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Articles for
February 1998

Illinois Supreme Court
1997 Term
The Court Flexes its Muscle

Standing Erie on its Head:
Should Federal Law Govern
Pleading Standards for
Section 1983 Civil Rights
Claims Brought in the State
Courts of Illinois

Employment Contracts Quiz

The New Local Mediation
& Evaluation Program:
Mediation Quality Assurance
Issues Raised

Alfred E. Woodward
A Life in the Law

© 1996 - 2003
DuPage County
Bar Association
All Rights Reserved.

U.S. Supreme Court - 1996 Term
Cases of Significance to Local Practitioners

By Leonard B. Mandell

The U.S. Supreme Court heard arguments in eighty-three cases this term. Eight cases on the docket fell within the Court’s mandatory appellate jurisdiction, including several federal statutes that were subjected to constitutional scrutiny and failed to satisfy the Court. One case challenged the Communications Decency Act, provisions of which mandated that using the Internet to present sexually explicit material to persons under eighteen years of age was a felony. The Court found the Act to be unconstitutional as a violation of free-speech rights guaranteed by the First Amendment. (Reno v. American Civil Liberties Union).

In addition, the Brady Handgun Violence Prevention Act, designed to prevent ineligible persons from purchasing handguns, was struck down as inconsistent with the Constitutional allocation of power between the state and federal governments. (Printz v. United States and Mack v. United States). The Religious Freedom Restoration Act came up short as it exceeded Congress’ powers under the Fourteenth Amendment by intruding on the Court’s authority to interpret the Constitution and infringing on the sovereignty on the states. (City of Boerne, Texas v. Flores). However, state-laws concerning banning "assisted suicide" were upheld by the Court. (Vacco v. Quill and Washington v. Glucksberg).

The Court also reviewed a challenge to the Line Item Veto Act as a separation-of-powers issue. However, the Court did not reach the merits of the case, ruling that the congressional challengers lacked standing to challenge the Act. (Roines v. Byrd) (This issue may now be ripe as the veto has been recently exercised).

The Court reviewed the remaining seventy-five cases from its discretionary docket. While the Court selects cases for a variety of reasons, usually the case is taken to settle conflicts between federal decisions in the lower courts. In perhaps one of the highest profile cases this term, Clinton v. Jones, the Court ruled that Paula Jones could continue her suit for sexual harassment against President Clinton while he is in office, for acts allegedly occurring before he was elected President.

Of course, many attorneys do not practice constitutional law on a daily basis. With that in mind, this article details five U.S. Supreme Court cases relating to issues that may arise in the general practice of law.

Ohio v. Robert D. Robinette, 65 U.S.L.W. 4013 (1997).

ISSUE: What must occur to turn a valid seizure of a motorist into a consensual encounter? (Officer, do I have to ask if I can go now?)

DECISION: Deputy Roger Newsome of the sheriff’s office of Montgomery County, Ohio, was a patrol officer. His usual practice after stopping a speeding motorist was to check the license and registration and allow the motorist to leave with a warning. On August 3, 1992, Newsome stopped Robert Robinette’s vehicle after his radar showed Robinette traveling at 69 miles per hour in a 45 mile per hour construction zone.

Newsome, a member of a highway drug-interdiction program, also had a second practice—to ask a stopped motorists whether they had illegal drugs or weapons. Newsome would also ask for permission to search the vehicle.

Newsome employed both practices with Robinette. He checked Robinette’s documents and found them to be valid, with no outstanding violations. Newsome asked Robinette to join him at the rear of the vehicle to videotape their conversation. The videotape showed Newsome returning the documents and giving Robinette the usual warning. Newsome then said, "one question before you get gone [sic] . . .," and asked Robinette whether he possessed any contraband in the car. Robinette replied that he did not. Newsome specifically asked Robinette, "Would you mind if I search your car?" Robinette told the officer to "go ahead." Robinette also indicated that he had no problem with Newsome searching his vehicle.

Unfortunately for Robinette, Newsome found a small amount of cannabis and one tablet of methylenedioxymethamphetamine (MDMA). Robinette was charged with possession of drugs. At a hearing in the trial court, Robinette filed a motion to suppress the evidence; the court denied the motion. The trial court determined that Robinette voluntarily consented to the search based upon the videotape and Robinette’s testimony.

Robinette pleaded no contest and appealed; the Ohio appellate court reversed. The appellate court stated that a reasonable person in Robinette’s position would not believe they were free to leave during the officer’s questions. The appellate court held that Robinette’s "consent" to the search resulted from an unlawful detention, and Robinette’s motion to suppress the drugs should have been allowed.

The Ohio Supreme Court affirmed, stating that a police officer must notify motorists detained that the stop is concluded and that they are free to leave. Without such a warning, the officer cannot obtain a valid consent to a search during a traffic stop. The court, in announcing a per se rule, said it would find a variety of warnings acceptable; however, some warning must be given before any consent could be viewed as constitutionally acceptable.

The Supreme Court reversed, ruling that per se rules are generally unacceptable in search and seizure cases. In an 8-1 decision, the Court concluded that no such warning was necessary to make consent to a search reasonable. The key component to the Fourth Amendment is reasonableness, and reasonableness can be evaluated by a "totality of the circumstances" standard, rather than by rigid per se rules. Thus, the Court remanded the case back to the Ohio courts with instructions to apply the relevant "totality of the circumstances" standard.

BOTTOM LINE: Robinette returns to the Ohio trial court with a Supreme Court ruling to apply to his motion to suppress.

Maryland v. Wilson, 65 U.S.L.W. 4283 (1997).

ISSUE: Does a police officer’s automatic right to order a driver to exit a vehicle during a lawful traffic stop extend to a passenger in the vehicle? (Officer, you want my buddy out, too?)

DECISION: On June 8, 1994, Maryland State Police Trooper David Hughes was alone on traffic patrol north of Baltimore. At approximately 7:30 p.m., Trooper Hughes observed a white 1994 Nissan Maxima driving at a high rate of speed. Hughes pursued and followed the vehicle for one mile, timing its speed. The trooper estimated the Nissan to be traveling 64 miles per hour in a 55 miles per hour zone. Hughes also observed a paper tag, which signified a rental car.

Trooper Hughes activated his siren and flashing lights and continued to pursue the vehicle for an additional mile and a half. During the pursuit, Hughes observed two passengers repeatedly looking back and ducking down. The passengers continued to move in the vehicle as it came to a stop.

Trooper Hughes exited his patrol car, and as he approached the vehicle, Mr. McNichol, the driver, had already left his vehicle and was walking toward the patrol car. McNichol produced a valid driver’s license, but explained that the registration was inside the rented Nissan. Hughes directed McNichol to retrieve the registration.

McNichol acted nervously and when he returned to the Nissan, the passenger occupying the front seat, Wilson, also acted distressed. Trooper Hughes ordered Wilson out of the vehicle. As Wilson opened the passengers’ door, Hughes observed what appeared to be crack cocaine fall to the ground. Hughes drew his firearm and arrested Wilson and McNichol for drug possession.

Wilson subsequently filed a motion to suppress the evidence, and argued that the order for him to exit the vehicle was an unreasonable seizure under the Fourth Amendment because he was merely a passenger. Wilson was victorious in Maryland trial court and the Maryland Court of Special Appeals; both courts ordered the suppression of the crack cocaine as evidence.

The Supreme Court reversed, citing Pennsylvania v. Mimms, as precedent. The Mimms Court held that during a lawful traffic stop, a police officer has an automatic right to order the driver out of the vehicle. The Court reasoned that even without a specific threat or law enforcement reason to issue an order to exit, the potential threat to an officer that a driver might be armed would clearly trump the driver’s Fourth Amendment rights. The Supreme Court concluded that an additional order to exit was a minimal intrusion given the lawful intrusion already commenced by the routine, legal traffic stop.

After revisiting Mimms, the Court decided to extend the rule to passengers, noting that passengers also pose a risk to law-enforcement personnel. The Court noted that passengers have access to weapons inside the vehicle while the officer is attending to the driver. The Court cited statistics showing the large number of assaults against officers and eleven deaths that occurred during lawful traffic stops since 1994, observing that lawful traffic stops have become increasingly more dangerous. Weighing this threat to an officer’s safety against the minimal intrusion on a passenger’s privacy through an order to exit the vehicle, the Court concluded that, just as in Mimms, the officer has an automatic right to order a passenger out of the car during a lawful traffic stop.

BOTTOM LINE: Maryland can prosecute Wilson on the drug charges and use the crack cocaine seized by Trooper Hughes as evidence. This decision means that all passengers must follow an exit order from an officer during a lawful traffic stop.

Richards v. Wisconsin, 65 U.S.L.W. 4124 (1997).

ISSUE: Whether it is reasonable under the Fourth Amendment for police to dispense with the knock-and-announce rule in all felony drug cases when they possess a search warrant based on a belief that the occupants are engaged in drug transactions? (Knock, knock—do I have to?)

DECISION: On the morning of December 31, 1991, police officers received a warrant to enter a motel room in Madison, Wisconsin, occupied by Steiney Richards. The search was for cocaine and any other evidence related to felony possession of cocaine suggesting an intent to deliver. The warrant was based on probable cause: Richards had a prior arrest for possessing cocaine; bags used for packaging were found in another room used by Richards; and an informant had supplied information. The validity of the warrant was not disputed.

When they arrived, one officer, disguised as a maintenance worker, knocked on the door. Richards opened the door, saw another police officer behind the disguised worker, and slammed the door shut. The officers then forced their way in, without knocking on the door or announcing that they were police officers executing a warrant.

At trial, Richards moved to suppress the evidence, arguing that his Fourth Amendment rights were violated by the officers’ failure to knock and announce their presence or intentions. The trial court denied Richards’ motion, citing the Wisconsin Supreme Court decision in Wisconsin v. Stevens, 511 N.W.2d 591 (Wis. 1994). The Stevens court recognized that, in general, police must follow the knock-and-announce rule for executing search warrants. However, they specifically held that for all felony drug cases, a no-knock entry would comply with the Fourth Amendment requirements because the physical danger to police officers and the likelihood of destroying evidence would outweigh the suspect’s privacy rights.

Richards pleaded no contest and received a thirteen year prison term for possession of cocaine. An intermediate court denied Richards’ motion to suppress and affirmed his conviction; he appealed to the Wisconsin Supreme Court (549 N.W.2d 218 (Wis. 1996)).

Prior to the Wisconsin high court’s decision, the U.S. Supreme Court handed down a unanimous decision in Wilson v. Arkansas, 514 U.S. 927 (1995). In Wilson, the Court decided that the Fourth Amendment encompasses the common law rule that before officers execute a warrant to search a person’s home and make a forced entry, they must knock on the door and announce their presence and intent to perform a search. The Court noted that circumstances could arise which might justify an exception; the justices left the application of the no-knock exception open for the lower courts to decide on a case-by-case basis.

The Wisconsin Supreme Court reviewed Richards’ case to determine whether its prior holding in Stevens was constitutional, given the Wilson decision. The state supreme court determined that the blanket, felony drug-search exception to the knock-and-announce rule formulated in Stevens was still valid in light of Wilson.

Richards appealed to the U.S. Supreme Court where he was successful in overruling Stevens, but unsuccessful in winning his own case. The Court reaffirmed their knock-and-announce rule in Wilson, rejected the blanket exception from Stevens, and held that police must justify their disregard for the knock-and-announce rule on a case-by-case basis. Unfortunately for Richards, the Court held that his forceful closing of the door in the faces of identified police, along with the potential for destruction of evidence, made the no-knock entry in this case valid under the Fourth Amendment.

BOTTOM LINE: Wisconsin can proceed against Richards for his drug offenses. Police must justify no-knock entries in all cases; in drug cases, it should not prove to be much of an obstacle.

Associates Commercial Corporation v. Rash, 65 U.S.L.W. 4451 (1997).

Docket No. 96-454

ISSUE - What is the appropriate valuation method for collateral retained by a bankrupt debtor under Section 506(a) of the Bankruptcy Code? (What does "cram down" in bankruptcy mean?)

DECISION: In 1989, Elray Rash bought a commercial tractor truck from Janoe Truck Sales (Janoe) for $73,000. Rash used the truck in his freight hauling business, his primary source of income. After making a down payment, Rash negotiated an installment loan contract for the balance. Janoe retained a security interest in the truck and assigned it and its other rights to Associates Commercial Corporation (ACC).

In 1992, Rash and his wife filed a joint petition and repayment loan under Chapter 13 of the Bankruptcy Code (11 U.S.C. § 1301-1330 (1994)). In their petition, the Rashes listed ACC’s secured claim in the truck at $28,500, the wholesale value at the time. The Rashes owed $41,000 on the truck under the assigned loan agreement with ACC, and ACC had the right to repossess and sell the vehicle. The Rashes claimed $28,500 was the price ACC could receive in a foreclosure sale.

The first rub in this case arose when the Rashes decided they wanted to keep the truck. Under Chapter 13 they could, even if the creditor objected. Section 1325(a)(5)(B), known as the "cram down" provision, allowed the Rashes to retain the truck and pay ACC the current value of the truck over the period of time stated in the initial agreement.

The next complication arose in the determination of the truck’s value. In their petition, the Rashes used the estimated value of the truck in a foreclosure sale. ACC’s position was the appropriate amount for the truck was the value to the Rashes based on the use of the truck in Mr. Rash’s hauling enterprise. The Rashes’ expert placed the foreclosure value at $31,875. ACC’s expert estimated the truck’s value to Rash’s business at $41,000, the price of a replacement truck.

The Fifth Circuit determined the appropriate value under the cram down provision to be the foreclosure price. The Bankruptcy Code mandates that the creditor’s perspective controls. Because the creditor’s fundamental right in the case of non-payment is repossession and sale, that is the value to be used for property serving as collateral.

Much to the Rashes dismay, the Supreme Court reversed. The Court focused on the language in section 506(a), stating that the value of retained collateral under the cram down provision is to be determined by the "proposed disposition and use of such property." 11 U.S.C. §506(a). In a cram down situation, a creditor must accept the debtor’s decision to keep the collateral, and face the reality of a future default. In addition, the value of the collateral declines during its continued use. Therefore, the replacement value of the truck governs the term of the repayment plan. This decision will be a boon to creditors caught in a cram down option; creditors will receive the usually higher replacement value of collateral while losing their right to immediate repossession and sale, unless there is another default.

BOTTOM LINE: Mr. Rash continues to haul freight in his truck and ACC gets the replacement value of the truck.

Docket No. 96-842

ISSUE: Whether securities trading by a non-insider based on misappropriated confidential information violates SEC Rules? (I heard it through the grapevine)

DECISION: In July, 1988, Minnesota’s largest and one of its most prestigious law firms, Dorsey & Whitney, (Dorsey) (Walter Mondale was a partner until he was appointed ambassador to Japan) was retained by a British corporation, Grand Metropolitan PLC (Grand Met) to represent Grand Met in a possible tender offer for Pillsbury Company (Pillsbury) stock.

During August and September, James O’Hagan, a partner in Dorsey, purchased "call option contracts" for Pillsbury stock. Each contract entitled O’Hagan to buy 100 shares of Pillsbury stock at a fixed price by exercising the option before expiration. O’Hagan also purchased 5,000 shares of Pillsbury stock for approximately $39 per share. Some of the purchases occurred after a conversation O’Hagan had with another partner who had been working on the tender offer.

According to the Government, Dorsey had taken several steps to limit knowledge of the transaction to those lawyers working on the case. However, O’Hagan volunteered to work on the deal to confirm the likelihood of the tender offer. On October 4, 1988, Grand Met announced its tender offer for Pillsbury stock. After the announcement, Pillsbury stock rose from $39 to $60 per share. At the time, O’Hagan had accumulated 2,500 call option contracts entitling him to purchase 250,000 shares of Pillsbury at prices well below $60 per share.

O’Hagan exercised his options, sold his 5,000 shares outright, and made a tidy profit in excess of 4.3 million dollars. O’Hagan used the profit to replenish funds he had improperly withdrawn from client trust accounts. (In Minnesota state court, O’Hagan was convicted on state charges related to his misuse of client funds. He served 30 months in prison and was disbarred).

After an SEC investigation, O’Hagan was indicted on 57 counts including 17 counts of securities fraud in violation of Section 10(b) and Rule 10b-5, in addition to Section 14(e) and Rule 14e-3(a).

A jury convicted O’Hagan on all charges and he received a 41-month sentence of imprisonment. On appeal, the U.S. Court of Appeals for the Eighth Circuit reversed on all counts. The court rejected the Government’s misappropriation theory to support convictions under Section 10b and Rule 10b-5. The court also reversed the convictions under Section 14(e) and Rule 14e-3(a) because the Rule did not include a breach-of-fiduciary-duty requirement.

The Supreme Court reversed the Eighth Circuit decision on both issues. First, with regard to the Section 10(b) and Rule 10b-5 securities fraud charges, the Court approved the misappropriation theory. The Court interpreted both the statutory provision and the Commission’s Rule to prohibit any deception using interstate commerce of the mail in connection with the purchase and sale of any security. The Court held that it isn’t necessary that the deception involved be of a purchaser or seller of a security; all that is required is that there has been a deception related to a securities transaction.

The Court’s analysis focused on O’Hagan’s status and found that he had a fiduciary duty to his firm as well as to Grand Met because it was a client of the firm. Turning to Section 10(b) and SEC Rule 10b-5, O’Hagan’s actions were held to be deceptive because he was abusing his role as a fiduciary to gain the non-public, confidential information about Grand Met’s tender offer. In addition, O’Hagan misappropriated the deceptively obtained information to use in trading the stock of the takeover target (Pillsbury) for his own gain. In short, O’Hagan satisfied the Rule 10b-5 requirement that the deception be connected to a securities transaction.

The Court also upheld the convictions under SEC Rule 14e-3(a) which defines it as a fraudulent, deceptive, or manipulative act for anyone to use non-public, material information relating to a tender offer to trade in the securities involved in the proposed tender offer. The Court viewed Rule 14e-3(a) as a practical method to deter deception and fraud in relation to tender offers, and it is within the SEC’s power under Section 14(e) to issue rules designed to "prevent such acts and practices as are fraudulent, deceptive, or manipulative."

BOTTOM LINE: O’Hagan returns to the Eighth Circuit for arguments that he had raised earlier but that the appeals court did not rule on. Stay tuned.

Next term the Court’s docket should be closely watched as the Justices decide whether same-sex sexual harassment in the workplace is actionable under Title VII (Oncale v. Sandowner Offshore Service, 96-568). The Court will also review a per se ban on polygraph evidence in the Armed Forces (U.S. v. Sheffer, 96-1133). In addition, the Court will review an official’s assertion of qualified immunity (Crawford-El v. Britton, 96-827) and tackle a case of reverse discrimination in employment (Taxman v. Piscataway Twp. Bd. of Ed., 96-679).