The Lawletter Voll 38 No 1

Steve Friedman, Senior Attorney, National Legal Research Group

Truth be told, being pulled over by the police is not one of my favorite activities. When I am pulled over, however, I am respectful of the officer and his authority. Do I have a legal right to mouth off to the police?  Certainly.  See City of Houston v. Hill, 482 U.S. 451, 461-63 (1987) ("The First Amendment protects a significant amount of verbal criticism and challenge directed at police officers."; in fact, that "is one of the principal characteristics by which we distinguish a free nation from a police state").  Would talking back to the officer help my situation?  No—just ask Eddie Ford.  See Ford v. City of Yakima, 706 F.3d 1188 (9th Cir. 2013).

As Ford was driving to work late one night, listening to music, he noticed a police car approaching rapidly from behind him. After he tried and failed to get out of the way of the police car, Ford abruptly stepped out of his vehicle at a traffic light and asked Officer Urlacher, the driver of the police car, why Ford was being followed so closely.  Officer Urlacher told Ford to get back in his car and go.  As the parties drove through the intersection, Officer Urlacher turned on his cruiser's lights and pulled Ford over.  During the traffic stop, Ford let it be known that he believed that the traffic stop had been racially motivated.  A verbal exchange ensued, with Officer Urlacher essentially informing Ford that if he would stop talking and cooperate, he might just be issued a ticket for violating the municipal noise ordinance but that if he kept running his mouth and "copping" an attitude, he would be going to jail.  Officer Urlacher was persuaded by a backup officer who had arrived on the scene to take Ford to jail.

While en route to the booking facility, Ford invoked his right to free speech, to which Officer Urlacher responded by asserting his right to arrest Ford.  Significantly, however, Officer Urlacher elaborated on his motivation for the action, commenting to Ford, "You talked yourself—your mouth and your attitude talked you into jail."  See id. at 1191.  Although Ford was prosecuted for violating the municipal noise ordinance, he was ultimately acquitted of the charged offense. 

Ford then commenced a civil lawsuit against Officer Urlacher and the City of Yakima, alleging First Amendment retaliation by their booking and jailing him following his verbal criticism of Officer Urlacher.

The Ninth Circuit reversed the district court's grant of summary judgment in favor of the defendants and remanded the case so that Ford's claims could proceed to trial.  Initially, the appellate court observed that Ford's speech, criticizing the police for what he felt was a racially motivated traffic stop, fell "squarely within the protective umbrella of the First Amendment."  Id. at 1193.  Under Ninth Circuit law, even where probable cause existed for an arrest, the arrest is nevertheless categorically unconstitutional if retaliation was a but-for cause of the arrest and the officer's actions would chill a reasonable person's First Amendment activities.  Viewing the evidence in the light most favorable to Ford, a rational jury could find that both such elements were satisfied in this case.

The Lawletter Vol 38 No 1

Suzanne Bailey, Senior Attorney, National Legal Research Group

A voluminous body of scientific knowledge on the subject of eyewitness identification has developed over the last 30 years, as well as extensive commentary and research by psychologists and jurists on the dangers of misidentification and the unreliability of eyewitness identification.  Acknowledging and compiling this corpus, the Supreme Court of Oregon, in State v. Lawson, 291 P.3d 673 (Or. 2012), recently revised the methodology for determining the admissibility of eyewitness testimony in Oregon courts.

Until Lawson, challenges to eyewitness testimony involved the two-step analysis articulated in State v. Classen, 590 P.2d 1198 (Or. 1979).  Under Classen, the defendant bore the burden of showing, under the first prong of the analysis, that "the process leading to the offered identification was suggestive or needlessly departed from procedures prescribed to avoid such suggestiveness."  Lawson, 291 P.3d at 683 (quoting Classen, 590 P.2d at 1203).  If the defendant showed that the process of identification was suggestive, the second prong required the prosecution to demonstrate to the court that "the proffered identification ha[d] a source independent of the suggestive confrontation . . . or that other aspects of the identification at the time it was made substantially exclude the risk that it resulted from the suggestive procedure." Id. at 683-84 (quoting Classen, 590 P.2d at 1203).

In determining whether an identification had been made independent of suggestive procedures, courts were directed to consider a nonexclusive list of factors, including

the opportunity that the witness had at the time to get a clear view of the persons involved in the crime and the attention he or she gave to their identifying features, the timing and completeness of the description given by the witness after the event, the certainty expressed by the witness in that description and in making the subsequent identification, and, of course, the lapse of time between the original observation and the subsequent identification.

Id. at 684 (quoting Classen, 590 P.2d at 1203). 

The Oregon court in Lawson observed that although the intent in Classen had been to come up with an evidentiary standard, placing the burden on the defendant to prove that the eyewitness identification was suggestive was more appropriate to a due process analysis, in which the defendant bears the initial burden of proving a constitutional violation.  Id. at 689; see, e.g., Perry v. New Hampshire, 132 S. Ct. 716, 730 (2012) ("[T]he Due Process Clause does not require a preliminary judicial inquiry into the reliability of an eyewitness identification when the identification was not procured under unnecessarily suggestive circumstances arranged by law enforcement.").  In contrast, in evidentiary matters, it is the proponent of the evidence—in this case, the State—who bears the initial burden of establishing admissibility.  Id.  The problem with the second step of the Classen inquiry was that it allowed "trial courts applying the Classen factors to rely heavily on the eyewitnesses' self‑reports to establish the existence or nonexistence of suggestibility factors."  Lawson, 291 P.3d at 689.

The Lawletter Vol 38 No 1

Charlene Hicks, Senior Attorney, National Legal Research Group

One of the legal arenas in which individual rights are pitted directly against business interests comes into play when an individual employee signs an employment contract containing a covenant not to compete.  Not surprisingly, state courts are often called upon to referee disputes concerning the enforceability of such contracts.  In a recent proemployer decision, a Florida appellate court ruled that an individual's change in status from an "employee" to an "independent contractor" did not affect the terms of the noncompete agreement that the individual had previously signed.

In Anarkali Boutique, Inc. v. Ortiz, 104 So. 3d 1202 (Fla. Dist. Ct. App. 2012), the Anarkali Boutique ("Boutique") sought a temporary injunction against Nahomi Ortiz for violating a noncompete agreement that Ortiz had signed when she began employment in 2008.  This agreement stated, in relevant part:

In consideration for my at-will employment or continued at-will employment by [the company] and the compensation now and hereafter paid to me, I hereby agree as follows:

. . . .

I will not either during my employment with the Company or for a period of two (2) years after I am no longer employed by the Company, engage, as an employee, independent contractor, officer, director, or shareholder, in any employment, business, or activity that in any way competes with the business of the Company within a one-hundred (100) mile radius of any store, office, or facility of the Company. . . .

. . . .

Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.

Id. at 1203.

In 2009, the Boutique began treating Ortiz as an independent contractor so that she would have the opportunity to earn more money through sales commissions.  In 2011, Ortiz left the Boutique and began operating her own business, performing the same services, within the restricted area.  In response, the Boutique filed a complaint for injunctive relief and a motion for temporary injunction against Ortiz.

As a defense against the motion, Ortiz argued that when the Boutique changed her status from employee to independent contractor in 2009, she ceased to be employed by the Boutique and the two-year restricted period set forth in the covenant not to compete began to run at that time.  The trial court agreed with Ortiz and denied the Boutique's motion for temporary injunction.

On appeal, the appellate court reversed.  In so doing, the appeals court relied upon the principle of contract construction that requires a court to examine the contract as a whole and to attempt to give effect to every provision.  According to the appeals court, the trial court contravened this principle by failing to give effect to the final sentence of the noncompete agreement quoted above.

March 26, 2013

Brad Pettit, Senior Attorney, National Legal Research Group

The Uniform Trust Code ("U.T.C.") provides that a "court may reform the terms of a trust, even if unambiguous, to conform the terms to the settlor's intention if it is proved by clear and convincing evidence that both the settlor's intent and the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement."  U.T.C. § 415 (Thomson Reuters, Westlaw current through 2011 annual meetings of the Nat'l Conf. of Comm'r on Unif. State Laws & A.L.I.) (emphasis added).  More specifically, the U.T.C. states that "[t]o achieve the settlor's tax objectives, [a] court may modify the terms of a trust in a manner that is not contrary to the settlor's probable intention[, and a] court may provide that the modification has retroactive effect."  Id. § 416 (emphasis added).  The comment to section 416 seeks to explain the subtle distinctions between a court's discretionary power (1) under section 415 to approve the reformation of an irrevocable trust to conform to the settlor's intention by correcting a mistake of fact or law, and (2) under section 416 to modify an irrevocable trust in order to achieve the settlor's tax objectives:

"Modification" under this section is to be distinguished from the "reformation" authorized by Section 415. Reformation under Section 415 is available when the terms of a trust fail to reflect the donor's original, particularized intention. The mistaken terms are then reformed to conform to this specific intent. The modification authorized here allows the terms of the trust to be changed to meet the settlor's tax‑saving objective as long as the resulting terms, particularly the dispositive provisions, are not inconsistent with the settlor's probable intent. The modification allowed by this subsection is similar in concept to the cy pres doctrine for charitable trusts (see Section 413), and the deviation doctrine for unanticipated circumstances (see Section 412).

Id. § 416 cmt.

March 21, 2013

Charlene Hicks, Senior Attorney, National Legal Research Group

The advent of a new year marks the introduction of new state legislation that impacts business and commercial transactions, sometimes in significant ways.   A few newly enacted statutes that change existing laws and ways of doing business within the state are highlighted below.

California

On January 1, 2013, Senate Bill 474 came into effect.  Under this new law, a construction contract is void if it requires a subcontractor to insure, indemnify, or defend a general contractor, construction manager, or other subcontractor from its own active negligence or willful misconduct, design defects, or claims that do not arise out of the subcontractor's own work.  This law effectively eliminates "Type I," or active negligence, indemnity clauses in construction contracts.  The law does not affect "Type II," or passive negligence, indemnity clauses, nor does it apply to design professionals.

Also effective on January 1, 2013, Assembly Bill 1396 requires all employee commission agreements to be set forth in writing and to explain the method by which commissions will be computed and paid.  For purposes of this law, "commissions" are defined as compensation paid to any person in connection with the sale of the employer's property or services and based proportionately on the amount or value thereof.  However, commissions do not include short-term productivity bonuses or bonus and profit-sharing plans unless such payments are based on the employer's promise to pay a fixed percentage of sales or profits as compensation for work.

North Carolina

March 13, 2013

Brett Turner, Senior Attorney, National Legal Research Group

A growing number of states require, by statute or case law, that the court set the date for valuing marital property in advance of the actual hearing.  In Virginia, for example, all marital property must be valued on the date of the evidentiary hearing.  But "[u]pon motion of either party made no less than 21 days before the evidentiary hearing the court may, for good cause shown, in order to attain the ends of justice, order that a different valuation date be used."  Va. Code Ann. § 20-107.3.  In New York, "[a]s soon as practicable after a matrimonial action has been commenced, the court shall set the date or dates the parties shall use for the valuation of each asset."  N.Y. Dom. Rel. Law § 236(B)(4)(b).  Setting the date of valuation in advance allows all of the experts to value property as of the same date and therefore removes one important source of variance in parties' valuations.

But what happens if there is a material change in circumstances after the court has entered an interlocutory order setting the date of valuation?  In Caveney v. Caveney, 81 Mass. App. Ct. 102, 960 N.E.2d 331 (2012), a discovery master initially set the date of valuation as June 30, 2008.  In late 2008, of course, the national economy entered a sharp and very severe recession.  The recession caused a significant decrease in the value of many marital assets.  The wife therefore filed a motion, supported by an affidavit from her financial expert, asking the court to value the assets as of December 31, 2008.

The trial court granted the motion, and the Massachusetts Appeals Court affirmed. "Based on the changes in the economic climate, the judge indicated that it was reasonable and proper for the wife to utilize a valuation date of December 31, 2008."  Id. at 107, 960 N.E.2d at 336. 

The discovery master's order setting the date of valuation in Caveney did expressly allow either party to modify the order by filing a motion.  But the result would probably not have been materially different if that express modification provision had not been present.  Interlocutory orders granted by a trial court are generally not final and are therefore subject to modification in the discretion of the court until a final order has been entered in the case.  For example, in Virginia, the trial court has full discretion to modify any order it makes until 21 days after entry of a final order resolving all contested issues in the case.  Va. Sup. Ct. R. 1:1.  In states with Rules of Civil Procedure based upon the federal model, "any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties . . . may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities."  Fed. R. Civ. P. 54(b).  Since a pretrial order setting the date of valuation will never resolve all contested issues in the case, the trial court has discretion to modify such an order after it has been made.

An order setting the date of valuation should not, of course, be changed lightly.  The purpose of such an order is to manage the case in an orderly fashion by ensuring that all expert valuations use the same date.  If the order can easily be modified, many of its advantages are lost. 

Jim Witt, Senior Attorney, National Legal Research Group

With the proliferation of will substitutes (vehicles such as revocable trusts, IRAs, and pensions, used to pass assets to beneficiaries at the owner's death but outside the will), a problem can arise with possible duplication between the will substitute and the will. Such a problem was litigated in the Court of Appeals of South Carolina case, Estate of Gill ex rel. Grant v. Clemson University Foundation, 725 S.E.2d 516 (S.C. Ct. App. 2012).

In Estate of Gill, the testatrix bequeathed $100,000 to Clemson University to establish the "Scholarship." The income earned by the fund (but none of the principal) was to be used to provide scholarships for "academically deserving football players." Almost one year after executing the will, the testatrix established an IRA with Morgan Stanley. She specifically designated the Scholarship as the beneficiary of $100,000 in the IRA. The Estate contended that her intent had been to provide a funding mechanism for the Scholarship under the will, not for Clemson to receive two separate $100,000 gifts. Clemson contended that it was entitled to both the $100,000 from the IRA and the $100,000 bequest under the will.

The Estate brought suit for a declaratory judgment, and a special referee found that because the will was unambiguous as to the $100,000 bequest to establish the Scholarship, the bequest was not ambiguous and extrinsic evidence could not be considered. The referee therefore ruled that Clemson was entitled to both the $100,000 Scholarship bequest and $100,000 from the IRA as a nontestamentary asset passing outside the will.

Tim Snider, Senior Attorney, National Legal Research Group

It has been established that an excessive award of punitive damages may violate due process. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 417 (2003). To aid the lower courts in determining whether an award of punitive damages may be so excessive as to violate due process, the Supreme Court has announced punitive damages "guideposts." The Court, however, has never held that the punitive damages guideposts are applicable in the context of statutory damages. Among the statutes that authorize the recovery of statutory damages is the Copyright Act, 17 U.S.C. § 504(c). The recovery of statutory damages is authorized in cases of infringement, because proof of actual damages can be very difficult.

An illustrative case is Capitol Records, Inc. v. Thomas-Rasset, 692 F.3d 899 (8th Cir. 2012). There, the defendant used a computer file-sharing program to download and share copyrighted musical performances without the consent of the copyright owners. Using a forensic service, the owners located and identified the defendant as the person who had initiated the unauthorized copying and file-sharing of the recordings. At trial, the plaintiffs were awarded substantial statutory damages in an amount that was well within the limits of damages authorized by the statute. A prevailing copyright-infringement plaintiff can elect to recover either actual damages or statutory damages. In Capitol Records, the plaintiff elected to recover statutory damages. The defendant argued that the district court should apply a standard of due process to the award of statutory damages analogous to awards of punitive damages.

The Lawletter Vol 37 No 12

Dora Vivaz, Senior Attorney, National Legal Research Group

Initially, under the civil rights laws the Equal Employment Opportunity Commission ("EEOC") was not itself empowered to bring suit.  In 1972, the law was amended to provide for suits brought directly by the EEOC, but only after an investigation; a determination of reasonable cause; and an attempt to resolve the matter by informal methods of conference, conciliation, and persuasion.  42 U.S.C. § 2000e(5)(b).  Since that time, the courts have been in agreement that a conciliation attempt is at least a condition precedent to suit by the EEOC.  See, e.g., EEOC v. Radiator Specialty Co., 610 F.2d 178, 183 (4th Cir. 1979).  However, as the court noted in a recent case, the circuits appear to be split as to the standard that should govern the court's inquiry into whether the conciliation obligation has been satisfied.  EEOC v. St. Alexius Med. Ctr., No. 12 C 7646, 2012 WL 6590625, at *1-3 (N.D. Ill. Dec. 18, 2012).

In an early decision, the Tenth Circuit noted that the statutory language is mandatory and concluded that it was inconceivable that anything less than good-faith efforts is required.  EEOC v. Zia Co., 582 F.2d 527, 532-33 (10th Cir. 1978).  By the same token, it found that the court need not examine the details of offers and counteroffers between the parties. Although the court quoted language from the Conference Report on the law, which indicated that it was contemplated that the EEOC would "continue to make every effort to conciliate" and that it would file suit only "if conciliation proves to be impossible," id. at 533 (quoting 118 Cong. Rec. H1861 (Mar. 8, 1972)), the standard the court seemed to impose was simply a showing of "some effort" to conciliate and of "notice of the breakdown" of the effort.  Id. at 532-33.  The Sixth Circuit put forth a similar standard, adding that the EEOC is under no duty to pursue further conciliation if an employer rejects its offer.  EEOC v. Keco Indus., 748 F.2d 1097, 1101-02 (6th Cir. 1984).

Both the Eleventh and Fifth Circuits have imposed a somewhat more specific and more stringent standard, requiring the EEOC to (1) outline for the employer the reasonable cause for its belief that the law has been violated; (2) offer the employer an opportunity for voluntary compliance; and (3) respond to the employer in a reasonable and flexible manner.  EEOC v. Asplundh Tree Expert Co., 340 F.3d 1256, 1259 (11th Cir. 2003); EEOC v. Klingler Elec. Corp., 636 F.2d 104, 107 (5th Cir. 1981).  These courts have found that the underlying question is the reasonableness and responsiveness of the EEOC, considering all the circumstances.  The Fifth Circuit, in contrast to the Tenth and Sixth Circuits, specifically concluded that the court is required to make a thorough inquiry into the facts of the conciliation efforts in order to properly evaluate whether the EEOC has satisfied its duty.