The Lawletter Vol 38 No 10

Fred Shackelford, Senior Attorney, National Legal Research Group

     Does the economic loss doctrine preclude recovery for negligent misrepresentation? The supreme courts in Kansas and Nevada recently addressed this issue and reached opposite conclusions.

     In its original form, the economic loss doctrine prohibited a commercial buyer of defective goods from suing in negligence or strict liability when the only injury consisted of damage to the goods themselves. The doctrine reflected courts' concern that the rise of implied warranties and strict liability for dangerous products would allow tort law to consume contract law. Over the years, many courts extended the doctrine's application beyond the commercial product sphere as a means of preserving distinctions between contract and tort law.

     In the Kansas and Nevada Supreme Court cases, the issue was whether the doctrine applied in actions for negligent misrepresentation arising from construction contracts. In Rinehart v. Morton Buildings, Inc., 305 P.3d 622 (Kan. 2013), property owners who had contracted with a builder for a preengineered building sued the builder. They alleged claims for breach of contract and warranty, as well as a claim under the state's Consumer Protection Act. As part of their statutory claim, the owners alleged that the builder had negligently misrepresented that the building would be completed in a timely matter, accommodate the owners' need to relocate its operations, and meet or exceed all industry standards. After difficulties arose during construction over the structure's quality, the owners sued for damages to compensate for shop rent at an alternate facility, lost production, relocation costs, and interest expenses on a line of credit. The builder argued that the economic loss doctrine barred the negligent misrepresentation claim.

     The Rinehart court disagreed, concluding that the scope of a negligent misrepresentation claim is narrow enough that it is unnecessary to limit recovery by applying the economic loss doctrine. The court reasoned as follows:

     The elements of the negligence misrepresentation tort sets the bounds on the scope of liability by imposing the duty in the limited circumstances when a defendant supplies information to guide others in business transactions in the course of the defendant's business. The tort also limits the universe of those who may pursue such claims to those for whose benefit the defendant supplied the information and whom the defendant intends to influence or knows will be influenced in the transaction. Therefore, the doctrine's second purpose of restricting potential extensive liability to a commercial user "downstream" from the manufacturer does not apply here.

     . . . .

     We hold negligent misrepresentation claims are not subject to the economic loss doctrine because the duty at issue arises by operation of law and the doctrine's purposes are not furthered by its application under these circumstances. We leave for another day whether the doctrine should extend elsewhere.

Id. at 632-33 (citation omitted).

The Lawletter Vol 38 No 9

Suzanne Bailey, Senior Attorney, National Legal Research Group

     The U.S. Supreme Court's recent denial of the Commonwealth of Virginia's petition for writ of certiorari in MacDonald v. Moose, 710 F.3d 154 (4th Cir.), cert. denied, 82 U.S.L.W. 3029 (U.S. Oct. 7, 2013), reminds us that 10 years after the landmark decision in Lawrence v. Texas, 539 U.S. 558 (2003), holding that it is a violation of the Due Process Clause to prohibit two individuals of the same sex from engaging in consensual sexual conduct, courts are still grappling with the nature of what consensual sexual activity is protected from criminal prosecution.  While Lawrence specifically addressed consensual homosexual sexual conduct, the Court's adoption of language from Justice Stevens's dissent in Bowers v. Hardwick, 478 U.S. 186 (1986), clarified the sweeping nature of the Court's ruling:

Our prior cases make two propositions abundantly clear. First, the fact that the governing majority in a State has traditionally viewed a particular practice as immoral is not a sufficient reason for upholding a law prohibiting the practice; neither history nor tradition could save a law prohibiting miscegenation from constitutional attack. Second, individual decisions by married persons, concerning the intimacies of their physical relationship, even when not intended to produce offspring, are a form of "liberty" protected by the Due Process Clause of the Fourteenth Amendment. Moreover, this protection extends to intimate choices by unmarried as well as married persons.

Lawrence, 539 U.S. at 577-78 (quoting Bowers, 478 U.S. at 216 (Stevens, J., dissenting)).

     The above-quoted excerpt from Lawrence paved the way for decisions invalidating state statutes criminalizing sexual intercourse between unmarried adult heterosexuals.  See, e.g., Martin v. Ziherl, 607 S.E.2d 367 (Va. 2005) (because Virginia fornication statute was an unconstitutional due process violation of an unmarried individual's liberty interest in engaging in private intimate conduct and maintaining personal relationships without governmental interference, the rule precluding a party consenting to, and participating in, an illegal act from recovering damages from another participant did not apply to bar the plaintiff's claims against the defendant for injuries arising from herpes allegedly contracted as a result of sexual intercourse).  Likewise, Lawrence has been relied upon to invalidate statutes prohibiting consensual acts of sodomy between heterosexual adults.  See MacDonald, 710 F.3d 154.

     However, the Lawrence decision was not without its limits.  The Court observed:  "The present case does not involve minors. It does not involve persons who might be injured or coerced or who are situated in relationships where consent might not easily be refused. It does not involve public conduct or prostitution."  539 U.S. at 578.  Accordingly, courts have refused to find that Lawrence forbids prosecution for incest, see, e.g., People v. McEvoy, 154 Cal. Rptr. 3d 914 (Ct. App. 2013), even if the alleged victim is a consenting adult, see, e.g., Lowe v. Swanson, 663 F.3d 258 (6th Cir. 2011).  Similarly, courts have not found Lawrence to be a bar to prosecutions for solicitation to commit sexual acts in a public place, see, e.g., Singson v. Commonwealth, 621 S.E.2d 682 (Va. Ct. App. 2005), or for prostitution, see, e.g., State v. Romano, 155 P.3d 1102 (Haw. 2007). Lawrence did not render unconstitutional a Kansas statute making sexual relations between a teacher and a student a crime, even though the
student, who was still in school, was 18 years old at the time and had consented to the sexual conduct. State v. Edwards, 288 P.3d 494 (Kan. Ct. App. 2012); see also State v. Fischer, 199 P.3d 663 (Ariz. Ct. App. 2008) (affirming conviction of defendant for sexual conduct with a minor and conspiracy to commit sexual conduct with a minor and rejecting defense argument that defendant had fundamental right under Lawrence to engage in sexual relations with his "celestial wife" or one of his plural wives).

The Lawletter Vol 38 No 9

Steve Friedman, Senior Attorney, National Legal Research Group

     The Trademark Act of 1946, 15 U.S.C. §§ 1051-1141n, commonly known as the "Lanham Act," is intended "to prevent individuals from misleading the public by placing their competitors' work forward as their own." Summit Mach. Tool Mfg. Corp. v. Victor CNC Sys., Inc., 7 F.3d 1434, 1439 (9th Cir. 1993) (internal quotation marks omitted). The purpose of the Act is twofold.

First, it serves the general interest of the public by protecting consumers from false and misleading representations concerning the source, identity, or quality of a product or service. Secondly, the law protects the right of the owner of a trade or service mark to have his or her product or service identified by a distinct name or label. See Industrial Rayon Corp. v. Dutchess Underwear Corp., 92 F.2d 33, 35 (2d Cir. 1937), cert. denied, 303 U.S. 640, 58 S. Ct. 610, 82 L. Ed. 1100 (1938).

Birthright v. Birthright Inc., 827 F. Supp. 1114, 1133 (D.N.J. 1993).

     Accordingly, the Lanham Act permits persons to apply to the U.S. Patent and Trademark Office ("PTO") for federal trademark registration of their commercial mark(s), provided that certain parameters set forth therein are satisfied. The general rule is that a distinguishable mark on commercial goods can be trademarked unless the mark falls within one of five specified categories of marks. See 15 U.S.C. § 1052(a)-(e).

     One such exception is for a mark that "consists of or comprises the flag or coat of arms or other insignia of the United States, or of any State or municipality, or of any foreign nation, or any simulation thereof." Id. § 1052(b). Despite the seemingly straightforward exception, the City of Houston, Texas, and the District of Columbia ("District") each sought to register its official seal. See In re City of Houston, Nos. 2012-1356, 2012-1418, 2013 WL 5433432 (Fed. Cir. Oct. 1, 2013). Whereas Houston sought to trademark its city seal in connection with various municipal services, including commerce, tourism, business administration, and public utility services, the District sought to trademark its official seal to cover various items such as shirts, pens, cups, and hats.

     The PTO had denied both applications, citing § 1052(b), and both decisions were affirmed by the Trademark Trial and Appeal Board. Both municipalities appealed their respective adverse decisions to the U.S. Court of Appeals for the Federal Circuit. The appellate court decided to address the two appeals together because they raised the same question of first impression in
the courts: Can a local government entity obtain a federal trademark registration for its official insignia? Notably, although both municipalities conceded that their subject marks were insignias and argued that § 1052(b) did not preclude their registration, each municipality presented distinct theories to reach the same conclusion. As detailed below, however, the court affirmed the PTO's rejection of both theories.

The Lawletter Vol 38 No 8

Brett Turner, Senior Attorney, National Legal Research Group

     The controlling federal statute on same-sex marriage is the Defense of Marriage Act ("DOMA"). DOMA has two operative provisions.  Section 3, codified at 1 U.S.C. § 7, provides that no same-sex marriage can ever be treated as a valid marriage under federal law.  This section was held unconstitutional in United States v. Windsor, 133 S. Ct. 2675 (2013).

     DOMA § 2, codified at 28 U.S.C. § 1738C, provides that "[n]o State . . . shall be required to give effect to any public act, record, or judicial proceeding of any other State . . . respecting a relationship between persons of the same sex."  In other words, no state shall ever be required to recognize a same-sex marriage from another state.

     Case law before Windsor upheld the constitutionality of § 2.  E.g., Wilson v. Ake, 354 F. Supp. 2d 1298 (M.D. Fla. 2005).  In light of Windsor, however, that position is being revisited.  The next big issue in federal constitutional law involving same-sex marriage may well be the constitutionality of § 2 of DOMA.

     The first post-Windsor case to address the issue is Obergefell v. Kasich, No. 1:13-CV-501, 2013 WL 3814262 (S.D. Ohio July 22, 2013).  The plaintiffs in that case were two men who ived together in a committed relationship.  One of the plaintiffs was terminally ill with amyotrophic lateral sclerosis, more commonly known as Lou Gehrig's disease.  Both plaintiffs lived in Ohio, which does not recognize same-sex marriage.

     On July 11, 2013, a specially equipped airplane flew the plaintiffs to Maryland, which allows same-sex marriage.  While the airplane sat on the tarmac, the plaintiffs were married.  They then immediately returned to Ohio.  Neither plaintiff was ever domiciled in Maryland.

     On the face of Ohio law, the Maryland marriage was not entitled to recognition in Ohio, which has both a statute and a constitutional provision barring recognition of same-sex marriage.  Ohio Rev. Code Ann. § 3101.01(C)(2)-(3); Ohio Const. art. XV, § 11.

     Upon their return to Ohio, the plaintiffs filed an action against the State of Ohio and various state officials, asking the court to order them to recognize the Maryland marriage.
The plaintiffs then sought a preliminary injunction.

     The court granted the injunction, finding a substantial likelihood that the plaintiffs would prevail at trial.  Ohio state law has traditionally held that the validity of a marriage depends upon the law of the jurisdiction in which it was created.  The rule has been applied to underage marriage, Hardin v. Davis, 16 Ohio Supp. 19, 1945 WL 5519 (C.P. 1945), and to marriage between relatives (e.g., first cousins), Mazzolini v. Mazzolini, 155 N.E.2d 206, 208 (Ohio 1958).  The court also cited a passage in 45 Ohio Jur. 3d Family Law § 11, stating that the rule applies to common-law marriage.

     The question then became whether Ohio could apply a different rule only to same-sex marriage. For two reasons, the court held not. First, the core reasoning of Windsor is that a rule violates equal protection if it was adopted out of prejudice against a minority group.  Windsor held that DOMA § 3 was enacted out of prejudice against gay people, and that it was therefore
unconstitutional.  The court saw no valid reason for the Ohio statute and constitutional provision at issue, other than similar prejudice against gay people.

     Second, a rule violates equal protection if it does not have a rational basis.  "Even if the
classification of same‑sex couples legally married in other states is reviewed under the least demanding rational basis test, this Court on this record cannot find a rational basis for the Ohio provisions discriminating against lawful, out‑of-state same sex marriages that is not related to the impermissible expression of disapproval of same‑sex married couples."  Obergefell, 2013 WL 3814262, at *6.

     Because the plaintiffs were likely to succeed on the merits, the court granted a preliminary injunction.

     Obergefell did not expressly consider the constitutionality of DOMA § 2.  But that provision is merely a federal version of the provisions that Obergefell held are likely unconstitutional.  If equal protection requires that the courts apply to same-sex marriage the exact same choice-of-law rules applied to opposite-sex marriages, then DOMA § 2 is unconstitutional and out-of-state same-sex marriages must generally be recognized.

     There is reasonable support in the majority opinion in Windsor for the result reached in Obergefell. Windsor stressed heavily a series of comments made by legislators enacting DOMA, suggesting prejudice against gay people.  Those comments cannot be limited to only one
section of DOMA.  If the prejudice shown by those statements is the controlling reason for invalidating DOMA § 3, it is likewise a strong reason for invalidating the rest of DOMA, including § 2.

     But there is also reason to hold otherwise.  At a practical level, Obergefell comes extremely close to forcing nationwide recognition of same-sex marriage.  Any same-sex couple wishing to be married can travel to a state recognizing same-sex marriage, get married, return to their
home state, and have a marriage that their home state must recognize for all purposes as a matter of federal law.

     It is highly significant that the facts of Obergefell show absolutely no Maryland domicile. The airplane landed, the marriage was conducted, and the airplane took off.  If that is a permissible procedure, then federal law is essentially forcing state recognition of all same-sex marriages, because it is very easy to obtain an out-of-state same-sex marriage.

     In addition, there are arguably valid reasons for imposing requirements upon recognition of out-of-state same-sex marriages that do not apply to other types of marriages. States have different rules on underage marriages and marriages among relatives, but none of these rules are matters of public policy.  People are not marching in the streets, demanding that the state not recognize underage marriages or common-law marriages or marriages between close relatives. These are matters on which the states agree that reasonable people can differ.

     But same-sex marriage is a fundamental public policy issue.  The presence of statutory and
constitutional provisions in many states shows that recognition of same-sex marriage is viewed by many as a fundamental public policy issue.  Obergefell held that one of the most serious and divisive disputes in modern American family law can be resolved by court action, because the judge believes that one side of the dispute is adopting an irrational position.  That is certainly not an example of judicial restraint.

The Lawletter Vol 38 No 8

Jim Witt, Senior Attorney, National Legal Research Group

   When Sopranos actor James Gandolfini died on June 19 of this year from a heart attack while he was on a vacation trip with his family in Italy, the media reported trivial facts surrounding his death, such as the details of his last meal and drinks. After a month or so had passed, however, attention turned to the details of Gandolfini's estate plan, with the focus on criticism of the plan.  The plan became open to comment because Gandolfini had left a 17-page will, which, like every will, had to be filed in probate court, thereby making it public. 

   A general point of the criticism was that Gandolfini had left a $70 million probate estate, with only 20% of the bulk of the estate's value passing to his widow tax-free under the Internal Revenue Code's unlimited marital deduction and 80% passing to his sisters and his infant daughter.  This plan resulted in a federal estate tax liability of approximately $30 million.

   Criticism of the plan can itself be questioned:  (1) The belief that the estate is worth $70 million is speculative; (2) it may well be that Gandolfini had other substantial assets that he placed in estate planning devices such as trusts and corporations (which might serve as a receptacle for future royalties received by the estate from the Sopranos); it is believed that there is a $7 million life insurance trust fund for Gandolfini's 13-year-old son from a prior marriage; and (3) it is unfair to criticize the disposition of an estate solely on the basis that the estate tax liability is not minimized:  A decedent should not necessarily allow the objective of tax savings to have precedence over the disposition that he or she desires.

   Yet some of the points of criticism made in regard to Gandolfini's estate plan are valid. First, there is the matter of privacy.  If Gandolfini's assets had been placed in a revocable trust, with the trust spelling out the disposition of the assets at Gandolfini's death, the trust would not have been filed with the probate court and could have been kept private.  A simple pour-over will could have been used to transfer assets not subject to the trust to the revocable trust.

   Additionally, a tax calculation problem is created by the fact that the will, after bequeathing $1.6 million worth of assets to friends, used percentages to divide the estate among Gandolfini's widow, two sisters, and daughter.  The problem is that because the 20% passing to the widow is not subject to federal estate tax, the calculation of the tax on the remaining 80% becomes complicated.

   Also, the will does not include a trust to govern the disposition of the share of the estate that Gandolfini's daughter will receive.  She is not to receive her share until age 21, but the prospect of having her receive a multimillion dollar sum outright at that age raises questions.  A trust under the will could have protected her share by setting ages (such as 30, 35, and 40) at which she would receive percentages of the principal, with the trustee having discretion over the distribution of principal and income to her for her current needs.