Business Litigation Alert

Business Litigation Alert

Practical Perspectives on Litigation Developments & Trends

New Jersey Supreme Court Formally Adopts and Defines the Scope and Application of the Common Interest Rule

Posted in General Litigation

In a matter of first impression, the New Jersey Supreme Court in O’Boyle v. Borough of Longport expressly adopted the common interest rule in New Jersey as articulated in LaPorta v. Gloucester County Board of Chosen Freeholders. Although previously addressed and analyzed by lower courts within New Jersey, the Court’s ruling clarifies the boundaries of the rule and offers guidance in resolving the scope of its application.

Mr. O’Boyle, a private citizen, filed several lawsuits against the Borough of Longport, planning and zoning members, and borough residents. A private attorney representing a planning and zoning board member and two borough residents sought to engage in a joint defense with the municipal attorney with respect to the lawsuits that Mr. O’Boyle had filed and might later file against their clients. To that end, the private attorney prepared and sent to the borough attorney a joint strategy memorandum and CDs containing a number of documents that had been selected by the private attorney. While the opinion is unclear whether a joint defense arrangement was ever consummated, the memorandum and the CDs were later returned to the private attorney, without the borough keeping copies.

Later, Mr. O’Boyle filed an OPRA request seeking, in part, the materials exchanged between the private attorney and the municipal attorney. The borough withheld the joint strategy memorandum and the documents on the accompanying CDs because, among other reasons, the documents were privileged. Mr. O’Boyle thereafter filed a verified complaint against the borough seeking access to the withheld documents under OPRA and New Jersey’s common law right of access. The trial court dismissed the case with prejudice, and the Appellate Division affirmed.
Continue Reading

California High Court Holds That Federal Arbitration Act Preempts Arbitration Agreements with Class Action Waivers

Posted in Class Action Defense

The California Supreme Court, in Iskanian v. CLS Transportation Los Angeles, LLC, recently overturned precedent holding that class action waivers in arbitration agreements are unenforceable in California. Citing AT&T Mobility LLC v. Concepcion et ux, California’s high court strengthened the enforceability of class action waivers in arbitration agreements by holding that the Federal Arbitration Act (FAA) preempts the state’s refusal to enforce such a waiver on grounds of public policy or unconscionability.

In Iskanian, the plaintiff filed a class action and representative complaint on behalf of himself and other employees asserting a number of wage-and-hour violations. The defendants initially moved to compel arbitration based upon a class and representative action waiver contained in the arbitration agreement executed by all employees, but the defendants withdrew their motion after the California Supreme Court decided Gentry v. Superior Court, which held that class action waivers in employment arbitration agreements are invalid under certain circumstances.

During the course of the litigation, however, the United States Supreme Court decided Concepcion, which held that arbitration agreements with mandatory class action waivers are generally enforceable, notwithstanding contrary state law. The defendants then renewed their motion to compel arbitration, which was granted and affirmed on appeal. The California Supreme Court also affirmed, finding that Concepcion had abrogated Gentry and that arbitration agreements containing class action waivers are generally enforceable. The California Supreme Court observed that Concepcion held that “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA,” and explained that “states cannot require a procedure that interferes with fundamental attributes of arbitration[.]” The California Supreme Court held that, “[u]nder the logic of Concepcion, the FAA preempts Gentry’s rule against employment class waivers.” As such, the Court held that Iskanian’s class action claims are subject to binding arbitration on an individual basis.
Continue Reading

Wrap Up of United States Supreme Court’s 2013-2014 Term

Posted in General Litigation

With the close of the United States Supreme Court’s 2013-14 term, we offer this wrap-up of the Court’s term, focusing on the Court’s most important business and commercial cases (excluding intellectual property opinions):

Halliburton Co. v. Erica P. John Fund: The Court upheld the fraud-on-the-market theory first set forth in Basic Inc. v. Levinson, which allows investors to satisfy the reliance element of a section 10b-5 securities fraud claim by invoking a presumption that the price at which stock is purchased in an efficient market reflects all public, material information — including material misstatements. Basic’s presumption of reliance facilitates the certification of class actions by absolving investors of establishing individual reliance on alleged misstatements. In Halliburton, however, the Court threw defendants a bone in holding that the presumption can be rebutted at the class-certification stage by direct evidence that the alleged misrepresentation did not in fact affect the stock price. While such evidence has always been admissible during the merits stage to rebut the Basic presumption, the Court’s decision to allow it at the threshold class-certification stage is notable. The decision is not the game-changer it would have been had Basic been overturned, but it does give defendants another potential “out” — and will almost certainly drive up the cost of litigating securities class actions by virtue of the additional price impact work that economic consultants will be retained to furnish prior to class certification.

Fifth Third Bancorp v. Dudenhoeffer: The Court unanimously threw out the defense-friendly presumption of prudence that ERISA fiduciaries of employee stock ownership plans, or ESOPs, have used to avoid liability when the price of company stock in which they are invested drops. In finding that ESOP fiduciaries owe no lesser duty of prudence than any other ERISA fiduciary (except that they need not diversify the fund’s assets), the Court rolled back almost twenty years of precedents from the circuit courts, the bulk of which, beginning with the Third Circuit’s 1995 decision in Moench v. Robertson, conferred on ESOP fiduciaries a presumption that they acted consistently with ERISA by investing fund assets in employer stock. The practical impact of the opinion is likely to be far less radical, however, as the Court went on to observe that a fiduciary’s reliance on publicly available stock-price information is not typically imprudent. Nor is the allegation that an ESOP fiduciary failed to act on non-public information likely to survive a motion to dismiss since the duty of prudence neither requires a fiduciary to violate insider trading laws nor to sabotage the value of the stock it already holds by disclosing negative information that isn’t mandated by the securities laws. Fifth Third Bancorp’s bark, in other words, may well prove worse than its bite.

Continue Reading

Halliburton Gives Defense Bar New Tool to Defeat Class Certification

Posted in Class Action Defense

The Supreme Court has raised the class certification stakes yet again, holding in Halliburton v. Erica P. John Fund that defendants in securities class actions may rebut the fraud-on-the-market presumption of reliance at the class certification stage. Over the objections of Justices Thomas, Scalia, and Alito, the Court declined to toss out the presumption altogether.

The fraud-on-the-market presumption of reliance, first recognized in Basic v. Levinson, permits a plaintiff to show indirectly that the defendant’s misrepresentation impacted the price of its stock. In Halliburton, the Court observed that price impact is “an essential precondition” for a securities class action because if the presumption does not apply, each individual plaintiff must prove its own reliance, causing individual issues to predominate over common issues. Therefore, the Halliburton Court reasoned that it would be illogical to permit indirect proof of price impact through the fraud-on-the-market presumption at the class certification stage — as a plaintiff may do to prove market efficiency — yet not permit direct evidence of no price impact, i.e., “showing that the alleged misrepresentation did not actually affect the stock’s market price and, consequently, that the Basic presumption does not apply.”

The Supreme Court found this dichotomy particular troubling because defendants may already introduce evidence of a lack of price impact at either the merits stage or to show at the class certification stage that the market is not efficient. Likewise, the Court observed that plaintiffs can introduce price impact evidence to show that the defendant’s stock price generally responds to publicly reported events. Accordingly, said the Court, the defendants’ evidence may show that the market is efficient, but the alleged misrepresentation had no price impact. In this situation, if the defendant is not permitted to rebut the presumption at the class certification stage, the action will proceed as a class action despite the fact that the fraud-on-the-market theory cannot possibly apply and common reliance cannot be presumed.
Continue Reading

Recent D.N.J. Opinion Offers Roadmap to Practitioners Defending Antitrust Claims

Posted in Antitrust

A recent opinion from the District of New Jersey illustrates the breadth of defenses available to an entity accused of violating the antitrust laws. World Phone Internet Services, Pvt. Ltd., a provider of VoIP services in India, and its majority shareholder, TI Investment Services, LLC, sued Microsoft (owner of Skype), alleging that Microsoft’s intentional failure to abide by the requirements of India’s licensing regime for VoIP service providers allowed it to undercut World Phone’s pricing, which advantage Microsoft supposedly used to quash its competitors. In granting Microsoft’s motion to dismiss the complaint in TI Investment Services, LLC v. Microsoft Corp., the Court relied on four independent grounds to decide that plaintiffs’ claims of monopolization and collusion did not pass muster under the Sherman Act.

First, the Court held that World Phone did not adequately allege antitrust injury and thus lacked standing to pursue the matter. The anticompetitive conduct boiled down to a claim for predatory pricing. But the Complaint did not plausibly allege that Microsoft’s pricing was below its costs. And neither did the Court find a dangerous probability that Microsoft could recoup its losses from the predatory pricing by raising rates; even if Microsoft succeeded in driving World Phone out of the market, it would still have to compete with its other “non-compliant” peers in the market, making a rate hike unlikely.

Second, the Foreign Trade Antitrust Improvements Act (“FTAIA”) removes from the reach of the Sherman Act conduct that injures a foreign competitor in a foreign market. Microsoft’s sale of VoIP services to customers in India, which purportedly injured World Phone in India, thus was foreclosed by the FTAIA.
Continue Reading

New Jersey Court Reaffirms Privilege Over Employee’s Personal Legal Communications Through Employer’s E-mail in Absence of Unambiguous Communications Policy

Posted in General Litigation

In an era when electronic communications are rapidly replacing most forms of correspondence, the Superior Court, Law Division, Bergen County, in Ferrer v. Stahlwerk Annahutte Max Aicher Gmbh & Co., recently reiterated that absent a clear electronic communications policy, employees have an expectation of privacy in the electronic communications they send from the workplace, including those from work accounts.

During the course of litigation between a former employee and his former employer and co-workers, the former employer and co-workers challenged the former employee’s claims of privilege over three e-mails located on employer’s servers. The e-mails were sent using company e-mail addresses to counsel for the purpose of seeking personal legal advice.

Because the employer did not have a policy prohibiting the personal use of its workplace e-mail system or advising its employees that their use of the e-mail system would be monitored, the Court found that the employee had no expectation that his electronic communications would be monitored by the employer and, therefore, that the employee had a reasonable expectation of privacy that such communications would remain private. The Court thus upheld the employee’s claims of privilege.
Continue Reading

Juridical Link Doctrine Does Not Relax Article III Standing Requirements in Class Actions

Posted in Class Action Defense

In 6803 Boulevard East, LLC v. DIRECTV, LLC, the District of New Jersey rejected the notion that “the juridical link doctrine” provided a limited exception to Article III standing requirements in a class action against several related defendants and granted DirecTech’s motion for summary judgment because the named plaintiffs were not injured by DirecTech’s actions.

The juridical link doctrine, as articulated by the Ninth Circuit’s 1973 decision in La Mar v. H & B Novelty & Loan Co., provides that the typicality and adequacy-of-representation prongs of Rule 23(a) governing class certification may still be satisfied when the representative plaintiff has not been harmed by a particular defendant if “all defendants are juridically related in a manner that suggests a single resolution of the dispute would be expeditious.” In an opinion authored by Senior Judge William H. Walls, the New Jersey district court refused to extend the juridical link doctrine to issues of Article III standing.

In 6803 Boulevard East, the putative class action complaint alleged that each of the defendants installed satellite equipment on the plaintiffs’ property without their consent. But one of the defendants, DirecTech, never installed any satellite dishes on the plaintiffs’ properties. When DirecTech challenged the plaintiffs’ standing to sue based on the absence of harm caused by DirecTech, the plaintiffs argued that they could rely on the juridical link doctrine to establish standing, because all defendants are juridically related such that a single resolution would be expeditious.
Continue Reading

Third Circuit Finds Proposed Dual Service as Class Counsel and Class Representative Does Not Preclude CAFA Removal

Posted in Class Action Defense

The Third Circuit recently considered whether the District Court properly denied a motion for remand brought by a pro se plaintiff, an attorney also seeking to serve as class counsel, who argued that since his “dual service” precluded class certification in federal court, the defendant could not aggregate the proposed class’s claims to satisfy the $5 million amount in controversy under the Class Action Fairness Act (“CAFA”). In affirming the denial of the plaintiff’s remand motion, the Third Circuit built upon recent Supreme Court precedent confirming that a plaintiff cannot stipulate to less than $5 million in damages to avoid the federal court’s subject matter jurisdiction under CAFA. You can read about that decision, Standard Fire v. Knowles, here.

In Nutraceutical Corp., plaintiff Harold Hoffman, Esq., “an attorney who has made a habit of filing class actions in which he serves as both the sole class representative and sole class counsel,” challenged removal of the action to the District of New Jersey. Mr. Hoffman argued that CAFA jurisdiction was not satisfied to a “legal certainty” because Third Circuit law does not permit class certification if the proposed class representative is also proposed class counsel, therefore, without any class claims to aggregate, the amount in controversy is only the value of his individual claim, or about $200. The District Court concluded that the plaintiff had “failed to show that the class was not certifiable and that the class claims could not be aggregated,” explaining that class certification was “indeed possible,” as demonstrated by Mr. Hoffman’s very decision to pursue the matter as a class action.
Continue Reading

Supreme Court to Address Evidentiary Requirements for Determining Removal Jurisdiction in Class Actions

Posted in Class Action Defense

The Supreme Court of the United States granted certiorari in Dart Cherokee Basin Operating Company, LLC v. Owens, to resolve a circuit split over the evidentiary standard for determining removal jurisdiction pursuant to the Class Action Fairness Act (“CAFA”). Specifically, the Court will consider “[w]hether a defendant seeking removal to federal court is required to include evidence supporting federal jurisdiction in the notice of removal, or is alleging the required ‘short and plain statement of the grounds for removal’ enough?”

In Dart Cherokee, the district court concluded that the defendant failed to satisfy its burden of establishing removal jurisdiction under CAFA because, although the Notice of Removal alleged that CAFA’s $5 million jurisdictional threshold was satisfied, the defendant did not submit any attendant evidence in its Notice of Removal. Rather, the defendant only provided the evidence in opposition to the plaintiff’s motion for remand, which the court concluded could not be properly considered. The Tenth Circuit refused to hear the appeal and, in an opinion dissenting from the Circuit Court’s refusal to hold a rehearing en banc, three Circuit Judges concluded the district court’s decision to remand the case was “contrary to fundamental principles regarding the purpose and function of pleadings in federal court,” and that the burden imposed as a result of the decision was “excessive and unprecedented.”

Currently, the Circuit Courts of Appeal apply varying standards in deciding whether a defendant has sufficiently pled the required amount in controversy in a CAFA removal case. Those standards range from the more easily satisfied “reasonable probability,” “preponderance of the evidence,” and “legal impossibility” tests to the more stringent “legal certainty” standard. Courts disagree on what evidence may be considered in reaching a decision that the amount in controversy under CAFA has been satisfied and, moreover, some Circuits have yet to even reach a decision as to the standard a court must apply to find the amount in controversy has been sufficiently pled.

Continue Reading

Hobbs Act Remains a Formidable Obstacle in Challenging FCC Regulations Under the TCPA

Posted in Class Action Defense

In Nack v. Walburg, the plaintiff consented to receive a fax advertisement from the defendant. But, because the fax lacked an “opt-out” notice arguably required by regulations promulgated under the Telephone Consumer Protection Act (“TCPA”), plaintiff filed a class action complaint, seeking millions of dollars in class-wide statutory damages under the TCPA. The district court granted summary judgment in favor of the defendant, holding that the pertinent regulation should be narrowly interpreted to require opt-out notices only for unsolicited faxes, not invited faxes. The Eighth Circuit, however, relying on an amicus brief from the FCC, disagreed and reversed, holding that the Hobbs Act prevented judicial review of administrative regulations, except on appeal from a prior agency review. The court expressed skepticism as to “whether the regulation (thus interpreted) properly could have been promulgated under the statutory section” at issue but suggested that defendant seek a stay of the civil proceedings while it pursued administrative remedies.

Defendant petitioned for a writ of certiorari to the Supreme Court, arguing that the Eighth Circuit (and Seventh Circuit) conflicted with a Sixth Circuit decision that held that courts have authority to review the plaintiff’s arguments that an FCC rule exempting certain broadcaster prerecorded calls to consumers as regulated “advertisements” under the TCPA was unlawful. An amicus petition also raised due process concerns and argued that the ruling permits administrative agencies to insulate themselves from judicial review while denying those harmed by their regulations the right to defend themselves. Two other petitions were also filed; one underscored the “crippling” practical effect of the Eighth Circuit’s ruling on business, and the other argued that the Eighth Circuit misconstrued the Hobbs Act. Despite the circuit split and constitutional arguments, on March 24, 2014, the Supreme Court denied certiorari.

In light of the Court’s decision not to consider the issue, the Hobbs Act remains a daunting hurdle for defendants to challenge the TCPA. Now, a business facing massive liability in a TCPA class action in the Seventh or Eighth Circuits cannot challenge the statutory basis of the administrative rule in court, even if the rule blatantly exceeds the agency’s statutory authority, and even if the rule is unconstitutional. Instead, a defendant may only challenge an FCC rule by petitioning the agency itself, but the agency has thus far declined to take final action in response to any such petitions and has even taken the position that it has no duty at all to resolve such petitions. Furthermore, this decision opens the door for a fresh round of TCPA class actions based on the opt-out provision for a new group of professional plaintiffs who actively solicit and consent to receiving fax advertisements with the hopes of receiving treble damages.
Continue Reading

Lexblog