Pennsylvania Litigation Blog : Pennsylvania Litigation Lawyer & Attorney : Barley Snyder Law Firm : Serving Lancaster, York, Reading, Hanover, Malvern

Every now and then, a few cases that are clearly critical to commercial lending and loan recoveries float to the surface of the flood of bankruptcy court opinions. This is the first in a series of short synopses of cases that you should factor into your strategies.

Upstream Subsidiary Guaranty As A Fraudulent Conveyance

The case of In re TOUSA has been widely followed on appeal and is among the most significant in the country. Simply stated, the U.S. Bankruptcy Court for the Southern District of Florida found (1) that the granting of a guaranty by subsidiary corporations to secure more than $420,000,000 of new loans extended to the parent corporation, secured by liens on the corporate assets of the subsidiaries, was an avoidable fraudulent conveyance. The new lender provided funding for a compromise and settlement of prior secured debts, which rendered the parent company, in the opinion of the Court, the "most highly - leveraged company in the industry". TOUSA, Inc. was a large residential builder. Six months later, the parent company and all of its subsidiaries filed a Chapter 11 case. The fraudulent conveyance claim was advanced against the original lenders who received the compromise and settlement payment and they were ordered to return the $420,000,000 payment.

The Bankruptcy Code provides, in Section 548, that a trustee may avoid as fraudulent any transfer of an interest of the debtor (such as a lien) if the debtor received less than reasonably equivalent value in exchange for the transfer and the debtor was insolvent at the time or rendered insolvent as a result of the transfer. Obviously, to the extent that a transfer is avoided under Section 548 of the Bankruptcy Code, the trustee may recover the property transferred, either from the initial transferee or from an entity which benefited from the transfer.

The Bankruptcy Court found that the subsidiaries were, in fact, insolvent at the time that the guaranty and new collateral were granted and that the subsidiaries did not receive reasonably equivalent value for the guaranty and liens. The Court found that the subsidiaries received indirect and minimal benefits from the transaction and rejected the contention that avoidance of contingent claims, avoidance of litigation or avoidance of imminent bankruptcy were sufficient consideration.

On appeal, the U.S. District Court reversed the decision of the Bankruptcy Court.(2) On further appeal to the U.S. Court of Appeals for the Eleventh Circuit, the District Court was reversed and the Eleventh Circuit essentially overruled the District Court and supported the original trial court decision. (3)

The Bankruptcy Court also discounted the viability of insolvency "savings clauses" in the subsidiary guaranty, which are not unusual in these transactions and purport to have the effect of reducing the amount of the guaranty by a sum sufficient to assure that the subsidiary remains solvent, thereby preventing a fraudulent conveyance claim. Neither the District Court nor the Eleventh Circuit ruled on the validity or effect of the savings clause.

The TOUSA decision may ultimately be little more than an obvious response to a refinancing occurring six months before a bankruptcy filing and the court’s judgment about the lenders’ due diligence. Nevertheless, the case raises several points that should be considered by both lenders and workout officers. For example:

(a) Due diligence on the financial condition and solvency of the subsidiary providing a guaranty must be thoroughly conducted and the creation of contemporary evidence of solvency at the time of the transaction is essential to the enforcement of the upstream guaranty.

(b) Incidental and intangible benefits to the subsidiary providing the guaranty, particularly in a setting where the companies are already stressed or in trouble, is unlikely to win the day in defending against a fraudulent conveyance claim. More concrete benefits must be identified - and documented. Some lenders resort to a "co-borrower" structure to work around the benefits/consideration problem. We urge caution in a co-borrower structure where there is ample evidence that the parties have no expectation that the subsidiary will borrow under the credit facility.

(c) The degree of foreseeability of subsequent financial difficulty must be assessed and a lack of credible evidence supporting the lender’s or recipient’s contention that they could not anticipate subsequent insolvency will be problematic.

(d) Credit underwriting decisions which rely upon the value of subsidiary assets and upstream guaranties have been common in the past, with the lender often arguing that the subsidiary received "indirect value", even though it did not receive loan proceeds. The TOUSA decision indicates that the possible prevention of an immediate bankruptcy filing is not "reasonably equivalent value", in and of itself. Upstream guarantys should be discounted as a credit support in the credit underwriting process, unless the lender can identify either (1) that the subsidiary will receive a direct and demonstrable benefit from the transaction or (2) the subsidiary was clearly, as shown by evidence, solvent at the time of the transaction.

(e) Receiving payoff proceeds from a transaction involving other funding sources, which include an upstream guaranty, may subject the recipient of the payoff to a fraudulent conveyance claim and to a refund of the payoff. Again, due diligence is necessary in any material payoff or settlement situation.

(f) Continue using "savings clauses" in upstream guaranties. Their protective value has not yet been finally determined.
____________________________
(1) Official Committee of Unsecured Creditors of TOUSA, Inc. v. Citicorp N. Am. Inc. (In re TOUSA Inc.), 422 B.R. 783 (Bankr. S.D. Fla. 2009).
(2) 3V Capital Master Fund Ltd. v. Official Committee of Unsecured Creditors of TOUSA Inc. (In re TOUSA Inc.), 444 B.R. 613 (S.D. Fla. 2011).
(3) Senior Transeastern Lenders v.  Official Committee of Unsecured Creditors (In re TOUSA Inc.), 680 F.3d 1298 (11th Cir. 2012).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

PACA stands for the Perishable Agricultural Commodities Act, a Depression-era federal statute that protects growers and suppliers of unprocessed fruits and vegetables.  PACA creates a floating, non-segregated trust on buyer’s accounts receivable and inventory.  This provides PACA suppliers with a right to payment before all other creditors, including secured lenders with blanket liens. This super-priority status means that when a buyer purchases produce from a PACA supplier, it must account to the supplier before all other creditors.  Until the buyer does, the trust operates by placing a lien on not only the inventory derived from the produce , but also on accounts receivable and proceeds from the sale of the produce.  7 U.S.C. § 499e(c)(2); In re Magic Restaurants, Inc., 205 F.3d 108, 111-12 (3d Cir. 2000).  Since PACA can have harsh consequences for businesses and lenders that deal with PACA suppliers, it is important to be aware of its provisions.  Front-end lenders also need to be mindful of ways in which they can protect their banks and guard against some of PACA’s unforgiving provisions.  

To establish a PACA trust, the goods in question must be fruits and vegetables which have not been altered from their original state (i.e., cucumbers but not pickles, cranberries but not cranberry sauce, onions but not onion rings).  The supplier must also provide the buyer with written notice that the goods are sold subject to PACA, which usually is found on the invoice.  Unless the parties agree otherwise, PACA requires prompt payment (usually within thirty days).  Buyers who breach a PACA trust may be subject to interest and attorneys fees for collection costs and their principals may be personally liable if they knowingly played a role in dissipating the trust assets (i.e., spending it elsewhere).  That is one of the many reasons why it is important to be mindful of accounts involving PACA suppliers. 

Perhaps most importantly to lenders, courts have held creditors liable for breach of the trust when they “knew or should have known” that they were being paid with receivables that rightly belonged to the PACA supplier.   Consumers Produce Co., Inc. v. Volante Wholesale Produce, Inc., 16 F.3d 1374, 1382 (3d Cir. 1994).  In Volante, the court stated that lenders must return the receivables from the PACA trust unless they could prove that they were a bona fide purchaser for value who did not know the receivables came from trust assets.  Id; see also Albee Tomato, Inc. v. A.B. Shalom Produce Corp., 155 F.3d 612 (2d Cir. 1998). 

In bankruptcy, PACA’s impact can be even greater.  PACA supplier’s claims in bankruptcy enjoy the same super-priority status as they do outside bankruptcy, but they also are not subject to avoidance in a preference action.  Courts have held that, since the debtor is holding the funds in question for the benefit of PACA claimants, the funds are not part of the bankruptcy estate.  Hence, when the suppliers are paid in full from available trust funds, they are excluded from any new value defense to a preference claim.  See In re Arizona Fast Foods, 299 B.R. 589 (Bankr. D. Ariz. 2003).  Both the potential lender liability as well as the effects of PACA on a debtor’s bankruptcy estate should make creditors mindful of a the PACA trust. 

The good news, at least in Pennsylvania’s federal courts, is that there is a limit to how far the PACA trust can extend.  The trust corpus does not include vehicles and equipment purchased using PACA funds.  United Fruit & Produce, 242 B.R. 295, 301.  Moreover, real property similarly lies outside the trust since, like equipment, it is not inventory or proceeds from the sale of PACA products.  Chiquita Brands Co. N. Am., Inc. v. J & J Foods, Inc., 2004 U.S. Dist. LEXIS 22847, *31-34 (E.D. Pa. 2004).  Thus, simply because assets held or purchased by a produce buyer can be traced to PACA trust receivables, it does not follow that those assets are part of the PACA trust.  Outside of Pennsylvania, however, courts have found that real property, equipment and even the insurance proceeds of a PACA debtor are subject to the PACA trust.  See In re Kornblum, 81 F.3d 280 (2d Cir. 1996); J.A. Besterman Co. v. Carter’s Inc., 439 F. Supp. 2d 774 (W.D. Mich. 2006); In re Atlantic Tropical Market Corp., 118 B.R. 139 (Bankr. S.D. Fla. 1990); Sam Wang Produce, Inc. v. EE Mart FC, LLC, 2010 U.S. Dist. LEXIS 13608 (E.D. Va. 2010).  It may not be long until the Third Circuit addresses this discrepancy. 

So how can a lender wary of PACA protect itself on the front end?  The best way is by including a loan provision requiring the debtor to keep a minimum amount, either in reserve or in the form of inventory, to cover eligible PACA claims.  That way, the debtor will have funds on hand to cover PACA claimants and the lender will be able to recover from non-PACA assets.   

• Email This
• Print
• Comments
• Trackbacks
• Share Link

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In a 5 to 4 decision, the Supreme Court on June 28 upheld the constitutionality of the cornerstone provision of President Obama’s Affordable Care Act, the individual mandate. In the Court’s majority decision, which was written by Chief Justice Roberts and concurred in by Justices Breyer, Ginsburg, Sotomayor and Kagan, the law’s individual mandate was ruled a valid exercise by Congress of its taxing power. Justice Kennedy, who was widely viewed as the likely swing vote, did join with Justices Scalia, Alito and Thomas in a dissenting opinion. A surprise to most was that the controlling swing vote in favor of upholding the law proved to be that of the Chief Justice. 

With good reason given the uncertainty about the constitutionality of the health care reform statute that prevailed up until the Court’s decision, many employers with health care plans have delayed focusing much attention or resources on the decisions they have to make to comply with the new law by its 2014 full implementation date. The decision from the Court, upholding the law, means that this “wait and see” approach is difficult to continue to justify. The 18 months remaining  between now and January 1, 2014, is a relatively short time frame in which to gear up for full compliance. There are a number of notice, administration and benefit changes health plan sponsors will have to implement.

In our upcoming Employment Law Newsletter, Barley Snyder’s employee benefits attorneys will provide a summary of the significant health care reform compliance requirements that need to be implemented.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Do you want to lower your property taxes? Would it surprise you to learn that you could do so at little to no net cost? There may be an opportunity to do exactly this if your property is currently assessed too high. Your property’s tax assessment forms the basis for all of your real estate taxes. The assessment, which is different than the appraised value of your property and in most cases does not equal 100 percent of the fair market value of your property, is established by the County once every few years and remains fixed as property values move up and down. So if your assessment is too high (either because it was originally assessed too high or because of a decrease in your property’s value), you are paying too much in taxes each year that the assessment remains the same. The assessment will remain the same until the property is changed (improvements are added or removed), the County undergoes a county wide reassessment, or your file an appeal of your assessment. County wide reassessments usually occur only once or twice a decade although in some counties, a county wide reassessment has not occurred in nearly 20 years. If you lower your assessment, you will lower your real estate taxes until the next County wide reassessment occurs which could be several years. You are entitled to challenge the assessment every year if you believe the assessment is too high. The amount of costs involved in the appeal are often far less than the total savings you will receive if the appeal is successful.  In most cases, the only costs are an appraisal of the property and legal fees.   
 
To determine whether an appeal is appropriate, you must first estimate what your property is worth. Then, find the common level ratio[1] for your county below:
 
 

• Adams - 100%
   
• Berks - 73.2%
   
• Lancaster - 76.5%
   
• York - 83.7%

--------------------------------------------------------------------------------
 
[1] The common level ratio is used to determine assessments in the years following a county wide reassessment. In the first two years following the county wide reassessment, your assessment should equal 100 percent of the fair market value of the property. In all subsequent years, the assessment should equal the common level ratio then in effect multiplied by the fair market value. The common level ratio, which is determined by the state, varies by county and changes in July every year.

--------------------------------------------------------------------------------
 
Now multiply your estimated fair market value by the common level ratio. For example, if your property is located in York County and is worth $500,000, multiply $500,000 by .837 and your assessed value should be $418,500. This figure should be close to your assessed value. If it is significantly lower than your assessed value, you may want to consider challenging your assessment. If you are unsure what your assessed value is, check your most recent property tax bill or call your County’s assessment office and ask.
 
Another way to determine if your assessment is too high is to take the assessment and multiply it by the number listed below for the County in which the property is located:
 
 

• Adams - 1
   
• Berks - 1.37
   
• Lancaster - 1.31
   
• York - 1.19
   
   

Again, if your property is located in York County and is assessed at $500,000, you multiply $500,000 by 1.19 and your property is being taxed as though it is worth $595,000. If the figure is higher than what you believe the property is currently worth, it might make sense to appeal your assessment.
 
So how do you challenge your tax assessment? The process is started by filing an appeal to the County’s Board of Assessment Appeals. The Board will review your assessment and determine if it is too high. For a successful appeal, you will most likely need a recent appraisal of the property. If the Board’s decision is not satisfactory, you can appeal this decision to the Court of Common Pleas which then determines the fair market value and applies the common level ratio to establish your new assessment.
 
Keep in mind that any reduction in your assessment will most likely result in tax savings not just in the year in question but in future years as well. While in general you can not receive a refund for past taxes paid if your assessment is too high, your assessment will be reduced for future years which will save you money. To determine how much savings you could receive, determine your local milage rates and multiply these by the difference between the current assessment and what you believe the assessment should be and you can determine the savings for one year. For example, if the combined millage rates in your municipality (School, County and Municipal millage rates) are 25 mills (or 2.5%), you would save $250 for every $10,000 that you reduce your assessment.
 
Barley Snyder has attorneys with experience handling tax assessment appeals throughout central Pennsylvania. If you believe your assessment is too high, give us a call to see if we can help lower your assessment and lower your taxes.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Charles Haws of Barley Snyder filed an injunction before the Commonwealth Court against the Pennsylvania Game Commission to postpone issuing hunting permits for antlerless deer on state game and forest lands.  The injunction was filed on behalf of the Unified Sportsmen of Pennsylvania in an effort to require the state to ensure that the existing herd numbers can support the number of permits that are being issued.  Unified Sportsmen of Pa. v. Pa. Game Commission (427 MD 2007) docket search here.  Read more about the case in  "Organization files injunction against Pa. Game Commission,"  Pittsburgh Tribune-Review (9/16/2007), or in "State sued by sportsmen again over its deer hunting policy," The [Allentown] Morning Call  (9/18/2007).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Lancaster Newspapers and Barley Snyder partner George Werner have finally seen the victorious end to Weber v. Lancaster Newspapers (Lanc. Co. CI-98-13401).  The most recent motion in the case was withdrawn by Weber last Thursday, Sept 20, 2007.  By withdrawing the motion for post-trial relief that was filed August 10th, Weber finally put the case, first filed in 1998, to bed.  Read more in Appeal in Newspaper Lawsuit Withdrawn published Sept 23, 2007. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

After a seven day trial, on Tuesday July 31, the jury in Weber v. Lancaster Newspapers Inc. (Lanc. Co. CI-98-1340) delivered a verdict for the defense.  George Werner, of Barley Snyder, litigated the defamation trial for Lancaster Newspapers and received the jury's verdict in less than 45 minutes.  Read more about the case and verdict at "Papers Did Not Defame, Jury Says."

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Jury selection and opening statements began yesterday (July 23) in Weber v. Lancaster Newspapers Inc. (Lanc. Co. CI-98-13401).  George C. Werner, of Barley Snyder, is representing the newspaper in this defamation case. 

Recent news articles on the case:

Newspapers facing defamation charges                                                                                                

Defamation trial turns on PFA

 

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Willis W. Berry, Jr. is a judge of the Court of Common Pleas for Philadelphia.  Judge Berry is running for a seat on your state Supreme Court.  So are Emanuel F. Wiggins-Hughes and Milford Pedigree Jenkins II, but you won't find their names listed on the ballot -- they are aliases adopted by Berry when he purchased certain apartment properties in Philadelphia.  Why aliases?  Well, Berry explains that he "put the properties in other names because he wanted to hide his assets in case he was sued." And that's just the tip of this iceberg.  Philly.com reports:

Using the phony names, Berry paid $14,500 for a building on West Venango Avenue, $3,000 for a run-down rowhouse on North 15th Street, and $1,500 for a dilapidated building on North Stiles Avenue.

Berry said he considered his transactions "straw" purchases. He said he had bought the properties while a struggling lawyer in private practice.

"I didn't have no malpractice insurance," he said. "Nobody sued me for nothing, [but] I was in private practice. We got by by the skin of our teeth."

Phillips said Berry's instinct was understandable but his method misguided.

While straw transactions are common, she said, "the problem is that the straw party didn't exist."

Okay, perhaps we can forgive Berry Wiggens-Hughes Pedigree Jenkins for concealing his identity.   After all, no one likes to have assets discovered in litigation.  And what of it, anyway.  It's not like he's a slumlord likely to be sued over the condition of his buildings or injuries they might cause.  What's that?  You don't say:

Some of Berry's apartments, where tenants have complained about mice and roaches, have a history of code violations. Others are worse - dilapidated, dangerous eyesores that residents say are a blight on their neighborhoods. Among them:

A four-story apartment building at 1435 Poplar St., which Berry bought from a city agency, promising to fix it up. Fourteen years later, it sits empty and crumbling, with pigeons roosting in its rafters and a pile of trash where its front steps used to be. After questions from The Inquirer, the city recently declared the building "imminently dangerous."

At Erie and Sydenham, mice dart about inside an empty rowhouse. Boards and plastic tarps cover some of its windows. The yard - used as a stash by drug dealers, neighbors say - is littered with debris, shards of glass, and a soiled diaper thrown against a fence.

On North 15th Street, a hollowed-out building owned by Berry sticks out in a row of freshly renovated homes. Its splintered front door is held in place with a chain threaded through a hole where the doorknob should be.

Neighbors weary of living beside the squalor of Berry's buildings say he has ignored their complaints.

Well, at least Judge Berry Wiggens-Hughes Pedigree Jenkins is an ethical slumlord.  What?  Uh-oh:

For years, Philadelphia Common Pleas Court Judge Willis W. Berry Jr. has been using his judicial office and staff to help run his real estate business, according to interviews and copies of the judge's correspondence.

A leading expert on legal ethics - who happens to be an adviser to Berry's campaign for state Supreme Court - says that's wrong.

"Oh, boy," lawyer Samuel C. Stretton said when told of Berry's practices. "You can't do that.

*   *   *

According to records and interviews, Berry has been using his court staff to collect rent, make repairs, and process leases and other paperwork.

And other than that, he'd make a fine Pennsylvania Supreme Court Justice.

Kudos to Nancy Phillips of Philly.com for a terrific series of investigative reports.  Simply brilliant work.  As for Berry Wiggens-Hughes Pedigree Jenkins, one can think of bars somewhat more fitting than that of the state Supreme Court.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

There were developments in two significant political speech cases this week.  First, on Wednesday, The United States Supreme Court heard oral argument in FEC v. Wisconsin Right to Life (and companion case McCain v. WRTL).  The WTRL cases challenge the constitutionality of McCain-Feingold's blackout period for issue ads mentioning the name of a candidate.  The general consensus among Court watchers is that the Act will be found unconstitutional as applied to WRTL's ads.  There is far less consensus regarding the manner in which the Court will reach that result.  Rick Hasen at Election Law has been following these cases closely (see here and here).  Linda Greenhouse and David Savage cover the argument for the mainstream side of the media.

The other big political speech decision this week is the Washington Supreme Court's unanimous decision in San Juan County v. No New Gas Tax.  In NNGT, a talk radio host's on-air advocacy of a ballot measure was challenged as a campaign contribution subject to expenditure limits.  The case turned on the interpretation of the so-called "media exception" to Washington's campaign finance laws.  Finding that the talk show host was covered by the exception, the Court did not reach constitutional issues.  More interesting than the court's interpretation of Washington law is the language of the concurrence.  Although both joined the majority, Justices Johnson and Sanders went to the trouble to tell the governmental actors what they really thought about the action:

Today we are confronted with an example of abusive prosecution by several local governments. San Juan County and the cities of Seattle, Auburn, and Kent (hereinafter Municipalities) determined to file a legal action ostensibly for disclosure of radio time spent discussing a proposed initiative. This litigation was actually for the purpose of restricting or silencing political opponents and was quickly dismissed after the filing deadline for the initiative. The disregard for core freedoms of speech and association in this case, and resulting interference with these constitutional rights, is described in the majority. The Municipalities augmented their prosecuting attorneys and legal staff with an interested private law firm to engage in this prosecution of No New Gas Tax (NNGT), in a transparent attempt to block filing of an initiative, which is also a constitutional right in Washington.

Although claims of suppression and censorship have become somewhat routine, very few survive even slight scrutiny.  NNGT is the rare case in which a court has found that government actors have, in fact, actively worked to silence citizens.  They ought to be ashamed.  The Seattle Times's blog has more.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

I'm something of a physics buff.  Terms like m-theory, p-brane, and loop quantum gravity all mean something to me.  So, naturally I was interested to learn that the United States Supreme Court has adopted a more fluid view of causality than that supported by known physics. 

In Abdul-Kabir v. Quarterman, No. 05-11284, the Court decided that, in a capital case, the jury must be instructed it may consider any mitigating evidence offered by the defendant in deciding whether to impose the death penalty.  Writing for the Court, Justice Stevens's lengthy opinion marshaled numerous precedents in support of the view that such an instruction was compelled by "clearly established law" at the time of the defendants' trial. 

Although the majority opinion is interesting, the Chief Justice's dissent is more so.  The dissent is exceptional in its tone, which all but openly mocks the majority.  The Chief colorfully disclaims any ability to distill "clearly established law" from the "dog's breakfast of divided, conflicting and ever-changing analysis" relied on by the majority, and snickers that "it should not take the Court more than a dozen pages of close analysis of plurality, concurring, and even dissenting opinions to explain what th[e] 'clearly established' law was."  As an exchange of views, this is frank, bordering on direct.

Here's where the strange physics comes in.  Among the cases on which the majority relies is Franklin v. Lynaugh, 487 U.S. 164 (1988), a plurality decision in which Justice Stevens was in dissent.  Oddly enough, Stevens cites his own dissent as evidence of "clearly established law" that the lower courts should have followed.  The Chief was in no mood:

[T]oday the author of a dissent issued in 1988 writes two majority opinions concluding that the views expressed in that dissent actually represented ?clearly established? federal law at that time. So there is hope yet for the views expressed in this dissent, not simply down the road, but [as of today]. Encouraged by the majority?'s determination that the future can change the past, I respectfully dissent.

See, according to the majority, the Franklin dissent isn't a dissent at all.  It is, instead, clearly established law -- and, presumably, has always been.  How did that happen?  Because yesterday's opinion says it is so.  Taa-daa. Reverse causality.  A tachyon-based jurisprudence.  The last line is one of the most well-placed shots I've ever seen taken in a judicial opinion.  If I were on the Court, I'd like to think I'd have written it, too.  Golf clap for the Chief.  (via Volokh)

• Email This
• Print
• Comments
• Trackbacks
• Share Link

David Bernstein reports that former Penn State student Josh Stullman has filed a section 1983 action naming the University, its President, the Director of the School of Visual Arts and a visual arts professor in connection with an alleged deprivation of Stullman's First Amendment rights. 

In a nutshell, Stullman was to exhibit artwork on campus in an exhibition entitled "Portraits of Terror," which dealt with terrorism themes from a pro-Israeli perspective.  Before the scheduled exhibition, Stullman was informed he could not exhibit the artwork because, in the view of the School of Visual Arts, the work "did not promote the tenets of cultural diversity and assuring opportunities for democratic dialogue."  During a conference on the issue, a visual arts professor allegedly characterized Stullman and his work as overtly racist.  The complaint also alleges that the same professor admitted to having torn down on-campus flyers advertising the exhibition.

Perhaps the most interesting question that may be presented asks whether the state, acting through its university officials, has a sufficiently compelling governmental interest in "promot[ing] the tenets of cultural diversity" to justify content discrimination that the First Amendment otherwise forbids.  In order to answer that question, someone, I presume, will explain the objective criteria that are applied to determine whether any given work of art sufficiently "promote[s] the tenets of cultural diversity" to be seen on campus.  The PLB, of course, expresses no opinion on what those criteria might be . . .

More background here.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Dividing 5-4, the Supreme Court today upheld the federal partial-birth abortion statute in the consolidated cases Gonzales v. Carhart, 05-380, and Gonzales v. Planned Parenthood, 05-1382.  (Decision here (pdf))  In reversing the 8th and 9th Circuits, both of which had affirmed district court injunctions against enforcement, the Court held that the statute was not unconstitutional as written:

The Act is not invalid on its face where there is uncertainty over whether the barred procedure is ever necessary to preserve a woman's health, given the availability of other abortion procedures that are considered to be safe alternatives.

Although the Court rejected plaintiffs' facial challenge on the merits, the Court explained that the facial challenges "should not have been entertained in the first instance."  The Court held that "the proper manner to protect the health of the woman [is to show] in discrete and well-defined instances a particular condition has or is likely to occur in which the procedure prohibited by the Act must be used."  Because the Court concluded that plaintiffs "have not demonstrated that the Act would be unconstitutional in a large fraction of relevant cases," it did not address the somewhat confused standard the Court has previously applied to facial challenges involving abortion statutes.  Compare Ohio v. Akron Center for Reproductive Rights (plaintiff must prove there is "no set of circumstances under which the act would be valid") with Planned Parenthood v. Casey (plaintiff must show act is invalid in a "large fraction of" cases).

While the Court leaves the door open for as-applied challenges, its recognition that other "safe alternatives" are available strongly suggests that such challenges based on the health of the woman would fail in all but the most compelling of circumstances.  And, as the Court indicated, the statute already contains an exception for procedures necessary to preserve the life of the woman.  Thus, the Court emphasized, no challenge is necessary where where the life, as opposed to the health, of the woman is at stake.

Kennedy was joined in the majority by Chief Justice Roberts and Justices Scalia, Alito and Thomas.  Justice Ginsburg wrote for the four dissenters, characterizing today's ruling as an "alarming" decision that "refuses to take Casey and Stenberg seriously." 

Parting Shot:  Justice Ginsburg blames today's result on the Court's revised composition and, in doing so, uses language that recalls recent confirmation hearings:  "Though today's opinion does not go so far as to discard Roe or Casey, the Court, differently composed than it was when we last considered a restrictive abortion regulation, is hardly faithful to our earlier invocations of 'the rule of law' and the 'principles of stare decisis.'" (emphasis added).  I am curious as to whether Justices have, in the past, made overt reference to the composition of the Court as an explanation for a particular result.  To me, the language is quite jarring but, for all I know, it may be de rigour. 

As ever, check in with SCOTUSBlog for round ups of what is sure to be a day of rough-and-tumble reaction throughout the blogosphere.  The Conspiracy (here, here and here), Above the Law and lawhawk are already on the case.

Update(s):  Brendan Loy is amused by the Associated Press's apparent confusion over the SCOTUS's role in our constitutional government (via Insty).  Rick Hasen at Election Law wonders what impact today's decision might have on the campaign finance issues presented in Wiconsin Right to Life (background here).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In an event almost as rare as a total solar eclipse, the Supreme Court today affirmed a decision of the Ninth Circuit Court of Appeal.  The Ninth has had a miserable season.  Coming into today's match, the court was 0-9 on First Street, including six unanimous reversals.  Unfortunately, the administrative rate dispute at issue in Global Crossing Telecommunications, Inc. v. Metrophones Tele-Communications, Inc., No. 05-705 is far and away too boring to discuss here.  Regardless, the Ninth will no doubt take what it can get in the way of affirmances. 

Howard has posted the Global Crossing decision as well as the other two equally boring decisions issued this morning (Watters v. Wachovia Bank, N.A., No. 05-1342 and Zuni Public School Dist. v. Department of Education, No. 05-1508).  If you can't take my word for the ho-hum nature of today's results, SCOTUSBlog briefly reports on all three cases. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In not-really-litigation-related-but-too-interesting-not-to-post news, the Associated Press reports that there are 1.4 million -- million -- unserved warrants in the Commonwealth's criminal justice system:

Pennsylvania's new statewide computer system makes it possible for the first time to put a number on how many warrants remain unserved across the state - 1.4 million, including more than 100 for homicide, The Associated Press has found.

Pennsylvania is now the largest state to complete such a comprehensive court computer network, although several other large states - including California, New York and Ohio - are planning or implementing such systems, according to the National Center for State Courts in Williamsburg, Va.

The database is designed, in part, to help authorities reach across county lines to capture fugitives who have moved to avoid detection. It will also allow government officials and the public to compare how courts are performing from county to county.

"Because of this automation, it's becoming harder to run from the law," said Steve Schell, spokesman for the Administrative Office of Pennsylvania Courts.

It's a step in the right direction but, with a backlog of 1.4 million unserved warrants, the notion of "running from the law" seems quaint.  A hearty saunter would probably suffice.  Perhaps even a silly walk.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On Monday April 2, the SCOTUS decided Massachusetts, et al. v. EPA, No. 05-1120 (pdf).  Although the case involved issues of greenhouse gases and global warming, the case is, from a litigator's perspective, far more notable for its treatment of Article III standing.  In a nutshell, Justice Stevens's majority opinion strongly suggests (one might even say "holds") that states may possess Article III standing to pursue litigation in the federal courts even in circumstances where private citizens would not:

It is of considerable relevance that the party seeking review here is a sovereign State and not, as it was in Lujan, a private individual.

(emphasis added).  The Court also noted "the special position and interest of Massachusetts" as well as its inclination to display a "special solicitude" for the arguments of states when it comes to Article III standing.  This strikes me as strong stuff and a significant departure from the Court's prior Article III jurisprudence.
Continue Reading...

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In a truly weird lawsuit, a federal jury in Salt Lake City, Utah has awarded Proctor & Gamble $19.5 million in connection with P&G's Lantham Act claims against Amway Corp. distributors.  The Canton Repository summarizes the strange facts thusly:

[The case] was one of several the company brought over rumors alleging a link with the company’s logo and Satanism.

Rumors had begun circulating as early as 1981 that the company’s logo — a bearded, crescent man-in-moon looking over a field of 13 stars — was a symbol of Satanism.

The company alleged that Amway Corp. distributors revived those rumors in 1995, using a voice mail system to tell thousands of customers that part of Procter & Gamble profits went to satanic cults.

According to the report, the defendant Amway distributors are "shocked" by the verdict and damages award.  Plainly, this is not a case in which the devil gets the hindmost.  (via Fark).  Snopes and UrbanLegends have more on this rather dated calumny.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Horst Realty manages the Village of Pineford, a rental community in Middletown Borough.  The Borough provides electric service to Borough residents, including residents of Pineford.  In an oversight most of us can identify with, Horst Realty mailed its roughly $124,000 September electric bill payment with insufficient postage.  Because the Borough ultimately received the payment four days late, it assessed Horst Realty a late fee to the tune of about $12,000 and threatened to cut off all electricity to Pineford if the fee was not immediately paid.  Although it reluctantly paid the fee to keep the power on, Horst was not amused.  Instead, the company retained Barley attorney Charles Haws to file suit under the Pennsylvania Utilities Service Tenants Rights Act ("PUSTRA").  It is Horst's position that the ordinance allowing Middleton to charge such late fees is illegal:

[t]he $12,000 doesn't have any reasonable relationship to the costs incurred by the borough due to the lateness of the payment.

Horst further alleges Middletown violated the PUSTRA by failing to provide Pineford residents with notice that they faced possible termination of electrical service.  We'll provides updates on this litigation as events warrant.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Lancaster County Coroner, Gary Kirchner, stands accused of giving reporters confidential password information to a county website where official files are maintained.  Although Kirchner was recently charged with unlawful use of a computer and conspiracy, no charges were brought against the reporters believed to have accessed the website.

"It became clear during the investigation that the reporters had been authorized, indeed, invited by the coroner to use his password and user name," said George Werner, attorney for Lancaster Newspapers Inc., publisher of the Intelligencer Journal, Lancaster New Era and Sunday News.

Congratulations to George for successfully navigating these tricky waters on behalf of Lancaster Newspapers Inc.  Last fall, George was instrumental in successfully resisting the Attorney General's efforts to force Lancaster Newspapers' reporters to turn over their computer harddrives in connection with the ongoing investigation.  Well done all 'round.

• Email This
• Print
• Comments
• Trackbacks
• Share Link