September 27, 2011

John Stone, Senior Attorney

According to a federal district court that was recently considering a case of alleged bullying of a disabled adolescent girl at school, if bullying were a medical issue, it would be characterized as a disease affecting America's youth, and a team from the Centers for Disease Control charged with investigating epidemics would be called in to study it.  The problem is pervasive and serious, particularly in the middle school years.  It is the most common type of violence in our schools.  T.K. v. N.Y.C. Dep't of Educ., No. 10-CV-00752, 2011 WL 1549243, at *5 (E.D.N.Y. Apr. 25, 2011).  (T.K. is one of the parents of the student, who is referred to in the case only as "L.K.")

As the court considered in T.K., when the student victim of bullying is also disabled within the meaning of the federal Individuals with Disabilities Education Act ("IDEA"), 20 U.S.C. §§ 1400-1482, a school district's response, or its lack thereof, can raise the prospect that the student has been deprived of the "free appropriate public education" to which he or she is entitled under the IDEA.  In a lengthy memorandum and order, the court in T.K. set out to answer this "largely unresolved issue."  Id. at *1.  Not only did the court find in principle that the IDEA can be violated in such circumstances, but it also found that the particular school district in the case before it was not entitled to summary judgment on the IDEA claim brought by the disabled student's parents.

In T.K., the bullying took the form of repeated instances of the student's being ostracized, isolated, and teased by fellow students.  In addition, she was sometimes pushed or intentionally tripped by other students.  Other specific incidents of bullying included a classmate's drawing depicting L.K. in a disparaging light; a student's chasing L.K. with what he claimed was blood but was in fact ketchup; other students' refusing to touch things once L.K. had; and a prank phone call made to L.K.'s home, which the school was informed about.

To be sure, "bullying" is a somewhat subjective term, and it must be distinguished from less serious or harmful conduct, such as horseplay.  Every disagreement or conflict among children does not amount to bullying.  What distinguishes bullying from other forms of childhood aggression is unequal and coercive power.  Referring to authorities on the subject, the court observed that the bully/victim connection can be viewed as the opposite of a healthy peer relationship.  Peers are equals on the same social standing, while a bullying nexus lacks equality of standing. It is the inequality, abuse, and unfairness associated with bullying that makes it unacceptable in law as well as in education.  Id. at *9.

In determining whether school bullying has deprived a disabled child of a free appropriate public education under the IDEA, the question to be asked is whether school personnel were deliberately indifferent to, or failed to take reasonable steps to prevent, bullying that substantially restricted a child in his or her educational opportunities.  The applicable standard takes into account administrative advice that has long been given to schools in how to apply the IDEA and other child-protective legislation.  Referencing a document from the U.S. Department of Education, Office of Civil Rights, the court stated that for at least 10 years, schools have been on notice of their obligations in this area:

The Lawletter Vol 35 No 12, August 26, 2011

Tim Snider, Senior Attorney, National Legal Research Group

In In re Okosisi, No. BK-S-09-27113-BAM, 2011 WL 2292148 (Bankr. D. Nev. May 16, 2011), the debtors found themselves in a familiar dilemma.  At the time of filing, their principal residence had a fair market value of $342,000.  This property was encumbered by a first-priority mortgage in favor of Citimortgage for $383,000 and a second-priority mortgage in favor of Nevada State Bank for $302,125.  Citimortgage's claim was thus undersecured, and Nevada State Bank's claim was wholly unsecured.  The debtors had previously been discharged in Chapter 7, but within two years they filed a Chapter 13 petition to reschedule some secured debts and tax claims.  They were, of course, ineligible for a discharge because of the Chapter 7 discharge.  Cases of this kind are sometimes referred to as "Chapter 20" cases.

Outside of bankruptcy, if a creditor has a valid security interest, regardless of the collateral's value, it may be thought of as a secured creditor.  In bankruptcy, a creditor is a secured creditor only if its claim is so classified.  If the claim is not so classified, the once‑secured creditor will have an unsecured claim and will thus be an unsecured creditor for purposes of the bankruptcy case.  Thus, while Citimortgage's claim was partially secured, Nevada State Bank's claim was wholly unsecured, at least for bankruptcy purposes.

When the collateral securing the debt is the debtor's principal residence, 11 U.S.C.  § 1322(b)(2) prohibits the debtor from modifying the rights of a security holder.  In this case, however, because Nevada State Bank's claim was wholly unsecured, its lien could be "stripped off," leaving it with an unsecured claim, notwithstanding the antimodification provision, § 1322(b)(2).  Virtually all courts to have considered the issue have concluded that this outcome is mandated by Nobelman v. American Savings Bank, 508 U.S. 324 (1993).

For those debtors who successfully confirm and complete a Chapter 13 plan, the Chapter 13 discharge operates as a permanent injunction against the collection of debts to the extent of the debtor's personal liability on the debt. 11 U.S.C. § 524.  It is important to note, however, that just because a debtor receives a discharge in bankruptcy, the debt does not simply vanish. The debt remains, but personal liability on the debt has been removed.  Liens on property of the Chapter 13 bankruptcy estate, if not properly addressed through the Chapter 13 plan, remain on the encumbered property, and once the automatic stay is lifted by entry of the discharge, the creditor is free to exercise any nonbankruptcy collection remedies attributable to its valid security interest in the property.  In the normal Chapter 13 case, when the debtor avoids the lien through a confirmed plan and also receives a discharge after having completed all plan payments, the debt also remains.  Both the personal liability for the debt and the lien allowing the creditor to proceed against the property have been removed, making the debt uncollectible.

The Lawletter, Vol 35 No 11, July 29, 2011

John Stone, Senior Attorney, National Legal Research Group

The unusual legal term "cat's paw" apparently originated in Shager v. Upjohn Co., 913 F.2d 398 (7th Cir. 1990).  "Cat's paw" describes a theory of the liability of an employer for a discriminatory action that stems from the prohibited bias of a subordinate employee who set up but did not actually take the action complained of.  In reversing a summary judgment for the employer in this age discrimination case, the court described the theory, as to which there were material factual issues to be decided, as follows:

Lehnst [a supervisor] did not fire Shager [plaintiff]; the Career Path Committee did.  If it did so for reasons untainted by any prejudice of Lehnst's against older workers, the causal link between that prejudice and Shager's discharge is severed, and Shager cannot maintain this suit even if Asgrow [employer] is fully liable for Lehnst's wrongdoing. . . .  But if Shager's evidence is believed, as in the present posture of the case it must be, the committee's decision to fire him was tainted by Lehnst's prejudice.  Lehnst not only set up Shager to fail by assigning him an unpromising territory but influenced the committee's deliberations by portraying Shager's performance to the committee in the worst possible light.  Lehnst's influence may well have been decisive.  The committee's deliberations on the question whether to fire Shager were brief, perhaps perfunctory; no member who was deposed could remember having considered the issue.  A committee of this sort, even if it is not just a liability shield invented by lawyers, is apt to defer to the judgment of the man on the spot.  Lehnst was the district manager; he presented plausible evidence that one of his sales representatives should be discharged; the committee was not conversant with the possible age animus that may have motivated Lehnst's recommendation.  If it acted as the conduit of Lehnst's prejudiceChis cat's‑pawCthe innocence of its members would not spare the company from liability.  For it would then be a case where Lehnst, acting within (even if at the same time abusing) his authority as district manager to evaluate and make recommendations concerning his subordinates, had procured Shager's discharge because of his age.  Lehnst would have violated the statute, and his violation would be imputed to Asgrow.

Id. at 405 (emphasis added) (citation omitted); see also EEOC v. BCI Coca‑Cola Bottling Co. of L.A., 450 F.3d 476, 484 (10th Cir. 2006) ("The 'cat's paw' doctrine derives its name from a fable . . .  in which a monkey convinces an unwitting cat to pull chestnuts from a hot fire. As the cat scoops the chestnuts from the fire one by one, burning his paw in the process, the monkey eagerly gobbles them up, leaving none left for the cat.  Today the term 'cat's‑paw' refers to one used by another to accomplish his purposes.  In the employment discrimination context, 'cat's paw' refers to a situation in which a biased subordinate, who lacks decisionmaking power, uses the formal decisionmaker as a dupe in a deliberate scheme to trigger a discriminatory employment action." (citations omitted) (internal quotation marks omitted)).

The Lawletter Vol 35 No 11, July 29, 2011

Scott Meacham, Senior Attorney, National Legal Research Group

It is well known that an express grant of permission will defeat a claim for adverse possession.  If a junkyard owner, for example, gets permission to store old tires on a neighboring property, then his use of that property will not ripen into full title no matter how long it continues.

But when no one gives clear permission, should permission be presumed?  Or should an apparently adverse use be presumed to constitute a trespass instead?  These are the questions the Washington Court of Appeals addressed recently in the case of McMilian v. King County, No. 64868-3-I, 2011 WL 1631853 (Wash. Ct. App. May 2, 2011).

The background of McMilian lies outside the context of an adverse possession dispute.  Rather, the case involved a zoning controversy and the possibility that a grandfathered nonconforming use could exist on land that the nonconforming user did not own.

Prior to 1958, the owner of the northernmost of a pair of adjoining parcels had begun operating a wrecking yard on his property.  Although the County amended its zoning ordinance in 1958 to prohibit such uses in a residential zone, the wrecking yard on the northern parcel remained a valid nonconforming use.

The northern owner did not limit his industry to his own land, however.  Over a period of several decades, he stored wrecked cars, junk auto parts, and tires on the southern parcel.  The northern owner apparently did not seek permission to do this, and the southern owner never granted anyone express permission to use his land.  It is easy to see why the county hearing examiner would see this as a case of trespass.

In 2002, the plaintiff purchased both the northern and southern parcels.  He continued the wrecking yard operation, and in 2005 he cleared the remainder of the southern parcel and began storing vehicles there.  The County cited him in 2007 for code violations on the southern parcel, including the operation of a wrecking business in a residential zone.

On administrative appeal, the hearing examiner determined that the prior owner of the northern parcel had neither obtained permission nor asserted an adverse possession claim and that he must therefore have been a trespasser.  Since a trespasser could not establish a valid nonconforming use, the junkyard on the southern parcel would be prohibited.  The county superior court reversed, and the County appealed.

July 19, 2011

Steve Friedman, Senior Attorney, National Legal Research Group

In recent years, dubious mortgage practices and lax lending standards contributed to a housing bubble that eventually burst and thrust the economy into the worst economic downturn since the Great Depression; as a result, there have been a record number of foreclosures.  Despite the time-sensitive nature of foreclosure proceedings and related litigation, foreclosing parties need to be careful about checking the land records and verifying that all interested parties have notice of the foreclosure proceedings.

The doctrine of merger provides that "[w]henever a greater and a less estate coincide and meet in one and the same person, without any intermediate estate, the less is immediately merged in the greater, and thus annihilated."  31 C.J.S. Estates § 153 (Westlaw database updated June 2011).  Applying the merger doctrine to the mortgage context, when the mortgagee acquires legal title to the subject property by way of foreclosure, the mortgage lien merges with the legal title, and the lien is extinguished as a matter of law.  See Citizens State Bank of New Castle v. Countrywide Home Loans, No. 76S03-1009-CV-515, 2011 WL 2566451, at *2 (Ind. June 29, 2011); Am. Family Mut. Ins. v. Welton, 926 F. Supp. 811, 816-17 (S.D. Ind. 1996).

The Lawletter Vol 35 No 10, July 8, 2011

Brad Pettit, Senior Attorney, National Legal Research Group

The Internal Revenue Code states that "[e]xcept as otherwise provided . . . , any amount paid or distributed out of an individual retirement plan shall be included in gross income by the payee or distributee."  26 U.S.C. § 408(d)(1).  Section 408 of the Code goes on to say that a taxpayer does not have to include in his or her gross income the amount distributed or paid from his or her individual retirement plan if

(i)         the entire amount received . . . is paid into an individual retirement account or individual retirement annuity . . . for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution; or

(ii)        the entire amount received . . . is paid into an eligible retirement plan for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received[.]

Id. § 408(d)(3)(A).  The same rules apply with respect to distributions from a qualified "employees' trust."  Id. § 402(c).

The Code provides for discretionary hardship relief from the 60-day limitations period on a tax-free rollover of a distribution from a qualified retirement plan or trust.  The 60-day limitations period on making a tax-free rollover from an individual retirement plan can be waived by the Secretary of the Treasury "where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement."  Id. §§ 402(c)(3)(B), 408(d)(3)(I).  In determining whether to grant a waiver of noncompliance with the 60-day time period for a tax-free rollover, the Internal Revenue Service ("IRS") will consider all relevant facts and circumstances, including

(1) errors committed by a financial institution . . . ;  (2) inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error; (3) the use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and (4) the time elapsed since the distribution occurred.

Rev. Proc. 2003‑16 sec. 3.02, 2003‑4 I.R.B. 359, 2003‑1 C.B. 359.