New England Biz Law Update
Below are summaries of important opinions affecting in-house attorneys issued by the U.S. Supreme Court, 1st and 2nd Circuits and Delaware Court of Chancery from late October 2003 through early January 2004.
U.S. Supreme Court
Antitrust
Local Phone Company Customers Can’t Sue For Antitrust Under Telecommunications Act
Customers of a local phone service company who claimed that it denied equal access to a competing company’s local network don’t have standing under the Telecommunications Act to bring an antitrust suit.
Verizon Communications v. Law Offices of Curtis Trinko, Docket No. 02-682. Decided Jan. 13, 2004.
Employment
Employer Not Obliged To Rehire Former Drug Addict
An employer that refused to rehire a former employee who was a rehabilitated drug addict may not be liable under the ADA.
Raytheon Co. v. Hernandez. Docket No. 02-749. Decided Dec. 2, 2003.
Securities
Promised Fixed Rate Of Return Subject To Securities Laws
A promised fixed rate of return qualifies a program as an “investment contract” subject to federal securities laws.
Securities and Exchange Commission v. Edwards. Docket No. 02-1196. Decided Jan. 13, 2004.
Certiorari Granted
The Supreme Court has agreed to answer the following questions:
Antitrust
Where a defendant’s conduct in an antitrust case affects both domestic and foreign commerce, but the plaintiff’s claim arises only from the conduct’s foreign effect, is the claim governed by the Sherman Act?
F. Hoffman-LaRoche v. Empagran S.A., No. 03-724. Certiorari granted Dec. 15, 2003. Ruling below: 315 F.3d 338 (D.C. Cir. 2003).
Employment
Can a Title VII plaintiff who claimed she was constructively discharged from her job as a result of sexual harassment allege she was subjected to a “tangible employment action,” and thereby prevent her employer from asserting an affirmative defense?
Pennsylvania State Police v. Suders. Docket No. 03-95. Certiorari granted Dec. 1, 2003. Ruling below: 325 F.3d 432 (3rd Cir. 2003).
ERISA
Does a pension plan amendment which expands the types of post-retirement employment that trigger mandatory suspension of early retirement benefits violate ERISA’s “anit-cutback rule” when applied to workers who have already qualified for the benefits?
Central Laborers’ Pension v. Heinz. Docket No. 02-891. Certiorari granted Dec. 1, 2003. Ruling below: 303 F.3d 802 (7th Cir. 2002).
1st U.S. Circuit Court of Appeals
Admiralty
Corporation Required To Continue ‘Maintenance And Cure’ Benefits
A yacht owning corporation’s motion to terminate maintenance and cure benefits – for an employee who suffered an anoxic brain injury when he fell from the vessel – was rightly denied, where there was evidence sufficient to support a conclusion that the employee had not yet reached a point of “maximum medical recovery.”
Petition of RJF International Corporation for Exoneration From or Limitation of Liability. Docket No. 03-1696. Decided Jan. 8, 2004.
Corporate
Certain Releases Of Self-Dealing Claims Ruled Enforceable
A unanimous and fully informed shareholder approval in a close corporation of a release of claims of self-dealing by corporate directors and shareholders is sufficient to make the release enforceable.
In Re Mi-Lor Corporation. Docket Nos. 02-2578 and 02-2659. Decided Nov. 3, 2003.
Employment
Employees Cannot Be Retaliated Against For Requesting An Accommodation
Simply requesting an accommodation of a claimed disability, without filing a formal charge or engaging in other specific actions listed in 42 U.S.C. §12203(a), is nonetheless behavior protected from an employer’s retaliation.
Wright v. CompUSA, Inc. Docket No. 03-1099. Decided Dec. 19, 2003.
Willful Violation Of FMLA Need Be Shown To Extend The Statute Of Limitations
In order to establish a willful violation of the Family and Medical Leave Act, and consequently extend the applicable limitations from two years to three, a plaintiff must show that “the employer either knew or showed reckless disregard for the matter of whether its conduct was prohibited by the statute.”
Hillstrom v. Best Western TLC Hotel. Docket No. 03-1972. Decided Dec. 31, 2003.
Environmental
Court Lacked Jurisdiction Under Clean Water Act To Rule On User Charges
The district court correctly concluded it did not have subject matter jurisdiction over a claim for user charges under the Clean Water Act, and therefore lacked supplemental jurisdiction over the remaining state law claims pursuant to 28 U.S.C. §1367.
Templeton Board of Sewer Commissioners v. American Tissue Mills of Massachusetts, Inc., et al. Docket No. 03-1134. Decided Dec. 9, 2003.
ERISA
Employee On Leave Of Absence Not Entitled To Long-Term Disability Benefits
A plaintiff’s request for long-term disability benefits was properly denied because (1) under the terms of the relevant plan, only active full-time employees were eligible for benefits and (2) the plaintiff, when she applied for benefits, had been on a six-year leave of absence due to a work-related injury and thus had ceased to be a participant in the plan.
Perry v. New England Business Service, Inc., et al. Docket No. 02-2544. Decided Oct. 23, 2003.
Zoning
Telecommunications Tower Suit Should Not Have Been Removed To Federal Court
Where (1) a defendant zoning board settled a federal suit by issuing a corporation a permit for the construction of a wireless telecommunications tower, (2) the plaintiff residents of the town subsequently filed suit in state court alleging that the zoning board had abused its discretion by issuing the permit and (3) after the case was removed to the U.S. District Court, the complaint was ordered dismissed under the doctrine of res judicata, the dismissal order should be vacated and the U.S. District Court should be instructed to remand the matter to state court, as no “substantial issue” of federal law was implicated in the case and therefore the removal was unwarranted.
Metheny, et al. v. Becker, et al. Docket No. 02-2424. Decided Dec. 12, 2003.
2nd U.S. Circuit Court of Appeals
Attorneys
Letter To U.S. Attorney Did Not Result In Waiver Of Corporation’s Privileges
A corporation, by sending a letter to the U.S. Attorney asserting the corporation’s innocence based in part on assurances given by law enforcement officials concerning the legality of the corporation’s actions, did not waive work-product privileges covering the corporation’s attorneys’ notes of their conversations with the law enforcement officials.
John Doe Co. v. United States. Docket Nos. 01-6079 & 01-6222. Decided Oct. 30, 2003.
Commercial
Debt Collection Act Not Violated By ‘Attorney/Collection Cost’ Fee Demand In Debt Collection Letter
A corporation did not violate the Fair Debt Collection Practices Act by demanding a $98 fee, as an attorney/collection cost, in a debt collection letter on behalf of a creditor, where (1) an agreement between the relevant parties authorized the charging of a reasonable fee and (2) evidence demonstrated that the $98 charge was reasonable in light of the work performed by the corporation on the debt collection letter.
Shapiro v. Riddle & Associates, P.C. Docket No. 03-7209. Decided Dec. 5, 2003.
Defendant Not Liable For Co-Defendant’s Debt Under The ‘De Facto Merger’ Doctrine
A plaintiff’s complaint to recover on a trade debt was rightly dismissed, as the defendant could not be held liable for the contract debts of a co-defendant under the “de facto merger” doctrine.
Cargo Partner, AG v. Albatrans, Inc. Docket No. 02-9322. Decided Dec. 9, 2003.
Damages
Court Reports Question Regarding Punitive Damages In Tortious Interference Case
In a suit growing out of a franchise dispute, the 2nd U.S Circuit Court of Appeals reported the following question to the New York Court of Appeals: “Is public harm required for a punitive damages claim by a franchisee against its franchisor for tortious interference with the franchisee’s prospective economic relations with its customers?”
Carvel Corporation v. Noonan, et al. Docket Nos. 02-9246, 02-9248, 02-9252 and 02-9362. Decided Nov. 21, 2003.
Employment
Traditional Agency Principles Not Enough In Determining ‘Employer’ Status Under FLSA
A district court must look beyond traditional agency principles before declaring that an entity is not an employer under the Fair Labor Standards Act.
Zheng, et al. v. Liberty Apparel Company, Inc., et al. Docket No. 02-7826. Decided Dec. 30, 2003.
Environmental
‘Substantial Continuity’ Test No Longer Applicable In Determining Successor Liability In CERCLA Cases
Because of the U.S. Supreme Court’s decision in United States v. Bestfoods, 524 U.S. 51 (1998), the “substantial continuity” test can no longer be applied to determine successor liability under CERCLA.
State of New York v. National Services Industries, Inc. Docket No. 02-9227. Decided Dec. 17, 2003.
Fraud
Plaintiff Established ‘Zone Of Interest’ For Standing To Sue
In a civil fraud action alleging violations of sections 1962(c) and (d) of RICO, as well as violations of state common law, summary judgment for defendants was inappropriate where the plaintiff satisfied the “zone of interest” to establish standing.
Baisch v. Gallina. Docket No. 02-9047. Decided Oct. 2, 2003.
Insurance
Flawed ‘Unearned Premium’ Calculation Doesn’t Warrant Contract Reformation
Where (1) a settlement agreement provision called for the return of an unearned insurance premium and (2) the calculation of the amount of the unearned premium by certain insurance underwriters was flawed, this did not warrant reformation of the settlement agreement under New York law because the parties had agreed not only to the amount to be returned but also to the flawed methodology by which the amount was determined.
Loewenson v. London Market Companies, et al. Docket No. 02-6322. Decided Dec. 5, 2003.
Insurance
Investigation Into Alternate Sources Of Insurance Did Not Justify Insurer’s Delayed Disclaimer
An insurance company’s 48-day delay in notifying a policyholder of a denial of coverage was unreasonable, as the insurer’s investigation into alternate, third-party sources of insurance benefiting the insured was not an acceptable reason for delayed notice, despite the lower court’s conclusion that such investigations should be encouraged as a matter of public policy.
First Financial Insurance Co. v. Jetco Contracting Corp. Docket No. 01-9455. Decided Dec. 16, 2003.
International
Warsaw Convention Article Applies Only In Cases Of Successive Carriage
Article 30(3) of the Warsaw Convention applies only where damage has been done to merchandise during successive carriage by more than one air carrier.
Commercial Union Insurance Company v. Alitalia Airlines, et al. Docket Nos. 02-7202L and 02-7272CON. Decided Oct. 23, 2003.
Labor
Union’s Repudiation Of Collective Bargaining Agreement Renders Agreement Voidable
An arbitrator must decide whether a union, by organizing a strike and claiming that its collective bargaining agreement with an employer had been terminated, repudiated the agreement, leaving the employer with the right to rescind the entire agreement.
Mulvaney Mechanical, Inc. v. Sheet Metal Workers International Association, Local 38. Docket No. 00-7546. Decided Oct. 30, 2003.
Negligence
Judge Errs In Granting Summary Judgment To Hotel And Maintenance Companies In Negligence Case
A summary judgment award – granted to a defendant hotel corporation and a codefendant maintenance company in a suit filed by a plaintiff who was allegedly injured when interior automatic doors closed on her while she was entering a hotel – must be vacated, as the judge applied a wrong standard in deciding that res loquitur principles were inapplicable in the case.
Stone v. Courtyard Management Corporation, et al. Docket No. 03-7112. Decided Dec. 22, 2003.
Securities
The ‘Bespeaks Caution’ Doctrine Is Inapplicable To Misrepresentations Of Present Or Historical Facts
The “bespeaks caution” doctrine – under which a defendant may not be held liable for misrepresentations in a prospectus if the misrepresentations are sufficiently balanced by cautionary language – is limited to forward-looking, prospective representations, such that “the misrepresentation of present or historical facts cannot be cured by cautionary language.”
P. Stolz Family Partnership L.P. v. Daum, et al. Docket No. 02-7680. Decided Jan. 12, 2003.
Tax
Government Suit To Recover Erroneously Paid Interest To Company Was Timely
Where the federal government filed suit against a corporation in 1997 to recover interest erroneously paid by the Internal Revenue Service in 1994 when the I.R.S. returned to the corporation a deposit in the nature of a cash bond, the government’s suit was timely and was therefore rightly not dismissed.
United States v. Domino Sugar Corporation, et al. Docket No. 02-6287. Decided Nov. 10, 2003.
Delaware Court of Chancery
Corporate
Stockholder Leading Proxy Fight Wins Annual Meeting Order
The court ordered the defendant corporation – which had failed to hold a timely annual meeting under its bylaws – to hold an annual meeting at the request of a large shareholder, who sought a proxy fight to unseat the incumbent board. The annual meeting would go forward even if the greater quorum requirements in the corporation’s governing instruments were not met.
MFC Bancorp Ltd. v. Equidyne Corp. Docket No. 20386. Decided Aug. 13, 2003.
Controlling Stockholder’s Buy-Out Of Tech Company Approved
The founder of a software company that developed and marketed “middleware” for banking executives won approval of his proposal to buy out the company. The proposed transaction met the appropriate “fairness” standard because (i) the company used a special committee of independent board members, which undertook arms’ length bargaining with the founder; (ii) there was no bad faith conduct on the founder’s part; and (iii) an extensive market check before and after the merger agreement was signed demonstrating that the deal price was fair.
In re Cysive Inc. Shareholders Litigation. Docket No. 20341. Decided Aug. 15, 2003.
Proxy ‘Over-Vote’ Definition Withstands Insurgent Challenge
In this unsuccessful proxy contest to unseat the chair of the board of directors of a financial corporation, the court ruled that the independent inspector of elections did not improperly define a bank’s proxy “over-vote” by excluding shares covered by two other “omnibus” proxies given by the same bank.
Seidman & Associates LLC v. G.A. Financial Inc. Docket No. 20367. Decided Oct. 7, 2003.
Former CFO Can Pursue Legal Expenses
A drugstore company’s former chief financial officer, who pled guilty to criminal conspiracy to defraud the company, can expedite his claim that he is entitled to an advancement of his expenses until a final disposition of the proceedings, under the company’s certificate of incorporation.
Bergonzi v. Rite Aid Corp. Docket No. 20453-NC. Decided Oct. 20, 2003.
Derivative Suits
Shareholder Can Pursue Derivative Suit To Remove Disloyal CEO
In shareholder derivative action to remove a CEO who allegedly tried to induce key customers and executives to join a competitor of the company – which provides technical customer support through a call center in India – the plaintiff has demonstrated the futility of a shareholder demand for board action, given the active involvement of another director in the alleged scheme. However, the plaintiff’s motion for judgment on the pleadings is denied.
e4eInc. v. Sircar. Docket No. 20366-NC. Decided Oct. 9, 2003.
Stockholder’s Status Change Derails Derivative Suit
A plaintiff may not pursue her shareholder derivative action because she lost her stockholder status in an arms’ length merger, and she had not pleaded facts that would show a fraud was perpetrated to keep her from pressing her derivative claims.
Lewis v. Ward. Docket No.15255. Decided Oct. 29, 2003.
Sale Of Motor Speedway Property To Majority Shareholder Protected
A defendant motor speedway corporation is entitled to summary judgment in shareholder derivative action because the company’s sale of the Las Vegas Motor Speedway and adjacent real estate to the company’s CEO and majority shareholder is protected by the business judgment rule.
In re Speedway Motorsports Inc. Derivative Litigation. Docket No. 18245-NC. Decided Oct. 14, 2003.
Fiduciary Duty
Delaware ‘director service statute’ allows suit against CEO
The chancery court has jurisdiction over a non-resident of the U.S., the former chairman and CEO of this Delaware company and its wholly owned foreign subsidiary, in the company’s suit alleging breach of fiduciary duty and misappropriation of monies.
Actrade Financial Technologies Ltd. v. Aharoni. Docket No. 20168. Decided Oct. 17, 2003.
