July 19, 2011

Steve Friedman, Senior Attorney, National Legal Research Group

In recent years, dubious mortgage practices and lax lending standards contributed to a housing bubble that eventually burst and thrust the economy into the worst economic downturn since the Great Depression; as a result, there have been a record number of foreclosures.  Despite the time-sensitive nature of foreclosure proceedings and related litigation, foreclosing parties need to be careful about checking the land records and verifying that all interested parties have notice of the foreclosure proceedings.

The doctrine of merger provides that "[w]henever a greater and a less estate coincide and meet in one and the same person, without any intermediate estate, the less is immediately merged in the greater, and thus annihilated."  31 C.J.S. Estates § 153 (Westlaw database updated June 2011).  Applying the merger doctrine to the mortgage context, when the mortgagee acquires legal title to the subject property by way of foreclosure, the mortgage lien merges with the legal title, and the lien is extinguished as a matter of law.  See Citizens State Bank of New Castle v. Countrywide Home Loans, No. 76S03-1009-CV-515, 2011 WL 2566451, at *2 (Ind. June 29, 2011); Am. Family Mut. Ins. v. Welton, 926 F. Supp. 811, 816-17 (S.D. Ind. 1996).

The Lawletter Vol 35 No 10, July 8, 2011

Brad Pettit, Senior Attorney, National Legal Research Group

The Internal Revenue Code states that "[e]xcept as otherwise provided . . . , any amount paid or distributed out of an individual retirement plan shall be included in gross income by the payee or distributee."  26 U.S.C. § 408(d)(1).  Section 408 of the Code goes on to say that a taxpayer does not have to include in his or her gross income the amount distributed or paid from his or her individual retirement plan if

(i)         the entire amount received . . . is paid into an individual retirement account or individual retirement annuity . . . for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution; or

(ii)        the entire amount received . . . is paid into an eligible retirement plan for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received[.]

Id. § 408(d)(3)(A).  The same rules apply with respect to distributions from a qualified "employees' trust."  Id. § 402(c).

The Code provides for discretionary hardship relief from the 60-day limitations period on a tax-free rollover of a distribution from a qualified retirement plan or trust.  The 60-day limitations period on making a tax-free rollover from an individual retirement plan can be waived by the Secretary of the Treasury "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. §§ 402(c)(3)(B), 408(d)(3)(I).  In determining whether to grant a waiver of noncompliance with the 60-day time period for a tax-free rollover, the Internal Revenue Service ("IRS") will consider all relevant facts and circumstances, including

(1) errors committed by a financial institution . . . ;  (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.

Rev. Proc. 2003‑16 sec. 3.02, 2003‑4 I.R.B. 359, 2003‑1 C.B. 359.

The Lawletter Vol 35, No 10, July 8, 2011

Paul Ferrer, Senior Attorney, National Legal Research Group

Discussed in a prior issue of The Lawletter, see Paul Ferrer, Enforceability of Arbitration Clause Prohibiting Classwide Arbitration, 35 Lawletter No. 2 (Jan. 21, 2011), the case of Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007) (en banc), is indicative of the growing trend among state courts to strike down as unconscionable class action waivers in otherwise enforceable arbitration agreements in cases where there are a large number of potentially affected consumers, each of whom has only a small claim.  In Scott, for example, the plaintiffs alleged that Cingular had overcharged its individual customers between $1 and $45 per month by unlawfully adding roaming and other hidden charges to their cellular telephone plans.  In finding the class action waivers in the plaintiffs' arbitration agreements to be unenforceable, the court reasoned that "class actions are a critical piece of the enforcement of consumer protection law," because "[w]ithout class actions, many meritorious claims would never be brought":  It simply would not be cost-effective for individual consumers to proceed on such small claims.  Id. at 1006.  This reasoning was echoed in Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005), in which the California Supreme Court similarly held that under such circumstances, class action waivers in arbitration agreements are unconscionable and, thus, unenforceable:

The Lawletter Vol 35 No 9, June 17, 2011

Suzanne Bailey, Senior Attorney, National Legal Research Group

May an employee voluntarily leave work due to emotional distress arising out of a family crisis and still be eligible for unemployment compensation?  In Pennsylvania, a claimant qualifies for benefits if s/he demonstrates that the cause for voluntarily leaving employment is "of a necessitous and compelling nature."  43 Pa. Stat. Ann. § 802(b).  To meet that burden of proof, the claimant must establish that (1) circumstances existed that produced real and substantial pressure to terminate employment; (2) like circumstances would compel a reasonable person to act in the same manner; (3) s/he acted with ordinary common sense; and (4) s/he made a reasonable effort to preserve the employment.  In the recent case of Fiedler v. Unempl. Comp. Bd. of Review, No. 1984 C.D. 2010, 2011 WL 1486078 (Pa. Commw. Ct. Apr. 18, 2011), the Commonwealth Court of Pennsylvania applied this standard to the case of a worker who left his out-of-state job and returned home to Pennsylvania to reunite with his family to cope with the tragic loss of his adult son.  The court found that the claimant had met the burden of proof and was entitled to benefits.

The Lawletter Vol 35 No 9, June 17, 2011

Charlene Hicks, Senior Attorney, National Legal Research Group

In the global marketplace of today, the need to secure personal jurisdiction over a foreign national often arises in disputes of either a personal or a business nature.  The most commonly used method of obtaining service on a party outside of the United States is through the Hague Convention on International Service.  More than 70 nations have ratified the Hague Convention, including the United States, most Western European countries, China, the Russian Federation, Mexico, and Argentina.

If the country wherein the foreign defendant is located is a signatory to the Hague Convention, service must be accomplished in accordance with the requirements of the Convention.  Volkswagenwerk AG v. Schlunk, 486 U.S. 694, 700 (1988).  Generally speaking, the Hague Convention authorizes service through the state's designated Central Authority, via international registered mail, or by directly serving the party through an agent in the destination state.  However, some countries, such as China and Mexico, have specifically objected to certain generally authorized forms of service.  In such cases, service must be accomplished in a manner not objected to by the signatory country.  In any event, the surest and most effective way to obtain service over a foreign defendant is through the designated Central Authority.  See, e.g., Intercont'l Indus. Corp. v. Luo, No. CV 10-4174-JST EX, 2011 WL 221880, at *2 (C.D. Cal. Jan. 20, 2011); Xyrous Commc'ns, LLC v. Bulg. Telecommc'ns Co. AD, No. 1:09-cv-396, 2009 WL 2877084, at *10 (E.D. Va. Sept. 4, 2009) (slip copy).

"Failure to properly serve a party who resides outside the country under the Hague Service Convention renders all subsequent proceedings void as to that person."  In re Alyssa F., 6 Cal. Rptr. 3d 1, 4 (Ct. App. 2003).  Notably, however, the provisions of the Hague Convention do not apply if the address of the person to be served is unknown.  Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, Nov. 15, 1965, 20 U.S.T. 361, art. 1.

If the foreign defendant is an individual who is present in a country that has not ratified the Hague Convention, then service of process may be obtained in accordance with the methods authorized by Rule 4(f) of the Federal Rules of Civil Procedure, which authorizes service "by any means not prohibited by international agreement, as may be directed by a U.S. court."  Fed. R. Civ. P. 4(f)(3).  This Rule confers broad flexibility upon the court and the litigants to obtain service upon the foreign defendant by any reasonable means available that comport with the constitutional notion of due process.

Court-ordered service under Rule 4(f)(3) is also valid upon an individual foreign defendant who is present in a country that has ratified the Hague Convention if the address of that foreign defendant is unknown.  See United States v. Distribuidora Batiz CGH, S.A. De C.V., No. 07cv370-WQH-JMA, 2011 WL 1561086, at *5 (S.D. Cal. Apr. 21, 2011).  In other words, in cases where the plaintiff is unaware of the foreign defendant's address, the court has the discretion to validate service by any means that comport with constitutional notions of due process.  See id.