The Lawletter Vol 36 No 5

Steve Friedman, Senior Attorney, National Legal Research Group

In pertinent part, the First Amendment to the U.S. Constitution provides that "Congress shall make no law respecting an establishment of religion."  The Establishment Clause, applicable to the states and their political subdivisions through the Fourteenth Amendment, thus prohibits the Government from promoting or affiliating itself with any religious doctrine or organization, discriminating among persons on the basis of their religious beliefs and practices, or otherwise involving itself too deeply in the affairs of religious institutions.  See County of Allegheny v. Am. Civil Liberties Union Greater Pittsburgh Chapter, 492 U.S. 573, 590-91 (1989).

However, the Supreme Court has carved out an exception to its traditional Establishment Clause jurisprudence for so-called "legislative prayer."  In Marsh v. Chambers, 463 U.S. 783 (1983), the Court held "that the practice of opening legislative sessions with prayer has become part of the fabric of our society" in that its roots can be traced back to the beginnings of this nation.  See id. at 792.  Accordingly, legislative prayer has more of a civic than a religious overtone in this context, see id. at 792-93, provided that such prayer is not used "to proselytize or advance any one, or to disparage any other, faith or belief," see id. at 794-95.

In subsequent years, Marsh's "legislative prayer" exception to the Establishment Clause has been applied to analogous legislative or deliberative bodies at the local level as well.  See, e.g., Pelphrey v. Cobb County, 547 F.3d 1263, 1276 (11th Cir. 2008) (county commission).  However, juxtaposed to Marsh and its progeny is another line of "school prayer" cases.

In Lee v. Weisman, 505 U.S. 577 (1992), the Supreme Court declared unconstitutional a school policy of having clergymen give nonsectarian prayers at school graduations.  A major focus in Lee was the "heightened concerns" of "indirect coercion," given the impressionable youth in the public schools.  Indeed, the Court emphasized that "[i]nherent differences between the public school system and a session of a state legislature distinguish this case from [Marsh]."  Id. at 596.  The mere fact that students had the option of remaining silent during the prayer or of skipping the graduation ceremony altogether did not cure the constitutional defect.  See id. at 593-94.

So the question is, which case provides the applicable law in the school board context—Marsh or Lee?  Recently, the U.S. Court of Appeals for the Third Circuit took up this issue head-on.  See Doe v. Indian River Sch. Dist., 653 F.3d 256 (3d Cir. 2011).

In Doe, the plaintiffs challenged the school board's practice of beginning each public meeting with a prayer as being unconstitutional under the Establishment Clause.  The school board contended, and the district court agreed, that the school board was akin to a legislative or deliberative body and, thus, that its practice was akin to the legislative prayer approved of in Marsh.  See id. at 259.  Rejecting that argument, the Third Circuit reasoned that "[t]o conclude that, merely because the Board has duties and powers similar to a legislative body[,] Marsh applies, is to ignore the Board's role in [the] system of public school education."  Id. at 279.

The Lawletter Vol 36 No 5

Suzanne Bailey, Senior Attorney, National Legal Research Group

The Third Circuit Court of Appeals recently became the first federal appellate court to consider whether 18 U.S.C. § 3147 allows a federal district court to impose a sentence that exceeds the statutory maximum sentence for the underlying crime.  Section 3147 requires a sentence to be enhanced when the crime of conviction was committed while the defendant was on pretrial release from another federal charge.  In United States v. Lewis, 660 F.3d 189 (3d Cir. 2011), the court also addressed whether the district court had erred in permitting the defendant to be convicted of an offense under § 3147, rather than having § 3147 be considered as a sentencing enhancement.

Section 3147 provides:

A person convicted of an offense committed while released under this chapter shall be sentenced, in addition to the sentence prescribed for the offense to—

(1)       a term of imprisonment of not more than ten years if the offense is a felony; or

(2)       a term of imprisonment of not more than one year if the offense is a misdemeanor.

A term of imprisonment imposed under this section shall be consecutive to any other sentence of imprisonment.

18 U.S.C. § 3147.  The statute is implemented through § 3C1.3 of the Federal Sentencing Guidelines, which states:  "If a statutory sentencing enhancement under 18 U.S.C. § 3147 applies, increase the offense level by 3 levels."  U.S.S.G. § 3C1.3.

In Lewis, the defendant had been charged with one count of carjacking in violation of 18 U.S.C. § 2119, one count of possession of ammunition by a convicted felon in violation of 18 U.S.C. § 922(g)(1), and one count of committing an offense while on pretrial release in violation of 18 U.S.C. § 3147(1).  The defendant was convicted of being a felon in possession of ammunition and committing a felony while on pretrial release.  Although the maximum sentence for being a felon in possession of ammunition is 10 years, with the addition of the three offense levels under U.S.S.G. § 3C1.3, the advisory sentencing range was 140 to 175 months, and the court sentenced the defendant to 138 months.  On appeal, the defendant challenged the sentence on the grounds that it exceeded the statutory maximum for being a felon in possession of ammunition and that § 3147 was an enhancement statute, not an offense.  The court reviewed the sentence for plain error.

The court of appeals concluded that the clear and unambiguous language of § 3147 expressed the intent of Congress to increase the maximum sentence for the underlying offense by adding up to 10 years "in addition to the sentence prescribed for the offense."  Although it was unnecessary to look to the legislative history, the court opined that, given the clarity of the statutory language, were it to consider the history, it would find little support for the defendant's argument that Congress had intended to add up to 10 years to a sentence as long as the total sentence remained within the statutory maximum for the underlying crime.  The note to U.S.S.G. § 3C1.3 did not support the defendant's position either.  The court found that cases from other circuits, relied on by the defendant, were dicta or supportive of its holding.

September 14, 2011

Doug Plank, Senior Attorney, National Legal Research Group

One of the most significant consequences of the recent use of DNA testing in the criminal justice system has been the growing recognition that eyewitness identification testimony is simply not as reliable as it was previously thought to be.  In fact, now that DNA test results have exonerated hundreds of imprisoned convicts—most of whom were convicted on the strength of eyewitness identification from presumably reliable citizens—it has become apparent that traditional means of obtaining eyewitness identification have been too suggestive and too likely to create errors.  This fact has led some courts to question the propriety of investigative techniques that have long been approved by the U.S. Supreme Court and to adopt new rules with regard to both identification procedures utilized by the police and the admission of eyewitness identification testimony at trial. 

In accordance with this trend, the New Jersey Supreme Court, troubled by the lack of reliability of eyewitness identification evidence, has just announced guidelines that will make it easier for criminal defendants to challenge such evidence.   In State v. Henderson, No. 062218, A-8 Sept. Term 2008, 2011 WL 3715028 (N.J. Aug. 24, 2011), a unanimous decision, the court found that a "vast body of scientific research about human memory" has emerged in recent years that "casts doubt on some commonly held views relating to memory" and "calls into question the vitality of the current legal framework for analyzing the reliability of eyewitness identifications," id. at *1, as established in Manson v. Brathwaite, 432 U.S. 98 (1977), and State v. Madison, 109 N.J. 223, 536 A.2d 254 (1988).

 The case arose from the identification by an eyewitness, James Womble, of the defendant, Larry Henderson, as the accomplice to a murder, about which Womble did not speak to the police until they approached him 10 days later.  According to Womble's story, he had been drinking wine and champagne and smoking crack cocaine with Rodney Harper in an apartment, when two men, only one of whom was known to Womble, barged in and tried to collect $160 that Harper owed.  The second man—a stranger to Womble—pointed a gun at him and told him not to move because he was not involved in the debt.  Womble later stated that he "got a look at" the stranger, but not "a real good look."  2011 WL 3715028, at *3.  The first man eventually shot Harper in another room, and as the two intruders left the apartment, they threatened Womble with harm if he told the police anything.

 When approached by police during their investigation of the murder, Womble initially denied having been present during the murder and said that he had heard the gunshot coming from outside the apartment and that he had gone outside to find Harper, who was slumped over in his car.  Womble later admitted that he had lied to police, claiming that he had been threatened if he cooperated with them.  He then viewed a photographic array of suspects and identified Henderson as the man who had assisted the shooter and pointed a gun at him.  When Henderson was arrested on the basis of this identification, he acknowledged that he had gone to the apartment at the time of the shooting but insisted that he had waited in the hallway and had not participated in the shooting.

 The New Jersey Supreme Court closely examined the circumstances of the photographic array, the viewing of which, according to police guidelines, was initially conducted by an officer who had not previously been involved in the murder investigation.   The array consisted of seven "filler" photographs and one photograph of Henderson, and all eight photographs depicted headshots of African-American men between the ages of 28 and 35, with short hair, goatees, and, according to the officer, similar facial features.  Womble quickly eliminated five of the photographs, then reviewed the remaining three, discounted one more, and said he "wasn't 100 percent sure of the final two pictures."  Id. at *5.  After some time had passed, and after the two investigating officers had come into the room to assure Womble that he had no reason to be afraid because the police would protect him, Womble finally identified Henderson from his photograph as the person who had assisted the shooter.  At the subsequent hearing, held pursuant to United States v. Wade, 388 U.S. 218 (1967), Womble did not recant his identification but testified that he felt as though the officer had been "nudging" him to choose Henderson's photograph and "that there was pressure" to make a choice.  2011 WL 3715028, at *5.  Then, applying the two-part test from Manson and Madison—which requires courts to first determine whether police identification procedures were impermissibly suggestive, and if so, to then weigh five reliability factors to decide whether the identification evidence is nonetheless admissible—the trial court concluded that there was nothing in the photograph identification procedure that was so suggestive as to result in a substantial likelihood of any misidentification.

 Henderson was convicted of reckless manslaughter, largely on the basis of Womble's identification testimony at trial.  On appeal, the appellate division decided that the photographic array procedure had been suggestive, and it remanded for a consideration of the five Manson/Madison factors for determining whether the identification was nevertheless reliable.  The State appealed, and the New Jersey Supreme Court then ordered a remand for the establishment of a factual record that would be adequate to test the current validity of state law standards on the admissibility of eyewitness identification.  The court directed the trial court to conduct a plenary hearing to consider whether the assumptions and other factors reflected in the two‑part Manson/Madison test, as well as the five factors outlined in those cases to determine reliability, remained valid and appropriate in light of recent scientific and other evidence.

 A number of distinguished experts in psychology and law presented evidence at the remand hearing.  Based on this evidence, the New Jersey Supreme Court determined that the record substantiated the conclusion that eyewitness misidentification was "the single greatest cause of wrongful convictions in this country."  Id. at *9.  The court noted that more than 75% of convictions overturned due to DNA evidence had involved eyewitness misidentification and that comprehensive studies had shown that eyewitnesses to crimes had made an alarming number of misidentifications in lineups and photographic arrays, selecting a "filler" (an innocent person presented along with a suspect) about one-fourth of the time.  The court did not attribute this result to bad faith.  Rather,

We accept that eyewitnesses generally act in good faith. Most misidentifications stem from the fact that human memory is malleable; they are not the result of malice. . . . [A]n array of variables can affect and dilute eyewitness memory.

December 6, 2011

Charlene Hicks, Senior Attorney, National Legal Research Group

In a civil lawsuit against a close corporation, it is relatively common for the plaintiff to allege that the corporate veil should be pierced and the corporate officers or shareholders be held personally liable for the corporation's wrongful actions.  If the corporation files a bankruptcy petition in the midst of the proceedings, the civil action against it is automatically stayed pursuant to 11 U.S.C. § 362(a).  The question then arises as to whether the automatic stay in bankruptcy extends to the alter ego claims against the corporate officers or shareholders.

Generally speaking, the automatic stay provided by § 362(a) does not extend to third parties such as officers of the debtor corporation.  However, courts have carved out certain important exceptions to this general rule.  Because state law determines whether a specific claim belongs to the bankruptcy estate or to an individual creditor, these exceptions are not uniformly recognized but, rather, vary from state to state.

In a recent illustrative case, Shaoxing County Huayue Import & Export v. Bhaumik, 120 Cal. Rptr. 3d 303 (Ct. App. 2011), the California Court of Appeal addressed the effect of a corporation's bankruptcy filing upon a creditor's alter ego claims against an individual who controlled the corporation's business operations.  In that case, a corporate creditor filed a state court complaint for breach of contract against both the corporation and the company's general manager.  In regard to the manager, the creditor alleged that the corporate veil should be pierced because the manager was responsible for the corporation's actions and he used the company as a device to "avoid individual liability and for purposes of substituting a financially insolvent entity in place of himself."  Id. at 306.  After suit had been commenced, the corporation filed a Chapter 7 bankruptcy petition, and the creditor voluntarily dismissed the corporation from the action.  The manager then moved for a stay, arguing that the creditor's alter ego claims belonged to the bankruptcy estate and that the bankruptcy trustee had exclusive standing to pursue the action against him.

In addressing this issue, the court acknowledged that the line separating claims of the debtor, which the bankruptcy trustee has exclusive standing to assert, and claims of an individual creditor against a third party is not always clear.  To determine the nature of the claim, the focus of the inquiry must be on whether the injury to be redressed is one that was suffered by the debtor corporation.  Id. at 309.  If the corporation has not sustained an injury but, rather, the creditor alone has been injured by the alleged conduct, then the claim does not belong to the bankruptcy estate and, by extension, the bankruptcy trustee.  Id.

The Lawletter Vol 36 No 4

Jim Witt, Senior Attorney, National Legal Research Group

In McPherson v. McPherson, 705 S.E.2d 314 (Ga. Ct. App. 2011), the Court of Appeals of Georgia reviewed the law governing the extent of a trustee's discretion that has been bestowed upon him or her by the trust instrument as to making distributions from the trust.  The case shows that even where a trustee is given broad discretion, complications can arise in the analysis of whether the trustee has abused that discretion.

The settlor, Howard E. McPherson, had four adult children from his first marriage at the time he established the trust:  Scott, Lisa, Robin, and Eric.  Howard later remarried and had an additional child, also named Howard.  The trust provided that during Howard senior's lifetime,

[t]he Trustee shall . . . have the discretion to pay out of income, if any, or principal or both of this trust such amount or amounts, whether equal or unequal and whether the whole or a lesser amount,  to  the  Trustor's  children . . . as may be needed for their support, maintenance, education and medical needs in reasonable comfort, taking into consideration any other means of support they or any of them may have to the knowledge of the Trustee.

Id. at 316 (court's emphasis).

Scott was named as trustee.  In 1992, Scott consented to the addition of his three adult siblings as cotrustees.  From 1992 until his removal as a cotrustee, Eric received his equal share of distributions from the trust in accordance with the settlor's direction that the children be treated equally.

In June 2004, Howard warned Eric that he was considering removing Eric as a cotrustee because of his difficult behavior, including refusing to sign legal documents after having verbally promised to do so, placing his girlfriend on the company payroll, and threatening to sue his siblings.  Soon thereafter, Eric sued his siblings for the first time.  In March 2005, Howard removed Eric as cotrustee and replaced him with Howard's lawyer.

In July 2005, the trustees elected to distribute $300,000 of trust income per stirpes to each McPherson child.  However, $50,000 of Eric's share was given to subtrusts created for the benefit of his children; the trustees' motive for this was to create additional resources for Eric's children, given his attempt, by means of a false affidavit, to reduce his child support payments.  As to the remaining $250,000 due Eric, the trustees directed that $157,000 be deducted to account for the expense incurred by the trust in defending against Eric's first suit.  Eric therefore received a check for $93,000, which he negotiated without objection.

Eric brought an amended version of his subsequent action, started in July 2006, in July 2009, alleging that the trustees' distributions from 2005 through 2008, and in particular their 2005 withholding of the $157,000 spent on the defense against his suit, had violated their fiduciary duties under the trust. Both sides moved for summary judgment.  The trial court granted the trustees' motion and denied Eric's.  On the appeal, Eric argued that the trustees had abused their discretion in failing to consider the needs of each of Howard's children, including the minor Howard, who was still living at home with his father.

The Lawletter Vol 36 No 4

Tim Snider, Senior Attorney, National Legal Research Group

The Supreme Court recently rendered a decision that may rival the impact of Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), which had declared aspects of the then newly enacted Bankruptcy Code unconstitutional.  In Stern v. Marshall, 131 S. Ct. 2594 (2011), the notorious Anna Nicole Smith ("Vickie") had married tycoon J. Howard Marshall II, Pierce Marshall's father, approximately one year before the former's death.  Shortly before J. Howard died, Vickie had filed a suit against Pierce in Texas state court, asserting that J. Howard had meant to provide for Vickie through a trust and that Pierce had tortiously interfered with that gift.  After J. Howard died, Vickie filed for bankruptcy in federal court.  Pierce filed a proof of claim in that proceeding, asserting that he should be able to recover damages from Vickie's bankruptcy estate because Vickie had defamed him by inducing her lawyers to tell the press that he had engaged in fraud in controlling his father's assets.  Vickie responded by filing a counterclaim for tortious interference with the gift she had expected from J. Howard.

The bankruptcy court granted Vickie's motion for summary judgment on the defamation claim and eventually awarded her hundreds of millions of dollars in damages on her counterclaim.  Pierce objected that the bankruptcy court lacked jurisdiction to enter a final judgment on that counterclaim because it was not a "core proceeding" as defined by 28 U.S.C. § 157(b)(2)(C).  As set forth in § 157(a), Congress has divided bankruptcy proceedings into three categories:  those that "aris[e] under title 11"; those that "aris[e] in" a Title 11 case; and those that are "related to a case under title 11."  District courts may refer all such proceedings to the bankruptcy judges of their district, 28 U.S.C. § 157(a), and bankruptcy courts may enter final judgments in "all core proceedings arising under title 11, or arising in a case under title 11," id. § 157(b)(1).  In noncore proceedings, by contrast, a bankruptcy judge may only "submit proposed findings of fact and conclusions of law to the district court."  Id. § 157(c)(1).  Section 157(b)(2) lists 16 categories of core proceedings, including "counterclaims by the estate against persons filing claims against the estate."  Id. § 157(b)(2)(C).

The bankruptcy court held that the counterclaim was a core proceeding, but the district court reversed, concluding that to hold all counterclaims to be core proceedings would be unconstitutional under Northern Pipeline.  The court of appeals vacated the district court's judgment, concluding that because the subject matter of the counterclaim was not so closely related to the underlying core proceeding, the bankruptcy court should not have entertained it but instead should have given the Texas state court judgment preclusive effect.  The Supreme Court affirmed, but on different grounds.  The Chief Justice, writing for a 5-4 majority, concluded that while § 157(b)(2)(C) permitted the bankruptcy court to entertain the counterclaim, Article III of the Constitution does not.

November 22, 2011

Brett Turner, Senior Attorney, National Legal Research Group

A recent Virginia Supreme Court decision clarifies the law on classification of stock options.  In Schuman v. Schuman, Record No. 100967, 2011 WL 5325292 (Va. Nov. 4, 2011), the wife received stock options during the marriage.  The options did not vest until after the marriage was over.  The trial court held that the stock options were entirely the wife's separate property.  The court of appeals affirmed, holding that the options had not been acquired during the marriage, because they did not vest until after the marriage was over.  Schuman v. Schuman, Nos. 0631‑09‑4, 1259‑09‑4, and 1260‑09‑4, 2010 WL 1539955 (Va. Ct. App. Apr. 20, 2010) (unpublished).  The court's holding was consistent with prior authority, holding that stock options are acquired on the date of vesting.  Shiembob v. Shiembob, 55 Va. App. 234, 685 S.E.2d 192 (2009); Ranney v. Ranney, 45 Va. App. 17, 608 S.E.2d 485 (2005).

On further appeal, the Virginia Supreme Court reversed.  Virginia's equitable distribution statute provides that deferred compensation benefits, "whether vested or nonvested," can constitute marital property.  Va. Code Ann. § 20-107.3(G)(1).  If the court of appeals' position were correct, unvested options could never be marital property, because they would never vest until after the divorce.  "The inclusion of the phrase 'whether vested or nonvested' clearly indicates that the date of vesting is not, by itself, dispositive of whether the deferred compensation is marital or separate property."  Schuman, 2011 WL 5325292, at *2.

What, then, is the correct way to determine when stock options are acquired?  Section 20-107.3(G)(1) applies the same rules to both retirement benefits and deferred compensation benefits, such as stock options.  "[T]he legislature clearly intended for the delineated plans of compensation to be treated uniformly. Therefore, it is axiomatic that the marital share of deferred compensation should be calculated in the same manner as the marital share of pensions or other retirement benefits."  Id. at *3.

Virginia law is clear that retirement benefits are acquired when they are earned, not when they vest.  E.g., Dietz v. Dietz, 17 Va. App. 203, 436 S.E.2d 463 (1993).  Schuman applied the same rule to stock options.   "'[S]tock options, like retirement benefits, are acquired when they are earned, and not at the time of receipt, vesting or exercise.'"  Schuman, 2011 WL 5325292, at *2 (quoting 2 Brett R. Turner, Equitable Distribution of Property § 6:49, at 292 (3d ed. 2005)).  The marital interest is therefore a fraction, equal to the total time married during the earning period, divided by the total earning period.^[1]

The court did not determine the date of earning on the facts of Schuman, instead leaving that issue for the trial court on remand.  But Schuman adopted the general majority rule, so there is ample relevant authority from other states.