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Bar News - October 3, 2003 Federal Questions By: Eric R. Cioffi A review of First Circuit (and other notable) decisions East Coast v. West Coast: bona fide disputes and subject matter jurisdiction In an involuntary bankruptcy proceeding under 11 U.S.C. 303(b)(1), three companies alleged that they were owed money for work performed on the construction of a hotel for BDC 56, LLC. BDC successfully moved to dismiss the involuntary petition, arguing that it was not insolvent and that a bona fide dispute existed with the creditors regarding the quality of the creditors' work and the amounts allegedly owed by BDC. The Second Circuit affirmed the dismissal of the petition, holding that a bankruptcy court does not have subject matter jurisdiction over a petitioning creditor's claim that is subject to a bona fide dispute under the Code. The Second Circuit explained that "[o]therwise, creditors could, on the basis of relatively untested claims, haul a solvent debtor with whom they have legitimate disputes into bankruptcy court and force it to defend an involuntary proceeding while the bankruptcy court leaves for a later merits determination whether the debtor is even properly before it." The Second Circuit's opinion creates a split with the Ninth Circuit. In re: BDC 56, LLC, No. 02-5029 (2nd Cir. May 21, 2003); Rubin v. Belo Broadcasting Corp., 769 F.2d 611, 614-15 (9th Cir. 1985). It remains to be seen how this circuit split will play out in the First Circuit. Cookie Monster Or Unintentional violator of the ECPA? The First Circuit has revisited the issue of consent in regard to the collection and use of information provided by internet users under the Electronic Communications Privacy Act [ECPA], 18 U.S.C. 2511, 2520 (2000). Briefly, pharmaceutical companies purchased a software application from Pharmatrak that was designed to track the usage and traffic of pharmaceutical company web sites. The companies were emphatic that Pharmatrak's application would not collect personal or identifying data about their web site users. Unfortunately, the "cookies" employed by the application did "gobble-up" personal information, and a class of affected internet users sued Pharmatrak and the pharmaceutical companies under the ECPA, alleging they intercepted electronic communications without their consent. Ruling that by purchasing and using Pharmatrak's application the pharmaceutical companies consented to Pharmatrak's interception of the plaintiffs' use of the internet sites, the district court granted Pharmatrak's motion for summary judgment (the plaintiffs agreed to dismiss the claims against the pharmaceutical companies). The First Circuit reversed, stating that the mere purchase of a software application designed to gather information on internet users is not dispositive, in and of itself, of consent. The undisputed facts led to the conclusion that the pharmaceutical companies did not consent to the information gathering at issue. The Court also noted that the internet users did not consent to any interception of personal information, since the web sites "gave no indication that use meant consent to collection of personal information by a third party." Internet marketing agencies, companies, and cookie monsters beware. In re Pharmatrak, Inc. Privacy Litigation, No. 02-2138 (1st Cir. May 9, 2003). Feds Finally Win One In High Court's Federalism Debate In a 6-3 ruling, the US Supreme Court held that state employees may sue their state employers in federal court for failing to comply with the provisions of the Family Medical Leave Act. Writing for the majority, Chief Justice Rehnquist emphasized that the Leave Act specifically intended to abrogate state immunity in federal court. The opinion is also notable for apparently recognizing that Congress is best-suited for legislating in the area of sex discrimination and gender stereotypes. Nevada Dept. of Human Resources v. Hibbs, No. 01-1368. Editor's Note: This is an occasional column by NH Bar member Eric Cioffi, who concentrates on appellate matters, sampling noteworthy First Circuit cases and referring to cases from other Circuits that may have a bearing on federal practice in New Hampshire. To comment, contact Cioffi at ecioffi@gmsr.com.
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