Business Litigation Alert

Business Litigation Alert

Practical Perspectives on Litigation Developments & Trends

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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“Bound by the Terms of His Bargain”: Third Circuit Underscores the Difficulty of Vacating Arbitration Awards

Posted in General Litigation

In a recent precedential decision, Whitehead v. The Pullman Grp., LLC, the Third Circuit reminded litigants that it’s as tough as ever to vacate an arbitration award – and cast further doubt on the viability of the “manifest disregard of the law” standard here.

Appellant Pullman entered into a contract with two singer-songwriters in May 2002, which gave him the exclusive option to purchase their song catalog following a 180-day due diligence period. Pullman’s due diligence uncovered tax liens on the songbook, and when he (apparently) told the songwriters about them, they reneged on the agreement, which Pullman took as a breach. The songwriters subsequently died and their estates – claiming no knowledge of the agreement with Pullman – offered the songs to another buyer for $4.4 million. Soon after, Pullman publicly disclosed his deal with the songwriters, which, not surprisingly, “torpedoed the deal” with the second buyer. The estates sued, Pullman counter-sued, and the case wound up in arbitration.

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Third Circuit in Chesapeake Appalachia: Incorporating AAA Rules Not Enough to Satisfy the Onerous Burden of Overcoming Presumption in Favor of Judicial Resolution of Class Arbitrability

Posted in Consumer Class Action Defense

In Chesapeake Appalachia, L.L.C. v. Scout Petroleum, L.L.C., the Third Circuit picked up where it left off after Opalinski v. Robert Half International Inc. Click here for our prior blog on Opalinski. In Opalinski, the Circuit held, for the first time, that “the availability of class arbitration constitutes a ‘question of arbitrability’ to be decided by the courts—and not the arbitrators—unless the parties’ arbitration agreement ‘clearly and unmistakably’ provides otherwise.”

In another published decision, the court in Chesapeake Appalachia addressed the question left open in Opalinski: what must be established to “satisfy the onerous burden of overcoming the presumption in favoring of judicial resolution of the question of class arbitrability.” Chesapeake Appalachia rejected the argument that an arbitration agreement “clearly and unmistakably” provided for the arbitrator to decide this question by incorporating the Rules of the American Arbitration Association (“AAA”). The Court held that simply incorporating the AAA Rules, or the Supplementary Rules, was “not enough” to establish that the agreement “clearly and unmistakably delegate[d] the question of class arbitrability to the arbitrators.”

Chesapeake Appalachia involved oil and gas leases which provided that, “in the event of a disagreement between ‘Lessor’ and ‘Lessee’ concerning “this lease,” performance “‘thereunder,’ or damages caused by ‘Lessee’s’ operations, ‘all such disputes’ shall be resolved by arbitration ‘in accordance with the rules of the American Arbitration Association.'” The lessors sought class arbitration claiming that the AAA’s Supplementary Rules, among others, clearly provided for class arbitration, and that the arbitrator should decide whether the arbitration clause permits class arbitration. The lessee filed a declaratory judgment action seeking a declaration that the district court, and not the arbitrator, must decide and that the leases did not provide for class arbitration. Summary judgment was granted in favor of the lessee and that decision was appealed to the Third Circuit.

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Super Bowl Tickets Not the Ticket to Federal Class Action, as Third Circuit Finds No Standing for Uninjured Plaintiffs

Posted in Class Action Defense

“[T]he disappointment of wanting to attend a concert or athletic event only to discover that the event has sold out,” does not confer constitutional standing. That was the take away from the Third Circuit Court of Appeals recent precedential decision, Finkelman v. Nat’l Football League. Addressing the always-thorny contours of constitutional standing to bring a federal lawsuit, the Court held, in the face of high Super Bowl ticket prices, that neither non-purchasers of tickets nor purchasers of “scalped” tickets at elevated prices, had standing to sue under Article III. This opinion sets up yet another obvious roadblock in the path of plaintiffs looking to bring claims—whether or not as class actions—when their perceived injuries are either non-existent or so tenuous as to make “difficulties in alleging an injury-in-fact . . . insurmountable.”

The Plaintiffs, football fans who wanted to attend Super Bowl XLVIII at New Jersey’s MetLife Stadium in February 2014, claimed that “the NFL distributed 99% of Super Bowl tickets to NFL teams and League insiders.” The fraction that was left for the general public was only offered via lottery, the prize being the ability to buy a ticket to the Super Bowl for $800.00 per ticket.

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Third Circuit Holds That Absent Class Members Need Not Show Standing and Reiterates Comcast’s Reiteration of Basic Rule 23 Principles

Posted in Class Action Defense

In a precedential opinion in Neale v. Volvo Cars of North America, the U.S. Court of Appeals for the Third Circuit held that putative class members need not establish Article III standing, and emphasized that the Supreme Court’s decision in Comcast v. Behrend, 133 S. Ct. 1426 (2013) “was not breaking any new ground” because “the predominance analysis was specific to the antitrust claim at issue.”

The appeal concerned the District Court’s certification of six statewide classes of Volvo owners and lessees who alleged a design defect in their vehicles’ sunroof drainage systems. The Third Circuit first considered Volvo’s argument that all putative class members must have Article III standing. The Circuit Court recounted the long history of representative actions, dating back to medieval times, and concluded that “[r]equiring individual standing of all class members would eviscerate the representative nature of the class action.” The Third Circuit held that “a class action is permissible so long as at least one named plaintiff has standing.”

The Court observed that standing must be “satisfied by those who seek to invoke the power of federal courts” and that in the class action context the named plaintiffs fill that role. The Court further opined that requiring that absent class members possess standing would be “inconsistent with the nature of an action under Rule 23,” noting that all class members may not even be known until after discovery and that courts have long permitted individuals who suffered no legal injury to be members of Rule 23(b)(2) classes. Issues concerning whether and how absent class members have been injured should be addressed when deciding whether class certification is appropriate under Rule 23 and not as part of an Article III standing analysis.
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Delaware Supreme Court Says that Minority Stockholder Which Manages Company’s Day-to-Day Affairs is not a “Controlling Stockholder” and Confirms that Mandatory Stockholder Approval of Merger Transaction Compels Application of Business Judgment Rule

Posted in General Litigation

The Delaware Supreme Court’s recent decision in Corwin v. KKR Financial Holdings LLC makes two important points about corporate governance litigation. First, the court rejected the novel argument that an owner of less than 1% of a company’s stock could be considered a “controlling stockholder” because it managed the company’s day-to-day affairs under a management agreement. Second, the court confirmed that when a transaction has been approved by a majority of the company’s disinterested stockholders, the highly deferential business judgment rule should govern any challenges to the transaction, even if the stockholder vote was statutorily required and not voluntary.

KKR Financial Holdings LLC was a Delaware limited liability company. It delegated its day-to-day operations of investing in corporate securities to a management company, pursuant to a management agreement. KKR Financial had no employees of its own and was completely reliant on the management company for its operations. The equity interests of KKR Financial were widely held, and the corporate parent of the management company owned less than 1% of the company.

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Jersey City Restriction on Chain Stores and Restaurants Could be Unconstitutional

Posted in General Litigation

Jersey City, New Jersey’s second largest city, recently passed an ordinance that restricts “formula businesses” in certain neighborhoods. The ordinance defines a “formula business” as one which is “contractually obligated” to maintain certain “standardized characteristics” such as merchandise, menu items, design, signage, and trademarks. In other words, Jersey City is seeking to limit chain restaurants and stores from opening in certain city neighborhoods.

Steve Fulop, Jersey City’s Mayor and proponent of the ordinance, was quoted in news reports about the ordinance as saying “[w]e don’t want every retail space to become a Gap, TGI Fridays or a Starbucks”, and “[l]ook at New York, it’s just Starbucks after Duane Reade after Chipotle after (TGI Fridays).” Without the ordinance, according to the Mayor, Jersey City would be “an environment that doesn’t necessarily foster the creative class and foster an interesting place for people to want to live in.” A challenge to this ordinance would not be surprising – it is the first of its kind in New Jersey, according to the New Jersey Chamber of Commerce, which opposed the ordinance.

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