The Litigation Reporter

Transcription

1 The Litigation Reporter February 2005 Recent Noteworthy Decisions In This Issue: Bankruptcy Civil Procedure Contracts Employment Discrimination Insurance Landlord/Tenant Negligence/Negligent Entrustment Trademark Unfair Business Practices Bankruptcy Bankruptcy Code Preempts California State Statute That Gives An Assignee Selected By The Debtor The Power To Void Preferential Transfers That Could Not Be Voided By An Unsecured Creditor Lycos, Inc. entered into an agreement with Thinklink Corp. to promote Thinklink s messaging service. Thinklink defaulted and the parties renegotiated their agreement, reducing the remaining payments from $17 million to $1 million plus stock. Thinklink delivered to Lycos $1 million but not the stock. Two months later, Thinklink made a voluntary general assignment for the benefit of creditors to Sherwood Partners. Sherwood shut down Thinklink s business and sued Lycos in state Court under Cal. Civ Proc (which allows assignees to set aside preferential transfers) to recover $1 million as a preferential transfer. Lycos removed the case to federal Court and moved to dismiss, arguing that 1800 was preempted by the Bankruptcy Code ( 544(b) which allows a trustee to set aside fraudulent conveyances). The Court reasoned that if a state assignee under 1800 recovers a preferential transfer and distributes its proceeds to creditors, this will preclude a federal trustee from recovering the same sum under the federal preference statute if a federal bankruptcy proceeding is begun. The Court held that the California statute is preempted by the Bankruptcy Code. (Sherwood Partners, Inc. v. Lycos, Inc., 2005 WL (9th Cir.) (January 12, 2005)) Civil Procedure Insurance Company Had Standing To Appeal A Dismissal Of Its Unfair Competition Claim Despite Proposition 64 Plaintiff United Investors Life Insurance Company brought an unfair competition claim on behalf of the general public against multiple defendants

2 under Cal. Bus. and Prof. Code et. seq. United alleged that the defendants had engaged in a nationwide campaign to induce United s policyholders to switch their variable annuity policies for those issued by another insurance company. Defendants argued that United lacked standing to pursue an unfair competition claim under as recently amended by Proposition 64. Section was amended to prohibit any person, other than the state Attorney General or a local public prosecutor, from bringing an unfair competition action unless the plaintiff has suffered injury in fact and has lost money or property. The Court held that Proposition 64 was not intended to affect the appellate court jurisdiction to address the merits of standing to assert unfair competition claims in superior court and held that United had standing to appeal. (United Investors Life Ins. Co. v. Waddell & Reed, Inc. et. al., 2005 WL Court of Appeals 2nd Appellate District (January 20, 2005)) Contracts Three Year Statute Of Limitations Applies To Certain Breach Of Professional Contract Claims The New York Court of Appeals held that a claim against an architect for breach of contract was subject to the three year statute of limitations governing malpractice claims (CPLR 214(6)) -- not the six year period governing contract claims (CPLR 213(2)) -- where the contract claim essentially alleged that defendant failed to use reasonable care in the performance of its professional duties. The parties contract contained an express provision requiring the architects plans to comply with all applicable codes and ordinances. Four years after completion of the building, plaintiff commenced suit alleging that defendant breached this contract provision by failing to provide fire protection required under the building code. In holding that the claim was time-barred, the Court explained that the contract provision at issue tracked the architect s ordinary professional obligations, and that making such obligations express in a contract does not convert a malpractice action into a contract action. (Kliment v. McKinsey & Co., Inc., 2004 Slip Op , 2004 WL (N.Y. Dec. 16, 2004)) Employment Discrimination Use Of Statistical Evidence Alone Is Not Sufficient To Show Discrimination To support a Title VII discrimination action, plaintiff introduced statistics that showed that approximately 53% of the defendant s workforce was African-American, and that five of seven workers laid off were African-American. The Court ruled that the statistical evidence was simply not direct evidence of discrimination, which usually requires an admission by the defendant or the decision-maker that the actions were based on the prohibited animus. 2

3 Additionally, the statistics offered by plaintiff did not show causation because they did not show any information on the roles, responsibilities or salaries of the terminated employees, and therefore did not take into account nondiscrimination explanations. (Moss-Buchanan v. City of Chicago, 03 C 0999, Northern District of Illinois, (January 11, 2005)) Insurance Recovery On Insurance Claim Precluded By Insureds Conduct Insureds brought an action against Insurer seeking to recover under their policy after their home was burglarized. The Court granted Insurer s motion to dismiss the action, finding that Insureds failure to submit a sworn proof of loss within 60 days of Insurer s request provided a complete defense to their claim. Additionally, although Insureds submitted to examinations under oath concerning their claim, they failed to supply requested information and documents, which was a material breach of their contractual duty to cooperate with Insurer in the investigation of the loss. (Bhattacharyya v. Quincy Mutual Fire Ins., N.Y.L.J., January 3, 2005 (p. 20, col. 3)) Landlord/Tenant Lessor May Be Held Liable For Breach of Lessee s Covenant Of Quiet Enjoyment By Failing To Take Action Against A Troublesome Neighbor Plaintiffs, the lessees of a space at a mobile park home sued the park owner for breach of written contract, alleging that the park owner breached the lease by failing to take action against a troublesome neighbor, the lessee of an adjacent space at the park. The Court held that the lease agreement had an implied covenant of quiet enjoyment. The lease agreement also provided that the park owner will try to maintain the peace and quiet of the premises and we will do what we can. The additional provision in the agreement imposed on the park owner a duty to make reasonable efforts to fulfill its commitment to the lessees. The Court held that the park owner owed the lessees a contractual duty to preserve their quiet enjoyment and whether the park owner breached the contractual duty by not taking any action against the neighbor is a question for the trier of fact. (Andrews v. Mobile Aire Estates et. al., 125 Cal. App. 4th 578 (2005)) 3

4 Negligence/Negligent Entrustment Bank Not Liable For Accident By Loaning Money To Reckless Driver Plaintiff sued the defendant bank for negligent entrustment, negligent provision of collateral, and negligence, arising from a loan made by the bank for the purchase of a car. The Court dismissed the complaint which alleged that the bank knew the car would be operated by a reckless, unlicensed driver on the ground that the bank owed no duty to refrain from lending the money or to foresee the actions of the reckless driver. Likewise, the Court found that the bank s control over the money rather than the car ( the dangerous article ) was insufficient to support a claim for negligent entrustment. (Northcutt v. Chapman, 4th Dist, No (11/30/04)) Trademark Fair Use Defense To Trademark Claim Need Not Negate Customer Confusion The United States Supreme Court held that a party asserting the statutory affirmative defense of fair use to a trademark infringement claim does not have the burden of proving that its use of the disputed mark is not likely to cause confusion among consumers. The fair use defense excuses the use of a protected mark where the use does not purport to suggest origin and is descriptive of and used fairly and in good faith only to describe the goods or services. Establishing the likelihood of consumer confusion is an affirmative element of plaintiff s infringement claim. The burden of proof of this element cannot be shifted from plaintiff to defendant by reading it into the used fairly language of the fair use defense. Further, the Supreme Court held that some possibility of consumer confusion is compatible with fair use, especially where an originally descriptive term [is] selected to be used as a mark. (KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 125 S.Ct. 542, 73 U.S.L.W (Dec. 8, 2004)) Unfair Business Practices Advisory Board s Advertising Campaign Did Not Violate California s Unfair Business Practices Because Advisory Board Was Not Considered A Person As Defined By The Unfair Competition Law People for the Ethical Treatment of Animals, Inc. (PETA) sued the California Milk Producers Advisory Board (CMAB), claiming that its Happy Cows advertising campaign violated California s Unfair Business Practices Act (UCL), Business and Professions Code

5 et. seq., because the advertisements were false and deceptive. The Court held that CMAB was not a person as defined by the UCL and thus, the CMAB was not subject to suit under the UCL for false advertising. (People for the Ethical Treatment of Animals, Inc. v. California Milk Producers Advisory Board, 2005 WL 43969, Court of Appeals 1st Appellate District (January 11, 2005)) 5

6 Editors Diane da Cunha Jonathan J. Faust Jay W. Freiberg Marlyn M. Gates Kristin L. Holland Contributors Geoffrey Cahen Bonnie Chmil Alexis L. Cirel Julia Chung Daniel A. Edelson Rania Khamis Bryan F. Stroh The Litigation Reporter summarizes noteworthy decisions selected by the Contributors. Its contents do not constitute legal advice. For more information on any of the decisions discussed, contact Joel W. Sternman at Bruce M. Sabados at or Gil M. Soffer at Published for clients as a source of information about current developments in the law. The material contained herein is not to be construed as legal advice or opinion Katten Muchin Zavis Rosenman. All rights reserved. Katten Muchin Zavis Rosenman West Monroe Street Chicago, IL p_ f_ Madison Avenue New York, NY p_ f_ Century Park East Suite 2600 Los Angeles, CA p_ f_ Thomas Jefferson St., N.W. East Lobby, Suite 700 Washington, DC p_ f_ South Tryon Street Suite 2600 Charlotte, NC p_ f_ Sheridan Avenue Suite 450 Palo Alto, CA p_ f_ N. O Connor Boulevard Suite 200 Irving, TX p_ f_ Katten Muchin Zavis Rosenman is a Law Partnership including Professional Corporations. 6