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A group of investors sued the Security and Exchanges Commission for failing to supervise Madoff and investigate complaints it received before the Madoff scandal unfolded. Despite finding that the SEC had dropped the ball, both before and during the investigation, the Second Circuit found the SEC, as an arm of the United States Government, immune from liability.

In discussing the laws covering this immunity, the court, citing others, stated that the immunity is not “about fairness, it ‘is about power. . . [where] the sovereign ‘reserves to itself the right to act without liability for misjudgment and carelessness in the formulation of policy.'” Therefore, despite the court’s “sympathy for Plaintiffs’ predicament (and our antipathy for the SEC’s conduct)” the immunity provided by Congress defeats plaintiffs’ claims.

Isn’t it nice to be king?

After writing about the “haunted house” case recently, I came across another case that addressed the same concepts, and also in an unusual setting. The haunted house court had decided that because the buyer could not have anticipated that the house under contract was haunted, and was therefore not expected to inspect the property for ghosts, and because the sellers had knowledge of the haunting, the buyer could cancel the purchase contract.

This case, Jablonski v Rapalje, involves sellers that may have hid from a buyer the fact that the house in question was bat infested. While some of the facts should have lead the buyer to pay more attention and realize that something was amiss (discussed below), the particulars of what the buyer should have questioned and investigated divided the court. The majority decided that the sellers may have concealed the bats from the buyer, so that the buyer was allowed to cancel the sales contract.

A fair reading of these cases highlight courts trying to find a way to grant recision. To do so, the courts had to first find the sellers’ concealment. This case focused on whether the sellers actively concealed the bat infestation, while the haunted house court focused on whether the buyer had an obligation to search for ghosts once the seller publicized the haunting but did not inform the buyer. Each court then turned to a detailed explanation of why the buyers were not obligated to inspect for that concealed issue, so that the contracts could be rescinded.

I found this case while researching a potential litigation. While it is not a new decision, it presents a rather unusual set of facts.

A property buyer is charged with acting diligently in inspecting a property that is being considered for purchase. Because a property is purchased “as is,” a seller has no obligation to disclose anything, meaninig, that a buyer cannot seek redress for any defects to the property or its chain of title discovered after the closing has taken place. As a result, prior to buying a house–or any property–it is physically inspected and the chain of title carefully examined. There are two exceptions to this rule: (i) Where a seller creates a defect that cannot be found by a buyer in an ordinary inspection, referred to sometimes as a seller’s “active concealment” and (ii) where the parties are in some confidential relationship that requires a seller to disclose any information that could affect the property (these are infrequently found).

The buyer in this case sought to rescind the contract because the house he had agreed to buy was reportedly haunted. This fact was reported by some news outlets after the seller announced that it was haunted and allowed for it to be a tourist spot. The buyer, however, was not from the area and had no knowledge of the property’s reputation. When the seller refused to cancel the deal, the buyer sued to rescind the sales contract. The trial court denied the buyer any relief, but the Appellate Division, First Department, reversed. The Appellate Division’s description of the facts and principles are colorful and I quote some of it here.

A recent decision by Senior Judge Jack B. Weinstein in United States of America v. DiCristina dismissed claims against the defendant because the gambling complained of did not violate the Illegal Gambling Business Act.

Read some important highlights here

For a discussion about permitted sweepstakes vs. illegal gambling, have a read at a prior post.

Gregory Miglino, Sr., passed out at a gym one morning. While 911 was summoned, a gym employee that had been trained on an automated external defibrillator (“AED”) went to assist Miglino. For some reason, perhaps because a doctor and medical student were on the scene, the employee did not attempt to use the AED. Miglino died upon his arrival at the hospital. His Estate sued the gym claiming that it was negligent in not using the AED. The gym sought dismissal arguing that while it was obligated to have an AED on site and someone on staff trained to use it, it had no obligation to use the AED, and because the Good Samaritan law insulates one from liability where medical assistance is voluntarily made, the gym could not be liable.

In an apparent split from the Appellate Division, First Department, the Second Department found the gym to have an affirmative obligation to not just have an AED on site and someone trained to use it, but to actually use it. The Second Department found it inconsistent that a law that would require the on site presence of an AED and someone to use it to assist club members, would not also require its use. Because the law was specifically designed to assist club members, the court found it “illogical to conclude that no duty exists” to use the AED, and refusing to recognize that principal, would “eviscerate the very purpose for which the legislation was enacted.” Rhetorically, the court asked “why statutorily mandate a health club facility to provide the device if there is no concomitant requirement to use it?”

Queens co-op owner installed an air conditioner in his unit, for use by his parents who resided there. The Co-op Board demanded that the air conditioner be removed as it extended through the wall of the building, in violation of the unit’s lease. In response to the Board’s threat to terminate the lease, the owner commenced an action seeking a declaration that there was no violation of the lease. The owner alleged that because his mother had an extreme allergy and needed the air conditioner for health purposes the air conditioner was necessary and proper, and by threatening to terminate the lease the Board discriminated against her due to her illness, in violation of the Federal Fair Housing Amendments Act. The court Hearing Officer agreed, finding that because the air conditioner was medically necessary for the residents’ ordinary occupancy of the unit, preventing such use violated the Act, and State law. The unit owner also sought the recovery of attorneys’ fees, which was denied by the Hearing Office. Upon the parties’ appeal to the judge, the Hearing Officer’s decision was upheld, except as to the denial of the attorneys’ fees, which the judge determined could be awarded to the unit owner under the Act.

With the proliferation of websites that aggregate news and promise instant information, it is to be expected that one site or service will end up stepping on the toes of another. Investment advice in today’s fast-moving markets is the setting for the most recent dustup.

Before discussing the particulars of this case, a brief and simplistic discussion of some legal dynamics in play here is necessary.

One of the ways that a plaintiff can bring a case in Federal Court is to assert a claim involving a Federal law or rule. If a plaintiff successfully does that, related State-based claims that concern the same facts can also be asserted in that Federal case. This allows a party to seek relief under both Federal and State laws in one case. However, there are certain Federal laws that provide that they are the exclusive basis upon which one can complain and seek relief, to the exclusion of any State laws that cover the same complaint. If that is the case, the State-based claim will be preempted by the Federal law and a Court will not consider the State-based claim, which will be dismissed. One example of this is a claim of copyright infringement. The Copyright Act, under which a copyright infringement claim is brought, provides that any complaint that resembles a copyright infringement can only be brought under the Copyright Act, to the exclusion of any claim that can be based on a State law. This convergence of a State-based claim and a claim brought under a Federal statute, sets up this situation where the Copyright Act will preempt any State-based claim alleging similar facts.

Turning now to the facts in our case. Flyonthewall.com (“Fly”) learned the investing recommendations of major financial services firms before they were issued to their clients and sought to capitalize on that information. Fly would notify its own subscribers of those recommendations around the same time as when the firms did. Concerned that Fly was undermining their usefulness to their clients, Barclays Capital, Merrill Lynch and Morgan Stanley for Federal copyright infringement. Because a copyright infringement claim would not provide the banks with complete relief, which was to put Fly out of business, the banks also included in their Federal case a claim under the State common law tort of “hot-news” misappropriation, otherwise stated as reaping the benefits of what one has not sown (in the words of an earlier United States Supreme Court Decision). If that claim worked, the banks would have put Fly out of business.

The Federal district court considered prior appellate precedent, National Basketball Assoc. v. Motorola, Inc. (“NBA”), in making its decision. In that case, the NBA asserted claims against Motorola for its use of a pager system that reported real-time game scores and statistical information to its users. Because the scores were merely facts and not eligible for copyright protection, the NBA recognized that it couldn’t stop Motorola with a copyright infringement claim. Therefore, the NBA resorted to arguing that Motorola was misappropriating the NBA’s hot-news scores and asked the court to stop Motorola. The court considered the hot-news claim and determined that for the NBA to make it, it had to establish five elements. The NBA would have to allege that (i) it provided its information at some cost, (ii) the information had a value because it was time-sensitive, (iii) the defendant was piggybacking or free-riding off the plaintiff’s information, (iv) the parties competed directly, and (v) allowing the republication to continue would substantially undermine the viability of the business or service in question. The hot-news claim was not made and dismissed, because the court found that Motorola did not compete with the NBA. Notwithstanding that dismissal, the NBA court considered the issue of Federal preemption of the hot-news claim under the Copyright Act. The NBA court determined that for a State hot-news claim to survive preemption, it had to contain something extra not found in a copyright claim. Applying the elements of the hot-news claim listed above, the NBA court found the second, third and fifth elements to be extra, as none of them were required to show copyright infringement. Thus, had the NBA satisfied the elements of a hot-news claim, it would not have been preempted by the Copyright Act.

With that, the Fly district court, in its 90 page decision, found that the banks had made out a copyright claim for Fly’s reproduction of their entire reports. But that did not help the banks when it came to Fly’s republication of just the stock recommendation or price target, as that information was fact and ineligible for copyright protection. To force Fly to stop entirely, required enforcement of the banks’ second claim for hot-news misappropriation of the recommendations and price targets.

The Fly district court examined the NBA factors and found that each of the five enumerated elements were met. It also determined that the banks had established that the hot news claim was outside the claim for copyright infringement and was therefore not preempted by the Copyright Act. The Fly court discussed the banks’ incentive to issue their reports, which were very expensive to produce and done to prompt their customers to execute trades, generating commissions to the banks. The banks maintained that these recommendations remained “hot” for a few hours after they were issued. The district court therefore issued an injunction preventing Fly from republishing any of the banks’ recommendations for 30 minutes after trading had begun for the day. Fly appealed, arguing that the Copyright Act preempted the hot-news claim. In its own long and detailed opinion, the appeals court agreed.
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The owner of a parked 2000 Ford GT, described as “a rare collector’s sports car rapidly appreciating in value” sued a drunk driver that wrecked it. The trial judge refused to allow an award based on the depreciation of the car, some $50,000, only the actual damage incurred in its repair, approximately $3,500. On appeal, the owner argued that once damaged, the car lost its “original condition” premium value, and that it was entitled to recover that difference. The appeals court agreed, finding that when evaluating the plaintiff’s claims of damages, the proper measure of those damages is the amount necessary to make it whole, including the depreciation caused by the damage.

Petitioner claimed that the man named on her birth certificate was not her father, but that an Italian national was her biological father. Petitioner sought to amend her birth certificate to remove the name appearing thereon so that she could assert rights in this man’s estate, in Italy. The court in Italy would not consider her rights so long as her birth certificate was not changed. This court refused to do so, finding that petitioner failed to establish facts sufficient to overcome the information on her birth certificate.

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