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9/11 Victims’ Compensation Fund Preempts Litigation Claims

By Kim E. Whittington

In Virgilio v. City of New York, No. 04-1942-CV, 2005 U.S. App. LEXIS 7441, 2005 WL 995461 (2d Cir. April 29, 2005), the Second Circuit Court of Appeals affirmed the dismissal of several survivors’ wrongful death and product liability claims against the City of New York and Motorola, stemming from the 9/11 terrorist attacks. Following the district court’s decision, the Second Circuit held that the claims were preempted by the Air Transportation Safety and System Stabilization Act (“Air Stabilization Act”).
Plaintiffs are the personal representatives of 14 firefighters who lost their lives while responding to the World Trade Center following the 9/11 attacks. Plaintiffs’ complaint focused on the failure of radio-transmission equipment in the North and South Towers that prevented firefighters from receiving evacuation orders before the Towers collapsed. Plaintiffs filed their wrongful death claims against New York City in December 2003. Plaintiffs amended their complaint the following month by suing Motorola, Inc., which manufactured the radio-transmission communication equipment used by the ill-fated firefighters.
Shortly after the attacks, Congress passed the Air Stabilization Act. Pub. L. 107–42, Sept. 22, 2001, 115 Stat. 230, as amended by Pub. L. 107–71, title I, §124(a), (c), (d), title II, §201, Nov. 19, 2001, 115 Stat. 631, 645; Pub. L. 107–134, title I, §114(a), Jan. 23, 2002, 115 Stat. 2435; Pub. L. 107–296, title VIII, §890, title XII, §1201(2), Nov. 25, 2002, 116 Stat. 2251, 2286. This Act specified the legal recourse available to 9/11 victims. It limited the liability of the air carriers involved in the attacks to their insurance coverage. The Act created the Victim Compensation Fund (“Fund”) to provide no-fault compensation to victims who were injured in the attacks and to the personal representatives of victims killed in the attacks. The Act also provided an election of remedies: claimants who filed with the Fund waived their right to sue for injuries resulting from the attacks, except for collateral benefits. Significantly, the amendments to the Air Stabilization Act expanded the liability limits to aircraft manufacturers, those with a proprietary interest in the WTC, and the City of New York.
While the Virgilio claimants’ suit was pending, the federal judge handling all of the 9/11-related litigation issued an order construing the waiver provision of the Airline Stabilization Act and addressing when the waiver via assertion of Fund claims would become effective. In that order, Judge Hellerstein held that “submission” of Fund claims – which triggered the waiver provision – occurs on the earlier of when a Fund filing is substantially complete as determined by the Special Master, or January 22, 2004.
On January 21, 2004, the Virgilio claimants asked the district court to permit them to continue their lawsuit despite having filed claims with the Fund. Alternatively, the claimants asked the court to stay Judge Hellerstein’s earlier orders requiring dismissal of cases brought by 9/11 victims with Fund awards pending as of January 22, 2004. After a hearing on the issues, the district court denied the claimants’ motion, finding that the Act’s waiver provision barred the suit against the City or Motorola: “the plaintiffs’ claims against both the City and Motorola are subject to the limitation on civil actions provided for in Section 405(c)(3)(B)(i) of the statute.”
On appeal, the Second Circuit affirmed. According to the Court, the district court correctly interpreted the Act’s purpose in balancing the interests of both the victims of 9/11 and the potential defendants in 9/11-related litigation:
“While the potential liability to the air carriers and airplane manufacturers involved was monumental, the prospect for recovery by the victims and their families was not certain. A verdict against the air carriers or other potential defendants, such as the City or Motorola, was not guaranteed. In addition, the scope of liability was so substantial that the prospect of Bankruptcy Court for the air carriers was real. In order to provide the certainty of recovery for victims and their families, Congress created the Fund, which provides loss-based awards without an assessment of fault or responsibility for the loss. * * * In our view, there is no inconsistency in compensating victims and their families at a price of complete litigation peace.”
In affirming the district court’s reading of the Act, the Second Circuit recognized that the plain language of section 405 of the Act preempted claimants in the Victim Compensation Fund.

Kim E. Whittington is a solo practitioner in Houston. She is a former prosecutor with the Harris County District Attorneys’ Office, and a former trial attorney with the Union Pacific Railroad Company.

When Jurisdiction and Venue Clash in Probate Court

By DON D. FORD III

In Gonzalez v. Reliant Energy, Inc., Nos. 03-0469, 03-0470, 2005 Tex. LEXIS 212, 2005 WL 563092 (Tex. March 11, 2005), the Texas Supreme Court addressed the conflict that appears to have existed between the Texas Probate Code and the Texas Civil Practice and Remedies Code as to when a statutory probate court has the right to hear certain lawsuits (like wrongful death and medical malpractice cases) when those actions involve a deceased individual whose probate estate administration is pending in the probate court.
In this case, Guadalupe Gonzalez, Jr. was a resident of Hidalgo County. However, he was killed in a job-related accident when working for Reliant Energy in Fort Bend County. Following his death, Gonzalez’s wife opened a probate administration of his estate in the statutory probate court of Hidalgo County. She thereafter filed suit for wrongful death in Hidalgo County on the basis that Sections 5A and 5B of the Texas Probate Code authorize the Probate Court to hear all matters incident to his estate, including the wrongful death action.
Reliant Energy objected to the trial of the wrongful death action in Hidalgo County. Although the probate court may have proper jurisdiction, Reliant argued, the plaintiff still lacked proper venue in Hidalgo County. Reliant also argued that venue was mandatory in either Harris or Fort Bend County because (1) its principal place of business was in Harris County, and (2) the accident occurred in Fort Bend County. The probate court denied Reliant Energy’s motion to transfer venue.
After lengthy and complex procedural maneuvering, the Court of Appeals considered two interlocutory appeals. The Supreme Court considered the same issues, and in a unanimous decision, the Court determined that even where a statutory probate court may have proper jurisdiction to hear a case, the probate court must also be a proper venue in which the case may be brought.
The Court recognized the undisputed facts. First, the Hidalgo County Probate Court had proper jurisdiction and venue under Sections 5 and 6 of the Probate Code to conduct the estate administration. Likewise, the Court noted that the Hidalgo County court had proper jurisdiction of the case pursuant to Section 5A(b) of the Probate Code, which was amended in 1985 to specifically give jurisdiction to probate courts to hear wrongful death and survival actions.
However, on the question of venue, the Court looked to Section 15.002 of the Civil Practice and Remedies Code and found that none of its provisions would allow for venue in Hidalgo County. Moreover, the Court found no provision in the Probate Code that would override the general venue provisions and provide proper venue in Hidalgo County. Although Gonzalez attempted to argue that 1999 revisions to the Probate Code authorized unfettered authority to transfer wrongful death cases to the probate courts, the Supreme Court rejected this argument.
As a result of this case, future transfers of wrongful death, survival, and similar cases from a district or county court to a statutory probate court are proper only if the county in which the probate court lies is a proper venue to hear the case. Therefore, regardless of whether the probate court has jurisdiction, it must also be a proper venue.

Don D. Ford III is a partner with Ford & Mathiason LLP practicing in the areas of Estate Planning, Probate & Guardianships. He is a member of the editorial board of The Houston Lawyer.

Court Protects Ability of Public Employee to Bring Suit Under Whistleblower Act

By Megan M. Cooper

In University of Texas Medical Branch at Galveston v. Barrett, the Texas Supreme Court determined that a public employee’s failure to comply with a statutorily imposed waiting period before filing suit did not deprive the court of jurisdiction in a Texas Whistleblower Act lawsuit; rather, the court abated the prematurely filed suit until the completion of the waiting period. No. 03-0827, 2005 Tex. LEXIS 213, 2005 WL 563094 (Tex. March 11, 2005). In doing so, the Court protected the ability of public employees to seek relief under the Act even if they initially fail to comply with the Act’s procedural requirements.
According to the Whistleblower Act, “[a] public employee must initiate action under the grievance or appeal procedures of the employing state or local governmental entity relating to suspension or termination of employment or adverse personnel action before suing under this chapter.” Tex. Gov’t Code Ann. § 554.006(a) (Vernon 2004). The statute further states that the employee may file a lawsuit “[i]f a final decision is not rendered before the 61st day after the date procedures are initiated.” Tex. Gov’t Code Ann. § 554.006(d). The plaintiff in Barrett filed a lawsuit only 27 days after he initiated grievance procedures regarding the termination of his employment. The employer asserted that the employee’s premature lawsuit deprived the trial court of jurisdiction and that the court should dismiss the lawsuit. The court rejected the employer’s argument, reasoning that abatement of the action until the end of the 60-day period would adequately preserve jurisdiction so long as (i) the employee initiated grievance procedures in a timely manner and (ii) the grievance procedures could continue for the required 60 days or until a final decision is rendered.
While the court’s decision in Barrett does not contradict the language in section 554.006 (d), its interpretation is not obvious. Section 554.006(d) does not explicitly require an employee to delay action until the end of the 60-day period; the Barrett decision arguably creates a remedy that did not previously exist for public employees. The statute’s language anticipates the filing of a lawsuit when “a final decision is not rendered before the 61st day.” Before the Barrett decision, Texas courts had dismissed lawsuits filed prematurely under section 554.006(d) for lack of jurisdiction. The Barrett court, however, expressly disapproved of those cases. After the Barrett decision, public employees who file lawsuits before the waiting period expires may be able to continue to seek relief.

Megan M. Cooper is an associate with the Labor and Employment group of Haynes and Boone, LLP. She is a 1997 cum laude graduate of the University of Notre Dame. In 2003, she graduated cum laude from Creighton University, where she was the editor-in-chief of the Creighton Law Review.

Lawyers Lose Liberated Loot

By Fred A. Simpson

The recent case of Federal Trade Commission v. Assail, Inc., No. 03-51461, 2005 U.S. App. LEXIS 9110, 2005 WL 1181092 (5th Cir. (Tex.) May 19, 2005), provides a cautionary tale for lawyers hired to represent clients charged in civil actions by federal agencies. The message here is to be absolutely sure that client retainers are paid from “untainted” funds.
This appeal concerned two lawyers who served related clients accused by the FTC of perpetrating a massive fraud under an unlawful telemarketing scheme. Despite a TRO, the court’s freezing of all client assets and the appointment of a receiver, the clients managed to give their lawyers about $ 700,000 in cash as retainers, all before the receiver gained control of the clients’ assets. The clients told their lawyers that the funds were not “tainted” by the alleged telemarketing fraud.
Even though the lawyers filed fee applications after performing services for their clients, the court compelled the attorneys to turn over the retainer fees because the clients paid them in violation of the court-ordered asset freeze. The lawyers appealed.
Reviewing for an abuse of discretion, the Fifth Circuit found that the freeze order was broad enough in its general description of affected individuals to cover the retainer fees, despite arguments of ignorance of the order and claims that the lawyers had no duty to inquire about the retainers’ source. The Court reviewed many of the rules pertaining to criminal matters, including the RICO rules, and characterized the retainer payments here as being akin to situations where officers of the court accept fees from criminal activity, “the fruits of a crime.” The Court approved the concept that “an attorney must audit a client sufficiently [before accepting potentially tainted fees] so as to avoid becoming part of a criminal scheme that includes disposing of ill-gotten gains.”
In addition, the Court found it inconceivable that when a lawyer knows that his client is accused of telemarketing fraud, with assets subsequently frozen, that the client could be paying a large retainer to a lawyer out of unrelated resources. Lawyers faced with those circumstances have a strong duty of inquiry and cannot hide behind an excuse of “ignorance.” Thus, any claims of bona fide purchaser for value are defeated. Moreover, lawyers must investigate whether they are violating an existing court order of which they have notice or knowledge.
Finally, the Court rejected the lawyers’ argument that their clients were denied their Sixth Amendment rights to counsel. According to the Court, the Sixth Amendment applies only to criminal cases. Due process arguments also failed as a “red herring” because the lawyers were never held in contempt of court. And even if they had been held in contempt, there was adequate notice of the proceedings and substantial opportunity to be heard.

Fred A. Simpson is a litigation partner at Jackson Walker L.L.P. He is a member of the editorial board of The Houston Lawyer.

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