The Lawletter Vol 38 No 4

Jim Witt, Senior Attorney, National Legal Research Group

On Tuesday, October 23, 2012, the Court of Appeals of New York, in a 4‑3 decision, ruled that lap dances do not qualify for the same sales tax exemption as do other "dramatic or musical arts performances," such as a Madonna concert or a Broadway show.   677 New Loudon Corp. v. State Tax Appeals Tribunal, 979 N.E.2d 1121 (N.Y. 2012).

The court's ruling stemmed from a 2005 audit of the Nite Moves strip club in Latham, New York.  After an investigation, the New York Tax Appeals Tribunal demanded $124,921, based on unpaid sales taxes on cover charges and "performance fees," which were construed to mean fees for private dances.  The petitioner/appellant, the operator of an adult "juice bar," contended that the admission charges and private dance performance fees that it collected from patrons were exempt from state sales and use taxes.  The court of appeals agreed with the appellate division's ruling that the petitioner had failed to meet its burden of proof that a tax exemption applied to those charges.

The portion of the sales tax in question imposes a sales tax on "'[a]ny admission charge' in excess of 10% for the use of 'any place of amusement in the state.'"  Id. at 1122 (quoting N.Y. Tax Law § 1105(f)(1)).  The legislature defined places of amusement that are subject to this tax to include "[a]ny place where any facilities for entertainment, amusement, or sports are provided."  Id. (quoting N.Y. Tax Law § 1101(d)(10)).  As the court of appeals observed, the tax therefore applies to a vast array of entertainment, including attendances at sporting events such as baseball, basketball or football games; collegiate athletic events; stock car races; carnivals and fairs; amusement parks; rodeos; zoos; horse shows; arcades; variety shows; magic performances; ice shows; aquatic events; and animal acts.  Plainly, no specific type of recreation is singled out for taxation.

The court went on to explain that the legislature had created the exemption from taxation for admission charges to "dramatic or musical arts performances," N.Y. Tax Law § 1105(f)(1), for the purpose of promoting cultural and artistic performances in local communities.  The petitioner argued that performances regarded as "adult entertainment" qualified for the exemption because exotic stage and couch dances were musical arts performances.  The court, pointing out that it was the petitioner/taxpayer's burden to prove the applicability of any exemption from taxation, ruled that a determination by the Tax Appeals Tribunal could not be overturned unless "erroneous, arbitrary or capricious."  979 N.E.2d at 1123 (quoting Grace v. N.Y. State Tax Comm'n, 332 N.E.2d 886 (N.Y. 1975)).  The court found that given the fact that the performances in question were carried out in "private rooms," the petitioner had failed to prove that the performances qualified as choreographed dance routines presented in a stage performance. 

The court further concluded that it was not arbitrary, capricious, or an error of law for the Tax Appeals Tribunal to have discredited the petitioner's expert witness's opinion that the private performances qualified for the exemption because they were the same as the routines presented on the main stage.  The evidence showed that the witness had neither seen nor had personal knowledge of what occurred in the private areas.  As the court stated:

[S]urely it was not irrational for the Tax Tribunal to conclude that a club presenting performances by women gyrating on a pole to music, however artistic or athletic their practiced moves are, was also not a qualifying performance entitled to exempt status.

The Lawletter Vol 38 No 4

Brett Turner, Senior Attorney, National Legal Research Group

     Data collected by the government have traditionally been presented to the public through official government publications.  As the world moves deeper into the Age of the Internet, however, governments have increasingly stopped printing data reports.  Instead, data reports are often published on an official government website.  This fundamental change poses an evidentiary challenge for parties seeking to rely upon government-collected data.

     A good example from the field of family law is the consumer price index ("CPI"), an index of price data produced monthly by the federal Bureau of Labor Statistics ("BLS").  It is not uncommon for a support provision in a divorce settlement to include a provision increasing the payments periodically, based upon changes in the CPI.  Some states do not allow the court to insert such an escalator clause into its own order, but settlement agreements containing self-modifying support provisions are generally enforceable.  See In re Marriage of Strieby, 255 P.3d 34 (Kan. Ct. App. 2011); West v. West, 891 So. 2d 203 (Miss. 2004); Payne v. Payne, 635 S.W.2d 18 (Mo. 1982).

     When an escalator clause is based upon the CPI, how can the CPI be proven?  This question was presented to the North Carolina Court of Appeals in the unpublished decision of Blackburn v. Bugg, 723 S.E.2d 585, 2012 WL 1332728 (N.C. Ct. App. 2012) (unpublished table disposition).  The plaintiff in that case went to the website of the BLS, http://stats.bls.gov, and simply printed a list of the CPI for different years and months.  The defendant objected that the printout had not been properly authenticated and was in any event inadmissible hearsay.

     The trial court disagreed, and the appellate court affirmed:

[W]e discern no abuse of discretion in the trial court's admission of Plaintiff's CPI evidence.  Plaintiff offered testimony, including the exhibits at issue, to prove the amount of CPI payments owed by Defendant at the time of trial. Defendant offered no evidence of his own CPI calculations, nor evidence to dispute Plaintiff's calculations.  Plaintiff's exhibits consisted of computer printouts—which Plaintiff testified she obtained from a website operated by the United States Department of Labor—and her own handwritten calculations, which she computed using the CPI figures obtained from the government website.  Plaintiff's testimony, in addition to the "UNITED STATES DEPARTMENT OF LABOR BUREAU OF LABOR STATISTICS" heading displayed on the printouts, was sufficient to prove that the computer printouts were what Plaintiff purported them to be.  See N.C. Gen.Stat. § 8C-1, Rule 901 (2011).  Moreover, we note that the CPI information set forth in the computer printouts is public information readily available and subject to judicial notice.  See N.C. Gen.Stat. § 8C-1, Rule 201 (2011).

2012 WL 1332728, at *4.

     To summarize, the computer printout was properly authenticated by the plaintiff's testimony that she had printed the document from an official government website.  The official heading at the top of the document was also evidence that the document was what it claimed to be.

The Lawletter Vol. 38 No. 3

Fred Shackelford, Senior Attorney, National Legal Research Group

In many states, one of the elements of the tort of malicious prosecution is initiating or procuring the institution of a criminal proceeding.  See generally Restatement (Second) of Torts § 653.  This element focuses on whether the alleged tortfeasor had probable cause at the time he or she initiated or procured the criminal action against the plaintiff.  What if probable cause exists initially, but during the course of the criminal prosecution it becomes clear that there is no probable cause to continue the action?  Is there any liability when a party maintains the action thereafter?  In a case of first impression, the Hawaii Supreme Court recently addressed this issue.

In Arquette v. State, 290 P.3d 493 (Haw. 2012), the respondents initiated an action in 2004 against the petitioner (Arquette) and others, alleging that Arquette had participated in a scheme to sell long-term deferred annuities to elderly consumers through unfair or deceptive acts.  The scheme allegedly involved Arquette and an insurance agent, an attorney (Wong), and others, who were accused of using Wong's name and law practice on mailings that offered information about elder law.  Individuals who responded to the mailings were then contacted at their homes, where Arquette and others falsely identified themselves as "paralegals" working for Wong.  After personal and confidential financial information was obtained from the persons who were contacted, Arquette and others allegedly marketed annuities to them without providing them with the information necessary for making an informed decision.  In 2006, the action against Arquette was dismissed without prejudice.

In 2008, Arquette sued the respondents for malicious prosecution and other causes of action, based on both initiation and maintenance of the 2004 action.  The trial court granted summary judgment for the respondents as to the claim for maintaining the 2004 action, and the Hawaii Intermediate Court of Appeals affirmed, ruling that Hawaii does not recognize a tort action for maintaining a prosecution when probable cause to continue no longer exists.

On appeal to the Hawaii Supreme Court, the court noted that such a cause of action has been recognized in Restatement § 674 and in 13 other states.

Explaining the rationale for this cause of action, the court explained:

Although litigation may be warranted in the eyes of the plaintiff at its commencement, if that plaintiff becomes aware that the litigation is no longer justified, then the plaintiff should terminate the litigation.  Indeed, "litigation 'has a profound effect upon the quality of one's life that goes beyond the mere entitlement to counsel fees.'"  [Young v. Allstate Ins. Co., 119 Haw. 403,] 421, 198 P.3d [666,] 684 [(2008)] (quoting Aranson v. Schroeder, 140 N.H. 359, 671 A.2d 1023, 1028 (1995)).

If a plaintiff fails to terminate litigation when he or she knows it would be appropriate to do so, then the same harms are inflicted on the defendant's quality of life that would have been inflicted if the plaintiff knew that the litigation was unjustified in the first instance.  In order to properly guard against the harms associated with protracted litigation, the tort of maintaining malicious prosecution should be recognized.

Id. at 501.

The Lawletter Vol 38 No 3

John Buckley, Senior Attorney, National Legal Research Group

On January 25, 2013, the U.S. Court of Appeals for the District of Columbia Circuit held that President Obama lacked authority under the Constitution to fill three of the National Labor Relations Board's ("NLRB") five seats through "recess appointments" made on January 4, 2012.  Canning v. NLRB, 705 F.3d 490 (D.C. Cir. 2013).  The President attempted to fill the seats after Congress began a new session on January 3 and while that new session continued.  The court's decision emphasized the Constitution's use of the word "the" in the phrase "the Recess" in the Recess Appointments Clause of Article 2.  Under this Clause, the President has the power to make recess appointments only between sessions of CongressCso‑called "intersession appointments," according to the court.  This decision is significant not only for the NLRB, but also for all federal agencies.  

The controversy arose after three seats on the Board came vacant between 2010 and 2012.  President Obama tried to fill all three seats on January 4, 2012, when the Senate had declared it was in session, but the President claimed that Congress was in a recess because the Senate was operating only pro forma sessions every three business days from December 2, 2011 through January 23, 2012. 

The court's ruling resulted from an appeal by the corporate employer Noel Canning, a division of the Noel Corporation, which argued that a quorum of three NLRB members did not exist on the date the Board rendered an order adverse to the employer.  Specifically, the NLRB had ruled that the employer had violated the National Labor Relations Act by failing to reduce to writing and execute a collective bargaining agreement reached with Teamsters Local 760.  A quorum was lacking, according to the employer, because only one member voting for the decision had been confirmed by the Senate; the other two owed their positions on the Board to the challenged recess appointments.

Specifically, the Recess Appointments Clause provides that "[t]he President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session."  U.S. Const. art. II, § 2, cl. 3.  The employer argued that the phrase "the Recess" refers to the intersession recess only.  The Board argued that "the Recess" also includes intrasession recesses, noting that the Eleventh Circuit has interpreted the language in that fashion.  The District of Columbia Circuit agreed with the employer, stating:  "As a matter of cold, unadorned logic, it makes no sense to adopt the Board's proposition that when the Framers said 'the Recess,' what they really meant was 'a recess.'  This is not an insignificant distinction.  In the end, it makes all the difference."  705 F.3d at 500.

Moreover, the court noted that for nearly a century after the Constitution was ratified, no president had ever attempted intrasession recess appointments, and for decades thereafter such appointments were exceedingly rare.

The Lawletter Vol 38 No 2

Brad Pettit, Senior Attorney, National Legal Research Group

The Internal Revenue Code ("I.R.C.") provides that

[e]xcept in the case of a rollover contribution described in [§ 408](d)(3) . . . , no contribution [to a qualified individual retirement account or a retirement plan] will be accepted unless it is in cash, and contributions will not be accepted for the taxable year on behalf of any individual in excess of the amount in effect for such taxable year under section 219(b)(1)(A).

26 U.S.C. § 408(a)(1) (emphasis added).  A key requirement for a "rollover contribution" is that "the entire amount received" by an individual upon a payment or distribution from a retirement account or plan must be "paid into" an individual retirement account, an individual retirement annuity, or an eligible retirement plan for the benefit of the individual "not later than the 60th day after the day on which" the payment or distribution is received.  Id. § 408(d)(3)(A).

Since we live in an imperfect world, mistakes can be made when an individual seeks to achieve a timely tax-free rollover of money or securities from one tax-favored retirement account or plan into another.  Accordingly, the I.R.C. provides that "[t]he Secretary [of the Treasury] may waive the 60‑day [rollover] requirement under subparagraphs (A) and (D) 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. § 408(d)(3)(I) (emphasis added).  In an administrative ruling, the Internal Revenue Service ("IRS") stated that "a taxpayer must apply for a hardship exception to the 60‑day rollover requirement using the same procedure as that outlined in Rev. Proc. 2003‑4 for letter rulings, accompanied by the user fee set forth in Rev. Proc. 2003‑8."  Rev. Proc. 2003‑16, § 3.01, 2003‑1 C.B. 359 [after clicking on this hyperlink, scroll down to page 359].

In determining whether to grant a waiver, the Service will consider all relevant facts and circumstances, including:  (1) errors committed by a financial institution, other than as described in Section 3.03 below; (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.

Id. § 3.02.  According to the IRS, there is an automatic waiver of a defect in an attempt to carry out a tax-free rollover into an IRA, and no formal application for a discretionary waiver is necessary

if a financial institution receives funds on behalf of a taxpayer prior to the expiration of the 60‑day rollover period, the taxpayer follows all procedures required by the financial institution for depositing the funds into an eligible retirement plan within the 60‑day period (including giving instructions to deposit the funds into an eligible retirement plan) and, solely due to an error on the part of the financial institution, the funds are not deposited into an eligible retirement plan within the 60‑day rollover period.

Id. § 3.03.  But the IRS cautions that "[a]utomatic approval is granted only: (1) if the funds are deposited into an eligible retirement plan within 1 year from the beginning of the 60‑day rollover period; and (2) if the financial institution had deposited the funds as instructed, it would have been a valid rollover."  Id.

The Lawletter Vol 38 No 2

John Stone, Senior Attorney, National Legal Research Group

In New Hampshire, text messaging while driving a vehicle is illegal, but simply talking on a cell phone while driving is not.  In the right set of circumstances, however, the otherwise legal act of talking on a cell phone while driving can support a criminal conviction for negligent homicide when that conduct leads to a fatal accident.  Such was the outcome in State v. Dion, No. 2011-786, 2013 WL 474884 (N.H. Feb. 8, 2013) (not yet released for publication).

At about dusk, the vehicle driven by Lynn Dion, traveling at about 30 miles per hour, struck and killed a pedestrian, who had nearly finished crossing a street and who was using a well-lit, brightly painted crosswalk marked with a yellow and black pedestrian crossing sign.  Dion denied ever seeing that pedestrian, or her companion, who was also struck by the vehicle but with less serious effects.  Dion admitted that intermittently during her fateful trip she had made and received some cell phone calls as she drove, but she denied that she had been on the phone at the time of the collision.

Reconstruction analysis of the collision by the police showed that the defendant had had fully 13.5 seconds in which to see the pair of pedestrians in the crosswalk as she drove across a bridge, that her view had been unobstructed, and that it would have taken her, at most, 1.5 seconds to react upon seeing the women.  Nevertheless, at no time before striking the pedestrian who died did Dion slow down, apply her brakes, or turn to avoid the pedestrians, indicating that Dion, as she herself stated, had completely failed to see them.  These facts further led the police to conclude that rather than experiencing a momentary distraction, such as could be caused by a sneeze or changing a station on her car radio, Dion had been inattentive for a longer period.  But how could this conclusion be reconciled with the defendant's insistence that she had not been on the phone during the moments immediately leading up to the accident?  The clinching evidence was Dion's cell phone records, which undercut that part of her story.  The records showed that Dion had placed a call to a friend, hung up a few seconds later, and only about 90 seconds after that placed her call to police from the scene of the accident.

Dion sought to no avail to keep her cell phone records from being used as evidence against her at her trial.  In upholding the use of such evidence, the court that rejected her appeal ruled that under New Hampshire Rule of Evidence 403, the probative value of the cell phone records was not outweighed by their prejudicial effect.  Dion had admitted to a law enforcement officer that she "had made phone calls throughout her trip," and the records of her calls bore directly on the issue of her attentiveness in the minutes leading up to the collision.  Such records were "inextricably intertwined" with evidence of the crime of negligent homicide.  Id. at *4-5.

As for the conviction itself, which led to a prison sentence, Dion argued to no avail that the evidence against her was insufficient to support her conviction for negligent homicide, because merely using a cell phone while driving does not constitute the required wrongful or blameworthy conduct to establish the culpable mental state for criminal negligence.  New Hampshire Revised Statutes section 630:3(I) makes it a felony to cause another person's death negligently.

Section 626:2 states as follows:

A person acts negligently with respect to a material element of an offense when he fails to become aware of a substantial and unjustifiable risk that the material element exists or will result from his conduct.  The risk must be of such a nature and degree that his failure to become aware of it constitutes a gross deviation from the conduct that a reasonable person would observe in the situation.

The Lawletter Vol 38 No 2

Alistair Edwards, Senior Attorney, National Legal Research Group

Some states have statutes prohibiting a merchant from requiring its credit card customers to give or write certain "personal identification information" in a credit card transaction or on a credit card form.  For example, pursuant to section 105 of chapter 93 of Massachusetts General Laws, the Massachusetts General Court has declared:

(a)        No person, firm, partnership, corporation or other business entity that accepts a credit card for a business transaction shall write, cause to be written or require that a credit card holder write personal identification information, not required by the credit card issuer, on the credit card transaction form. Personal identification information shall include, but shall not be limited to, a credit card holder's address or telephone number.  The provisions of this section shall apply to all credit card transactions; provided, however, that the provisions of this section shall not be construed to prevent a person, firm, partnership, corporation or other business entity from requesting information [that] is necessary for shipping, delivery or installation of purchased merchandise or services or for a warranty when such information is provided voluntarily by a credit card holder.

Mass. Gen. Laws Ann. ch. 93, § 105(a).  Similarly, California's Song‑Beverly Credit Card Act ("Credit Card Act") provides:

(a)        Except as provided in subdivision (c), no person, firm, partnership, association, or corporation that accepts credit cards for the transaction of business shall do any of the following:

(1)        Request, or require as a condition to accepting the credit card as payment in full or in part for goods or services, the cardholder to write any personal identification information upon the credit card transaction form or otherwise.

(2)        Request, or require as a condition to accepting the credit card as payment in full or in part for goods or services, the cardholder to provide personal identification information, which the person, firm, partnership, association, or corporation accepting the credit card writes, causes to be written, or otherwise records upon the credit card transaction form or otherwise.

Cal. Civ. Code § 1747.08(a)(1)-(2).

Several courts have recently considered whether a Zone Improvement Plan code ("ZIP code") constitutes personal identification information.  For example, in Pineda v. Williams‑Sonoma Stores, 246 P.3d 612 (Cal. 2011), the California Supreme Court held that a business's act of requesting and recording a cardholder's ZIP code could violate the Credit Card Act and that the customer's ZIP code constituted personal identification information.  There, the court explained:

Section 1747.08, subdivision (a) provides, in pertinent part, "[N]o person, firm, partnership, association, or corporation that accepts credit cards for the transaction of business shall . . . : [¶] . . . [¶] (2) Request, or require as a condition to accepting the credit card as payment in full or in part for goods or services, the cardholder to provide personal identification information, which the person, firm, partnership, association, or corporation accepting the credit card writes, causes to be written, or otherwise records upon the credit card transaction form or otherwise." (§ 1747.08, subd. (a)(2), italics added.) Subdivision (b) defines personal identification information as "information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder's address and telephone number."  (§ 1747.08, subd. (b).)  Because we must accept as true plaintiff's allegation that defendant requested and then recorded her ZIP code, the outcome of this case hinges on whether a cardholder's ZIP code, without more, constitutes personal identification information within the meaning of section 1747.08.  We hold that it does.