Wednesday, September 28, 2011

The Second Circuit applies a "straight-face" test

Today I saw a good guide that I'll recommend to my students as they learn to develop legal arguments: the "straight-face" test.

The Second Circuit recently applied it in Johnson v. Nextel Communications, Inc. In that case, clients had retained a law firm to sue Nextel for discrimination. But the firm may never have intended to file suit: instead, it entered into an agreement with Nextel to settle the claims cheaply and receive millions of dollars from Nextel. The clients sued both the law firm and Nextel, alleging that the agreement between the two involved improper collusion. The district court dismissed the complaint for failure to state a claim.

On appeal, the law firm argued that Nextel’s payments to it were part of a legitimate settlement that simply included attorneys' fees. However, because the payments were not tied to a recovery for the clients, the Second Circuit rejected that argument as not passing “the straight-face test.” The court vacated the dismissal.


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