The Lawletter Vol 42 No 5

Matthew McDavitt, Senior Attorney,National Legal Research Group

        By an appeal published July 13, 2016, a British appellate court affirmed an intermediate appellate decision dated October 24, 2014, that had held that vessel fuel stores (colloquially known as "bunkers") expended while a hijacked ship is under the control of pirates during ransom negotiations constitute an allowable general average "additional expense" under Rule F of the York-Antwerp Rules, the industry codification of traditional general average law. Mitsui & Co. v. Beteiligungsgesellschaft LPG (The Longchamp) [2016] EWCA Civ 708, aff'g EWHC 3445 (Comm). This opinion surprised many industry analysts, as it fundamentally expands the scope of the traditional general average law, broadening its scope so as to modernize this legal regime made less applicable as technology has rendered Aclassical@ general average events a rarity.

The Lawletter Vol 42 No 5

Suzanne Bailey, Senior Attorney, National Legal Research Group

            Following the exhilaration accompanying a reversal of a criminal conviction, the former defendant must begin efforts to mitigate the damage, not the least of which may be repairing the financial harm of participating in the criminal justice system. In a seven to one decision (Justice Gorsuch did not participate), the U.S. Supreme Court addressed the Colorado statutory scheme for the refund of costs, fees, and restitution paid pursuant to the invalid conviction and concluded that the Compensation for Certain Exonerated Persons Act (Exoneration Act), Colo. Rev. Stat. §§ 13-65-101 to -103 (2016), violated due process by requiring defendants whose convictions have been reversed or vacated to prove their innocence by clear and convincing evidence in order to obtain a refund.  Nelson v. Colorado, 137 S. Ct. 1249 (2017).

            There were two petitioners in Nelson: (1) Shannon Nelson sought a refund of $702.10 withheld from her inmate account with the Colorado Department of Corrections toward an assessment of $8,192.50 in court costs, fees, and restitution following a reversal of her conviction for sexual and physical abuse of her four children and acquittal after retrial; and (2) Louis Alonzo Madden asked for a refund of $1,977.75 he paid toward assessed court costs, fees, and restitution totaling $4,413 after his conviction for patronizing a prostituted child was reversed on direct appeal, his conviction for attempted third-degree sexual assault by force was vacated on postconviction relief, and the State elected not to appeal or retry the case. Neither petitioner proceeded under the Exoneration Act. The Colorado Supreme Court held that the Exoneration Act was the sole means of seeking a refund, and, thus, the courts were without authority to refund the money paid. Moreover, the Colorado court found no due process problem because the Act provided sufficient process to defendants seeking refunds. Justice Ginsberg, writing for the U.S. Supreme Court, disagreed.

The Lawletter Vol 42 No 5

Charlene Hicks, Senior Attorney, National Legal Research Group

            Despite the federal policy favoring arbitration, prospective plaintiffs continue to push courts to reexamine the enforceability parameters of arbitration agreements. These efforts have met with some success in cases where the arbitration agreement designates a particular arbitral institution to resolve a dispute between the parties, and the designated institution no longer exists at the time an actual dispute arises.

            This factual scenario has unveiled a degree of uncertainty in the meaning of the Federal Arbitration Act ("FAA"). The FAA provides that if "there shall be a lapse in the naming of an arbitrator . . . or in filling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator[.]" 9 U.S.C. § 5. It is unclear from the statute whether the nonexistence of an arbitral institution designated in an arbitration agreement to resolve disputes between the parties constitutes a "lapse in the naming of an arbitrator" such that the court is authorized to appoint a substitute arbitrator. If the designated institution's nonexistence does not fall within the dictates of 9 U.S.C. § 5, then the court does not have the power to appoint a substitute. To do so would violate the long-established contractual principle that a party cannot be compelled to arbitrate a dispute that he or she has not agreed to submit to arbitration.

The Lawletter Vol 42 No 4

Mark Rieber, Senior Attorney, National Legal Research Group

            Generally, a lawful search warrant may not be procured by the use of illegally obtained information.  E.g., State v. Cuong Phu Le, 463 S.W.3d 872, 877 (Tex. Crim. App. 2015), cert. denied, 136 S. Ct. 819 (2016).  As a matter of first impression, however, the Texas Court of Criminal Appeals held that the Texas good-faith exception to the statutory exclusionary rule applied to a search executed pursuant to a search warrant that was based on information obtained from an illegal drug sniff.  McClintock v. State, No. PD-1641-15, 2017 WL 1076289 (2Tex. Crim. App. Mar. 22, 2017).  The drug-sniffing dog had been brought by police to the door of the defendant's upstairs residence, where the dog alerted police to the presence of drugs.  This information was used as the basis for a search warrant for the residence, and there would have been no probable cause without the information.  Execution of the warrant resulted in the seizure of marijuana.  While the case was pending on appeal, the United States Supreme Court held that such dog sniffs constituted an unconstitutional search under the Fourth Amendment.  See Florida v. Jardines, 133 S. Ct. 1409 (2013).  Prior to the holding in Jardines, according to McClintock, it was not clear that the dog sniff used in McClintock was illegal. 

The Lawletter Vol 42 No 4

Jim Witt, Senior Attorney, National Legal Research Group

            The one area of taxation that is recognized on both sides of the political aisle as badly needing reform is the federal corporate income tax.  One fact that signals the need for reform is that the maximum tax rate for the ordinary income of U.S. corporations is at 35% on taxable income exceeding $10 million (Internal Revenue Code of 1986, § 11(b)(1)(D)), among the highest marginal rates in the world (e.g., Ireland 12.5%; Germany 29.65%). As a result, and as prominently reported in recent months, a number of U.S. corporations (notably Apple and Alphabet (Google)) have shifted the locus of intangible assets and/or corporate headquarters to countries with favorable tax rates (a procedure known as a "corporate inversion"). United States corporations are subject to federal income tax on their global profits, but by not repatriating their profits attributable to a foreign situs, those corporations avoid paying taxes by simply not bringing those profits back to the United States.

            The central feature of the current proposals for corporate income tax reform is to change the incidence of the tax from one on the corporation's profits to a tax on the corporation's cash flow, regardless of the location of the corporation's headquarters or intangible assets. The tax, characterized as a "destination cash flow tax with border adjustment" or a "border adjustment tax" (“BAT”), would eliminate any benefit now gained by a corporation's parking its profits in a favorable tax jurisdiction (the tax would be imposed in the year of the sale, not in the year of the repatriation of profits). It is the border adjustment feature of the tax that becomes the key. The determining factor becomes where the corporation's products are sold.

The Lawletter Vol 42 No 4

Amy Gore, Senior Attorney, National Legal Research Group

          Most attorneys encounter situations in which a client does not pay the legal fees due and owing. There may, or may not, be a dispute over services rendered. Every state bar association has some form of fee dispute resolution program, yet some clients do not participate, leaving the attorney few options. At some point it becomes evident that the attorney-client relationship has terminated and the relationship with the prior client becomes adversarial in nature. The question thus arises: If the attorney pursues an action against the client to recover the fee, and obtains a judgement against a former client, may the attorney disclose confidential information obtained during the course of the representation while seeking to execute on that judgment?

          Model Rule 1.6(b) allows an attorney to disclose information to "establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client; to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved; or to respond to allegations in any proceeding concerning the lawyer's representation of the client."

The Lawletter Vol 42 No 4

Andrea Stokes, Senior Attorney, Florida Legal Research Group

          Whether there exists a limitation on refiling an action after more than one involuntary dismissal without prejudice, particularly in the mortgage foreclosure context, has been a source of some confusion. Florida Rule of Civil Procedure 1.420, addressing involuntary dismissals, provides that

[u]nless the court in its order for dismissal otherwise specifies, a dismissal under this subdivision and any dismissal not provided for in this rule, other than a dismissal for lack of jurisdiction or for improper venue or for lack of an indispensable party, operates as an adjudication on the merits.

Fla. R. Civ. P. 1.420(b). To ensure that an involuntary dismissal does not operate as an adjudication on the merits, Rule 1.420(b) requires that the order of dismissal expressly state that the dismissal is without prejudice.  See id. R. 1.420 cmt. ("Dismissals except a voluntary one constitute an adjudication on the merits unless the court provides otherwise." (emphasis added)).  So it is the odd occasion indeed where a trial court involuntarily dismisses without prejudice a second or third time after a motion or sua sponte under Rule 1.420(b). The question may then arise whether a plaintiff can continue to take "bites at the apple" after a dismissal or whether the number of bites is limited. 

The Lawletter Vol 42 No 3

Brad Pettit, Senior Attorney, National Legal Research Group

            "[A]n implied waiver of nonperformance under a contract will be established by a party's conduct inconsistent with the assertion of the right to the performance allegedly waived, or by conduct that indicates that strict compliance with the contract will not be required, provided that the conduct manifests the requisite intent to waive the right to performance or has induced the requisite reliance by the other party." 13 Williston on Contracts § 39:30 (4th ed.) (Westlaw current through May 2015 Update) (footnotes omitted). For example, a lessor who regularly accepts late payments may establish a course of performance or "an order of business," which operates to waive, as to future payments, a provision making time of the essence and to preclude that party from enforcing a forfeiture. Id. It is also a principle of contract law that "[u]nless otherwise agreed, a course of dealing between the parties gives meaning to or supplements or qualifies their agreement." Restatement (Second) of Contracts § 223 (1981) (Westlaw current through Oct. 2016 Update).

The Lawletter Vol 42 No 3

Alistair Edwards, Senior Attorney, National Legal Research Group

            A real estate owner's contract with a realtor may be required to be in writing and signed by the owner in order to satisfy the statute of frauds. As in many States, that is certainly the rule in California. As the California Supreme Court stated nearly 30 years ago, "[a] broker's real estate commissions agreement is invalid . . . unless the agreement or some note or memorandum thereof, is in writing and subscribed by the party to be charged or by the party's agent." Phillippe v. Shapell Indus., 43 Cal. 3d 1247, 1258, 743 P.2d 1279, 1283 (1987) (internal quotation marks omitted).

            But, what happens when there is more than one owner of the property (co-owners) and only one of the owners signs the broker's contract? Is that contract biding on the nonsigning co-owner? Recently, in Jacobs v. Locatelli, 8 Cal. App. 5th 317, 213 Cal. Rptr. 3d 514 (2017), the court wrestled with this exact issue.

The Lawletter Vol 42 No 3

John Stone, Senior Attorney, National Legal Research Group

            Largely in response to mass shootings in places such as Newtown, Connecticut, Aurora, Colorado, Fort Hood, Texas, and Virginia Tech, in 2013, the General Assembly of Maryland enacted the Firearm Safety Act ("FSA"), which bans military-style rifles and shotguns (referred to as "assault weapons") and detachable large-capacity magazines. Affirming in relevant part a decision by the United States District Court for the District of Maryland, Kolbe v. O'Malley, 42 F. Supp. 3d 768 (D. Md. 2014), the Fourth Circuit Court of Appeals has upheld the FSA against a constitutional challenge based on the Second Amendment right to bear arms.  Kolbe v. Hogan, 849 F.3d 114, 2017 WL 679687 (4th Cir. Feb. 21, 2017).

            The appellate court concluded that the assault weapons and large-capacity magazines that were banned by Maryland's FSA were not protected by the Second Amendment; they were most useful in military service, in that they were designed to kill or disable the enemy on a battlefield, and they had a capability for lethality far beyond that of other firearms. This "most useful in military service" concept describes a distinction drawn by the U.S. Supreme Court in District of Columbia v. Heller, 554 U.S. 570, 627 (2008) ("It may be objected that if weapons that are most useful in military service—M-16 rifles and the like—may be banned, then the Second Amendment right is completely detached from the prefatory clause [concerning militias]. But as we have said, the conception of the militia at the time of the Second Amendment's ratification was the body of all citizens capable of military service, who would bring the sorts of lawful weapons that they possessed at home to militia duty.").