The Lawletter Vol 41 No 11

Alistair Edwards, Senior Attorney, National Legal Research Group

     It is not unusual for a borrower (mortgagor) who is facing foreclosure to attempt to obtain a loan modification from the lender (or the servicer acting for the lender). However, even if the borrower requests a loan modification, this does not automatically put the foreclosure process on hold. Nor does the lender (mortgagee) automatically violate some sort of duty owed to the borrower by proceeding with the foreclosure even though a loan modification has been requested.

      For example, in Afridi v. Residential Credit Solutions, Inc., No. CV 15-13632-NMG, 2016 WL 3017382 (D. Mass. May 24, 2016), the U.S. District Court for Massachusetts recently held that the lender (or the servicer acting for the lender) did not breach its implied duty of good faith by proceeding with a foreclosure sale while the borrower was attempting to obtain a loan modification. In that case, the servicer sought to foreclose, and in order to avoid that outcome, the borrower applied for a mortgage modification under the Home Affordable Modification Program ("HAMP"). The servicer initially denied the application as incomplete. The servicer ultimately provided a list of the missing documents and the borrower updated his application. However, the servicer scheduled a foreclosure sale without first rendering a decision on the borrower’s modification application. The servicer ultimately denied the application.

The Lawletter Vol 41 No 11

John Stone, Senior Attorney, National Legal Research Group

     As with most forms of employment discrimination, an employer's retaliation against an employee for asserting discrimination under the Equal Pay Act ("EPA") gives rise to an additional and distinct cause of action for the employee. To state a claim for retaliation under the EPA (as incorporated into the Fair Labor Standards Act), a plaintiff must plausibly allege (1) engagement in protected activity, (2) materially adverse action that might well have dissuaded a reasonable worker from making or supporting a charge of discrimination, and (3) causality.

     A showing of the causality element requires either (1) that the retaliation closely followed the protected activity, or (2) that the plaintiff put forth a sufficient explanation for the delay between the protected activity and the alleged retaliation. Where the time between the protected conduct and the alleged retaliation is too great to establish causation based solely on temporal proximity, a plaintiff must present other relevant evidence to establish causation, such as continuing retaliatory conduct and animus in the intervening period. In addition, when there may be valid reasons why an adverse employment action was not taken immediately, the absence of immediacy between the cause and the effect does not disprove causation in a retaliation case.

The Lawletter Vol 41 No 11

Paul Ferrer, Senior Attorney, National Legal Research Group

      All states have a statute of frauds, based on the original Statute of Frauds enacted in England in 1677, barring actions upon some types of promises unless evidenced by a writing signed by the party to be charged with the promise. The promises typically covered by a state’s statute of frauds include "any promise to answer for the debt, default, or misdoing of another," and "any agreement that is not to be performed within one year from the making thereof." Ky. Rev. Stat. Ann. § 371.010(4), (7). In Chin v. Chin, 494 S.W.3d 517 (Ky. Ct. App. 2016), the Kentucky Court of Appeals held that neither of these provisions barred a claim by parents ("the Chins") against their son ("Raymond") for breach of an oral contract to repay a college loan that the parents had taken out for his benefit.

     In that case, Raymond attended college at the Rose-Hulman Institute of Technology, a top-ranked engineering college that carried a price tag of about $54,000 per year in 1999. At the time, Raymond’s father was making $55,000 per year as a teacher, while his mother was making $18,000 per year as an aide. The Chins obtained a Parent PLUS loan to pay for Raymond’s college expenses, which ultimately totaled more than $58,000 (Raymond received a partial scholarship). Although the Chins signed for the loan, Raymond orally agreed that he would be responsible for paying the loan, and would repay any amounts the Chins had already paid, as soon as he had a job.

The Lawletter Vol 41 No 11

Steve Friedman, Senior Attorney, Senior Attorney

     "Without proper service of process, consent, waiver, or forfeiture, a court may not exercise personal jurisdiction over a named defendant." 36 C.J.S. Federal Courts § 31 (Westlaw database updated Sept. 2016). "Personal jurisdiction usually is obtained over a defendant by service of process." Id. Thus, untimely or ineffective service of process can stop a case dead in its tracks. The means of serving process is typically set forth by statute or court rule, the terms of which are often strictly construed. Below are two cautionary tales to illustrate the point.

     In New York, service of process is governed by Rule 2013 of the Civil Practice Law and Rules ("C.P.L.R."). Typically, service can be accomplished "by mailing the paper to  . . . the address designated by that attorney for that purpose or, if none is designated, at the attorney's last known address." The statute further notes that "service by mail shall be complete upon mailing." C.P.L.R. 2013(b)(2) (service upon attorneys); accord C.P.L.R. 2013(c) (incorporating C.P.L.R. 2013(b)(2) for service upon a party). In turn, the statute defines "mailing" as

The Lawletter Vol 41 No 10

Matthew McDavitt, Senior Attorney, National Legal Research Group

     The average layperson might assume that digital music files (i.e., songs purchased from services such as iTunes and Amazon) can be passed by will or intestate succession. This is certainly true for music recorded onto physical media, such as CDs. However, the law currently treats digital files differently, given (a) the manner in which digital music is purchased, (b) the use of multiple digital files when accessing digital music files, and (c) the perishable nature of nondigital media.

     Because most consumers never read the "Terms & Conditions" agreements when purchasing digital music, they may be surprised to learn that when buying a song from iTunes or Amazon, the purchaser is not granted ownership of the downloaded song file, but merely acquires a nontransferable license to use the file on the purchaser’s device for the contract duration. Thus, by contract, such files cannot pass at the death of the purchaser, as the usage license is nontransferable to other persons.

The Lawletter Vol 41 No 10

Fred Shackelford, Senior Attorney, National Legal Research Group

      The Connecticut Supreme Court has clarified the circumstances under which a hospital may be held vicariously liable for malpractice by a physician who has staff privileges at the hospital but who is not an employee thereof. In Cefaratti v. Aranow, 321 Conn. 593, 141 A.3d 752 (2016), a patient brought a medical malpractice action against a surgeon ("Dr. Aranow") and a hospital ("Middlesex"), alleging that Dr. Aranow left a surgical sponge inside her abdomen during a gastric bypass surgery and that Middlesex was vicariously liable for Dr. Aranow's negligence. Prior to undergoing surgery at the hospital, the plaintiff patient went to Middlesex to attend several informational sessions, which were conducted by the staff of the independent professional corporation that employed Dr. Aranow. The plaintiff received a pamphlet at one of the informational sessions that had been prepared by Middlesex. The pamphlet stated that "the health care team who will be caring for you has developed an education program that is full of important information." In addition, the pamphlet stated that "[t]he team will go over every aspect of your stay with us. We will discuss what you should do at home before your operation, what to bring with you, and events on the day of surgery." The plaintiff assumed that Dr. Aranow was an employee of Middlesex because he had privileges there, and she relied on this belief when she chose to undergo surgery at Middlesex. Id. at 598, 141 A.3d at 755 (footnote omitted).

The Lawletter Vol 41 No 10

Lee Dunham, Senior Attorney, National Legal Research Group

     Model Rules of Professional Conduct Rule 3.7 contains the well-known prohibition on lawyer testimony known as the "Lawyer as Witness Rule" or the "Attorney Testimony Rule." It provides:

(a) A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless:

     (1) the testimony relates to an uncontested issue;

     (2) the testimony relates to the nature and value of legal services rendered in the case; or

     (3) disqualification of the lawyer would work substantial hardship on the client.

(b) A lawyer may act as advocate in a trial in which another lawyer in the lawyer's firm is likely to be called as a witness unless precluded from doing so by Rule 1.7 or Rule 1.9.

Ann. Model Rules of Prof'l Conduct R. 3.7 ("Lawyer as Witness").

The Lawletter Vol 41 No 10

Anne Hemenway, Senior Attorney, National Legal Research Group

     On June 13, 2016, in Commonwealth of Puerto Rico v. Franklin California Tax-Free Trust, 136 S. Ct. 1938 (2016), the United States Supreme Court was asked to decide whether the Commonwealth of Puerto Rico should remain a "state" for purposes of 11 U.S.C. § 903(a), the subsection of Chapter 9 of the United States Bankruptcy Code that states that "a State law prescribing a method of composition of indebtedness of such municipality may not bind any creditor that does not consent to such composition." This issue came to the Court on an injunction proceeding by bondholders suing the Puerto Rico government to enjoin the application of the Puerto Rico Corporation Debt Enforcement and Recovery Act (the "Puerto Rico Act"). Enacted by Puerto Rico in an effort to deal with its extraordinary financial crisis and, specifically, to create its own bankruptcy scheme to restructure the debt of its insolvent public utilities. The bondholder's issue was presented in federal court notwithstanding an amendment to the Code to exclude Puerto Rico from the definition of a "state." See 11 U.S.C. § 101(52).

The Lawletter Vol 41 No 9

Brett R. Turner, Senior Attorney,National Legal Research Group

     The South Carolina Supreme Court recently considered a case that provides a wealth of guidance on business valuation questions. Moore v. Moore, 414 S.C. 490, 779 S.E.2d 533 (2015).

     The issue was one that arises often in divorce cases—is the goodwill of a business part of the business's value for purposes of a divorce case? Adopting the majority rule nationwide, the court held that the enterprise goodwill of the business is included, but that the individual goodwill of the owner is not included. Stated differently, the value includes goodwill that is transferable to another owner, but it does not include goodwill that is not transferable and resides in the owner individually.

The practical question, which has arisen in dozens of cases nationwide, is how to distinguish between the two types of goodwill. The court recognized, as most other courts have done, that goodwill need not be entirely enterprise or entirely individual. Businesses get their customers from many sources, and it is quite possible that some of those sources are individual to the owner, while others are transferable with the enterprise. For example, a dental practice might draw half of its customers from the individual reputation of the dentists, but the other half from the convenient location of its office building.

The Lawletter Vol 41 No 9

Charlene Hicks, Senior Attorney, National Legal Research Group

     In Kingdomware Technologies, Inc. v. United States, 136 S. Ct. 1969 (2016), the United States Supreme Court recently declared that the Department of Veterans Affairs (the "VA") is required to give priority to veteran-owned businesses in the bidding process for government contracts as long as two or more veteran-owned small businesses may reasonably be expected to submit fair and reasonable bids. This unanimous decision should provide a boon to veteran-owned businesses and should also give government agencies pause in assessing bids for contract work.

     The Kingdomware dispute originated shortly after the enactment of the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the "VA Act"). The VA Act provides that the VA must restrict bid competitions to veteran-owned companies as long as the "rule of two" is satisfied. Specifically, 38 U.S.C. § 8127(d) states:

Except as provided in subsections (b) and (c), for purposes of meeting the goals under subsection (a), and in accordance with this section, a contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.