who were accused of wrongdoing in connection with counseling clients regarding various tax shelters. The court found that the DOJ's actions deprived those individual defendants of their right to counsel under the Sixth Amendment, and affirmed the district court's dismissal of the indictment.

Finally, last week the U.S. Congress sent legislation to the President that would create a new Federal Rule of Evidence 502, which the Judicial Conference proposed to Congress on September 26, 2007. As stated in the original proposal, and in the Senate committee report on the legislation, the purpose of new Rule 502 is to provide protections against waiver of the attorney-client privilege and work product immunity, and to reduce the costs associated with discovery (and, it was noted, particularly electronic discovery). The rule accomplishes the following:

Avoidance of broad subject-matter waiver implications. If a waiver is found, it only applies to the information disclosed, unless a broader waiver is made necesary by the holder's intentional and misleading use of protected information.
Waiver does not occur through inadvertent disclosure. Inadvertent disclosure in federal proceedings does not cause a waiver if the holder took reasonable steps to avoid inadvertent disclosure and took reasonable steps to claw it back, e.g. following Fed. R. Civ. P. 26(b)(5)(B).
Non-waiver provisions in protective orders enforceable. If a federal court orders that disclosure of protected information is not a waiver, that order is also binding against non-parties and in both state and federal proceedings. If the parties enter into a non-waiver agreement, they can make it binding on non-parties by having it entered as a court order.
State courts covered. When a disclosure is made in a state proceeding and is not the subject of a state-court order concerning waiver, the disclosure does not operate as a waiver in a federal proceeding if the disclosure: (1) would not be a waiver under Rule 502 if it had been made in a federal proceeding; or (2) is not a waiver under the law of that state.

If signed by the President as expected, Rule 502 will not change the substantive law of privilege at all, only the law of waiver. As one member of the House of Representatives remarked, "The
legislation improves the efficiency and the discovery process, while it still promotes accountability. It alters neither Federal nor State law on whether the attorney-client privilege or the work product doctrine protects specific information. The bill only modifies the consequences of an inadvertent disclosure once a privilege exists." (Cong. Rec. Sept. 8, 2008 at p. H7819.)

Hopefully this new rule will give parties confidence in the non-waiver agreement as a cost-reducing technique in appropriate cases, lessen the consequences of inadvertent production, and reduce litigation over waiver issues.

Illinois Pitfalls In Preserving Dying Party’s Testimony

2008-06-18T21:02:00.002-05:00

A recent case from the Fifth District of Illinois' intermediate appellate court illustrates how very different the Illinois state rules are from the Federal Rules of Civil Procedure concerning deposition discovery. Berry v. American Standard, Inc., 382 Ill. App. 3d 895, 888 N.E.2d 740 (Ill. App. (5th Dist.) May 19, 2008), also discusses an important pitfall when attempting to preserve the testimony of a dying party.

In Berry, plaintiff sued multiple defendants for asbestos-related injuries after learning that he had contracted terminal mesothelioma and had a life expectancy of less than 18 months. Plaintiff quickly served defendants with a notice that his deposition would take place on February 25, 2004. The notice stated that the deposition would be an "evidence deposition."

Under Illinois procedure, a deposition may either be a "discovery deposition" or an "evidence deposition." Except under limited circumstances, the only deposition that may be used in court in lieu of in-person testimony is an evidence deposition. The court in Berry explained the distinction as follows (citations omitted):

Illinois has long recognized a sharp distinction between depositions taken for the purpose of discovery and those taken for use as evidence at a trial. The purpose of a discovery deposition is to explore the facts of the case, and for this reason wide latitude is given in the scope and manner of questioning. Discovery depositions are used to obtain information, to commit witnesses to particular stories, and to obtain admissions from opposing parties. Their admissibility in evidence is limited. Knowing in advance that a deposition is for discovery only and hence of limited availability, counsel ordinarily do not urge technical objections, and the taking of the deposition proceeds informally and expeditiously. Discovery depositions are not permitted to be used at a trial even if the deponent is unavailable, because that use would inhibit free discovery by requiring time-consuming evidentiary objections at every discovery deposition. In contrast, an evidence deposition is generally used for the purpose of preserving testimony for trial, and questioning is therefore limited by the rules of evidence.

Plaintiff knew that it was important to preserve his testimony through an evidence deposition, not merely a discovery deposition, because he was not going to live long enough to testify in person. That is why he noticed his own evidence deposition.

Because an evidence deposition serves as the equivalent of trial testimony, opposing parties typically first take a discovery deposition of the witness – no one wants to examine a witness for the first time at trial, after all. The Berry defendants exercised their right to object to being forced to take an evidence deposition without the benefit of a prior discovery deposition. Ultimately, the trial court agreed and plaintiff's deposition proceeded as a discovery deposition instead, with the parties agreeing to take the evidence deposition once the discovery deposition was completed.

Unfortunately, the discovery deposition became a long, drawn-out affair due to the large number of defendants seeking to examine plaintiff and extensive related motion practice. Plaintiff passed away before his evidence deposition could be taken, and plaintiff's wife was substituted as executrix.

Defendants subsequently moved to bar plaintiff from using any of the discovery deposition as testimony at trial, citing Illinois Supreme Court Rule 212(a)(5). The trial court agreed and the appellate court affirmed. When it comes to using discovery depositions as evidence, the Illinois rules are even more strict if the testimony at issue is of a party. The few situations listed in Rule 212(a)(5) permitting discovery depositions to be used at trial do not apply if the witness is a party or a controlled expert witness:

(a) *** Discovery depositions taken under the provisions of this rule may be used only: *** (5) upon reasonable notice to all parties, as evidence at trial or hearing against a party who appeared at the deposition or was given proper notice thereof, if the court finds that the deponent is neither a controlled expert witness nor a party, the deponent's evidence deposition has not been taken, and the deponent is unable to attend or testify because of death or infirmity, and if the court, based on its sound discretion, further finds such evidence at trial or hearing will do substantial justice between or among the parties.

Plaintiff advanced numerous arguments why his discovery deposition should be permitted at trial, but the court refused to bend the rules. Most significant was the argument that because of his death he was no longer a "party" for purposes of the rule, which was a matter of first impression in Illinois. The court rejected that argument, holding that his wife's substitution kept him in the case as a party for all purposes. (After all, if that were not true the case would have to be dismissed for lack of a plaintiff.)

This harsh result stands in sharp contrast to federal civil procedure. First of all, there is no distinction between "discovery" and "evidence" depositions. Second, the rules are more relaxed when it comes to using a deposition as trial testimony. If this case had been brought in federal court, Mr. Berry could have testified by deposition under Fed. R. Civ. P. 32(a)(4): "A party may use for any purpose the deposition of a witness, whether or not a party, if the court finds: (A) that the witness is dead." It's that simple.

So what should you do when you need to preserve a dying party's testimony for use at trial in Illinois? It is critical that you take that party's evidence deposition; the courts will accept no substitutes. If time is short, make your notice of deposition a notice of both a discovery and an evidence deposition. In some of the cases that the Fifth District distinguished, the deposition had been noticed that way, and the courts allowed use of the transcript where the other side had not objected at the deposition to its being an evidence deposition. If the other side does object, try to conduct any motion practice as expeditiously as possible, perhaps on an emergency basis.

While House Embroiled In E-Discovery Controversy

2008-01-17T16:58:00.000-06:00

While lawyers may be getting used to the occasional e-discovery dispute boiling over into the trade press or advance sheets, we still don't expect to see it make front-page news in traditional media. But there, on the front of today's Chicago Tribune, Wall Street Journal, and many others, are dreaded phrases like "deleted e-mails," "backup tapes," and "preservation."

The White House has been under fire since last year based on an investigation that found numerous e-mails had not been preserved as they should have been. White House Press Secretary Dana Perino acknowledged this in April 2007, saying there could be as much as 5 million missing e-mails. In response to that report, a public watchdog group called Citizens for Responsibility and Ethics in Washington, brought a lawsuit asserting that the White House and certain agencies were in violation of the Federal Records Act and other statutes. Citizens for Responsibility and Ethics in Washington v. Executive Office of the President, Civ. No. 1:07 cv 1707 (HHK) (D.D.C.).

The complaint asserted that the only place the missing e-mails might still exist is on backup tapes the White House made for disaster recovery purposes. Plaintiff moved for expedited discovery on that subject. In response, on January 8, 2008 the court ordered the government to provide an affidavit answering four specific questions designed to cut through the dispute and determine whether the backup tapes did or did not have the e-mails that were the subject of the case.

Yesterday, the White House filed the affidavit. It essentially admitted that the White House "recycled" its backup tapes for several years. In other words, many of the e-mails are not going to be found on those tapes because tapes regularly were overwritten with newer data. If this sounds like the kind of thing that gets litigants into trouble these days, you're right. In its briefs, the White House seems to take the position that because the recycling did not happen once the complaint was filed, but that misses the point. The lawsuit maintains that the government has a statutory duty not to destroy the e-mails wholly apart from whatever obligations exist under the Federal Rules of Civil Procedure. Even without that duty, the duty to preserve would have kicked in much earlier because of plaintiff's pre-litigation demands.

This has the potential to become the best-known e-discovery spoliation case to date. Watch the plaintiff's web site as the story develops.

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

2007-12-03T12:00:00.000-06:00

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

2007-11-14T12:00:00.000-06:00

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

2007-11-06T10:34:00.000-06:00

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

2007-10-27T10:00:00.000-05:00

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

2007-10-23T10:32:00.000-05:00

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

2007-10-22T15:45:00.000-05:00

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

2007-10-20T10:45:00.000-05:00

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

2007-10-18T11:00:00.000-05:00

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

2007-10-15T08:35:00.000-05:00

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

2007-10-12T21:00:00.000-05:00

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

2007-10-06T12:05:00.000-05:00

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

2007-10-02T03:06:00.000-05:00

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

2007-10-01T15:11:00.000-05:00

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

2007-09-28T15:42:00.000-05:00

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

2007-09-25T12:35:00.000-05:00

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

2007-09-03T14:46:00.000-05:00

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

2007-08-11T09:47:00.000-05:00

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

2007-08-01T17:08:00.000-05:00

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

2007-07-15T17:00:00.000-05:00

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

2007-07-09T17:19:00.000-05:00

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

2007-07-05T11:06:00.000-05:00

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

2007-07-03T15:15:00.000-05:00

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

2007-06-21T12:32:00.000-05:00

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

2007-06-20T13:26:00.000-05:00

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

2007-06-18T15:11:00.000-05:00

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

2007-06-12T15:04:00.000-05:00

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

2007-06-11T15:00:00.000-05:00

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

2007-06-07T15:08:00.000-05:00

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

2007-05-29T15:36:00.000-05:00

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

2007-05-21T15:25:00.000-05:00

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

2007-04-15T15:33:00.000-05:00

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

2007-03-27T15:41:00.000-05:00

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

2007-03-23T14:00:00.000-05:00

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

2007-03-20T15:39:00.000-05:00

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

2007-03-10T16:06:00.000-06:00

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

2007-03-07T13:03:00.000-06:00

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

2007-02-28T17:02:00.000-06:00

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

2007-02-28T15:58:00.001-06:00

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

2007-02-24T18:10:00.000-06:00

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

2007-01-31T19:58:00.000-06:00

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

2007-01-21T18:51:00.000-06:00

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

2007-01-12T16:24:00.000-06:00

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

2007-01-10T14:37:00.000-06:00

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

2007-01-06T16:23:00.000-06:00

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

2007-01-03T14:49:00.000-06:00

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.

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

2006-12-04T16:10:00.000-06:00

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

2006-11-29T18:04:00.000-06:00

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

2006-11-28T14:56:00.000-06:00

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

2006-11-24T18:02:00.000-06:00

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

2006-11-19T16:00:00.000-06:00

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

2006-11-04T15:21:00.000-06:00

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)

2006-10-30T17:00:00.000-06:00

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

2006-10-09T18:00:00.000-05:00

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

2006-10-01T18:00:00.000-05:00

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

2006-09-28T21:35:00.000-05:00

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

2006-09-27T18:46:00.000-05:00

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

2006-09-26T09:48:00.000-05:00

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

2006-09-20T17:48:00.000-05:00

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

2006-09-17T17:00:00.000-05:00

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

2006-08-30T18:00:00.000-05:00

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

2006-08-18T18:00:00.000-05:00

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

2006-08-15T19:00:00.000-05:00

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

2006-08-11T19:30:00.000-05:00

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

2006-08-10T18:00:00.000-05:00

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

2006-07-15T16:36:00.000-05:00

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

2006-06-22T19:00:00.000-05:00

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

2006-06-19T16:00:00.000-05:00

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.

2006-06-18T14:00:00.000-05:00

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

2006-06-15T18:15:00.000-05:00

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

2006-06-09T11:45:00.000-05:00

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

2006-05-17T16:00:00.000-05:00

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

2006-05-16T19:55:00.000-05:00

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

2006-05-03T17:00:00.000-05:00

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

2006-04-29T15:30:00.000-05:00

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

2006-04-25T16:00:00.000-05:00

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

2006-04-22T15:00:00.000-05:00

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

2006-04-20T17:00:00.000-05:00

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

2006-03-28T17:30:00.000-06:00

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

2006-03-21T17:47:00.000-06:00

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

2006-03-18T17:43:00.000-06:00

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

2006-02-02T19:40:00.000-06:00

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

2006-02-01T18:00:00.000-06:00

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

2006-01-20T15:00:00.000-06:00

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

2006-01-10T13:20:00.000-06:00

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

2006-01-08T10:30:00.000-06:00

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.

Amount In Controversy In Lawsuit Challenging Arbitration Award Includes The Full Matter At Stake In The Arbitration

2003-11-10T14:07:00.000-06:00

If a defendant removes a case to federal court but the plaintiff successfully moves to remand the case, 28 U.S.C. § 1447(c) provides that a district court "may require payment of just costs and any actual expenses, including attorney fees, incurred as the result of the removal."

In Sirotsky v. New York Stock Exchange, No. 02-3240, 2003 WL 22442988 (7th Cir. Oct. 29, 2003), as the losing party in an NYSE arbitration, plaintiff was ordered by the arbitrators to pay the NYSE's $4,800 arbitration fee. Plaintiff sued her opponent and the NYSE in Illinois state court to vacate that order on the ground that her opponent's lawyer was not licensed to practice in Illinois. Defendant believed plaintiff was litigating both over the $4,800 fee and over the original arbitration in which she sought $242,000, and therefore removed on diversity grounds. The court determined that only the $4,800 fee was at stake, and remanded based on failure of the jurisdictional minimum. Plaintiff then asked for an award of attorneys' fees under § 1447(c), but the district court denied the motion.

On appeal, for the first time in the case, plaintiff clarified that she only was litigating over the $4,800 fee. However, the Seventh Circuit held that it was reasonable for defendant to assume that plaintiff would not have made a federal case out of the fee award alone, and had the right to assume plaintiff was intending to reopen the arbitration. As such, the amount in controversy in any new arbitration proceeding that plaintiff hoped to commence would have been the original $242,000. Thus, it was clear at the time of removal that defendant properly removed a case with an amount in controversy exceeding $75,000.

Regarding the denial of attorneys' fees, the Seventh Circuit found no abuse of discretion. It clarified that although the statue does not set forth the criteria for awarding fees and costs, the cases are in agreement that the plaintiff must show that removal was improper and need not establish that defendant acted in bad faith. Furthermore, the court noted that the Seventh Circuit has taken the further step of holding that, provided removal was improper, there is a rebuttable presumption that the plaintiff is entitled to an award of fees, as under standard fee-shifting statutes. Here, the removal itself was not even improper.

Supreme Court To Consider Whether Defect In Diversity Jurisdiction Is Curable

2003-11-10T11:03:00.000-06:00

The U.S. Supreme Court has agreed to hear an appeal from a Fifth Circuit case involving diversity jurisdiction.

In Atlas Global Group, L.P. v. Grupo Dataflux, 312 F.3d 168 (5th Cir. 2002), cert granted, No. 02-1689, 2003 WL 21229394 (Oct. 14, 2003), a partnership sued a Mexican corporation in federal court for breach of contract, but diversity jurisdiction was lacking because two partners were residents of Mexico. Before defendants complained, plaintiff dismissed those two partners and "cured" the defect. After a jury verdict for plaintiff, defendant successfully moved to dismiss for lack of jurisdiction arguing diversity is determined at the time the complaint is filed. The Fifth District reversed because plaintiff dismissed its Mexican partners sua sponte before any challenge, and starting over would be wasteful. One judge dissented against the creation of a “new exception” just to save judicial resources.

Litigants May Not Defend Against Opponents' Claims By Filing Separate Lawsuits Seeking To Stay Them

2003-11-02T15:15:00.000-06:00

Some litigants believe the best defense is a good offense. However, the Seventh Circuit recently confirmed that a "good offense" does not include filing a separate lawsuit seeking a stay of the first.

In Buntrock v. SEC, No. 03-1890, 2003 WL 22442993 (7th Cir. Oct. 29, 2003), the SEC authorized its legal staff to bring a civil complaint in federal court against Dean Buntrock charging him with violations of federal securities laws. Buntrock filed his own lawsuit against the SEC, seeking to stay the SEC's filing of a case against him; when the SEC actually filed its case (Buntrock had not sought an injunction), Buntrock amended his complaint to seek a stay of the SEC's case. Both cases were consolidated, and on the SEC's motion the court dismissed Buntrock's case for lack of subject-matter jurisdiction.

The Seventh Circuit affirmed the dismissal because Buntrock's case had "no basis in law or common sense." The jurisprudence of federal jurisdiction includes a line of cases holding that a plaintiff's case might be so completely frivolous that it does not even trigger the jurisdiction of the federal courts. The Seventh Circuit found this to be such a case. One reason for disallowing such a tactic is that defendant's approach would "turn every case in which there is a defense into two cases." The rules of federal procedure provide litigants with the opportunity to present their defenses in a single action. Put simply, if you have a defense to a plaintiff's claims, you must plead it in the case plaintiff has filed.

Another, more technical, approach is that Buntrock has an adequate remedy at law -- to interpose his defense in the SEC's case -- and is unable to satisfy the prerequisites for equitable relief, i.e., a stay. While Buntrock argued that his remedy was not adequate because he would have to go through a whole trial, and the purpose of his complaint was to prevent that, the Seventh Circuit held that did not render his remedy inadequate as a matter of law.