Update: Idaho Payroll Deduction Law not in Violation of Constitution

The Supreme Court has upheld an Idaho state law banning the government from letting workers use payroll deductions to fund their union's political activities, a case discussed previously on this blog.

"Idaho's law does not restrict political speech, but rather declines to promote that speech by allowing public employee checkoff for political activities," Chief Justice John Roberts said in a 6-3 decision. "The ban on political payroll deductions furthers Idaho's interest in separating the operations of government from partisan politics," the chief justice said. "That interest extends to all public employers at whatever level of government." Roberts was joined by Justices Scalia, Thomas, Kennedy and Alito.

Justice Ruth Bader Ginsburg concurred with the majority in a separate opinion, writing "that, in the context here, the Constitution compels no distinction between state and local governmental entities."

Justices John Paul Stevens and David H. Souter dissented, saying the law was clearly aimed at stopping the political speech of unions. Justice Stephen G. Breyer dissented in part, saying he would have asked the lower courts to look at the case again to see if the law was aimed exclusively at unions' political speech.

The full text of the case can be found at http://www.supremecourtus.gov/opinions/08pdf/07-869.pdf

Violent Sexual Predator Law Unconstitutional

Smith v. State of Idaho

Practicepoint:

1. The Idaho Violent Sexual Predator law is unconstitutional because it violates a defendant's due process rights by severely limiting the defendant's opportunity to be heard.

The Idaho Supreme Court has held that Idaho's Violent Sexual Predator law is not constitutionally sound. In Smith v. State of Idaho, Jason Smith was classified as a violent sexual predator ("VSP") for rapes he had committed when he was fourteen years old. Prior to being released from prison, the Sexual Offender Classification Board made a determination that Smith should be classified as a VSP. Smith sought judicial review, and the district court upheld the Board's decision.

The Supreme Court held that Smith's due process was violated. The law did not allow Smith, or even the prosecutor, to know what was contained in the record upon which the Board relied to make its decision. Both parties were only provided a summary of the information before the board. Smith had no opportunity to appear before the Board to respond to allegations. These facts made the evidentiary hearing held before the District Court virtually meaningless.

The Court distinguished Idaho's statute and those of other states, which had been upheld by the U.S. Supreme Court. When the designation was based simply upon the crime that was committed, no due process violation occurred because the defendant had adequate opportunity to challenge the designation when he challenged the criminal conviction. However, Idaho's system was not based merely on the crime, but involved a separate determination by an administrative agency as to whether VSP designation was warranted. Since there was no reasonable opportunity to challenge such a "badge of infamy," the statute was unconstitutional.

"Commercial Transaction" Broadly Defined

In re: University Place / Idaho Water Center Project

Practicepoint:

1. A "commercial transaction" under Idaho Code section 12-120(3) can consist of several acts or agreements between numerous parties, if all those agreements involve the same general "transaction."

The Idaho Supreme Court has decided a dispute between the University of Idaho Foundation and several land development entities regarding whether the Foundation was obligated to make payments under a contract to build the Idaho Water Center.

The dispute involved various provisions in several contracts. The Foundation argued that an agreement to make payments was never actually made, that certain material terms were not agreed upon, and that a condition precedent to the agreement never occurred. The Foundation also argued that the contract was ambiguous. The Court ruled against the Foundation in all respects, holding that it was obligated to make the payments mentioned in the contracts.

The Court also further defined the term "commercial transaction" in Idaho Code section 12-120(3) as it relates to an award of attorney fees. The Foundation argued that, as between itself and one of the entities, CCDC, since there was no "transaction" between the two parties, there could be no attorney fees awarded. The Court disagreed, stating that although numerous contracts had been entered into between several parties, all the contracts had involved the same "transaction"--the Idaho Water Center project. The Court held that a "transaction" under section 12-120(3) could consist of "several acts or agreements." Hence, the Court upheld the district court award of fees to CCDC.

News: Idaho regulators sue investment company involved in "viatical" settlement

IDAHO FALLS, (AP) -- State regulators have sued two men, claiming they defrauded an eastern Idaho woman of $295,000.

The Idaho Department of Finance filed the lawsuit late last month in 7th District Court.

The lawsuit alleges Tyree Mackey of Driggs and Jeremy King of Lehi, Utah, misrepresented an investment opportunity they offered Elsie Wach through Millennial Financial Group, Inc.

Jim Burns, investigations chief for the Finance Department, said part of the reason for filing the lawsuit was to prevent others from investing with the two men.

"That's all part of our enforcement function," he said. "We felt it incumbent to act to prevent further violations."

The state is asking for a court order to stop Mackey and King from what state officials say would be further violations of the Idaho Uniform Securities Act. The state also wants to place restrictions on their future business activity.

The phones for the Driggs and Lehi offices of Millennial Financial Group have been disconnected. Other attempts to reach Mackey and King were unsuccessful.

The lawsuit describes Mackey, King and Wach, who lives in Driggs in Teton County, as personal acquaintances. Wach bought "viatical" insurance death benefit interests, available through another company run by Seven L. Bowers and Pat G. Miner, both of Utah.

In a viatical settlement, a person buys all or part of another person's life insurance policy at a price less than the death benefit. When the seller dies, the buyer then collects the death benefit.

The lawsuit alleges Mackey and King misrepresented that the investment was risk free.

"Basically what you're buying is an interest in somebody's death benefit," Burns told the Post Register. "There's a whole bunch of risks that we don't feel are being disclosed."

But the state also alleges that Wach's money wasn't even used to purchase the viaticals. Instead, Mackey and King pocketed $60,000 of Wach's money.

Also, the state claims Bowers spent Wach's money on a new Mustang, on an overdraft in his personal bank account, on commissions to himself, and checks to Miner.

Bowers could not be reached for comment.

The state said Wach has been repaid $30,000, and that Mackey and King have promised to repay the remaining $265,000.

Burns said state regulators are trying to find a way to include Bowers and Miner as defendants in the lawsuit, but face jurisdictional barriers between Idaho and Utah.

This story appeared in the Rexburg Standard Journal at http://www.rexburgstandardjournal.com/articles/2009/02/05/news/25.txt

News: Idaho Department of Finance Files Lawsuit Against DBSI

DBSI filed for voluntary Chapter 11 bankruptcy in November 2008 after the souring economy led to the failure of the company's risky investment strategy. Now the state of Idaho is pursuing DBSI for it's alleged innappropriate actions in court.

Below is a press release sent out Thursday by the Idaho Department of Finance:

"Gavin Gee, director of the Idaho Department of Finance, today announced the filing of a civil securities lawsuit in Fourth District Court against DBSI, Inc., For 1031 LLC, several related companies, and Douglas L. Swenson, president and a director of DBSI, Inc. and a control person of the other defendants. All are located in the Treasure Valley.

The defendants are alleged to have raised millions of dollars through tenant in common, or "TIC", transactions involving hundreds of real estate properties. The TIC transactions offered by defendants and their affiliates involved investors in every state and several foreign countries each purchasing an undivided, fractional interest in parcels of real estate. The purchasers also agreed to a master lease where the lessee provided the significant efforts to make the enterprise successful. Many investors acquired their interest as part of a "1031 exchange" - a means of deferring the payment of income taxes on the sale of income-producing real property, as provided for in section 1031 of the IRS Code.

The Department of Finance complaint alleges that the defendants engaged in a scheme to defraud thousands of investors - many of them elderly - through the sale of unregistered securities by unregistered broker-dealers. By failing to register the securities, defendants appear to have attempted to avoid having to disclose material information required by securities laws. The complaint focuses on sales of interests in a specific property called FOR 1031 Quorum LLC, which is alleged to be similar to and representative of hundreds of other offerings. Sales of the Quorum investments occurred in 2004.

More specifically, the defendants are alleged to have:

1. misrepresented that the investment was essentially guaranteed;
2. misrepresented the terms of the loans on the property;
3. failed to inform investors that their investments were widely considered to be a security, not a real estate transaction;
4. failed to inform investors that the investment required ongoing new sales, and that it could collapse if sales ceased.

With the downturn in the housing market, the defendants were unable to raise sufficient new capital from investors or obtain sufficient new lending from institutional lenders to continue their real estate acquisition and sales operation. This and other factors contributed to some of the defendants' November 2008 Chapter 11 bankruptcy filing. More than 140 entities affiliated with defendants sought bankruptcy protection.

The State seeks a return of $9,750,000 in investors' money, penalties for each violation and an order permanently enjoining the defendants from further violations of the Idaho Uniform Securities Act."

This news story appeared at
http://www.fox12news.com/Global/story.asp?S=9679728&nav=menu439_2_15

Serve Wisely Thine Opponent

Herrera v. Estay

Practicepoints:

1. In excluding evidence due to reasons of admissibility, a trial court must specify what evidence was excluded as well as the reasons for the exclusion.

2. Insufficient process (12(b)(4)) concerns the form or contents of process rather than the method of its service.

3. Insufficient service of process (12(b)(5)) is the proper vehicle for challenging the mode of delivery or lack of delivery of a summons and complaint.

4. I.R.C.P. 4(b)(3) provides a summons form that complies with due process requirements.

5. Due process requires that, at the very least, a summons contain in general terms a statement of the nature of the grounds of the claim, to allow the opposing party an opportunity to present his objections.

6. An appellant's request for fees will be denied if the statute or basis upon which the claim is made is not stated.

7. An appellant's request for fees will be denied if the issues are matters of first impression for the Court.

Quickfacts: While working on a home being built for Estay, Herrera was injured after a scaffold he was standing on collapsed and he fell at least twelve feet to the ground. Herrera sued Estay and the construction company working on the home (Rock Creek Development), claiming that a supporting board was removed before he stepped on the scaffold, which caused it to collapse. At the time of the accident, Herrera was working for an independent contractor hired by Rock Creek. Rock Creek's level of involvement at the construction site was disputed.

Rock Creek moved for summary judgment, arguing it did not have a duty of care because Herrera was the employee of an independent contractor. The district court agreed and dismissed the action against Rock Creek. Herrera published a summons in the local newspaper for four consecutive weeks as he was unable to serve Estay personally. However, Herrera's publication did not (a) contain any information regarding the nature of the claim against Estay, (b) state when the twenty day default period began to run, (c) advise where a copy of the complaint could be obtained, or (d) include the address or telephone number of the clerk of the court.

Not surprisingly, Estay did not make an appearance in the case, and Herrera filed a notice of intent to take default. After receiving the notice in the mail, Estay made a special appearance, challenging sufficiency of process and personal jurisdiction of the court. Estay also filed a motion to dismiss pursuant to Rule 12(b)(2), (4), and (5), and Rule 4(a)(2). The district court agreed, and dismissed the action against Estay. Herrera appealed from both court decisions against Rock Creek and Estay.

Quicklaw: On appeal, the Court vacated the district court's holding that there was no genuine issue of material fact that Rock Creek did not control the means, manner, and method of work performed by Herrera, and thus did not have a duty of care to Herrera. The district court had previously determined that much of Herrera's evidence in opposition to Rock Creek's motion for summary judgment was inadmissible, but it did not specify what exact evidence was inadmissible. Finding it inappropriate to determine the admissibility of evidence on appeal, the Court vacated the trial court's grant of summary judgment, and also directed the trial court to also reconsider a separate theory of negligence against Rock Creek.

Concerning Herrera's service of process on Estay, the Court discussed, for the first time in Idaho, the distinction between a motion to dismiss for insufficient process (12(b)(4)), and insufficient service of process (12(b)(5)):

"An objection under Rule 12(b)(4) concerns the form of the process rather than the manner or method of its service. Technically, therefore, a [R]ule 12(b)(4) motion is proper only to challenge noncompliance with the provisions of Rule 4(b) or any applicable provision incorporated by Rule 4(b) that deals
specifically with the content of the summons. A Rule 12(b)(5) motion is the proper vehicle for challenging the mode of delivery or lack of delivery of the summons and complaint."

The Court determined that due process required Herrera to apprise Estay of, at least, the general nature of the grounds of the claim, pursuant to Rule 4(e)(1). Although Rule 4(b)(3) provides a summons form that complies with due process requirements, Herrera used the summons form in Rule 4(b)(2). The district court had noted several deficiencies in Herrera's service mentioned above. However, on appeal the Court held that since Herrera's summons did not "contain in general terms a statement of the nature of the grounds of the claim," Estay was not afforded an opportunity to present his objections. This mistake alone made Herrera's service deficient, and the Court accordingly affirmed dismissal of the action against Estay.

All parties requested attorney fees on appeal. Herrera failed to state the statute or basis on which he based his claim, so the Court denied his claim for fees. Rock Creek's request for fees was denied because Rock Creek did not prevail on appeal. Finally, although the Court held that the district court did not err in dismissing the action against Estay, it still denied Estay fees as the issues concerning Herrera's service were matters of first impression for the Court.

Conclusion: The Court vacated the district court's grant of summary judgment in favor of Rock Creek, remanded the case for additional consideration, and affirmed the district court's dismissal of Herrera's complaint against Estay.

News: Former Idaho Supreme Court Justice Cathy Silak Chosen as Dean of Concordia Law School in Boise

Boise news is reporting that Cathy Silak, former Idaho Supreme Court Justice, has been selected as the Dean of a new law school in Boise called the "Concordia Law School."

Concordia enters the law school scene at the same time that the University of Idaho School of Law is preparing to establish a branch in Boise.

You can read more about the story on KBCI's website here.

Also, you can read more about plans for Concordia Law School here.