On May 24, 2004, in Clarett v. National Football League, the Second Circuit reversed the District Court's holding that the NFL eligibility rule which prohibited any player less than three football seasons removed from high school from participating in the draft violated the antitrust laws.

The Second Circuit noted that the rule was part of a collective bargaining agreement. The Courts have established a non-statutory exception to the antitrust laws, whose purpose is to allow meaningful collective bargaining to take place by protecting some restraints on competition imposed through the bargaining process from antitrust scrutiny.

The Court held that it would not give football players rights under the antitrust laws that were not enjoyed by transport workers, coal miners or meat packers. As no important antitrust policies would be vindicated by upholding the antitrust claim, the Court applied the exception and remanded the case to the District Court, where judgment will be entered in favor of the NFL.

Maurice Clarett will have to wait until next year to play in the NFL.

The decision can be found here.

On May 20, 2004, in Blue Tree Hotels Investment (Canada), Ltd. v. Starwood Hotels & Resorts Worldwide, Inc., the Second Circuit dealt with issues involving section 2(c) of the Robinson-Patman Act. The plaintiffs owned certain hotels, which were managed by the defendants, which owned other competing hotels. The defendants, who were authorized to make purchases on behalf of the plainiffs' hotels, allegedly received kickbacks or rebates from some of the suppliers. The plaintiffs claimed that this violated section 2(c) of the Robinson-Patman Act.

The District Court dismissed the action, claiming that the plaintiffs lacked standing to assert the claim. It held that only competitors of the suppliers who were paying the kickbacks or rebates had such standing.

The Second Circuit disagreed with the District Court, but, nevertheless, agreed that the case should be dismissed. First, it held that the plaintiffs need not show "competitive injury," but rather "antitrust injury." The latter could be satisfied by showing that the defendants had violated the antitrust law and the plaintiffs had been injured as a result of the violation. Under this standard, the plaintiffs had standing to assert a claim.

The Court, however, held that the claim has pleaded could not stand. The issue of whether commercial bribery constituted a violation of the Robinson-Patman Act is an open one in the Second Circuit, and the Court did not resolve the issue in this case. It instead held that the plaintiffs had not set out a claim for commercial bribery. They had not alleged that the rebates or kickbacks were paid by the vendors with the intent to improperly influence the defendants' conduct on behalf of the plaintiffs. Unless someone intends to bribe a party, there can be no bribe. The absence of such an allegation, in the view of the Court, mandated dismissal.

The case can be found at the Second Circuit website.

On May 21, 2004, in United States v. Numisgroup International Corp., the Second Circuit considered whether the presence of objective and subjective grading factors in valuing coins immunizes a seller from a criminal charge of fraudulently misrepresenting the grade and value of coins to purchasers. The Court upheld the District Court's finding that even though there were certain subjective factors in valuing coins, no such factor accounted for the huge differential between the grading and the actual value of the coins. The decision can be found at the Second Circuit website.

On May 20, 2004, the Second Circuit decided Labarbera v. Clestra Hauserman Inc.. The plaintiffs in that case sought, among other things, to compel one of the defendants to post a surety bond, pursuant to a collective bargaining agreement. The action was brought under ERISA. The plaintiffs prevailed and sought attorneys' fees under 29 U.S.C. 1132(g)(1). The District Court found that it did not have discretion to award attorneys' fees. The Second Circuit disagreed, finding that the statute did give the District Court the discretion to award such fees. Big deal. The defendant is out of business. The decision can be found here.

On May 19, 2004, in Ontario Public Service Employees Union Pension Trust Fund v. Nortel Networks Corp., the Second Circuit decided that a party does not have standing to bring an action against a company under Section 10(b) of the Securities Exchange Act and Rule 10b-5 if the party did not purchase the company's stock. The plaintiffs in this case had purchased shares of a company that had a business relationship with the defendant based on representations made by the defendants. The Court, however, found that the plaintiffs lacked standing, holding that the private right of action under section 10(b) and Rule 10b-5 should be construed narrowly. The decison can be found at the Second Circuit website.

In Collazos v. United States, decided on May 18, 2004, the Second Circuit was presented with its first opportunity to interpret the disentitlement provision of the Civil Asset Forfeiture Reform Act of 2000. Collazos is a Colombian national, who appears to have been involved in money laundering in the United States. The government brought an in rem forfeiture action against the contents of an account that she had with Prudential Securities, which were allegedly connected to her money laundering activities. Collazos also had criminal problems, including state charges in Texas and federal charges in Florida. She chose not to come into the United States to confront those charges. The government sought to dismiss her claim in the forfeiture action on the ground that as a person who refused to enter the United States to answer pending criminal charges, she was not entitled to be heard in a related criminal proceeding. The District Court granted the government's motion, and Collazos appealed.

Collazos asserted that 28 U.S.C. 2466, which is entitled "Fugitive disentitlement" cannot be applied to her because she is not a "fugitive" as that term is understood at common law. She claimed that in order to be a fugitive, one must have been present in the United States at the time the crime was committed and fled the jurisdiction. Collazos had not been in the United States since 1977.

The Second Circuit noted that while the title of the statute contained the word "fugitive," that word is not found in the text of the statute. The text of the statute, on its face, applied to persons who had never been in the United States, but who knew they were subject to arrest in the United States and who refused to enter the country to avoid prosecution. Hence, the statute applied to Collazos.

The Court further noted that the Supreme Court in 1996 had held that a court, through its inherent authority, could not apply the common law fugitive disentitlement doctrine against a criminal defendant in a civil forfeiture action. Congress, however, conferred statutory authority to order disentitlement in civil forfeiture cases. The statutory authority was not limited to common law fugitives.

The Court rejected Collazos's contention that disentitlement violated due process. She was not denied a right to be heard. All she had to do was enter the country. Her failure to comply with that statutory requirement caused the Court to dismiss her claim in the forfeiture action. In addition, the Court noted that Collazos had had notice of the government's motion and could have been heard as to her position as to whether she met the statutory requirements for disentitlement. And, as disentitlement was not mandatory, she was also free to present such evidence as would show that justice would not be served by disentitlement.

Judge Katzmann concurred with the majority decision and wrote a concurring opinion in which he noted that the legislative history suggested that the intention of the legislature in enacting the disentitlement statute was to reinstate the common law doctrine, not to broaden it. He agreed with the majority, however, that the plain statutory language mandated the result reached by the majority.

The decision in this case can be found here. Judge Katzmann's concurring opinion can be found on the Second Circuit website.

On May 13, 2004, in Mony Group, Inc. v. Highfields Capital Management, L.P., the Second Circuit reversed the denial of a preliminary injunction in a case involvoing a proxy fight. The issue in the case was whether a duplicate copy of a proxy card that had been sent by MONY to its shareholders was a "form of revocation," which would require the defendants to comply with all proxy rules. A solicitation by a person who does not seek the power to act as proxy and which does not contain a form of revocation of a prior proxy is not subject to the SEC proxy regulations. MONY sought to enjoin the defendants, who were opposing a merger proposal favored by MONY's management, from including the duplicate card in their solicitations to shareholders. The District Court denied the motion, concluding that MONY was unlikely to succeed on the merits. The Second Circuit reversed holding that, under the circumstances of the case, the duplicate proxy form was a form of revocation under the SEC rules. The Court also held that MONY would be irreparably harmed if the solicitation went out without satisfying the disclosure regulations promulgated by the SEC. The decision can be found here.

On May 11, 2004, in Hemstreet v. Greiner, the Second Circuit affirmed a grant of a petition for habeas corpus on the ground that the petitioner's trial and appellate counsel in his criminal case (homicide) were ineffective. The basis for this finding was that a possible defense witness had been intimidated by the police not to speak with the defense. She purportedly had evidence that was consistent with the defense theory of the case (that he was not present when the victim was murdered). The trial attorney alerted the Court to the intimidation, but did nothing further, and the witness did not testify at the petitioner's trial (his second, his first having been reversed because of a grand jury error). The petitioner's appellate counsel did not raise the issue on appeal. The District Court had found that the witness had not testified because of the intimidation, and the Second Circuit held that that finding was not clearly erroneous. Based on that finding, the Second Circuit held that trial counsel's performance fell below an objective standard of reasonableness and that his performance affected the outcome of the trial. Similarly, the Second Circuit noted that trial counsel's failure to obtain the testimony of the exculpatory witness was an obvious issue for appeal, which he did not advance. This failure prejudiced his appeal.

The decision was not unanimous. Judge Barrington D. Parker dissented. He did not believe that the record established the ineffectiveness of trial counsel. This, of course, meant that the appellate counsel could not be faulted for raising an issue where the record was not properly developed.

The decision and dissent can be found at the Second Circuit website.

WorldCom figures in two posts in a row!

On May 7, 2004, the Second Circuit, in Hevisi v. Citigroup Inc., allowed certain parties to file an interlocutory appeal of an order granting class certification. The case, as to those parties, involved a research analyst, who had expressed very positive opinions about WorldCom, which was a client of his company. The defendants, Citigroup and certain related entities had argued that the District Court had assumed that the fraud-on-the-market doctrine applied to expressions of opinions by a research analyst, which assumption the defendants felt was erroneous. Under that doctrine, reliance, an essential element of a securities fraud claim, is presumed. If it does not apply, then each plaintiff would have to show individual reliance, and individual questions would predominate over common questions of fact, meaning that a class could not be certified. The Court held that the certification order implicated a legal question about which there was a compelling need for immediate resolution. The issue would have a major effect on class action securities actions. The Court also noted that since securities actions are often not litigated to conclusion, it is unlikely that the issue would ever be resolved. The decision can be found here.

On May 11, 2004, the Second Circuit decided an issue of first impression in California Public Employees' Retirement System v. Worldcom Inc., whether a federal district court can exercise bankruptcy jurisdiction over generally nonremovable claims brought under the Securities Act of 1993. The issue involved two conflicting statutes, section 22(a) of the Securities Act, which provides that an action under the Act brought in a state court may not be removed, and 28 U.S.C. 1452(a), which permits removal of claims that are related to a bankruptcy case. Because of the importance of the issue, the case was heard on an interlocutory basis. The Court held that the conflict between the statutes must be resolved in favor of bankruptcy removal. The Court noted that under Supreme Court precedent a specific statute takes precedence over a general one. The Court first found that section 22 was not more "specific" than section 1452. But it then noted that even if it were more specific, section 22 unduly interferes with the operation of the Bankruptcy Code, an exception under that same Supreme Court precedent. The Court also refused to find that because the section 22(a) was amended in 1998, it trumps section 1452(a), which was enacted in 1984, absent a showing that Congress intended to give individual plaintiffs an absolute choice of forum for claims brought under the Securities Act. Nothing in the text or legislative history of the section indicated that that was Congress's intent. As the Court noted, there are a number of district court cases taking an opposite view. We might hear more of this issue in the future. The Court's decison can be found here.

A case involving the unpublished poems of Dorothy Parker was decided by the Second Circuit on May 7, 2004. Silverstein v. Penguin Putman, Inc. involved a dispute between Stuart Silverstein, an individual who put together a collection of Ms. Parker's unpublished poems, and Penguin Putnam, Inc., which published a book of all of Ms. Parker's poems, including the one's in Silverstein's book. The District Court had enjoined Penguin from selling its book and had granted summary judgment to Silverstein, finding the Penguin had infringed on his copyright and violated the Lanham Act and state law. Penguin appealed. The Second Circuit held that questions of fact existed as to whether Silverstein exercised creativity in selecting the works for his compilation. If he did not, he has no claim for copyright infringement. The Court reversed the grant of summary judgment on that count and remanded it to the District Court. It also found that the issuance of an injunction was an abuse of discretion.

Oy! "We are left in the unhappy position of being required to reverse a conviction notwithstanding our knowledge that the defendant is guilty. That is the consequence of being governed by the rule of law." That's what the Second Circuit said in United States v. Jackson, where it reversed the conviction of Aaron L. Jackson for being in possession of ammunition by a previously convicted felon, in violation of 18 U.S.C. 922(g)(1). the government had proved that he was a previously convicted felon by introducing a court record showing a New York felony conviction for a person named Aaron Jackson. But the government did not show that the conviction related to this Aaron Jackson, and, therefore, had not proved its case beyond a reasonable doubt. The case can be found at the Second Circuit website.

Off topic. The Sixth Circuit, on April 30, 2004, upheld the denaturalization of Nazi war criminal John Demjanjuk. I was involved in this case in an earlier round of the litigation, representing the World Jewish Congress and Holocaust Survivors and Friends in Pursuit of Justice, Inc., as amici curiae. The Sixth Circuit, in my view, had bent over backwards to benefit Demjanjuk in the past. I am glad that this time they got it right. The decision can be found here.