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Security Is Secure, Even When It’s in Receivership

In 2009, the SEC filed an action against Arthur Nadel and others following the collapse of a Ponzi scheme. The district court appointed a receiver to administer the defendants’ property and business affairs “and take whatever actions are necessary for the protection of the investors.”  The district court also established a bar date for creditors’ and investors’ proofs of claim. Wells Fargo had security interests in three of the properties placed in receivership, but filed a timely proof of claim only as to one of them. More than a year later, Wells Fargo filed a motion seeking a...
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Court SLAPPS Down Defamation Suit

The Eleventh Circuit upheld a district court’s rejection of a doctor’s libel and false advertising action challenging two articles highly critical of his novel medical treatments. In Edward Lewis Tobinick, MD v. Novella, 2017 WL 603832 (11th Cir. Feb. 15, 2017), the court upheld the district court’s orders striking state-law claims pursuant to California’s anti-SLAPP statute, denying two motions to amend the complaint, denying relief due to alleged discovery-related abuses, and granting summary judgment on the plaintiffs’ Lanham Act claim. Dr. Tobinick developed an “unorthodox”...
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Securities Law Judgment Excepted from Discharge

On the same day the court decided Appling (below), the Eleventh Circuit issued a second bankruptcy-discharge opinion, this time addressing one of the more obscure exceptions from discharge, § 523(a)(19)(A)’s exception for judgments for securities law violations. Lunsford v. Process Technologies Services, LLC (In re Lunsford), 2017 WL 603845 (11th Cir. Feb. 15, 2017).  Judge Bill Pryor again wrote for the court, with another concurrence by Judge Robin Rosenbaum.  And the majority opinion again differed with the views of other circuits. The debtor was accused in a Mississippi state court...
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Court Broadly Construes Bankruptcy Discharge Exception for Fraud

One of the most litigated issues in bankruptcy court is whether a discharge of a particular claim should be granted to a debtor who has committed fraud relating to the claim, a statutory discharge exception found in section 523(a)(2)(A) and (B) of the Bankruptcy Code. The statute establishes a dichotomy between fraudulent statements regarding the debtor’s (or an “insider” of the debtor’s) “financial condition” and other fraudulent statements giving rise to a debt.  If the statement is characterized as “respecting the debtor’s . . . financial condition” then it must be in...
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Insurer Liable for Intoxicated Employee’s Accident Under General Permissive Use Clause

An employee may be covered by an employer’s auto insurance policy as a permissive user even though the employee violates a company policy prohibiting driving while intoxicated. The Eleventh Circuit, in Great American Alliance Insurance Co. v. Anderson, 2017 WL 521560 (11th Cir. Feb. 8, 2017), assessed conflicting cases under Georgia law, but determined that a general permissive use clause covers all uses for which the underlying purpose was authorized without regard for operational aspects, such as a company policy prohibiting drinking and driving. The insured, Looper Cabinet Co., had...
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FEDERAL COMMON LAW APPLIES STATE PRECLUSION RULES TO JUDGMENTS IN DIVERSITY CASES

The Eleventh Circuit cleaned up some conflicting precedent this week and confirmed that state-law rules determine the preclusive effect of judgments rendered by federal courts in diversity cases. In deciding that question in CSX Transportation, Inc. v. General Mills, Inc., 2017 WL 393704 (11th Cir. Jan. 30, 2017), the court reversed the district court’s judgment and held that this question of federal common law is answered by incorporating state substantive law of collateral estoppel. In an opinion by Judge William Pryor, the court turned first to Semtek International Inc. v. Lockheed...
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Health Savings Accounts not exempt from bankruptcy estate in Georgia

After the Georgia Supreme Court answered a certified question, the Eleventh Circuit held that health savings account (“HSA”) funds are not property exempt from the bankruptcy estate under Georgia law. In Mooney v. Webster, No. 15-11229 (11th Cir. Jan. 27, 2017), a Chapter 7 bankruptcy petitioner claimed the assets in her HSA account as exempt from bankruptcy under O.C.G.A. § 44-13-100(a)(2)(C), which exempts any “disability, illness, or unemployment benefit” and O.C.G.A. § 44-13-100(a)(2)(E), which exempts any “payment under a pension, annuity, or similar plan or contract on...
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Florida STOLI policies have insurable interest

In consolidated Pruco Life Insurance Co. v. Wells Fargo Bank, N.A., 2017 WL 360512 (11th Cir. Jan. 25, 2017), the Eleventh Circuit applied guidance from the Florida Supreme Court and held that Stranger-Originated Life Insurance (“STOLI”) policies have an “insurable interest” as required by Florida Statute § 627.404, so a standard contractual provision limiting challenges to the validity of the policy to two years was enforceable. The insurance company sought to have two STOLI policies invalidated more than two years after issuance, arguing that these STOLI policies violate a Florida...
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Fee Awards – Maybe an Art; Not a Science

In Yellow Pages Photos, Inc. v. Ziplocal, LP, 2017 WL 343520 (11th Cir. Jan. 24, 2017), the Eleventh Circuit reversed a district court’s decision to use a mathematical formula to award costs and fees in proportion to the degree of success in litigation of the underlying claims.  Yellow Pages Photos, Inc. (“YPPI”) and Ziplocal entered into an agreement to purchase a license to use photographic content that included a provision entitling the prevailing party in a legal action to enforce the agreement to collect fees and costs. Subsequently, Ziplocal entered into an agreement with Yellow...
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Patronage Capital Class Action Removable; Dismissal Affirmed

An electric cooperative organized under state law is nonetheless entitled to remove a putative class action to federal court under the “federal officer” removal statute, according to the Eleventh Circuit in Caver v. Central Alabama Electric Cooperative, 845 F.3d 1135 (11th Cir. 2017), which also affirmed dismissal of a complaint seeking immediate return of patronage capital.  Specifically, the court held that the federal government’s lending of capital and regulation of the defendant electric cooperative’s operations brought the defendant under the federal officer removal statute...
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Kardashians Left Blushing, Can’t Compel Arbitration in Makeup Case

Kimberly, Kourtney, and Khloe Kardashian will find themselves back in court after the Eleventh Circuit affirmed the denial of their motion to compel arbitration in Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc., No. 15-15060 (11th Cir. Jan. 18, 2017). The Kardashians sought to enforce an arbitration clause against a party to the underlying contract despite the fact that the Kardashians had not been parties to the contract. The court ruled that under Florida law the Kardashians could not enforce the contractual arbitration clause because it was limited by its terms to disputes...
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Supreme Court to Decide Circuit Split on Statute of Limitations for SEC Disgorgement Claims

This past Friday, the Supreme Court granted certiorari in Kokesh v. SEC, No. 16-529 (cert. granted Jan. 13, 2017), to review a circuit split on whether the SEC’s claims for disgorgement are limited to a five-year statute of limitations.  28 U.S.C. § 2462 places a five-year statute of limitations on any “action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture.”  The Eleventh Circuit has held that this statute of limitations applies to SEC claims for disgorgement.  Other circuits, including the First, Ninth, Tenth, and D.C. Circuits, have held that...
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Defending Insurance Company Not Liable for Legal Expenses Its Insured Incurred Before Notifying Insurer

An insurer is not required to pay the legal fees its insured had incurred before notifying the insurer of the litigation, according to the Eleventh Circuit’s decision in EmbroidMe.com, Inc. v. Travelers Property Casualty Co. of America, 2017 WL 74694 (Jan. 9, 2017).  Applying Florida law, the court affirmed the district court’s grant of summary judgment to the insurer. The insured embroidering company was sued for copyright infringement but chose not to notify its liability insurer, Travelers, of the lawsuit. Instead, the insured defended the litigation on its own, incurring legal fees...
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Direct Appeal from Bankruptcy Proceeding Transferred for Lack of Jurisdiction

Federal courts have struggled with the implications of Stern v. Marshall, 564 U.S. 462 (2011), and Wellness International Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015)—in which the Supreme Court held that the Constitution requires the parties’ consent before bankruptcy courts can finally adjudicate claims that neither “stem[] from the bankruptcy itself [n]or would necessarily be resolved in the claims allowance process.” Stern, 564 U.S. at 499. The Eleventh Circuit dodged one of the many questions raised by these decisions before transferring an appeal for lack of jurisdiction in...
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