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Dr. MICHAEL A. S. GUTH |
Forthcoming and
Recent Decisions from the Second Circuit
Over the period September 20 – October 20, 2003, the U.S. Court of Appeals for the Second Circuit decided more than 300 cases. Some of the more newsworthy cases from that group pertain to insurance coverage for the World Trade Center, prisoner rights for those being held at the military base in Guantanamo Bay, and the impropriety of attorney sanctions in testing new areas of the law.
World Trade Center (WTC). New York City real estate developer Larry Silverstein, who had bought a 99-year lease on the WTC towers financed through a $563 million loan from GMACCM, received a setback in his efforts to get a $7.2 billion insurance payout on the property. The Second Circuit decided that a jury should determine whether insurance should be paid in the amount of $3.6 billion for a single occurrence, or whether Silverstein’s insurance is governed by a different policy that would provide $3.6 billion for each of two occurrences that took place in the attack of Sept. 11, 2001. The fact question is not so much whether one or two events occurred, rather the question focuses on which insurance policy was in effect at the time of the Sept. 11 attack.
A spokesman for Silverstein said, "We are fully confident that a jury hearing all of the evidence will reject the insurers' attempts to avoid paying for the cost of rebuilding the WTC." According to him, Swiss RE, one of the major insurers of the property, was provided a copy of a Travelers Insurance policy form indicating insurance per occurrence on July 23, 2001, "three days before it finally agreed to participate in the coverage." Similarly, SCOR, the French insurer responsible for about 10% of the coverage, "was also provided a copy of the Travelers form before it bound," according to the spokesman.
Swiss RE contends all of the insurers are governed by a single occurrence policy, rather than the separate Travelers policy that was issued on Sept. 14, 2001,after the attacks. Silverstein promised to use the insurance proceeds to rebuild the WTC site, although renters do not normally reconstruct a building owned by someone else. With reduced insurance proceeds, redevelopment of the site could be delayed.
Separately GMACCM, in its capacity as servicer of the collateralized mortgage backed securities that were issued on the stream of income from repayment of its $563 million loan, has filed a case in New York state court to protect the interests of the bondholders against claims by Silverstein and the Port Authority of New York and New Jersey. A temporary delay in the state court case may allow the defendants to settle that dispute through a payoff of the GMACCM loan. If settled, there would be fewer claims and fewer parties at stake that could slow down reconstruction of the WTC site.
Experimental Drug Liability. The Second Circuit reinstated a lawsuit against Pfizer, the world’s largest pharmaceutical firm, by 30 Nigerian families who claim the drug firm improperly administered the experimental antibiotic Trovan (trovafloxacin mesylate) during a bacterial meningitis epidemic in Nigeria in 1996. The families claim the drug caused the death of 11 children and injured many others. The plaintiffs claim Pfizer did not tell them that Trovan was an experimental drug and that other treatments were available. They also claim their children received lower doses of ceftriaxone, a meningitis treatment, so that Trovan would look better by comparison.
The district court had held the suit had improper venue in the USA, and the case would best be handled in Nigerian courts. However the Second Circuit ruled Nigeria's judiciary was too corrupt to hear the lawsuit, and a similar case was not handled appropriately there. The Second Circuit observed that the companion lawsuit filed in Nigeria was dismissed last year due to an indefinite adjournment of the court and because the judge involved had personal reasons for not hearing the case.
A spokesman for Pfizer was quoted in the Wall Street Journal as saying, "We believe Trovan was a potentially innovative medicine for a major need in the developing world, and that Pfizer personnel acted in accordance with accepted international practice governing clinical trials." The Nigerian families argue in briefs before the Second Circuit that "rather than making a trip to provide humanitarian relief as charitable organizations were doing, Pfizer hurried to Kano, a town suffering with the epidemic, to exploit the misfortune there for its own benefit." Pfizer counters that the fatalities in the Kano study totaled 6% of all patients treated, lower than published results for other forms of meningitis treatment.
Vacated Attorney Sanctions. In Storey v. Cello Holdings, the Second Circuit vacated a decision to impose $18,000 in Rule 11 sanctions against New York lawyers Scott E. Mollen and John P. Sheridan of law firm Herrick, Feinstein, concerning an Internet domain name case. In its 41-page decision, the Second Circuit held that district Judge Denny Chin abused his discretion, mischaracterized several of Cello's legal arguments as factual arguments, erred in interpreting the new federal anticybersquatting statute, and mischaracterized Cello's legal contentions as frivolous despite the evolving nature of the case law under a new federal statute. All in all, it was not a good day for Judge Denny Chin.
However, it was a good day for attorney Scott Molen, who was “extremely grateful” for the Second Circuit’s careful review of the case. "We believed we had a professional obligation to zealously advance our client's non-frivolous claims and a right to present arguments in an area of the law that was in its infancy," he said. The Second Circuit agreed: "Although all of Cello's arguments may not ultimately have prevailed, none are patently contrary to existing law, especially as it existed at the time the papers were signed."
Cello, which sells high-end audio equipment, brought suit against Lawrence Storey in 1997 contending that Storey's Internet registration of "cello.com" was diluting its trademark "Cello." Two years later, Congress passed the Anticybersquatting Consumer Protection Act, and Cello amended its complaint to add a cybersquatting claim. The trial court case was settled and dismissed with prejudice. But the settlement never took place. When Storey offered to sell Cello the rights to the Internet domain name, Cello brought a complaint in arbitration under the Uniform Domain Name Dispute Resolution Policy (UDRP) seeking transfer of "cello.com" Cello stated that it had voluntarily dismissed the federal lawsuit to avail itself of UDRP, "which was not available at the time of the [earlier] filing."
Storey argued that res judicata barred the subsequent arbitration action. The UDRP panel sided with Cello and ordered Mr. Storey to transfer the domain name. Storey then went back to federal district court seeking a declaratory judgment from Judge Chin to enforce the dismissal with prejudice. Judge Chin found that the UDRP action was barred as seeking the same relief Cello had sought in his court and imposed Rule 11 sanctions. But that decision has now been vacated.
Mr. Mollen said the Second
Circuit's decision gave attorneys the necessary leeway to operate in untested
areas of the law. “Attorneys should not
have to decline to protect their clients' interests for fear of being
sanctioned,” he said.
Guantanamo Bay Prisoner
Rights. Jose Padilla, an alleged
accomplice to the "dirty bomber," who wanted to procure material for
a bomb that would spread radioactive waste contamination over its target, was a
civilian apprehended and sent to the U.S. military facility in Guantanamo Bay,
Cuba, with other military prisoners.
Padilla has thus far been denied access to an attorney, even though he
is a U.S. citizen. The government has
maintained that denial of counsel is necessary in this case to make its
interrogation methods more effective.
In December 2002, a federal judge directed that Padilla should be
allowed access to an attorney. But the government has still refused to grant
Padilla access to an attorney and is now appealing the issue to the U.S. Court of Appeals for the Second Circuit.
Through a declaration from U.S. Navy Commander Donald D. Woolfolk, the government explains its rationale for denying the assistance of counsel as follows. "The United States does not employ any corporal means of coercion to gain information from persons being interrogated. Rather, the United States has adopted a humane approach to interrogation that relies upon creating an atmosphere of dependency and trust between detainees and the intelligence gathering staff assigned to that detainee. Over time, information is learned. . . . Under such circumstances the need to maintain the tightly controlled environment, which has been established to create dependency and trust by the detainee with his interrogator, is of paramount importance. Disruption of the interrogation environment, such as through access to a detainee by counsel, undermines this interrogation dynamic. Should this occur, a critical resource may be lost, resulting in a direct threat to national security."
The military’s goal from these interrogations is to glean information about the al Qaeda terrorist network and threats around the world. The Justice Department credits the Guantanamo Bay interrogations with producing the information necessary to find the man with whom Padilla allegedly conspired, i.e, the so-called "dirty bomber.” The Second Circuit must now decide whether the constitution’s right to counsel trumps the military’s need to gather intelligence using means that compromise or violate those guaranteed rights.
Claims Against Foreign Governments. The government of Poland has been granted certiorari by the U.S. Supreme Court to review a Second Circuit decision over foreign sovereign immunity. The Supreme Court had already decided to hear a related Austrian case that concerns works of art seized by the Nazis from the estate of a Jewish family in Vienna. The Polish case concerns property taken from Jewish families, not by the Nazis, but by the post-World War II Communist government of Poland. The Second Circuit ruled in favor of the Jewish families, citing violence directed at Jews who tried to return to Poland after the war. The violence was so severe---and supported by the Polish Army at the time---that many Jews fled Poland for safety to Israel and left their real and personal property behind in Poland.
The Second Circuit held that before a U.S. court can determine whether a foreign government "has a settled expectation of absolute immunity," the U.S. court must conduct a "factual inquiry." Poland is arguing before the Supreme Court that its sovereign immunity, for acts that occurred before Congress passed the Federal Sovereign Immunity Act of 1976, should be resolved as a matter of law, not of fact.
Denial of Asylum for Chinese Applicant. In Wu Biao Chen v. Immigration and Naturalization Service, the U.S. Court of Appeals for the Second Circuit had to decide whether the Board of Immigration Appeals erred in finding the petitioner lacked credibility when it denied his application for asylum. When the petitioner arrived at Orlando International Airport without a passport or visa, he told immigration officials that he “was involved in the student uprising against the Chinese communist government and that's the main reason I wanted to escape China." In his application for asylum later that same year, he stated that his application was based on his "opposition to the inhuman birth control policy imposed by the Chinese government."
His application indicated that he never "belonged to or (had) been associated with any organizations or groups" in China; he had never been mistreated or threatened as a result of his political opinions and had never been arrested or detained. In a second asylum application, the petitioners said he belonged to an “Underground Group” that distributed pro-democracy literature in China.
The Second Circuit reviewed the petitioner's asylum claim under a reasonable fact-finder standard. Under these facts, the Second Circuit held a reasonable fact-finder could have reached the same conclusion as the Board of Immigration Appeals. The Second Circuit thus affirmed the judgment of the immigration appeals board and denied Chen’s petition for review.
Web Posting of Copyrighted Material. Issue: Can a cult monitor post to its web page copyrighted material from an upscale executive training program that it obtained only after a former student breached a confidentiality agreement and provided him with proprietary information to which he had no right? That is the question now before the Second Circuit in the case NXIVM Corp. v. The Ross Institute. U.S. District Court Judge Thomas J. McAvoy of the Northern District of New York held in favor of the cult tracker/monitor. The executive training firm is now appealing to the Second Circuit with a shift in strategy: they will stress the harmful commercial impact of the trial court’s ruling rather than justifiable limitations on free speech, which favor publication of material.
The appellant characterizes the situation as unlawful exploitation of another’s intellectual property, while the cult monitor argues that disclosing the proprietary materials constitutes fair use for protected criticism. NXIVM Corp. operates a “human potential academy,” where business and government leaders obtain training in advanced cognitive processes costing $10,000 for a five-day course. The firm is managed by Keith Raniere, a prodigy who obtained degrees in mathematics, physics, and biology from the Rensselaer Polytechnic Institute and was once included in the Guinness Book of World Records under the "highest IQ" category.
Raniere's unorthodox practices caught the attention of the Ross Institute, which seeks to expose cults and cultist movements. Raniere requires students (who are lawyers, business leaders, and government administrators) to bow to him, wear special garments denoting their respective rank in the school, and address him as "Vanguard." The Ross Institute has criticized NXIVM Corp. as a brainwashing and potentially dangerous cult. Rainere vehemently objects to any characterization of his organization as a cult.
Interstate Commerce/Lobster Fishing. The state of New York cannot bar lobstermen from Connecticut and other states from catching lobsters around Fischers Island at the eastern end of Long Island Sound. So said the Second Circuit, which affirmed a ruling that invalidated New York’s residency requirement for fishermen. According to the Second Circuit, the residency requirement violated the U.S. Constitution's Commerce Clause, Privileges and Immunities Clause, and Equal Protection Clause. The suit challenging the ban on out-of-state fishermen was brought by a Connecticut woman, Vivian Volovar, who fishes off Mystic, Connecticut. Her suit was filed against a variety of New York state environmental officials, and the Connecticut Attorney General joined her action.
Religious Services in Prison. In Pugh et al. v. Goord, Commisioner of the Department of Correctional Services, the Second Circuit considered two issues: (1) were incarcerated Shiite Muslims prisoners denied the right to hold their own prayer services separate from the Sunni Muslim inmates in violation of their constitutional and federal statutory rights?, and (2) did the trial court give the appellants sufficient notice of the requirements of Rule 56 of the Federal Rules of Civil Procedure before sua sponte dismissing their claim?
The Second Circuit vacated the summary dismissal below and remanded the case for further proceedings. According to the appellants, certain Sunni worship practices directly conflict with their Shiite religious practices. According to briefs filed by NY state, the DOCS had already implemented a detailed program to accommodate elements common to all sects of the Islam faith. This program included "(1) Jum'ah (Friday noon services); (2) Islamic studies classes; (3) Islamic introduction services; and (4) Majlis Shu'urah (consultation and religious planning)." In addition, dietary and spiritual accommodations are also available. Cases vindicating the Shiite inmates rights were successfully prosecuted in New York state court over the last few years. Those state court decisions resulted in greater accommodation to religious services and instructional classes.
Although the Second Circuit vacated the district court’s judgment for
hastily reaching dismissal without adequate notice to the appellant-plaintiffs,
the Second Circuit noted in their opinion that based on affidavits of state
officials, it would be reasonable to limit Islamic religious services in a
prison to one combined service for all sects.
The plaintiffs will now have to show cause why a single service would
discriminate against them and violate their statutory or constitutional rights.
Civil Rights Case Attorney Fees. Attorneys who successfully prosecute a civil rights case can be awarded attorney fees not only in cases that result in (1) consent decrees, or (2) judgments on the merits, but also (3) when a court retains jurisdiction over a private settlement agreement. The decision in Roberson v. Giuliani, concerned a civil rights challenge to how city and state agencies investigated applications for food stamps, Medicaid, and public assistance benefits.
The trial court granted summary judgment to the plaintiffs on one claim against the city, and six remaining claims were then settled, with the city agreeing to make changes in the system, but denying any liability. The New York Legal Assistance Group, which represented the indigent plaintiffs, sought $140, 060 in attorney's fees and costs. The trial court had held that the plaintiffs were not "prevailing parties" under 42 U.S.C. § 1988, which grants authority to award fees for a civil rights action.
The trial court followed a U.S. Supreme Court precedent that stated plaintiffs are not a “prevailing party” under the civil rights statute when the plaintiffs obtain "the desired result because the lawsuit brought about a voluntary change in the defendant's conduct." The Supreme Court reasoned that the civil rights act could not allow for “an award where there is no judicially sanctioned change in the legal relationship between the parties."Buckhannon Bd. & Care Home Inc. v. W. Va. Dep't of Health & Human Res., 532 U.S. 598 [2001].
But the Second Circuit stepped in
to announce that when a trial court retains continuing jurisdiction over a
settlement agreement to enforce its terms, that judicial action amounted to
sufficient judicial alteration of the legal status of the parties as to justify
the award of attorney fees.
"We therefore join the majority of courts to have considered this issue
since Buckhannon in concluding that judicial action other than a
judgment on the merits or a consent decree can support an award of attorney's
fees, so long as such action carries with it sufficient judicial
imprimatur," the Second Circuit wrote in a unanimous 3-judge panel
decision.
No Cap on Victim Compensation Fund. The Second Circuit has upheld the procedures, regulations, and methodologies used by Special Master Kenneth R. Feinberg in administering the federal Sept. 11 Victim Compensation Fund. Plaintiffs in that lawsuit had challenged the "de facto cap" on the amount of compensation to be paid through the fund. The case involved surviving family members of highly compensated executives with Cantor Fitzgerald; in one case a family was seeking $52 million. According to plaintiffs, the special master had spoke about considering awards up to $7 million. The Second Circuit held “any cap on compensation would be a direct violation of the statute" governing the fund. They also ruled that the special master had not established any such cap.
Code of Judicial Conduct. New York Supreme Court Justice Thomas J. Spargo may have to find another forum in which to dispute New York state’s restrictions on speech of judges and judicial candidates. Based on comments made in oral arguments, a 3-judge panel of the Second Circuit felt the dispute properly belonged before the New York Court of Appeals; however, the Second Circuit has not issued a ruling yet. Previously, a federal district judge held that portions of the state's judicial conduct code were unconstitutional.
The case arose when Justice Spargo was investigated by the Commission on Judicial Conduct for alleged ethical lapses by participating in a GOP demonstration during the Florida recount of the 2000 presidential election. At the time, Justice Spargo served as a part-time village justice, an election lawyer, and a paid consultant to the Bush campaign.
The district court held that the commission could not rule on the constitutionality of the code it enforces, and Justice Spargo was not necessarily entitled to dispute the outcome of a disciplinary proceeding in the Court of Appeals. Thus his claims might never be heard if not in federal court. In striking down the speech restrictions in the code of judicial conduct, the district court relied on the U.S. Supreme Court’s ruling in Republican Party of Minnesota v. White, 122 S.Ct. 2528 (2002), which held judicial candidates have a right to announce their views on disputed legal and political issues.
If the Second Circuit abdicates its responsibility to review federal issues, namely, a claim of a denial of a First Amendment right of free speech, then the court will be unjustly denying Justice Spargo a fair hearing. The Second Circuit panel would have us believe that New York’s highest state court can effectively review the same code of judicial conduct that governs judges of the highest court as it does trial court judges like Spargo. In reality, the state’s highest court is very unlikely to find anything wrong with its own code of judicial conduct or with the actions of the commission on judicial conduct, which was created by authority of the state’s highest court.
Aggravated Felony. In United States v. Miguel A. Ramirez, the Second Circuit confronted the central issue, “does a state felony conviction for a simple drug possession constitute an aggravated felony under the U.S. Sentencing Guidelines?” The defendant was sentenced to two years in prison after he pleaded guilty to illegal entry after deportation. Specifically, the federal government asserted that the trial court erred when it failed to take into account the defendant's two convictions for drug possession as "aggravated felonies" when calculating his sentence. The Second Circuit agreed with the government, vacated the sentence, and remanded it to the district court for resentencing.
The defendant in this case was arrested twice in New York City for selling cocaine. He was sentenced to one to three years in prison, and after serving a year, he was deported back to the Dominican Republic. About six months later, he reentered the United States illegally and was arrested a few days later for selling cocaine. The trial court used the prior drug convictions as a basis for drug trafficking enhancement in the sentencing, but held that it could not simultaneously use the same conviction as aggravated felonies under the federal criminal code. The Second Circuit ruled that the prior convictions could be used for both provisions of the U.S. Sentencing Guidelines.
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Dr. MICHAEL A. S. GUTH |