Federal Courts May Rule On Forum Motions Without First Determining Jurisdiction

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

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

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

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

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had informed Rockwell that its system was faulty due to a defective piping system, but the final pretrial order (which superseded the pleadings), and all the proofs at trial, concerned an entirely different defect.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

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

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

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

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

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

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

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

Punitive Damages Limited To Compensatory Award Where Plaintiff Not Vulnerable

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

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

Plaintiff May Dismiss Without Prejudice On Eve Of Mandatory Settlement Conference

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

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

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

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

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

Expert Testimony Remains Absolutely Privileged Against Being Basis For Claims

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

Award Of Costs Must Be Charged To Party, Not Counsel

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

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

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

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

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

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

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

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

California Court Finds No Authority To Force Parties Into Private Mediation

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

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

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

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

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

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

Party Performing Contract Under Protest May Bring Declaratory Judgment Act Claim

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

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

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

Federal Courts Borrowing State Limitations Periods Must Not Borrow Service Rules

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

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

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

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

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

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

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

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

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

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

State Court Default Judgment Estopped Debtors From Re-Litigating Dischargability

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

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

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

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

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

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

Seventh Circuit Reaffirms Allowing Excusing Indigents From Taxation Of Costs

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

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

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

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

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

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

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