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Case Law For In-House Counsel

Below are summaries of important opinions affecting in-house attorneys issued by the U.S. Supreme Court, as well as the 1st and 2nd Circuits, the Delaware Supreme Court, and the Delaware Chancery Court from mid-January 2007 through early March 2007. Readers can access the full text of the opinions at www.newenglandinhouse.com.

U.S. Supreme Court

Constitutional Law
Tobacco punitives
violates constitution
A punitive damages award, based in part on a jury’s desire to punish a defendant for harming nonparties, amounts to a taking of property from the defendant without due process.
Philip Morris USA v. Williams. Docket No. 05-1256. Decided Feb. 20, 2007.

Courts can immediately rule on forum non
A U.S. District Court may immediately determine the issue of forum non conveniens, even before it considers whether it has subject matter or personal jurisdiction.
Sinochem International v. Malaysia International Shipping Corp. Docket No. 06-102. Decided March 5, 2007.

1st Circuit

Banking Law
Rescission class
actions not
permitted under TILA
A plaintiff’s request for certification of a class of homeowners seeking rescission of home-financing loans should have been denied because rescission class actions are not permitted under the Truth in Lending Act.
McKenna, et al. v. First Horizon Home Loan Corp. Docket No. 06-8018. Decided Jan. 29, 2007.

Consumer Protection
No private right of
action under ADA
The consumer protection provisions of the Airline Deregulation Act do not permit a private right of action against an airline.
Buck, et al. v. American Airlines, Inc., et al. Docket No. 06-1625. Decided Feb. 7, 2007.
Shareholder-directors can be counted to satisfy Title VII threshold
In determining whether a closely held corporation has the minimum number of 15 employees so as to be subject to Title VII, a court may include the corporation’s shareholder-directors as employees.
De Jesus v. LTT Card Services, Inc., et al. Docket No. 06-1907. Decided Jan.19, 2007.

Cleanup delay doesn’t run afoul of National Contingency Plan
The government’s 21-month delay in beginning a cleanup action was not per se inconsistent with the National Contingency Plan’s requirement that such actions be commenced “as soon as possible” after discovery of contamination.
United States v. JG-24, Inc., et al. Docket No. 04-2577. Decided Feb. 16, 2007.

Insurance Law
Antitrust suit not within scope of duty to defend
An insurer was properly awarded summary judgment in response to a policyholder’s claim the insurer breached its duty to defend in connection with an antitrust suit. The harm alleged in the antitrust action did not come within the scope of the policy’s “personal injury” provision.
Great American Insurance Co., et al. v. Riso, Inc. Docket No. 06-1857. Decided March 8, 2007.

Internet message board operator immune from liability
A company that operated an Internet message board could not be liable for allegedly false statements posted by third parties on the message board, as the defendant was immune from liability under 47 U.S.C. §230.
Universal Communication Systems, Inc., et al. v. Lycos, Inc., et al. Docket No. 06-1826. Decided Feb. 23, 2007.

2nd Circuit

Equitable estoppel
finding in arbitration case is appealable
When a district court finds that a signatory to a written arbitration agreement is equitably estopped from avoiding arbitration with a non-signatory, the writing requirement of Section 16 of the Federal Arbitration Act is met and the ruling is subject to circuit court appeal.
Ross, et al. v. American Express Company, et al. Docket Nos. 06-4598. Decided Feb.13, 2007.

Supervisor’s ‘stray’
age-related remarks
sufficient to create
inference of age bias
Age-related statements by a supervisor characterized as “stray” remarks by the trial court judge were legally sufficient to create a reasonable inference the supervisor was motivated by age discrimination when terminating the plaintiff. The trial court judge incorrectly entered judgment for the employer.
Tomassi v. Insignia Financial Group, Inc., et al. Docket No. 05-6219. Decided Feb. 16, 2007.

Products liability
No state law preemption found in case alleging drug-related injuries
In a case alleging injuries caused by the drug Rezulin, a grant of judgment on the pleadings for the defendant finding Michigan claims were preempted by federal law must be vacated because a presumption against federal preemption of state law applies in the context of common law claims preserved by states to protect their citizens.
Desiano v. Warner Lambert Company. Docket No. 05-1705. Decided Jan. 18, 2007.

Credit default swap agreement not breached
A judge erred in awarding the plaintiffs “breach of contract” damages under a $10 million credit default swap agreement where no event had occurred qualifying as a “credit event” under the contract’s terms.
Aon Financial Products, Inc., et al. v. Societe Generale. Docket No. 06-1080. Decided Feb. 5, 2007.

Auditors face liability for certified opinions
An auditor may incur primary liability under §10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 when the auditor (i) makes a statement in its certified opinion that is false or misleading when made, (ii) then subsequently learns or was reckless in not learning the earlier statement was false or misleading, (iii) knows or should know that potential investors are relying on the opinion, and (iv) yet fails to take reasonable steps to correct or withdraw its opinion and/or the financial statements.
Overton, et al. v. Todman & Co., CPAs, P.C., et al. Docket No. 06-2496. Decided Feb. 26, 2007.

Terminated employee’s ‘administrative expense’ claim rejected
Where (1) an individual’s employment was terminated without cause by a debtor corporation during a Chapter 11 reorganization, and (2) he subsequently asserted that a portion of the early retirement benefits due him under two company retirement plans was a severance payment entitled to priority as an administrative expense, a U.S. District Court judge correctly ruled the individual’s claim was not for an administrative expense, because it represented a portion of the benefits accrued over the course of his employment rather than a new benefit earned at termination.
In Re Bethlehem Steel Corporation. Docket No. 06-1478. Decided March 2, 2007.

Pre-plan settlement’s compliance with
priority rules necessary for approval
In the Chapter 11 context, whether a pre-plan settlement’s distribution plan complies with the Bankruptcy Court’s priority scheme will be the most important factor for a bankruptcy court to consider in approving a settlement under Bankruptcy Rule 9019.
In Re Iridium Operating, LLC. Docket No. 05-2236. Decided March 5, 2007.

Delaware Supreme Court

D&O policies may separately cover claims in shareholder suits
Each discrete cause of action in two stockholder lawsuits filed against a corporation could constitute a separate “claim” under the company’s directors and officers liability policies.
AT&T Corp. v. Faraday Capital Ltd. Docket No. 236, 2006. Decided Feb. 5, 2007.

Delaware Chancery Court

Executive Compensation
Company can be sued over ‘spring-loaded’ stock options
Shareholders could sue a company and its directors for allegedly timing the award of stock options to key employees with the issuance of press releases that were likely to drive stock prices higher.
In re: Tyson Foods, Inc. Consolidated Shareholder Litigation. Docket No. 1106-N. Decided Feb. 6, 2007.

Shareholders may sue over backdated options
The “business judgment” rule does not apply to bar a shareholder suit that board members acted in bad faith and in violation of a shareholder-approved stock option plan when they allegedly allowed the backdating of option grants to the company’s chairman and CEO.
Ryan v. Gifford. Docket No. 2213-N. Decided Feb. 6, 2007.

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