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Cypen & Cypen
March 21, 2013

Stephen H. Cypen, Esq., Editor

1.     CLASS ACTION REPRESENTATIVE’S AGREEMENT TO LIMIT DAMAGES DOES NOT DEFEAT FEDERAL JURISDICTION UNDER CLASS ACTION FAIRNESS ACT:  The Class Action Fairness Act of 2005 gives federal courts original jurisdiction over class actions in which, among other things, the matter in controversy exceeds $5 million in sum or value, and provides that to determine whether a matter exceeds that amount, the claims of individual class members must be aggregated.  When Knowles filed a proposed class action in Arkansas state court against Standard Fire Insurance Company, he stipulated that he and the class would seek less than $5 million in damages. Pointing to CAFA, Standard Fire Insurance Company removed the case to the Federal District Court, but it remanded to the state court, concluding that the amount in controversy fell below the CAFA threshold, in light of Knowles’s stipulation, even though it found that the amount would have fallen above the threshold absent the stipulation. The U.S. Eighth Circuit Court of Appeals declined to hear Standard Fire Insurance Company’s appeal, and it sought certiorari in the United States Supreme Court.  In an unanimous opinion, the U.S. Supreme Court held that the stipulation does not defeat federal jurisdiction under CAFA.  Here, the precertification stipulation can tie Knowles's hands because stipulations are binding on the party who makes them.  However, the stipulation does not speak for those Knowles purports to represent, for a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. Because Knowles lacked authority to concede the amount in controversy for absent class members, the district court wrongly concluded that his stipulation could overcome its finding that the CAFA jurisdictional threshold had been met.  Knowles concedes that federal jurisdiction cannot be based on contingent future events. Yet, because a stipulation must be binding and a named plaintiff cannot bind precertification class members, the amount he stipulated is in effect contingent. CAFA does not forbid a federal court to consider the possibility that a nonbinding, amount-limiting, stipulation may not survive the class certification process. To hold otherwise would, for CAFA jurisdictional purposes, treat a nonbinding stipulation as if it were binding, exalt form over substance, and run counter to CAFA's objective: ensuring Federal court consideration of interstate cases of national importance.  It may be simpler for a federal district court to value the amount in controversy on the basis of a stipulation, but ignoring a nonbinding stipulation merely requires the federal judge to do what he must do in cases with no stipulation -- aggregate the individual class members' claims. While individual plaintiffs may avoid removal to federal court by stipulating to amounts that fall below the federal jurisdictional threshold, the key characteristic of such stipulations, missing here, that they are legally binding on all plaintiffs.  Standard Fire Insurance Company v. Knowles, Case No. 11-1450 (U.S. March 19, 2013).
2.      A SPOUSE IS A SPOUSE IS A SPOUSE: Christian filed a complaint against Debra, seeking a declaratory judgment enforcing his right to benefits as the sole beneficiary under the 401(k) retirement fund of decedent, Stephen. The 401(k) plan is governed by Employee Retirement Income Security Act of 1974. Debra filed a motion to dismiss on that grounds that, as a matter of law, under ERISA, as Stephen’s "surviving spouse", she is entitled to Stephen’s 401(k) plan retirement benefits in the form of a survivor annuity.  Although the court denied Debra’s motion to dismiss, the court did make some significant statements. Debra and Stephen lived together as a married couple until 1989, at which time they separated pursuant to a separation agreement and a court order of separate support. They never again lived together, filed their tax returns separately and had not spoken for years prior to his passing.  It was undisputed that Debra and Stephen never finalized a divorce decree.  An ERISA plan participant cannot designate an alternative beneficiary without the informed, written consent of such participant’s spouse.  In other words, a pensioner’s designation of person other than a lawful spouse is ineffective when it is made without the lawful spouse’s written permission.  There is no federal domestic relations law, and marriage and divorce are traditional subjects of state regulation.  Therefore, determination of who is a lawful spouse for purposes of ERISA is made in accordance with state law.  (Because the court will look to state law only for purposes of determining whether Debra was a lawful spouse, Massachusetts’s domestic relations law that prevents the surviving from taking an elective share of an estate after a court enters an order of separate support is irrelevant to the ultimate issue because it is the type of state statutory scheme which would be completely preempted by ERISA.)  The vast weight of authority, if not the entirety of the courts that have addressed the issue, have concluded that "the common law meaning of 'spouse' is settled, straightforward, and dispositive: 'spouse' means a man or woman joined in wedlock, in short, one's husband or wife.”  Gallagher v. Gallagher, Case No. 12-40027-TSH, D MASS. (February 26, 2013).
3.      ASSESSING STABLE VALUE AFTER 2008: Prudential Retirement has issued a white paper entitled “Assessing Stable Value After 2008 – Performing as Designed.”  Stable value has evolved significantly since the 2008 financial crisis. Investment guidelines are tighter, restrictions on transfers to competing funds broader, fees slightly higher. These new standards are creating a stronger and more sustainable asset class, better positioning plan sponsors and intermediaries to meet the long-term needs of their retirement plan participants.  From the Executive Summary: 
•        Higher fees for stable value "wrap contracts," which guarantee stable value principal and earnings, reflect more thorough and accurate risk assessments for the asset class, and are bringing much-needed capacity to the marketplace.
•        Tighter rules on transfers between stable value investments and competing funds are reducing the likelihood that short-term interest-rate arbitrage will harm long-term investors.
•        More conservative investment guidelines are adding further protections to the asset class, making it more resistant to future market dislocations and better prepared to deliver on its promise of book value returns (principal plus accumulated earnings) to retirement plan participants.
•        Market-value-to-book-value ratios for stable value have generally improved, leaving this asset class well-positioned for future changes in interest rates.
The paper explores the changes that have reshaped stable value market place over the past four years, and can help plan sponsors and intermediaries trying to decide whether stable value deserves a role in their retirement savings plans.  
4.      FPPTA CREATES PUBLIC PENSION INSTITUTE: Florida Public Pension Trustees Association has developed a nationally recognized certification program to educate public pension trustees. The program is used by more than 250 of Florida’s 489 public pension boards. But FPPTA wants to do more that just educate. So, Public Pension Institute ( has been created by FPPTA to provide outreach and education online. It has been designed to offer information to everyone who works with public employees: not just trustees, but city commissioners, mayors, finance directors and administrators. Most importantly, PPI also has been designed to serve as a forum for discussion that will become a central source of news and information on all pension-related subjects.  FPPTA is not a union, does not support candidates for office financially or in-kind, and is non-partisan. FPPTA does not sell insurance, financial products or administrative services. But, why another web site?  Well, while FPPTA is a site for its members, PPI is an open website.  No membership is needed and no passwords are required.  The site is user-friendly and easy to navigate. If you have a question, there will be a place to submit it, and you may be anonymous if you desire.  FPPTA’s goal is worth repeating: educate people about defined benefit pension plans. Many state legislators, elected officials and appointees face issues they are not fully familiar with, including issues related to employee benefits and retirement plans. (Of course, the same may be said for members of employee unions.)  The State of Florida has the most educated municipal public pension trustees in the country, but they do not negotiate or grant pension benefits. Such activity would violate their fiduciary duties. Thus, FPPTA sees the need to educate the people who do negotiate and grant pension benefits.  In reality, no public workers benefits are granted without the approval of municipal officials. Inasmuch as state laws impede or prohibit elected and appointed officials from using pension systems to pay for their education, FPPTA offers that education free of charge. With proper education and understanding, Florida may be able to meet many challenging situations:
•        The brain drain on state and higher educational institutions that results in a lack of qualified educators.
•        Unfunded mandates placed on municipalities by the state legislature. 
•        The erosion of the municipal tax base caused by increasing the homestead exemption. 
•        Reforming employee benefit plans in order to meet challenges of balancing municipal budgets while maintaining quality services for taxpayers. 
Great idea. 
5.      MIRANDA WARNINGS NOT REQUIRED BEFORE QUESTIONING DEFENDANT OVER TELEPHONE AFTER HE HAD BARRICADED HIMSELF IN HIS APARTMENT:  A Florida District Court of Appeal addressed an issue of first impression in Florida: whether Miranda warnings are required before law enforcement officials may engage in certain interactions with a "barricaded person" during a standoff. In appealing his manslaughter conviction, Atac argued that police were required to administer Miranda warnings before questioning him over the telephone after he had barricaded himself in his apartment and threatened to kill himself and anyone who entered the apartment. Atac's father was found murdered. A team of law enforcement officers, arrived at his apartment to arrest him and execute a search warrant for his apartment.  During one of many calls between Atac and police, Atac admitted to having killed his father. Atac moved to suppress the incriminating telephone statements he made during the operation at the apartment.  Concluding that Atac was not in custody during the standoff, and therefore Mirandawarnings were not required, the trial court denied the motion to suppress. In affirming, the Florida court joined the consensus of states that have considered the issue and held that Miranda warnings were not required in this type of situation. The safeguards provided byMiranda apply only if an individual is in custody and subject to interrogation.  Atac v. State of Florida, 38 Fla. L. Weekly D610 (Fla. 4th DCA March 13, 2013).
6.      COURT SHOULD HAVE PRECLUDED PROSECUTOR FROM HIGHLIGHTING DEFENDANT’S ALLEGED USE OF RACIAL SLURS AGAINST LAW ENFORCEMENT OFFICER WHERE THEY DID NOT PROVE ANY ELEMENT OF OFFENSES CHARGED: Guerrero was charged with one count of battery on a law enforcement officer and one count of trespass, when being warned to depart the premises after an incident occurring at a Ft. Lauderdale nightclub.  Prior to trial, Guerrero filed a motion in limine to exclude testimony from various witnesses that Guerrero used racial epithets during the altercation leading to her arrest. She argued that the actual slur itself was unduly prejudicial to her, and would not tend to prove or disprove any element of the charges, and will be confusing and distracting for the jury. The state opposed the motion, arguing that Guerrero's use of the racial slurs was relevant to prove the elements of the crimes. The court denied the motion, and armed with this ruling, the prosecutor commenced her opening statement with several references to the racial slurs. She also referred to them during witness testimony and in closing argument. The jury found Guerrero not guilty of battery on a law enforcement officer and guilty of trespassing in a structure. Ordinarily, racial slurs and ethnic epithets are so prejudicial as to render them inadmissible, unless the probative value outweighs any prejudice that may result from having the jury hear them. Improper remarks to the jury may in some instances be so prejudicial that neither rebuke nor retraction will destroy their influence, and a new trial should be granted despite absence of an objection below or even in the presence of a rebuke by the trial judge.  Because the state did not show that error was harmless, the appellate court reversed the conviction and remanded for a new trial.  Reminder: the prosecutor has a duty to do justice without appealing to inflammatory and prejudicial statements.  Guerrero v. State of Florida, 38 Fla. L. Weekly D615 (Fla. 4th DCA March 13, 2013).
7.      WORKERS COMP RECIPIENT DID NOT KNOWINGLY DEFRAUD EMPLOYER: While receiving workers' compensation benefits for an injury, an employee periodically endorsed benefit checks that included a certification that she had "not worked in any employment or self-employment gainful or otherwise." Her employer obtained surveillance videos of her activities at a store owned by her boyfriend, and filed a petition with the Workers' Compensation Board, alleging that she had fraudulently misrepresented her employment status for the purpose of obtaining benefits. The Board denied the petition, finding credible the employee's testimony that she did not consider her activities to be work that needed to be reported. On appeal, the Alaska Workers' Compensation Appeals Commission concluded that the Board erred in determining that the employee had not "knowingly" misrepresented her work status, but it affirmed the board's denial of the petition on the alternative ground that the employer had not shown the requisite causal link between the allegedly fraudulent check endorsements and the payment of benefits.  On review by the Alaska Supreme Court, the Court held that although the commission erred in its interpretation of the "knowingly" element of the test for fraud, the commission’s decision would nonetheless be affirmed based upon the board's binding credibility determination that the employee's statements were not knowingly false, and therefore not fraudulent.  A court can affirm an administrative decision on any basis supported by the record, even if the agency did not rely on it.  The Board’s finding that the employee did not subjectively believe that she was misrepresenting her employment status was a credibility determination that, by statute, is binding on the Commission and determinative of the issue of whether the employee intended to defraud her employer. Because the decision was affirmed on that ground, the Court declined to reach the causation issue on which the Commission also affirmed the decision of the Board. Arctec Services v. Cummings, Case No. S-14457 (Alaska March 8, 2013).
8.      REVISED 60’s HITS FOR BABY BOOMERS: Procol Harem--- A Whiter Shade of Hair. 
9.      PHILOSOPHY OF AMBIGUITY: If someone with multiple personalities threatens to kill himself, is it considered a hostage situation?

10.    ON THIS DAY IN HISTORY:  In 1964, 26th NCAA Men’s Basketball Championship: UCLA beats Duke 98-83.
11.    KEEP THOSE CARDS AND LETTERS COMING: Several readers regularly supply us with suggestions or tips for newsletter items.  Please feel free to send us or point us to matters you think would be of interest to our readers.  Subject to editorial discretion, we may print them.  Rest assured that we will not publish any names as referring sources. 
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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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