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Cypen & Cypen
NEWSLETTER
for
AUGUST 5, 2010

Stephen H. Cypen, Esq., Editor

1.            BELL NOT RUNG QUITE JUST YET:  Three highly-paid administrators in Bell, California, will not be permitted to draw their state pensions until the attorney general determines whether the city broke the law in awarding the hefty paychecks, according to an official with the California Public Employees' Retirement System (see C&C Newsletter for July 29, 2010, Item 1).  CalPERS, reports latimes.com,  is concerned about the situation and intends not to entertain applications for pensions from any of the three until the investigation is complete.  CalPERS is working closely with the attorney general on the matter, and will not pay one dollar until there is a full and complete picture.  Ask not for whom the bell tolls, it tolls for three. 

 2.            MEXICAN RESTAURANT VIOLATED ADA:  The Ninth Circuit Court of Appeals was recently presented with several issues involving application of the Americans with Disabilities Act to a wheelchair-bound customer of the well-known Mexican fast-food restaurants operated by Chipotle Mexican Grill, Inc.  The question on the merits was whether the actions Chipotle took to accommodate the customer's disability satisfied requirements of ADA and its implementing guidelines.  The court held they did not, and accordingly that Chipotle violated ADA.  Another question was whether the district court erred in denying the customer injunctive relief.  The court held that, in the circumstances, the district court should grant injunctive relief.   The appellate court affirmed in part, reversed in part, vacated in part and remanded to the district court for further proceedings.  The presence of a wall in the restaurant significantly reduced the customer's ability to enjoy the "Chipotle experience."  From his wheelchair, he could not see and evaluate the various available foods and decide which or how much of each he wanted.  He also could not watch the food service employee combine those ingredients to form his order. Substitutes that Chipotle provided -- showing him samples of the individual foods in serving spoons, held in tongs or in plastic cups, or assembling the food at the "transaction station" or at a table in the seating area -- do not constitute "equivalent facilitation" because they do not involve use of other designs and technologies or provide him with substantially equivalent or greater access to and usability of the facility.  They merely provided a substitute experience that lacked the customer's personal participation in selection and preparation of the food that the full "Chipotle experience" furnishes.  Coincidentally (?), the ruling came down on the 20th anniversary of passage of the Americans with Disabilities Act.  Antoninetti v. Chipotle Mexican Grill, Inc., Case Nos. 08-55867, 08-55946, 09-55327 and 09-55425 (U.S. 9th Cir., July 26, 2010).  For our part, we will just avoid the "Chipotle experience" altogether. 

 3.            EEOC COMPLAINANTS REQUIRED TO PRODUCE COMMUNICATIONS FROM FACEBOOK AND MYSPACE.COM ACCOUNTS:  Equal Employment Opportunity Commission filed a complaint on behalf of two named claimants and similarly situated individuals who alleged that Simply Storage Management, LLC was liable for sexual harassment by a supervisor.  The defendants requested production of claimants’ internet Social Networking Sites (SNS) profiles and other communication from their Facebook and MySpace accounts and information about claimants’ prior employment, including names and addresses of employers, dates of employment, positions held and reasons for separation.  (A “profile” is any content -- including postings, pictures, blogs, messages, personal information, lists of friends or causes joined -- that the user has placed or created online by using her user account.)  A United States magistrate judge has ruled that SNS content is not shielded from discovery simply because it is locked or private.  SNS content must be produced when it is relevant to a claim or defense in a case.  Allegations of depression, stress disorders and like injuries do not automatically render all SNS communications relevant.  With the foregoing considerations in mind, the court determined that the appropriate scope of relevance is any profiles, postings or messages and SNS applications for claimants Zupan and Strahl that reveal, refer or relate to any emotion, feeling or mental state, as well as communications that reveal, refer or relate to events that could reasonably be expected to produce a significant emotion, feeling or mental state.  (Zupan and Strahl are the only two claimants who alleged severe emotional distress, including post-traumatic stress disorder.)  Third-party communications to Zupan and Strahl must be produced if they place these claimants' own communications in context.  The same test set forth above can be used to determine whether particular photographs and videos should be produced.  (The court acknowledged that it had not drawn guidelines with the precision litigants and their counsel typically seek -- the understatement of the year.)  The court did agree with EEOC that broad discovery of claimants' SNS could reveal private information that may embarrass them.  However, embarrassment may be the inevitable result of alleging these sorts of injuries.  Besides, this concern is outweighed by the fact that production here would be of information that  claimants have already shared with at least one other person through private messages or a large number of people through postings.  As for the second category of requests, Simply Storage was required to demonstrate why past work history information is relevant to the particular claims and defenses in the case.  Simply Storage did not show how the requested employment information was relevant, and absent that showing, EEOC is not required to produce the requested information about claimants' prior employment.  Equal Employment Opportunity Commission v. Simply Storage Management, LLC, Case No. 1:09-cv-1223 (S.D. Ind., May 11, 2010).  Note to young people everywhere:  an internet posting is like a tattoo:  it seems like a good idea at the time. 

 4.            PENSIONS AND RETIREMENT PLAN ENACTMENTS IN 2010 STATE LEGISLATURES:  On July 19, 2010, National Conference of State Legislatures released its “Pensions and Retirement Plan Enactments in 2010 State Legislatures.”  The report summarizes selected state pensions and retirement legislation enacted from January 2010 through date.  Its goal was to help researchers and policy makers know how other states have addressed issues that could arise in any state.  In keeping with that goal, the report excludes most clean-up legislation, cost-of-living adjustments, administrative procedures and technical amendments.  The report is organized according to the topics that legislatures addressed in 2010.  Bills summarized have been enacted into law unless there is a specific indication to the contrary.  Not all legislation had been chaptered at the time the report was compiled.  Some legislatures remain in session at time of publication.  Topics include contribution rates and funding issues; plan changes; divestment; early retirement incentives; re-employment after retirement; and return of contributions.  Read all 28 jam-packed pages at http://www.ncsl.org/documents/employ/PensionReportJuly19-2010.pdf
 5.            SECRETARY OF LABOR FILES AMICUS CURIAE BRIEFS:  Hilda L. Solis, Secretary of the United States Department of Labor, has recently filed amicus curiae (friend of the court) briefs in two cases involving Employee Retirement Income Security Act of 1974: 

In Gearren v. The McGraw-Hill Companies, Inc., Case Nos. 10-792-cv (L) and 10-934-tv (U.S. 2nd Cir.), the Secretary filed a brief in support of appellants requesting reversal.  The Secretary argued that the district court erred in dismissing the cases based on a presumption that the fiduciaries acted prudently in allowing the plans to purchase employer stock at allegedly inflated prices, a presumption of prudence contrary to ERISA’s statutory language.  She also argued that the fiduciaries had a duty not to mislead plan participants and to correct misperceptions by disclosing  information necessary to protect retirement benefits.

In Fish v. Greatbanc Trust Co., Case No. 09 CV 1668 (N.D. Ill.), the Secretary filed a brief in support of plaintiffs' opposition to defendants' joint motion for summary judgment.  She argued that the ERISA three-year statute of limitations is triggered solely by plaintiffs' actual knowledge of the breach, not by information known to non-party fiduciaries.  Because ERISA requires plaintiff to have actual knowledge of the breach, a non-party fiduciary's alleged knowledge of a breach is not imputed to the actual party-plaintiff. 

It’s refreshing to have a Department of Labor that recognizes its primary enforcement and regulatory authority for Title I of ERISA. 

 6.            FEMALE LAW FIRM SHAREHOLDER CANNOT SUE FIRM FOR EQUAL PAY:  Kirleis appealed a federal district court order granting summary judgment to her law firm on the issue of whether she was an employer or employee of the firm.  Kirleis had worked as an attorney at the firm for over twenty years, and had been a shareholder/director for the last eight.  She filed a complaint against the firm alleging that she was paid less than her male counterparts, in violation of Title VII of the Civil Rights Act of 1964 and the Equal Pay Act.  The firm moved to dismiss Kirleis's complaint on the basis that she was not an employee of the firm, but, rather, an employer, and as such was outside protection of the employment discrimination laws.  After discovery, the firm moved for summary judgment on the same grounds, and the district court granted the motion.  There are six factors the court must examine to determine whether a shareholder/director of a professional corporation is an employer or an employee entitled to invoke the anti-discrimination laws: (1) whether the organization can hire or fire the individual; (2) whether and, if so, to what extent the organization supervises the individual's work; (3) whether the individual reports to someone higher in the organization; (4) whether and, if so, to what extent the individual is able to influence the organization; (5) whether the parties intended that the individual be an employee, as expressed in written agreements or contracts; and (6) whether the individual shares in profits, losses and liabilities of the organization.  The touchstone of the inquiry is control, and the answer depends on all incidents of the relationship, with no one factor being decisive.  The appellate court disagreed with Kirleis’s contentions that the district court erred in its analysis.  The record supports the district court's conclusion that Kirleis is not a mere employee of the firm.  As a shareholder/director, Kirleis has the ability to participate in the firm's governance, the right not to be terminated without a 3/4 vote of the board of directors for cause and entitlement to the firm's profits/losses/liabilities.   As an employer, Kirleis is precluded from bringing claims under the employment anti-discrimination laws.  Kirleis v. Dickie, McCamey & Chilcote, P.C., Case No. 09-4498 (U.S. 3rd Cir., July 15, 2010) (not precedential)

 7.            FAMILY SUES HUNGARY OVER HOLOCAUST  ART CLAIM:  For more than two decades heirs of a world-renowned Jewish collector have been petitioning the Hungarian government to return more than $100 Million worth of art, most of which had been hanging in Hungarian museums, where it was left for safekeeping during World War II or placed after being stolen by the Nazis and later returned to Hungary.  As reported by The New York Times, the requests have been rebuffed, as have appeals to the government from current and former United States senators.  Finally, in 2008, a Hungarian court ruled that the government was not required to return the art.  Now, in what experts say is the world's largest unresolved Holocaust art claim, the heirs of the Hungarian banker Baron Mor Lipot Herzog have filed a lawsuit in United States District Court in Washington, demanding return of the art collection they say is rightfully theirs.  The lawsuit was filed against Hungary and several museums it oversees.  The suit includes an unprecedented twist:  in addition to the more than 40 artworks explicitly identified in the filing, including works by El Greco and Monet, lawyers are also asking the Hungarian government for an accounting of all Herzog family art in its possession.  Before the lawsuit, the heirs tried to compromise with the Hungarian museums, by offering to split the paintings with the government, but they were turned down,  Pigs get fat and hogs get slaughtered. 

 8.            HOW’S YOUR STATE PENSION FUND THESE DAYS?:  That is the question asked by investopedia.com in response to an article in The Wall Street Journal reporting that the Florida State Board of Administration, which manages assets of the Florida Retirement System, bought a 10% interest in private equity firm Lexington Partners for $41.25 Million. Although the deal is not large for $117 Billion FRS, it made the author wonder about its equity investments.  (The piece also examines recent investments by giants California Public Employees' Retirement System and California State Teacher's Retirement System.)  Here is what the author writes about FRS.  As of the end of March 2010, the Florida Retirement System's pension plan had $45.1 Billion, or 38.6% of its assets, invested in domestic equities.  Foreign equities accounted for another $23.2 Billion, or 19.9% of total assets.  One stock FRS will not be buying is BP, which has cost Florida pensioners $87.8 Million as of July 20, 2010.  Pension funds that have lost money on BP have put on a brave face, indicating it is a mere blip on the radar, as FRS's one-tenth of one percent loss.  That conclusion may have held water (pun intended) in better times, but with FRS losing 19% in 2008-2009, it has to work that much harder to catch up, and it Is not going to be able to do so with passive investing.  Bottom Line for the author:  while he was able to get an idea or two, pension funds probably are not the best place to look for original ideas.  Their entire mandate is about tracking indices.  It would have been a lot easier just looking at the S&P Small Cap 600 constituent list.  Pension fund annual reports might not provide any inspiration, but they are interesting. 

 9.            FLORIDA RETIREMENT SYSTEM REBOUNDS:  Speaking of Florida State Board of Administration, FSBA posted a 14.03 percent return for the Florida Retirement System for fiscal year 2009-2010.  FRS, the largest mandate for FSBA, had a market value of $109.34 Billion on June 30, 2010, representing an increase of $9.77 Billion over June 30, 2009 figures, after net payments of $4.5 Billion to retirees.  Exceeding the benchmark return by 251 basis points, marks the greatest return over benchmark for FRS in the last 25 years.  Fiscal year results show a promising rebound from the near-term volatility of 2008, and pushed FRS 20, 25 and 30 year returns to 8.18%, 8.98% and 9.56%, respectively.  The FRS Investment Plan, the optional retirement plan for state employees, also posted year-end gains.  With over 127,000 participants, the fund exceeded $5 Billion in assets for the first time.  Returns for the FRS Investment Plan and the difference between the 1-, 3-, 5-year and since inception returns were as follows:  the Investment Plan does not require employee contributions, and employer contributions go directly into members’ accounts.  The Plan is self-directed, with members allocating their account balance among a set of 20 institutional and mutual fund investment options. Vesting in the plan is one year, and distribution options include lump-sums, periodic distributions and a variety of fixed and variable annuities.

10.            IS EYE-ROLLING DISORDERLY CONDUCT?:  A city attorney has a new research assignment, thanks to a woman’s ejection from a city council committee meeting, based on allegations she was rolling her eyes and yawning disrespectfully.  (On the latter point, the city attorney should read our piece on yawning (see C&C Newsletter for May 20, 2010, Item 9).  The question for the city attorney, according to abajournal.com, is:  what are the legal definitions of disorderly conduct and disruptive behavior?  He was given the assignment in order to draft an ordinance to stop nonverbal outbursts.  The woman who prompted the legal question was at a committee meeting to object to a proposal to hire a $30,000 state lobbyist.  The committee chairman said he saw the woman’s disrespectful behavior and ordered her to leave.  Two other committee members objected to the ouster, and themselves left, putting an end to the meeting due to lack of a quorum.  Lots of luck, Mr. City Attorney.  Can you see our eyes rolling now? 

11.            SCALIA DOUBTS HE WOULD BE CONFIRMED TODAY:  In a recent speech, United States Supreme Court Justice Antonin Scalia linked the “living Constitution” doctrine with politically charged confirmation hearings.  He said that Supreme Court nominations have become political events since justices began acting as arbiters of the nation’s morals, abajournal.com reports.  Scalia speculated that if a vote were held today on his confirmation, he would not receive the needed votes.  The Justice maintains unelected judges should not rely on the living Constitution theory to make moral judgments, and refers to an 1848 Noah Webster dictionary (that figures) to define words in the Constitution.  Scalia sometimes joked, but at other times his temper flared.  He interrupted his speech twice, once to halt the “clicking” cameras of news photographers (those cheap nondigital things) and again to ask that a crying baby be removed from the audience (nice).  Too bad the Justice does not believe in freedom of screech. 

12.            BANK’S SEIZURE OF SPONSOR’S BANK ACCOUNT NOT VIOLATIVE OF ERISA:  Current and former employees of JetDirect Aviation, an aircraft management company, brought a class action, pursuant to Employee Retirement Income Security Act, against JetDirect .  The employees alleged that JetDirect improperly withheld and diverted employee benefit plan funds from their paychecks to meet JetDirect’s obligations to its creditors.  JetDirect then brought a third-party Complaint against Sovereign Bank, one of its creditors, claiming breach of fiduciary duty, contribution and indemnification.  On motion to dismiss the third-party claim, the U.S. District Court dismissed the claims against Sovereign.  Sovereign was neither a named fiduciary nor a  functional fiduciary.  A bank’s responsibilities as depository for ERISA monies do not include the discretionary or advisory activities.  (Here, Sovereign had no knowledge that it was holding commingled funds when it set off deposit accounts.)  There is no express right of contribution or indemnification under ERISA, and there is a split among the courts of appeals as to whether there is a federal common law right.  This court agreed with those authorities finding no implied federal common law right to contribution or indemnification under ERISA.  Absent such common law right, the claims can only survive as state common law actions.  However, those actions are preempted by ERISA.  Anthony v. JetDirect Aviation, Inc., Case No. 09-10527 (DC Mass., July 26, 2010). 

13.            CAL. SUPREME COURT SETS OUT REQUIREMENTS FOR CONTINGENT-FEE AGREEMENTS BETWEEN PUBLIC ENTITIES AND PRIVATE COUNSEL:  A group of public entities composed of various California counties and cities were prosecuting a public-nuisance action against numerous businesses that manufactured lead paint.  The public entities were represented both by their own government attorneys and by several private law firms retained by the public entities on a contingent-fee basis.  After summary judgment was granted in favor of defendants on various tort causes of action the complaint eventually was amended to leave the public-nuisance action as the sole claim and abatement as the sole remedy.  Defendants moved to bar the public entities from compensating their privately-retained counsel by means of contingent fees.  The superior court ordered the public entities barred from compensating their private counsel by means of any contingent-fee arrangement, reasoning that all attorneys prosecuting public-nuisance actions must be "absolutely neutral."  The superior court concluded that prior case law precluded any arrangement in which private counsel has a financial stake in the outcome of a case brought on behalf of the public.  On petition of the public entities seeking a writ of mandate, the Court of Appeal held that prior authority does not bar all contingent-fee agreements with private counsel in public-nuisance abatement actions, but only those in which private attorneys appear in place of, rather than with and under supervision of, government attorneys.  The Supreme Court of California reexamined a prior decision and determined it should be narrowed in recognition of both (a) the wide array of public-nuisance actions (and corresponding diversity in types of interests implicated by various prosecutions) and (b) the different means by which prosecutorial duties may be delegated to private attorneys without compromising either integrity of the prosecution or the public's faith in the judicial process.  So, the court held that contingent-fee agreements between public entities and private counsel must provide:  (1) that the public-entity attorneys will retain complete control over the course and conduct of the case; (2) that government attorneys retain a veto power over any decisions made by outside counsel; and (3) that a government attorney with supervisory authority must be personally involved in overseeing the litigation.  County of Santa Clara v. The Superior Court of Santa Clara County, Case No. S163681 (Cal., July 26, 2010). 

14.            SUIT FAULTS METS FOR MADOFF LOSSES:  Owners of the New York Mets should be held accountable for letting their workers put more than $16 Million in retirement assets into accounts controlled by jailed financier Bernard Madoff, a widow said in a lawsuit reported by The Associated Press.  The lawsuit, filed  in U.S. District Court in Manhattan, was brought against Sterling Equities Associates, which owns the Mets, and Fred Wilpon, Mets chief executive officer.  The lawsuit says that Sterling Equities and several of its top executives should have known that Madoff was carrying out a massive pyramid scheme that cost thousands of investors billions of dollars.  Sterling said the retirement plan filed a claim for its losses with the Securities Investors Protection Corp., which is authorized by Congress to guarantee brokerage accounts for a maximum of $500,000.  The court-appointed trustee who is seeking to recover Madoff money for investors has said the Mets profited by nearly $48 Million from their roughly $523 Million in investments with Madoff.  The suit seeks class-action status, and claims that the majority of the $280,000 in the widow’s husband's retirement plan was directly invested with Madoff and has now been wiped out.  The retirement fund had $16.2 Million of its $17.6 Million in assets, or 92 percent, invested with Madoff.  Now, that’s diversification. 

15.            ALL PUNS INTENDED:  A dwarf, who was a mystic, escaped from jail. The call went out that there was a small medium at large. 

16.            OXYMORON:  How come abbreviated is such a long word? 

17.            AGING JOKES:  I feel like my body has gotten totally out of shape, so I got my doctor's permission to join a fitness club and start exercising. I decided to take an aerobics class for seniors. I bent, twisted, gyrated, jumped up and down, and perspired for an hour. But, by the time I got my leotards on, the class was over. 

18.            FABULOUS RANDOM THOUGHTS:    I hate leaving my house confident and looking good and then not seeing anyone of importance the entire day. What a waste.

19.            QUOTE OF THE WEEK:   “Nobody is bored when he is trying to make something that is beautiful or to discover something that is true.”  Ernst Jünger

20.            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. 

21.            PLEASE SHARE OUR NEWSLETTER:  Our newsletter readership is not limited to the number of people who choose to enter a free subscription.  Many pension board administrators provide hard copies in their meeting agenda.  Other administrators forward the newsletter electronically to trustees.  In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at http://www.cypen.com/subscribe.htm.  Thank you. 

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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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