Source: http://www.nelfonline.org/docket/archives/02-2005
Timestamp: 2019-04-19 14:45:10+00:00

Document:
The issue before the U.S. Supreme Court in this case was whether income taxable to a plaintiff includes the portion of the recovery paid to the plaintiff’s lawyer as a contingency fee. In its decision issued on January 24, 2005, the Supreme Court held in the Commissioner’s favor that the contingency fee amount had to be included in the plaintiff’s income, thereby resolving a split that had developed in the Circuit Courts on this issue.
An amicus curiae brief was filed by NELF and other nonprofit Public Interest Law Firms (“PILFs”) including Mountain States Legal Foundation (which was the principal drafter of the brief), because of a concern among PILFs that the IRS would view a favorable result in this case as support for its recently developed position that, likewise, when attorneys’ fees are paid by the federal government to a PILF under a federal fee-shifting statute (for example under 42 U.S.C. § 1988), those fees are taxable to the PILF’s client. NELF and the other amici argued that if the Supreme Court’s decision gave any credence to this position it would have a severely adverse impact on the PILFs’ ability to undertake their vital role in the judicial system of providing free legal services in matters of broad public interest to clients who could not otherwise afford legal representation. In such cases, while NELF and the other amici do not charge for legal representation, Congress intended for them to take advantage of various federal fee-shifting statutes. This intent would be violated if the IRS attempted to tax clients for amounts paid to organizations like NELF under these statutes.
Acknowledging these concerns in its decision, the Supreme Court stated that, in its view, it did not have to address them because, first, in the matter before it the fees paid to attorneys were calculated solely on the basis of private contingent fee contracts and, second, the Jobs Creation Act (“Act”) of 2004, which was passed after this case arose, “redresses the concern for many, perhaps most, claims governed by fee-shifting statutes.” Specifically, Section 703 of the Act amended the Internal Revenue Code by adding a section that allows a taxpayer, in computing adjusted gross income, to deduct “attorney fees and court costs paid by, or on behalf of, the taxpayer in connection with any action involving a claim of unlawful discrimination.” The Act defines “unlawful discrimination” to include a number of specific federal statutes, any federal whistleblower statute, any federal, state or local law “providing for the enforcement of civil rights” or “regulating any aspect of the employment relationship….,” etc. It should be noted that the Act was signed into law on October 22, 2004, well after all briefs were filed in this case.
Plaintiff George Clemmer was terminated in 1999 as an employee of LiveData, a closely held Delaware software company doing business in Massachusetts. Clemmer was also, and has remained, a minority shareholder and director of the company. Clemmer sued LiveData and others in Massachusetts Superior Court alleging that he had been wrongfully frozen out as a shareholder based on the loss of his position as an employee. While Massachusetts courts may recognize such a claim when brought by a shareholder in the close corporation context, Delaware does not. On this basis, the Superior Court, applying Delaware law, allowed LiveData’s motion to dismiss. Clemmer appealed, and while the Massachusetts Appeals Court agreed that Delaware law applies, the Court nevertheless reversed, holding that Clemmer had in fact stated a viable freeze-out claim under Delaware law.
Concerned that the Appeals Court appeared to have misinterpreted important Delaware precedents, NELF undertook direct representation of LiveData in the filing of an application for further appellate review by the Massachusetts Supreme Judicial Court (“SJC”). In its brief, NELF laid out for the Court the Delaware decisions clearly establishing that Clemmer has no claim as a shareholder under Delaware law for freeze-out, or for any other breach of fiduciary duty, based on his termination as an employee. NELF also reminded the Court of its own statement in Harrison v. NetCentric Corp., 433 Mass. 465, 471 (2001), which applied Delaware law to a minority shareholder’s termination claim, that “Delaware law does not impose the heightened fiduciary duty of utmost good faith and loyalty on shareholders in a close corporation.” NELF was concerned that the many Delaware close corporations based in Massachusetts should be able to rely on this fundamental principle of Delaware law in litigation, even if brought in the Massachusetts courts. Under Delaware law, shareholders in close corporations must bargain for the heightened fiduciary duties recognized under Massachusetts law, such as through a shareholder or employment agreement, or by agreeing to incorporate as a Delaware statutory close corporation. Clemmer did not pursue any of these protections.
On December 1, 2004, the SJC denied NELF’s application for further appellate review, Clemmer v. Cullinane, et al., 442 Mass. 1113 (2004), thereby effectively affording Clemmer a basis for recovery that he never bargained for and that Delaware has refused to recognize. Moreover, by rejecting NELF’s request for further appellate review, the SJC leaves unresolved whether the Appeals Court simply made a factual error in this case or was signaling an unwillingness by Massachusetts courts to enforce Delaware’s freedom-of-contract approach to the rights of shareholders in close corporations.
Phelan v. May Department Stores Co.
The issue in this case was whether the plaintiff’s former employer could be held liable for defamation by conduct, even though the plaintiff had presented no testimony from any of the witnesses to the alleged conduct as to what they had understood the conduct to mean. Phelan, an accountant at Filene’s, came under suspicion for involvement in certain accounting irregularities, which Filene’s auditors were investigating. On July 9, 1998, Phelan and other employees were summoned to a Filene’s executive’s office for questioning; the following morning Phelan was called to another executive’s office and told to wait there while Filene’s interviewed one of Phelan’s subordinates. Shortly thereafter, the executive who had initially questioned Phelan came into the office with a Filene’s security officer. The latter had no badge or other insignia identifying him as a security officer, but he was wearing dark trousers, a shirt, tie and blazer customarily issued by Filene’s to its security personnel. The executive instructed the security officer, “Don’t let him use the phone or leave.” The security guard remained with Phelan at Filene’s for the next six to seven hours and accompanied him throughout the day. Other employees were present when the guard escorted Phelan to various offices and rooms. At the end of the day, Phelan was escorted from the building and his employment was subsequently terminated.
Phelan sued in the Massachusetts Superior Court for false imprisonment and defamation by conduct. The jury found for Phelan on both counts and awarded damages of $1,500 for false imprisonment and $75,000 for defamation, but the trial court allowed Filene’s motion judgment notwithstanding the verdict on the defamation count. The trial court reasoned that Phelan had failed to overcome Filene’s conditional privilege to publish defamatory matter reasonably related to protecting its legitimate business interests. The court also expressed doubts whether Phelan had proffered sufficient evidence of publication. Phelan appealed the trial court’s ruling and the Appeals Court, 60 Mass. App. Ct. 843 (2004), reinstated the jury’s verdict on the defamation count finding Filene’s conduct “interpreted in the light most favorable to the plaintiff, is communicative of criminal wrongdoing and amounts to a statement for purposes of Phelan’s defamation claim,” and also holding that the testimony of witnesses as to “what they saw and what they thought the allegedly defamatory conduct or gesture meant. . . is not mandated” under Massachusetts law. Filene’s filed a petition for further appellate review with the Supreme Judicial Court (“SJC”), which was allowed.
On August 25, 2004, NELF filed with the SJC an amicus brief jointly with Associated Industries of Massachusetts that addressed whether an employer should be held liable for defamation of conduct in its investigation of an employee’s involvement in suspected financial misconduct. The amicus brief made two arguments. First, it argued that where the claim is defamation by conduct, rather than by words, a plaintiff should be required to proffer witness testimony interpreting the conduct as defamatory. Because conduct alleged to be defamatory is inherently fraught with ambiguities, more should be required when such a claim is brought than might suffice where a defamation claim is based on spoken or written words. Second, the amici pointed out that the Appeals Court’s holding in this case, if upheld by the Supreme Judicial Court, would unduly interfere with the efforts of employers to investigate and prevent financial or criminal wrongdoing, workplace violence and theft. The amici pointed out that there are a number of matters of suspected wrongdoing—including employee theft, workplace violence, and sexual harassment—that legitimately require the use of security personnel and often necessarily result in an employee being escorted off of the business’s premises. The Appeals Court’s decision would make all such actions open to a potential defamation by conduct claim. In short, the amici argue, important questions of public interest warrant an affirmance of the Superior Court’s judgment notwithstanding the verdict on the defamation by conduct claim.
On December 16, 2004, the SJC affirmed the judgment of the Superior Court. In its opinion, the SJC recognized, for the first time, “that defamatory publication may result from the physical actions of a defendant, in the absence of written or spoken communications,” but agreed with NELF that where, as here, the defendants’ conduct was “ambiguous and open to various interpretations,” the evidence proffered at trial was insufficient to prove publication of a defamatory statement about Phelan because no interpretive testimony from witnesses to the events had been presented. Having not presented testimony “from at least one coworker who observed . . . [the] actions and interpreted such actions as defamatory,” the SJC found that Phelan had not established the required elements of defamation. Deciding the case on this basis, the SJC did not reach NELF’s second argument or deal with the application of the employer’s conditional privilege to Phelan’s situation.
Phillips v. Pembroke Real Estate, Inc.
Of great interest to both artists and their patrons, this case raised the issue of whether the Massachusetts Art Preservation Act, M.G.L. c. 231, §85S (“MAPA”), protects the placement of site-specific art. Pembroke Real Estate, Inc. leases Eastport Park, in the South Boston Waterfront District, from the Massachusetts Port Authority and manages it as a public park. Pembroke hired David Phillips (“Phillips”), an artist, to help design the park and to create several sculptures to be placed there. After the park was completed, Pembroke decided to modify its design and wished to remove and relocate Phillips’ sculptures to harmonize the park with its new design. Phillips sued Pembroke in federal court for the District of Massachusetts, claiming that Pembroke had no right to remove any of his sculptures from the park under the Visual Artists Rights Act (“VARA”), 17 U.S.C. § 106A and MAPA. The District Court ruled that VARA did not protect the placement of site-specific sculpture, primarily because VARA does not apply to the modification of art resulting from changes in its “public presentation,” including its placement. However, the federal judge concluded that Phillips had a substantial likelihood of showing that MAPA extended to an artwork’s surrounding environment. The court accordingly enjoined Pembroke from moving or making any alteration to Phillips’s works until the conclusion of the litigation. The federal court also certified the question whether MAPA protects the placement of site-specific art to the Massachusetts Supreme Judicial Court (“SJC”).
NELF filed an amicus brief with the SJC in support of Pembroke, arguing that the Massachusetts Legislature’s intent in passing MAPA was is to afford artists reasonable protection for the integrity of their artworks without interfering unreasonably with their patrons’ property rights. Thus, the Legislature struck a reasonable balance between artist and patron by restricting the scope of MAPA to “fine art,” which is defined as “any original work of visual or graphic art of any media . . . of recognized quality.” G.L. c. 231, § 85S(b) (emphasis added). The ordinary definition of “medium” in the art context is the physical material with which the artist creates an artwork. This ordinary, common-sense definition applies to the physical material that the artist employs, but it does not extend to the artwork’s location, which belongs to the property owner, and not the artist. NELF also argued that the federal court had applied the term “media” too broadly to include an art object’s conceptual relationship to the surrounding space. In so doing, the federal court had encumbered the patron’s property rights with a subjective and unrestricted definition of “medium,” thereby upsetting the balance between artist and patron that the Massachusetts Legislature had sought to strike. NELF also argued that the federal court’s decision also implicated the public interest because the artist’s work was located on public property and MAPA should not be construed to grant the artist the power to thwart the public interest by impeding the redevelopment of such property. Finally, NELF argued that, although MAPA allows the patron to obtain a written waiver from the artist regarding the artist’s rights in his work, it would make no sense for MAPA to require the patron to secure a waiver to protect existing property rights in his own land.
In a decision issued on December 21, 2004, the SJC reaffirmed the balance between artistic and property rights that MAPA had accomplished by agreeing with NELF’s position and holding that that MAPA does not protect the removal or “decontextualization” of site-specific art if such removal can be accomplished without physical damage to the work’s crafted components. In reaching its decision, the Court expressly adopted NELF’s argument limiting the statutory term “medium” to an artwork’s physical materials only and rejected the expansion of that term to include the work’s environment.

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