Business Litigation Alert

Business Litigation Alert

Practical Perspectives on Litigation Developments & Trends

Appellate Division Rules Arbitrator Exceeds Powers by Modifying Award to Add Unaddressed Claims

Posted in General Litigation

In a recent unpublished opinion, the Appellate Division ruled that, although an arbitrator may modify an award to fix technical errors, he cannot include relief for claims not addressed in the original award, even if the failure to address those claims was due to an oversight by the arbitrator. In Merion Construction Management, LLC v. Kemron Environmental Services, Inc., subcontractor Kemron commenced arbitration alleging that although Kemron had substantially performed its obligations, contractor Merion had not paid its invoices. The arbitrator agreed with Kemron and awarded $873,758.56.

Not satisfied, Kemron requested that the arbitrator reconsider his award to compensate for what it called “two unaddressed items”: (1) a 5% retainage of $198,006.43 and (2) $46,497.00 for an eighth invoice. Over Merion’s objection, the arbitrator modified his award on the ground that he had made two “computational errors.” Upon the parties’ consolidated motions to confirm and partially vacate, the Superior Court determined that the arbitrator was authorized to make these “computational” modifications.

The Appellate Division, however, disagreed, noting the original award had stated that “[a]ny other claims in this matter not specifically mentioned above are denied[]” and that “[a]ll claims not expressly granted herein are hereby, denied.” Given these statements, coupled with the award’s silence on the issues of the retainage amount and eighth invoice, the Court held that the arbitrator exceeded his powers, thus entitling Merion to have the award vacated in part under the Uniform Arbitration Act, N.J.S.A. 2A:23B-23(a)(4). The Court did not agree that the modifications addressed “computational errors” because the award did not reference the underlying claims at all. Citing Wein v. Morris, 194 N.J. 364, 385 (2006), the Court ruled that “[a]n arbitrator exceeds his powers when under the guise of computational or technical errors he modifies an award to include claims not addressed in the original award, even if the failure to do so was due to inadvertence, where the award expressly denied all claims for relief not otherwise mentioned.”
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Takeda Part Two: Destroy Evidence, Pay the Price — Eli Lilly and Takeda Pharmaceutical Co. Get Hit For $9 Billion Punitive Damages Verdict

Posted in E-Discovery

Recently, in In re Actos (Pioglitazone) Products Liability Litigation, MDL No. 11-2299, a Louisiana federal jury awarded $9 billion in punitive damages against Takeda Pharmaceutical Co. (“Takeda”) and Eli Lilly & Co. (“Lilly”). The verdict was delivered on the heels of Judge Rebecca Doherty’s January opinion, previously covered by this blog, which lambasted Takeda for failing to (1) enforce its own litigation hold and (2) follow its document retention procedures, which led to the destruction of relevant evidence that Judge Doherty found would have likely been beneficial for the plaintiffs’ case.

The verdict represented the first federal jury decision in multidistrict litigation against Takeda – Asia’s largest drug company – and Lilly, its American partner. The plaintiffs alleged that the companies actively concealed the cancer risks of the diabetes drug Actos. Takeda was hit for $6 billion, while Eli is responsible for $3 billion. Despite the massive verdict, the jury only found that the plaintiffs were entitled to $1.5 million in actual damages.

It is highly likely that Judge Doherty’s opinion played a substantial role in the jury’s decision making. Although she has not yet imposed any formal sanctions as a result of Takeda’s destruction of relevant documents and emails, she instructed the jury after closing arguments Monday that they could take Takeda’s evidence spoliation into account. Additionally, throughout the trial, the jurors were exposed to voluminous evidence detailing Takeda’s conduct in destroying the relevant evidence.

While Takeda and Lilly may succeed in getting the punitive damage verdict greatly reduced, Takeda’s spoliation may continue to haunt it. Since this is a multidistrict litigation, this issue is certain to arise in future trials. Regardless of the future ramifications, the Actos matter acts as yet another reminder to companies of the importance of following proper document retention procedures. Further, organizations are reminded to follow the terms of their own litigation holds, and appropriately draft their scope. Failure to do so may result in drastic consequences.

Christian A. Stueben is an Associate in the Gibbons Business & Commercial Litigation Department and a member of the Gibbons E-Discovery Task Force. This blog originally appeared on Gibbons E-Discovery Law Alert.

Takeda Part One: Prelude To Disaster? — Takeda Can’t Narrow Its Broadly-Written Litigation Hold

Posted in E-Discovery

An opinion from Judge Rebecca Doherty in In re Actos (Pioglitazone) Products Liability Litigation, MDL No. 11-2299, provides valuable lessons on the consequences of drafting overly-broad litigation hold notices, as well as the importance of providing evidence from knowledgeable witnesses in defense of document retention procedures.

In a Rule 37 and spoliation motion, the plaintiffs alleged that defendants, Takeda Pharmaceuticals U.S.A., Inc. and several of its affiliates in the United States, Japan, and Europe (collectively “Takeda”), purposefully deleted the files of 46 former employees, including several high-level officers. The plaintiffs sought a default judgment or, in the alternative, a combination of sanctions that included an adverse inference jury instruction, cost-shifting, and a fine.

The court first addressed whether Takeda had a duty to preserve the deleted information and, if so, when that obligation arose. Takeda argued its obligation was triggered on February 15, 2011, when it issued a litigation hold notice specifically limited to bladder cancer product liability litigation. However, Takeda acknowledged that liability claims involving Actos (the product at issue) went back as far as 2002 and that the company had issued a “general Actos ‘products liability’ litigation hold” in July 2002 in connection with litigation over liver injuries. Importantly, the broadly-written 2002 litigation hold, which was subsequently “refreshed” five times, instructed recipients to “preserve any and all documents and electronic data which discuss, mention, or relate to Actos,” and it explicitly stated that the hold was to be interpreted “in its broadest sense to prevent the deletion or destruction of any recorded information and data relating in any way to Actos.” Takeda argued that, despite the clear language to the contrary, the 2002 litigation hold was limited to information relating to liver injuries and, therefore, the company did not have an obligation to preserve information related to bladder cancer at that time.
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New York Court of Appeals Reconsiders and Holds That an Insurer May Invoke Policy Exclusions Despite Wrongful Refusal to Defend

Posted in Insurance

The New York Court of Appeals has vacated its recent decision in K2 Investment Group, LLC v. American Guarantee & Liability Insurance Co., reverting to the majority position that an insurer breaching its duty to defend an insured is not barred from relying on policy exclusions to defend a later claim for indemnification.

The case originated from a related lawsuit where K2 Investment Group, LLC and ATAS Management Group, LLC (collectively, the “LLCs”) sued an attorney for legal malpractice. The attorney’s insurer, American Guarantee & Liability Insurance Company (“American Guarantee”), refused to defend, which refusal was later conceded to be wrongful. After defaulting, the attorney assigned his rights against American Guarantee to the LLCs which, in turn, filed the present action against American Guarantee seeking to enforce the insurer’s duty to indemnify and to recover damages based upon its bad faith refusal to defend and settle the initial claim. American Guarantee argued it had no duty to indemnify, citing certain exclusions contained in the policy. The Supreme Court granted summary judgment to the LLCs on the breach of contract claim but dismissed the bad faith claim. The Appellate Division affirmed.

The New York Court of Appeals affirmed initially, holding that “when a liability insurer has breached its duty to defend its insured, the insurer may not later rely on policy exclusions to escape its duty to indemnify the insured for a judgment against him.” K2 Inv. Group, LLC v. Am. Guar. & Liab. Ins. Co., 21 N.Y.3d 384, 387 (2013), vacated and reversed by Slip Op. No. 6, February 18, 2014. The Court reasoned, “American Guarantee, having chosen to breach its duty to defend, cannot rely on policy exclusions to escape its duty to indemnify.” Id. at 391.
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New Jersey Law Journal Names Gibbons the 2014 “General Litigation Department of the Year”

Posted in General Litigation

The New Jersey Law Journal has named Gibbons P.C. the “General Litigation Department of the Year” for 2014, the top award presented in its second annual “Litigation Departments of the Year” awards program. The general litigation award recognized the firm’s litigation strength in several areas, including commercial litigation, products liability, employment, intellectual property, and media law. In 2013, the firm’s Business & Commercial Litigation Department was named the “Commercial Litigation Department of the Year” in the same awards program.

The 2014 award also recognized the extensive value-added services Gibbons offers litigation clients, including its E-Discovery Task Force, comprehensive Litigation Support Department, innovative and custom alternative fee arrangements, and recruitment focus on former judicial clerks and retired jurists.

The competition was open to any law firm with a litigation practice and New Jersey presence. According to Ronald J. Fleury, Editor in Chief of the New Jersey Law Journal, “In just the second year that the Law Journal has been rating law firm litigation departments based on their recipes for success, participation among firms was noticeably more enthusiastic, and consequently, competition was keener. It was no easy task deciding on winners and finalists among a field of such strong contenders.”

“The cases we have litigated for clients in the past year address some of New Jersey’s more significant projects and hot-button issues,” notes Patrick C. Dunican Jr., Chairman and Managing Director of Gibbons. “Our representative matters included the largest litigation our client had ever faced; one of the most complex groups of business bankruptcies ever filed; a major FINRA arbitration; a huge pharmaceutical class action; and a precedent-setting appellate decision.”

New Authority for Class Action Defendants Allowing Merits-First Bifurcated Discovery

Posted in Consumer Class Action Defense

The cost and burden of class action discovery often puts undue pressure on defendants to settle cases that have little or no merit. To relieve this pressure, courts sometimes permit bifurcated discovery, with the parties first addressing class certification issues and later, if warranted, merits issues. Recently, in Physicians Healthsource, Inc. v. Janssen Pharms., Inc., the District of New Jersey ordered bifurcated discovery but reversed the normal mechanics, limiting the first phase to merits issues before permitting any class discovery. The result is the same, though: potentially enormous time- and cost-savings. This strategy may be worth considering in cases where there are potentially dispositive merits issues.

Plaintiff in Physicians Healthsource claimed defendants sent faxes violating the Telephone Consumer Protection Act (“TCPA”). The parties disputed whether the faxes actually fell within the scope of the TCPA as commercial advertisements, a clearly dispositive issue under the statute. Defendants argued that bifurcation permitting the parties to address this threshold issue first would save time and money. The court agreed and limited the first phase of discovery to four months to address only this issue, citing Fed R. Civ. P. 42(b) — which provides that issues may be tried separately “to expedite and economize.”
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What is the Status Quo? How Waste Management Changed the Game in Obtaining Injunctive Relief

Posted in General Litigation

On December 16, 2013, in a published decision, the New Jersey Appellate Division in Waste Management of New Jersey, Inc. v. Morris County Municipal Utilities Authority clarified the standard governing interlocutory injunctions in New Jersey state courts. The court held that a trial judge’s denial of an interlocutory injunction based solely on the determination that the plaintiffs were not likely to succeed on the merits constituted reversible error because “the judge mistakenly overlooked his authority to impose interlocutory relief to preserve the parties’ positions and subject matter of the suit[.]” Stated otherwise, Waste Management holds that one can obtain an injunction preserving the status quo even where he or she cannot show a likelihood of success on the merits.

Waste Management is perhaps the most significant enunciation of the law regarding injunctive relief since the New Jersey Supreme Court’s seminal 1982 case of Crowe v. De Gioia. Under Crowe and its progeny, to obtain an injunction a party must demonstrate that: (1) an injunction is needed to prevent irreparable harm; (2) the underlying cause of action “rests on settled law and has a reasonable probability of succeeding on the merits;” (3) more harm would occur if an injunction were denied than if it were granted and, when a case raises an important public issue, (4) the public interest would be served by an injunction. When a court is being asked to issue an injunction to preserve the status quo, “the court may place less emphasis on a particular Crowe factor if another greatly requires the issuance of the remedy,” but the movant still bears “the burden to prove each of the Crowe factors by clear and convincing evidence.” Garden State Equal. v. Dow. Waste Management thus breaks new legal ground by being the first reported New Jersey appellate decision finding that an injunction could be issued where the party seeking injunctive relief failed to demonstrate the likelihood-of-success prong.

Waste Management is a public bidding case, where two unsuccessful bidders objected to the awarding of a public contract to a competitor and sought to preliminary enjoin the consummation of the contract with the successful bidder. The trial court denied the injunction, concluding that the unsuccessful bidders had failed to show a likelihood of success on the merits and, as such, it was not required to address the remaining Crowe factors. Continue Reading

Supreme Court Says Unnamed Interested Parties Insufficient for Mass Action Removal Under Class Action Fairness Act

Posted in Class Action Defense

In Mississippi v. AU Optronics, the United States Supreme Court recently held that consumer actions filed in state court by an attorney general on behalf of the state’s citizens cannot be removed to federal court as “mass actions” under the Class Action Fairness Act (“CAFA”). In the unanimous opinion, authored by Justice Sotomayor, the Supreme Court held that even though the State of Mississippi was suing in a representative capacity, the Mississippi attorney general was only one person and therefore did not satisfy the 100-person requirement for removal to federal court under CAFA. While AU Optronics involved an action by the state attorney general, the Supreme Court’s ruling is instructive on the standards for removal of a mass action under CAFA and is applicable to public and private actions alike.

CAFA establishes federal jurisdiction over class actions filed under Fed. R. Civ. P. 23, where any plaintiff is a citizen of a different state than any defendant and the aggregate amount in controversy exceeds $5 million. CAFA also confers federal jurisdiction over mass actions, which are defined as civil actions in which the monetary claims of 100 or more persons are proposed to be tried jointly and the amount in controversy exceeds $5 million.

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Third Circuit Holds That Personal Injury Plaintiffs’ “Mere Continuation” Successor Liability Claims Against Purchaser of Bankrupt Debtor’s Assets Belong to Bankruptcy Estate, Not Plaintiffs

Posted in General Litigation

In In re Emoral, Inc., the Third Circuit, in a decision of first impression, held that personal injury claims of individuals allegedly harmed by a bankrupt debtor’s products cannot be asserted against the purchaser of the debtor’s assets since they are “generalized claims” which belong to the debtor’s estate and not to the harmed individuals.

In August 2010, Aaroma Holdings LLC acquired certain assets and liabilities of Emoral, a manufacturer of the chemical Diacetyl. The asset purchase agreement specifically provided that Aaroma would not assume Emoral’s liabilities related to claims against Emoral arising from exposure to Diacetyl. After Emoral filed for bankruptcy protection in June 2011, a dispute arose between the bankruptcy trustee and Aaroma, resulting in a settlement agreement in which the Trustee agreed to release Aaroma from any “causes of action . . . that are property of the Debtor’s Estate.”

After the Bankruptcy Court approved the settlement agreement, Aaroma sought an order from the Bankruptcy Court, enforcing the settlement agreement’s release provision by compelling the dismissal of a number of state-court actions asserted by individuals allegedly harmed by Diacetyl against Aaroma. The plaintiffs in the state-court actions alleged that Aaroma was a “mere continuation” of Emoral and was therefore liable to the plaintiffs as Emoral’s successor in interest.

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Court Holds Only Reverse Payment of Money Requires Actavis Antitrust Scrutiny

Posted in Antitrust

Recent years have seen a significant number of antitrust challenges to so-called “reverse payment” pharmaceutical patent litigation settlements between brand name manufacturers and their generic competitors. The Supreme Court’s decision in FTC v. Actavis resolved a split among the courts of appeal, and held that settlements in which “large and unjustified” reverse payments are made are subject to antitrust scrutiny in the form of a traditional “rule of reason” analysis. In the wake of Actavis, the lower courts have begun to grapple with the question of what, if any, application Actavis has to the disposition of antitrust challenges to patent settlements that do not include a large payment of cash by the brand producer to the generic, but may include other forms of non-monetary consideration.

One such case was decided on January 24, 2014, by Judge Walls of the United States District Court for the District of New Jersey. In In re Lamictal Direct Purchaser Antitrust Litigation, the court carefully parsed the Supreme Court’s Actavis opinion and concluded that antitrust scrutiny of a patent settlement pursuant to Actavis is appropriate only when the settlement includes a reverse payment of money. In so holding, the district court rejected arguments by both the plaintiffs and the Federal Trade Commission (via an amicus brief filed in another case) that other forms of valuable consideration given to the generic producer, such as the brand producer’s agreement to delay the release of an “authorized generic,” qualified as “reverse payments,” thus triggering Actavis scrutiny. The court found no support for this expansive reading of Actavis, noting that all settlement agreements necessarily involve an exchange of consideration, but that the Supreme Court’s focus in Actavis was limited to the payment of large sums of money. Accordingly, the court re-affirmed its prior dismissal of plaintiff’s complaint, which originally had been dismissed prior to Actavis.

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