Business Litigation Alert

Business Litigation Alert

Practical Perspectives on Litigation Developments & Trends

Third Circuit Confirms Prospective Application of New Jersey Supreme Court’s Shelton Decision, Dooming Underlying Class Action

Posted in Class Action Defense

In a recent precedential decision, the Third Circuit, in Bohus, et al. v. Restaurant.com, held that the New Jersey Supreme Court’s Shelton decision — responding to a question of law certified by the Third Circuit as to the proper interpretation of the Truth in Consumer Contract, Warranty, and Notice Act (“TCCWNA”) — may be applied prospectively, thus defeating the class claims and leaving only two individual claims for a $100 penalty.

Plaintiffs’ complaint (in the matter entitled Shelton and Bohus v. Restaurant.com) alleged that plaintiffs purchased certificates from Restaurant.com, which provided a coupon or credit for the purchase of food and beverages at select restaurants. Though plaintiffs did not allege that they were denied the ability to use the certificates, they claimed that the certificates violated the TCCWNA because they stated that the certificates expired in one year “except in California and where otherwise prohibited by law,” and the Gift Certificate Act prohibited gift certificates from expiring within two years. Further, it was argued that the certificates violated the TCCWNA’s prohibition against language stating “that any of its provisions is or may be void, unenforceable or inapplicable in some jurisdictions without specifying which provisions are or are not void, unenforceable or inapplicable within the State of New Jersey.” The District Court granted Restaurant.com’s Motion to Dismiss, finding that the complaint failed to plead an ascertainable loss under the Consumer Fraud Act (“CFA”) and that, because the certificates provided intangible, contingent rights to a discount, they were not “property” and the plaintiffs were not “consumers” within the meaning of the TCCWNA.

On the first appeal, the Third Circuit certified a question to the New Jersey Supreme Court as to whether the TCCWNA was intended to cover both tangible and intangible property, and the New Jersey High Court concluded that “[t]he statute as drafted . . . covers the certificates in question.” The Circuit then affirmed dismissal of the CFA claim and remanded the TCCWNA claim to the district court.

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Third Circuit Clarifies Apparent Confusion Regarding Rule 23(b)(3) Ascertainability Requirement

Posted in Class Action Defense

In Byrd v. Aaron’s Inc., the United States Court of Appeals for the Third Circuit added to, and clarified, its “quartet” of ascertainability cases to resolve the “apparent confusion in the invocation and application of ascertainability in this Circuit.” The plaintiffs in Byrd brought a class action claiming violations of the Electronic Communications Privacy Act of 1986 because laptop computers had “spyware” installed, which had captured a wide array of personal information from the users including photographs and screenshots of websites visited. Adopting the recommendation of the Magistrate Judge, the District Court denied class certification for failure to establish ascertainability, finding that the proposed classes were both “underinclusive” (i.e., did not include all individuals whose information was gathered) and overinclusive (not every computer user had data intercepted), and that it was insufficient to propose that “household members” be identified by public records. “Because the District Court confused ascertainability with other relevant inquiries under Rule 23,” it “erred in determining that the Byrds’ proposed classes were not ascertainable.”

The panel first emphasized that the ascertainability inquiry requires a plaintiff to show only that “(1) the class is ‘defined with reference to objective criteria’; and (2) there is ‘a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.’” The Third Circuit reiterated that “[t]he ascertainability requirement consists of nothing more than these two inquiries.” In addition, ascertainablity “does not mean that a plaintiff must be able to identify all class members at class certification—instead, a plaintiff need only show that ‘class members can be identified.’”

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Third Circuit Holds Non-Signatories May Be Bound By Forum Selection Clause

Posted in General Litigation

In Carlyle Investment Management LLC v. Moonmouth Co., the United States Court of Appeals for the Third Circuit concluded that a non-signatory to an agreement can be bound by a forum selection clause where the forum selection clause is valid, the non-signatory is a third-party beneficiary of the agreement or closely related to the agreement, and the claim arises from the non-signatory’s status related to the agreement.

Plaintiff Carlyle Capital Corporation (“CCC”) was an investment fund (a now defunct victim of the financial crisis) that was part of plaintiff Carlyle Investment Management LLC (“Carlyle”) and invested primarily in residential mortgage-backed securities issued by Fannie Mae and Freddie Mac. In December 2006, defendant Moonmouth, an entity controlled by individual defendant Reijtenbagh, purchased three million shares of CCC for $60 million pursuant to a Subscription Agreement. A director of Moonmouth, defendant Plaza Management Overseas SA (“Plaza”), signed the Subscription Agreement on Moonmouth’s behalf. The Subscription Agreement contained a forum selection clause mandating that “[t]he courts of the State of Delaware shall have exclusive jurisdiction” over any action “with respect to [the] Subscription Agreement.”

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Third Circuit Confirms That Challenged Expert Testimony Must Survive Daubert Challenges in Order to Demonstrate Conformity with Rule 23

Posted in Class Action Defense

Drawing upon its own precedent and that of the Supreme Court in Comcast v. Behrend, the Third Circuit recently held in In re Blood Reagents Antitrust Litig. that a district court must resolve any Daubert challenges to proffered expert testimony as part of its “rigorous analysis” of the requirements for class certification.

In In re Blood Reagents Antitrust Litig., the plaintiffs filed a putative class action alleging a horizontal price-fixing conspiracy regarding the supply of blood reagents. The district court certified a class of all purchasers of blood reagents from defendant. In support of their motion, the plaintiffs relied upon expert testimony about antitrust impact and damages, which defendant had “consistently challenged” as unreliable. Relying upon the then-controlling Behrend v. Comcast Corp. decision of the Third Circuit, the district court explained that plaintiffs’ expert testimony “could evolve to become admissible evidence,” and therefore determined that plaintiffs satisfied the predominance requirement of Rule 23(b)(3). The district court reasoned that defendant’s reliability challenges went to the “merits of the [damages] models, … but they neither implicate[d] a need for individual proof nor convince[d] the court that the models could ‘not evolve to become admissible evidence.”

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New Jersey Appellate Division Says Experts Cannot Serve as Conduits for Hearsay Conclusions from Non-testifying Experts

Posted in General Litigation

After our recent report concerning a recent New Jersey Supreme Court opinion on the use of hypothetical questions with expert witnesses, New Jersey’s Appellate Division, in a to-be-published opinion, also placed limits on appropriate questions for experts, holding that non-testifying experts’ opinions cannot be “bootstrapped” into the record by asking testifying experts if their conclusions are “consistent” with a non-testifying expert’s.  James v. Ruiz, No. A-3543-13T2, 2015 N.J. Super. LEXIS 46 (App. Div. Mar. 25, 2015).

In James the court addressed whether an expert witness may be asked if his or her conclusions are consistent with those of a non-testifying expert. The court decided the issue in line with current precedent relating to hearsay, examining whether the non-testifying expert’s opinion, as proffered, was hearsay or if it fell under an exception, such as the business-record exception. However, even if the statement appeared to meet most of the elements of the business record exception, N.J.R.E. 808, which prohibits introduction of non-testifying expert’s statements even if the record otherwise satisfies the exception in certain circumstances.

N.J.R.E. 808, the Complex/Disputed Expert Opinion Restriction, is unique to New Jersey evidence, with no direct federal analogue. The rule ensures that the judge allows only those out-of-court expert statements for which sufficient indicia of trustworthiness were present when the statement was declared (i.e., the motive, duty, and interest of the declarant, whether litigation was contemplated by the declarant, the complexity of the subject matter, and the likelihood of accuracy of the opinion). Further, the testifying expert must have reasonably relied upon the non-testifying expert’s opinions pursuant to N.J.R.E. 703 in order to present the absent expert’s opinion in the course of explaining his or her conclusion in court.
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New Jersey Supreme Court Says Hypothetical Questions Can’t Save Expert Opinions that Contradict Uncontroverted Facts in Evidence

Posted in General Litigation

In Townsend v. Pierre, the New Jersey Supreme Court clarified that the net opinion rule bars expert testimony that contradicts uncontroverted factual evidence and further held that the use of hypothetical questions at trial cannot be used to salvage such an opinion. While the net opinion rule is usually formulated as “forbid[ding] the admission into evidence of an expert’s conclusions that are not supported by factual evidence or other data,” Polzo v. Cnty. of Essex, 196 N.J. 569, 583 (2008), the Court definitively stated that the rule also operates to bar expert testimony where the expert rejected as “mistaken” uncontroverted facts in evidence.

Townsend concerned a negligence suit arising out of a fatal car accident, but its broadly applicable holding must be kept in mind whenever expert testimony is used.

In Townsend, the plaintiff’s expert provided an opinion on the issue of causation which contradicted the only record evidence—deposition testimony of one of the drivers—on that issue. In dealing with the contradictory deposition testimony, the expert simply concluded that the witness was mistaken, even though there was no factual evidence contradicting the witness’s testimony.
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Retroactive Effect Given to Delaware Statute Authorizing Up to 20-Year Statute of Limitations for Certain Breach of Contract Actions

Posted in General Litigation

The Delaware Court of Chancery, in Bear Stearns Mortgage Funding Trust 2006-SL1 v. EMC Mortgage LLC, C.A. No. 7701-VCL (Del. Ch. Jan. 12, 2015) (Laster, V.C.), held that the recently enacted 10 Del. C. § 8106(c), which authorizes parties to a written contract involving at least $100,000 to agree to a statute of limitations of up to 20 years, should be applied retroactively to the plaintiff’s breach of representation and warranty claims filed almost six years after the closing of the underlying transaction.

Section 8106(c), which became effective on August 1, 2014, gives parties to a written contract the freedom to agree to a limitations period longer than the typical three or four years from accrual of the cause of action, without the need to resort to Delaware’s technical requirements for a contract under seal. The synopsis to the legislation explains that examples of the limitations period to be stated in the contract include, without limitation, (i) a specific period of time, (ii) a period of time defined by reference to the occurrence of another event, another document or agreement, or another statutory period, and (iii) an indefinite period of time.

Under the agreement at issue in Bear Stearns, a cause of action for breach of representation or warranty accrued only after a particular condition precedent was met, namely, after the defendant’s receipt of notice or discovery of a breach and the defendant’s failure to take remedial action in response. The Court held this accrual provision validly extended the statute of limitations for claims of breach for up to 20 years after the closing under Section 8106(c), because it stated a limitations period “defined by reference to the occurrence of some other event or action” without specifying an outside date for bringing claims. In giving Section 8106(c) retroactive effect, the Court held that a modification of a limitations period is a procedural matter to which the ordinary presumptions against retroactive application to ongoing suits does not apply absent a showing of “manifest injustice.” As the plaintiff’s claims were filed before the statute of limitations had expired under New York law which governed the claims, the defendants did not assert a timeliness defense until two years after the dispute arose and extensive efforts at resolution had been undertaken without prior mention of a timeliness argument, the case was pending when Section 8106(c) was enacted, and the contract’s accrual provision contemplated the assertion of claims well after the closing of the transaction, the Court found that there was no manifest injustice from the retroactive application of Section 8106(c) to the plaintiff’s claims.
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Bill to Expand Data Breach Notification Requirements Passes New Jersey Assembly

Posted in Data Privacy & Security, General Litigation

On December 15, 2014, the New Jersey Assembly voted 75-to-0 to advance a bill that would expand the existing data breach notification requirements for companies doing business in the state. The bill, A3146, would broaden the type of information that, if compromised, would trigger a company’s obligation to notify customers of the breach. The proposal now heads to the Senate, where a similar bill, S2188, has been pending in the Commerce Committee since June.

If enacted, the bill would expand the definition of “personal information” to include a customer’s “user name or email address, in combination with any password or security question and answer that would permit access to an online account.” The current definition already includes a customer’s (1) Social Security number; (2) driver’s license or State identification card number; and (3) account, debit, or credit card number, in conjunction with any required access code or password that would permit access to an individual’s financial account. Under the current law, if data falling into any one of these three categories is illegally accessed, along with an individual’s first name or initial and last name, the company must disclosure the breach to the customers affected.

With this proposed update, New Jersey lawmakers are recognizing that individuals are increasingly using online accounts to store sensitive and potentially valuable data. If hackers obtain the credentials to access such accounts, that data may be stolen and used to the detriment of the account holders. As the spate of recent corporate data breaches has shown, businesses of all sizes are increasingly being targeted by more sophisticated hackers and the risk of a data breach is growing everyday. Therefore, in addition to protecting against such security breaches before they occur, it is imperative that companies doing business in New Jersey are aware of the steps that should be taken following a data breach, including complying with all applicable data breach notification laws.

Pennsylvania Supreme Court Holds the UTPCPA’s “Ascertainable Loss” Requirement Cannot Be Manufactured by Voluntarily Hiring Counsel and Incurring Litigation Costs

Posted in Class Action Defense

In Grimes v. Enterprise Leasing Co. of Phila., LLC, the Pennsylvania Supreme Court held that the retention of counsel to institute suit alone does not constitute “ascertainable loss” under the state’s consumer protection statute.

The plaintiff in Grimes had rented a car from an Enterprise branch in Philadelphia and apparently declined to purchase Collision Damage Waiver or Loss Damage Waiver coverage. Consequently, the plaintiff was responsible for the cost of repairs for any vehicle damage incurred during the rental period and administrative, loss-of-use, and diminishment-in-value fees. The rental contract also contained a power-of-attorney clause that empowered Enterprise to request payment directly from plaintiff’s insurance carrier or credit card issuer. After the plaintiff returned the car to Enterprise, she was informed that she was responsible for a scratch on the car, and later received an invoice for the repair costs and other administrative fees noted in the contract.

Plaintiff sued Enterprise under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), claiming the fees in the contract were unconscionable with no reasonable relationship to the costs of repairing the damage to the vehicle, and as such constituted deceptive acts and misrepresentations. The complaint alleged generally that Enterprise had demanded payment and that she had suffered damages, but she admitted in response to a counterclaim that she had not paid the disputed sum.
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Streamlined Judicial Process Signals Good News for Business Litigation

Posted in General Litigation

On November 13, 2014, the New Jersey Supreme Court approved implementation of the Complex Business Litigation Program for the handling of complex business, commercial, and construction cases. The Program, based on the report and recommendations of the Supreme Court Working Group on Business Litigation chaired by Bergen Vicinage Assignment Judge Peter E. Doyne, will begin on January 1, 2015 for those complex cases filed on or after that date that fulfill certain eligibility criteria. The details of the Program include:

  • Threshold Damages Amount. The amount in controversy must be at least $200,000 for inclusion in the Program unless the court determines in a particular situation that a case with a lesser amount in controversy is appropriate for inclusion.
  • Self-Designation as Complex Business Litigation. The attorneys or parties will designate a matter as complex business litigation by indicating on the Civil Case Information Statement that the matter is either case type 508 (complex commercial cases involving unusually complicated business matters) or case type 513 (complex construction cases involving unusually complicated factual or legal issues). A more detailed definition of the cases that fit within these case types can be found here.
  • Other Suitable Actions. Actions to establish a constructive trust or impose an equitable lien to satisfy damages are also cognizable in the Complex Business Litigation Program, as are cases primarily seeking legal relief in which ancillary injunctive relief is sought.
  • Excluded Actions. The Program does not include matters that are handled by General Equity or matters primarily involving consumers, labor organizations, personal injury, or condemnation, or cases in which the government is a party.
  • Jury and Non-Jury Matters. The Program encompasses both jury and non-jury matters.
  • Opt-in/Opt-out. Parties may file a motion with the Complex Business Litigation Program Judge for inclusion in the Program where the amount in controversy is less than $200,000. Parties may also move for removal from the Program on the grounds that the action does not meet the eligibility criteria.
  • Review of Cases in Program. The Assignment Judge or his/her designee may initially conduct a review of the case to determine if it is appropriate for the Program. The Program Judge may also review actions presumptively assigned to the Program to determine if the case is appropriate for inclusion. If after review a judge determines that the complex nature of the action or the threshold damages claim amount is not established, the case may be removed from the Program. Cases removed from the Program will be reassigned to the appropriate track for case management.
  • Complementary Dispute Resolution.  Cases in the Program are not part of the court’s mandatory civil mediation and arbitration programs.  However, the Complex Business Litigation Program Judge in each vicinage, as part of case management, should encourage the parties to engage in mediation.
  • Opinions.  Each Complex Business Litigation Judge will be expected to issue a minimum of two written opinions per year in order to develop a body of case law on issues relating to business litigation.  These opinions will be posted on njcourts.com.

The Program will also feature the designation of Complex Business Litigation Judges in each vicinage, with those designated judges receiving extensive specialized training in all areas relating to business litigation (including, but not limited to, Uniform Commercial Code, securities, anti-racketeering, and business valuation). These judges will also receive additional training in effective case and management, e-discovery, and other relevant topics. A list of the designated Complex Business Litigation Judges can be found in the Court’s November 13, 2014 order and a Notice to the Bar accompanying the Court’s November 13, 2014 order authorizing the Program.

Approval and implementation of the Program is good for the business community who will likely benefit from a streamlined judicial process for complex cases falling within the eligibility requirements of the Program. By creating a program specific to complex business, commercial, and construction cases, New Jersey joins other states around the country that have similar divisions/programs (including California, Maine, Maryland, New York, and Pennsylvania).

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