Business Litigation Alert

Business Litigation Alert

Practical Perspectives on Litigation Developments & Trends

Supreme Court in Spokeo Holds Plaintiffs Must Allege More Than a Bare Procedural Violation to Stand Up for Their Rights

Posted in Class Action Defense

After much anticipation, the United States Supreme Court issued its decision in Spokeo v. Robins, a case that many believed would finally establish a definitive ruling as to whether a federal statute which awards statutory damages to those impacted is sufficient to confer Article III standing. The question is particularly relevant in the class action context where class members could be awarded statutory damages in the absence of any actual damages. Unfortunately, although the Court considered the scope of the injury-in-fact requirement, the 6-2 decision still leaves the standing question open to interpretation by courts and by both plaintiffs and defendants.

In Spokeo, the plaintiff alleged that the defendant, which compiles individual’s information in a search engine, violated his rights under the Fair Credit Report Act (FCRA) by failing to accurately report his information. The District Court dismissed for lack of standing, but the Ninth Circuit reversed, noting first, that the plaintiff had alleged that “Spokeo violated his statutory rights, not just the statutory rights of other people,” and, second, that the plaintiff’s “personal interests in the handling of his credit information are individualized rather than collective.”

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In “Spring-Loaded” Options Case, Court Finds Failure to Disclose Board’s “Unclean Heart” Does Not Violate Federal Securities Laws But Allows Common Law Fiduciary Duty Claims to Proceed Against Directors Approving Options

Posted in Securities

In a far-reaching opinion addressing a host of issues relating to the granting of so-called “spring-loaded” stock options to a corporation’s board of directors, the District of New Jersey dismissed a claim under Section 14(a) of the Exchange Act because federal securities laws do not require the corporation to disclose in its proxy statement that the options were part of a “spring-loading” scheme. But the court allowed common-law breach of fiduciary duty claims to proceed against the directors who served on the board’s compensation committee under the entire-fairness doctrine.

A “spring-loaded” stock option is an option that is issued just before the company is to announce positive news that will increase its share price. If the strike price for the options is set at the share price at the time the option is issued, then the recipients of the options will be quickly “in the money” when the positive news is announced and the share price increases.

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Defend Trade Secrets Act of 2016: Signed into Law

Posted in Data Privacy & Security

On May 11, 2016, President Obama signed the Defend Trade Secrets Act (“DTSA”) into law. President Obama publicly supported this legislation and efforts generally directed to strengthen trade secret protections within the U.S. economy.

As we previously reported on May 3, 2016 and November 24, 2015, trade secret misappropriation was formerly treated exclusively as a matter of state law, governed by varied versions of the Uniform Trade Secrets Act as enacted in most states. A lack of uniform enactment of this Act resulted in differences in the application of the law between states, which presented difficulties for trade secret owners seeking to enforce their rights in the general commerce.

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Defend Trade Secrets Act of 2015 Passes House, Heads to President Obama’s Desk

Posted in Data Privacy & Security

On April 27, 2016, the Defend Trade Secrets Act (“DTSA”) passed the House of Representatives with a 410-2 vote. The two no votes were from Rep. Justin Amash (R-MI) and Rep. Thomas Massey (R-KY). Earlier this month, on April 4, the Senate passed the DTSA by a unanimous vote of 87-0. Now, the DTSA heads to President Obama’s desk for his signature.

As we previously reported, the DTSA will authorize a private civil action in federal court for the misappropriation of a trade secret that is related to a product or service used in, or intended for use in, interstate or foreign commerce. Trade secret misappropriation was formerly treated exclusively as a matter of state law, governed by versions of the Uniform Trade Secrets Act in most states. However, the Act was not enacted uniformly throughout all states. States adopted different definitions of trade secrets and different burdens of proof for misappropriation, resulting in a legal maze for one seeking to bring a trade secret misappropriation action impacting multiple jurisdictions.

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Fourth Circuit Confirms that Data Breach Claims are Covered Under Traditional CGL Policies

Posted in Insurance

Policyholders may still enforce an insurer’s duty to defend under a Commercial General Liability (“CGL”) policy for claims arising out of a data security breach, according to a recent Fourth Circuit decision. While the decision was issued in an unpublished opinion (a mere 18 days after oral argument), the decision represents a significant victory for policyholders seeking insurance coverage for claims arising out of data breaches resulting in the disclosure of personal information.

Portal Healthcare Solutions LLC (“Portal”) was sued in a purported class action filed in New York state court, alleging that it had failed to safeguard the confidential medical records of patients at a hospital facility, posted those records on the internet, and caused those records to become publicly accessible. The data breach was discovered when a “Google” search for certain patient names returned at the first link the patient medical records being maintained by Portal. The alleged disclosure occurred over an extended period, and therefore Portal sought coverage under two separate CGL policies issued by Travelers, which provided coverage for “personal injury” arising out of the electronic publication of certain materials. The “personal injury” coverage of the applicable policies required both (1) an electronic “publication” of material and (2) that the publication gave “unreasonable publicity” to, or “disclosed” information about, a person’s private life. Travelers denied coverage and commenced a declaratory judgment action claiming that the class action failed to allege a covered publication by Portal.

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Supreme Court Accepts Use of Representative Sample To Prove Classwide Liability

Posted in Class Action Defense

In Tyson Foods, Inc. v. Bouaphakeo, the Supreme Court of the United States definitively answered the question of whether statistical “representative evidence” may be used in class actions to establish that “questions of law or fact common to class members predominate over any questions affecting only individual members” pursuant to Rule 23(b)(3). According to the Court’s much-anticipated opinion, the answer is yes: “Its permissibility turns not on the form a proceeding takes – be it a class or individual action – but on the degree to which the evidence is reliable in proving or disproving the elements of the relevant cause of action.”

In Tyson, employees had filed a class action suit against their employer, Tyson Foods, Inc., alleging violations of the Fair Labor Standards Act of 1938 based on the failure to pay required overtime compensation for the donning and doffing of protective gear necessary for their hazardous work. Because Tyson Foods did not maintain records of donning and doffing time, the employees relied on representative evidence, which included testimony, video recordings, and an expert study, to show the average amount of donning and doffing time for each employee. The jury awarded the class approximately $2.9 million for unpaid wages, and the judgment and award was affirmed by the Court of Appeals for the Eighth Circuit.

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Attention Corporate Policyholders: Comply With All the Notice Requirements of Your Insurance Policies When Reporting a Claim or Risk Losing All Available Coverage

Posted in Insurance

A recent decision by the New Jersey Supreme Court serves as a strident warning to commercial insureds to make prompt notice of claims under claims-made policies. In Templo Fuente de Vida Corp. v. National Union Fire Insurance Company of Pittsburgh, P.A., the claims-made D&O policy at issue required written notice of a claim “as soon as practicable … and … during the Policy Period.” The insured was served with an underlying complaint on February 21, 2006. It retained defense counsel and filed an answer, but did not provide notice of the claim to its insurer until August 26, 2006 — a delay of six months, yet still within the policy period. The insurer denied coverage for various reasons, including that notice was not provided “as soon as practicable.”

In a unanimous decision, the New Jersey Supreme Court affirmed the Appellate Division (and the Law Division), concluding that the policyholder had violated a “condition precedent” to coverage by failing to report the claim to the insurer “as soon as practicable.” Because of that breach, the insurer may disclaim coverage even though notice had been provided during the policy period. Moreover, the court concluded that the insurer was not required to establish it suffered any “prejudice” from the purported “late notice” in order to sustain the disclaimer of coverage, emphasizing the long-standing distinction recognized in case law between “occurrence”-based policies – where an insurer must establish it suffered a likelihood of prejudice to prevail on late notice defense in Gazis v. Miller  – and “claims-made” policies – where the “appreciable prejudice” doctrine has “no application whatsoever to a ‘claims made’ policy that fulfills the reasonable expectations of the insured with respect to the scope of coverage.” Zuckerman v. National Union Fire Ins. Co.

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Getting in on the Action: FTC Files Its First Pay-for-Delay Lawsuit

Posted in Antitrust

In the increasingly crowded field of pay-for-delay litigation, the FTC blazed a new trail last week when – for the first time – it sued a branded drug maker for agreeing not to launch its own “authorized generic” in competition with a generic competitor. The so-called “no-AG commitment” was part of a deal struck by Endo Pharmaceuticals Inc. in exchange for a promise by Impax Laboratories to postpone by 2½ years its release of a lower-cost generic version of Endo’s lucrative Opana ER painkiller. That deal, according to the Complaint filed on March 30 in federal court in the Eastern District of Pennsylvania, let Endo prolong its alleged monopoly and, with it, the supracompetitive profits it earned from Opana. Meanwhile, the lower prices that come with the entry of a generic were delayed.

As gleaned from the FTC’s Complaint, the appeal of no-AG commitments to drug makers – branded and generic alike – is a product of the regulatory framework. Both receive valuable protections under the law in the form of marketplace exclusivity: branded drug makers by virtue of their patents, and first-to-file generics by virtue of an initial 180-day marketing window during which no other generic filer can launch, as the FTC’s Complaint alleges. The one exception to first-filer exclusivity is that the branded drug maker can launch its own generic version of the drug in competition with the first-filer’s generic during the 180-day period. This “authorized generic” decreases the generic’s profitability, according to the FTC. A no-AG commitment, therefore, apparently helps both parties – the generic who rests assured that it won’t face competition from the “authorized generic” in the 180-day window, and the brand-name who has bought its blockbuster drug an extension of time before generics enter. The FTC objects to such no-AG deals because, according to the FTC, the benefits to the branded and generic products come at the expense of consumers.

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Delaware Supreme Court Clarifies Reach of Personal Jurisdiction Over Nonresident Directors and Officers of Delaware Corporations Under 10 Del. C. § 3114

Posted in General Litigation

The Delaware Supreme Court, in Marc Hazout v. Tsang Mun Ting, No. 353, 2015 (Feb. 26, 2016) (Strine, C.J.), held that the reach of personal jurisdiction under 10 Del. C. § 3114 over nonresident officers and directors of Delaware corporations, contrary to Court of Chancery precedent, is not limited to claims by stockholders against such officers and directors for breach of fiduciary duty. Rather, under the plain language of the statute, a nonresident officer or director of a Delaware corporation, by virtue of accepting and holding office, has consented to personal jurisdiction in Delaware, subject to the requirements of due process, in two classes of cases: (i) “all civil actions or proceedings brought in this State, by or on behalf of, or against such corporation, in which such officer [or director] is a necessary or proper party”; or (ii) “any action or proceeding against such officer [or director] in violation of a duty in such capacity.”

Applying this principle, the Court found that there was personal jurisdiction in Delaware over Marc Hazout, a nonresident Canadian officer (and director) of co-defendant Delaware corporation Silver Dragon Resources, Inc. with respect to claims for Mr. Hazout’s alleged tortious conduct as an officer of Silver Dragon relating to a capital infusion into, and change of control of, Silver Dragon, pursuant to a series of agreements governed by Delaware law, one of which further providing that any dispute over it was to be litigated in Delaware. In addition to satisfying § 3114 as an action against Silver Dragon, in which Mr. Hazout is a proper party, the Court found that, under the circumstances outlined above, the exercise of personal jurisdiction over Mr. Hazout did not “offend traditional notions of fair play and substantial justice” under International Shoe and its progeny.

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Supreme Court Holds Unaccepted Offer of Judgment for Complete Relief to Named Plaintiff in Putative Class Action Does Not Moot Claims

Posted in Class Action Defense

The Supreme Court of the United States recently issued its ruling in Campbell-Ewald v. Gomez, a closely watched appeal in which the Court held that a complete offer of relief to a named plaintiff in a class action does not moot the individual’s claim. As explained by Justice Ginsburg, writing for the majority and drawing upon lessons taught to a “first-year law student,” an unaccepted settlement offer “creates no lasting right or obligation,” “has no force,” and, thus, “is a legal nullity, with no operative effect” that “does not moot a plaintiff’s case.” The Court’s opinion follows up on its 2013 decision in Genesis Healthcare Corp. v. Symczyk, in which it assumed that an offer of complete relief, even if unaccepted, moots a plaintiff’s individual claim to the extent the plaintiff’s Fair Labor Standards Act (“FLSA”) collective-action allegations could not stand on their own.

For a discussion of the underlying case in Campbell-Ewald, visit our June 2015 blog. By way of background, in Campbell-Ewald, the plaintiff brought a class action suit claiming the defendant violated the Telephone Consumer Protection Act (“TCPA”) by transmitting unsolicited marketing text messages. The defendant responded by serving a Rule 68 offer of judgment, offering to pay three dollars above the maximum allowable statutory recovery, plus reasonable costs. The plaintiff rejected the offer by allowing it to lapse. The defendant moved to dismiss, alleging the rejection of the offer mooted the named plaintiff’s individual and putative class claims, but the District Court denied the motion and later dismissed on other grounds. On appeal, the Ninth Circuit concluded that the plaintiff’s individual claim was not mooted by his refusal to accept the settlement offer.

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