Commercial Litigation Alert Blog

Supreme Court Holds That 14-Day Appeal Deadline Established by Rule 23(f) Cannot Be Tolled

Supreme Court Holds That 14-Day Appeal Deadline Established by Rule 23(f) Cannot Be Tolled

On February 26, 2019, the Supreme Court unanimously held in Nutraceutical Corporation v. Lambert, that the 14-day deadline imposed by Federal Rule of Civil Procedure 23(f), seeking permission to appeal an order granting or denying class certification, cannot be tolled. After initially certifying a class, the District Court, on February 20, 2015, decertified the class after finding that common issues did not predominate among the class members. Pursuant to Rule 23(f)’s 14-day deadline, the plaintiff, Lambert, had until March 5, 2015 to seek permission to appeal. But, on March 2, 2015, Lambert orally informed the District Court that he would seek reconsideration and did not file his motion for reconsideration until March 12, 2015. Lambert’s motion for reconsideration was denied on June 24, 2015. Fourteen days after that, almost four months past his 14-day deadline, Lambert petitioned the Ninth Circuit seeking permission to appeal the District Court’s order decertifying the class. The Court of Appeals granted Lambert’s petition, finding that the 14-day deadline under Rule 23(f) should be tolled given the circumstances. Specifically, the Court of Appeals found that because Lambert had informed the court within 14 days that he would be seeking reconsideration, he acted diligently. The Supreme Court...

Coming Soon to an Opposition Brief Near You:  U.S. Supreme Court Holds That Disseminators of False or Misleading Statements Face Liability for Securities Fraud Under Rules 10b-5(a) and (c) Even Where They Are Not Subject to Liability Under Rule 10b-5(b)

Coming Soon to an Opposition Brief Near You: U.S. Supreme Court Holds That Disseminators of False or Misleading Statements Face Liability for Securities Fraud Under Rules 10b-5(a) and (c) Even Where They Are Not Subject to Liability Under Rule 10b-5(b)

In a decision that is certain to receive a warm welcome from the securities class action plaintiffs’ bar, last week, in Lorenzo v. Securities and Exchange Commission, the U.S. Supreme Court held that a disseminator of a false or misleading statement, who cannot be liable for securities fraud under Rule 10b-5(b) because he or she was not the “maker” of that statement, nonetheless faces liability under Rules 10b-5(a) and (c) and related securities statutes. Under Rule 10b-5(b), it is unlawful to make any untrue statement of material fact in connection with the purchase or sale of a security. Nearly eight years ago, in Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011), the Supreme Court held that only the maker of a false or misleading statement faces liability under Rule 10b-5(b) and that the maker of a statement is the person with ultimate authority over the statement including its contents and whether and how to communicate it. As a result, in that case, an investment adviser who had participated in drafting a false statement included in the prospectus of its mutual fund client avoided liability for securities fraud because the mutual fund, and not the investment adviser,...

Third Circuit Considers Whether Employer May Access Employee’s Password-Protected Information from Work Computer

Third Circuit Considers Whether Employer May Access Employee’s Password-Protected Information from Work Computer

In a recent “Not Precedential” opinion, a divided Third Circuit panel engaged in an instructive and interesting debate about whether, under New Jersey law, an employer may access and monitor a former employee’s password-protected accounts using information the employee left on his work computer. The case involved a group of employees who left an employer en masse to join a competing enterprise. One of the departing employees failed to log out of his Facebook account before he returned his computer to the employer. The employer was thus able to—and did—monitor for more than a month the employee’s password-protected Facebook activity, which included Facebook Messenger exchanges among the other former employees in which the employees admitted to improperly sending the employer’s confidential information to their new employer. When the employer sought a preliminary injunction against the former employees, the employees claimed that the old employer had unclean hands—and thus was not entitled to an injunction—because of its post-termination monitoring of the employee’s password-protected Facebook activity and other password-protected accounts. The district court rejected the unclean hands defense and entered an injunction. On appeal the majority held that the employer’s monitoring of the employee’s accounts was not sufficiently related to the employees’...

CCPA Amendments Expand Private Right of Action and AG’s Enforcement Power

CCPA Amendments Expand Private Right of Action and AG’s Enforcement Power

On February 22, 2019, another proposed amendment to the California Consumer Privacy Act (CCPA) was published. If enacted, this amendment will increase businesses’ potential exposure under the CCPA by, among other things, expanding the scope of private rights of action under the Act and eliminating a cure period prior to a civil enforcement action by the California Attorney General. The CCPA, originally enacted in June 2018 and first amended in September 2018, sets forth an entirely new privacy and security regime for many entities doing business in California. It imposes extensive requirements on the collection, use, and storage of consumer personal information, and applies to many businesses located both in and outside of the state. The deadline for all businesses to comply with the CCPA’s requirements is January 1, 2020, and the California Attorney General may bring an enforcement action six months after the passage of implementing regulations, or July 1, 2020, whichever comes first. The clock is ticking … The CCPA applies to any for-profit entity that (i) does business in California, (ii) collects “personal information” and/or determines the purposes and means of processing “personal information,” and (iii) satisfies at least one of the following threshold criteria: Has annual...

Third Circuit Clarifies Scope of Liability for Insurance Companies Under the Consumer Fraud Act

Third Circuit Clarifies Scope of Liability for Insurance Companies Under the Consumer Fraud Act

In a precedential decision interpreting the New Jersey Consumer Fraud Act (CFA), the Third Circuit determined that an automobile insurance carrier may be liable under the CFA for deceptively inducing one of its customers into releasing claims against another party represented by the carrier. In Alpizar-Fallas v. Favero, Defendant’s car struck Plaintiff’s vehicle, causing serious injury and damages. Both parties were insured by Defendant’s insurance company, Progressive. A Progressive claims adjuster arrived at Plaintiff’s home and presented her with a document that he claimed required her signature. The adjuster represented that by signing the document Plaintiff would expedite the claim process. Plaintiff signed the document relying on the adjuster’s statements. The document, however, was a “comprehensive general release of any and all claims” against defendant driver, also insured by Progressive. Plaintiff was not advised by the adjuster to seek counsel. Plaintiff subsequently brought a putative class action against Progressive for violation of the CFA. On Progressive’s motion, the district court dismissed Plaintiff’s claims, reasoning that the CFA did not apply to “an insurance company’s refusal to pay benefits” but only to the “sale or marketing” of the policies. On appeal, the Third Circuit reversed, holding that the district court mischaracterized...

District of New Jersey’s Dismissal of Securities Class Action Reiterates Significant Hurdles to Sufficiently Pleading Scienter

District of New Jersey’s Dismissal of Securities Class Action Reiterates Significant Hurdles to Sufficiently Pleading Scienter

A decision last week from the District of New Jersey is the latest of several recent decisions from the District and the Third Circuit making clear that securities fraud plaintiffs face a high bar in pleading an inference of scienter strong enough to withstand a motion to dismiss. In In re Electronics For Imaging, Inc. Securities Litigation, Plaintiffs brought a securities fraud class action alleging that Electronics For Imaging, Inc. (EFI), and two of its executives, violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. According to Plaintiffs, Defendants falsely assured investors in a Form 10-K and Form 10-Q (and accompanying Sarbanes Oxley certifications) that EFI’s internal controls over financial reporting were functional and effective—including by asserting that those controls had been reviewed, evaluated, and improved. A subsequent press release and amendments to the Form 10-K and Form 10-Q identified material weaknesses in EFI’s internal controls. Plaintiffs filed suit in the wake of a drop in EFI stock price that occurred after the press release was issued. Defendants moved to dismiss for failure to sufficiently plead scienter. In support of scienter, Plaintiffs alleged that Defendants’ record keeping practices so egregiously violated generally accepted accounting...

New Jersey Supreme Court Expands Reach of the Consumer Fraud Act to Include Customized Merchandise

New Jersey Supreme Court Expands Reach of the Consumer Fraud Act to Include Customized Merchandise

Relying on the remedial purpose of the Consumer Fraud Act (CFA), the New Jersey Supreme Court recently held that customized merchandise falls within the reach of the CFA. In All the Way Towing, LLC v. Bucks County International, Inc., plaintiffs, an individual and his limited liability towing company, entered into a contract with defendants for the purchase of a medium-duty 4×4 truck to be customized with an autoloader tow unit to meet plaintiffs’ particular needs. After the manufacturer attempted delivery on four occasions of a tow truck with significant problems, plaintiffs believed the situation to be “hopeless,” rejected delivery and demanded return of a $10,000.00 deposit. The manufacturer refused return of the deposit. Plaintiffs then brought suit for, among other things, violation of the CFA. The trial court granted summary judgment to the manufacturer on all claims, holding in pertinent part that a customized “tow truck was not something available ‘to the public for sale’” under the CFA. The Appellate Division reversed, holding that the line of cases that excluded “complex” goods or services from CFA claims was not applicable here because there was no showing that the tow truck at issue was any more “complex” than any other tow...

Delaware Supreme Court Orders Production of Emails in Response to Section 220 Demand and Refuses to Restrict Knock-On Litigation to Delaware

Delaware Supreme Court Orders Production of Emails in Response to Section 220 Demand and Refuses to Restrict Knock-On Litigation to Delaware

In KT4 Partners LLC v. Palantir Technologies Inc., the Delaware Supreme Court required a corporation to produce emails in response to a “books and records” demand under 8 Del. C. §220; it also refused to limit any knock-on litigation on the merits to the Delaware Court of Chancery. KT4 is a stockholder in Palantir and received certain rights under a series of Investor Rights Agreements and a First Refusal and Co-Sale Agreement. After a falling out between KT4 and Palantir’s management, Palantir amended the Investor Rights Agreement in ways detrimental to KT4. KT4 responded with a request to inspect Palantir’s “books and records” pursuant to 8 Del. C. §220, which entitles a stockholder to inspect a corporation’s “books and records” if, and to the extent that, the requested inspection “is for a proper purpose.” Palantir refused to comply, and KT4 filed a §220 action in the Delaware Court of Chancery to compel production of the requested documents. The Court of Chancery ruled that KT4 had a statutory “proper purpose” of investigating three areas of potential corporate wrongdoing: 1) Palantir’s failure to hold stockholder meetings, 2) Palantir’s amendment of the Investor Rights Agreement, and 3) Palantir’s potential breach of the Investor...

New Jersey Chancery Division Adopts Watered-Down Trulia Standard and Approves Disclosure-Only Settlement of Merger Litigation

New Jersey Chancery Division Adopts Watered-Down Trulia Standard and Approves Disclosure-Only Settlement of Merger Litigation

Nearly three years ago, the Delaware Court of Chancery issued its landmark opinion in In re Trulia, Inc. Stockholder Litigation, in which Chancellor Bouchard strongly criticized the use of disclosure-only settlements in class-action merger challenges and subjected such settlements to a heightened level of judicial review. In a disclosure-only settlement the merging parties agree to enhance their disclosures about the challenged merger in exchange for a broad release from a settlement class comprised of their shareholders. According to Chancellor Bouchard, all too often the enhanced disclosures in such settlements provide little, if any, value to the shareholders, while class counsel get large fee awards and the corporations get “deal insurance” because their shareholders have released them and their boards from liability arising from the transaction. Because disclosure-only settlements so rarely give meaningful relief to the shareholders, Chancellor Bouchard held that a court should approve them only if “the supplemental disclosures address a plainly material misrepresentation or omission[] and the subject matter of the proposed release is narrowly circumscribed.” In the first published New Jersey state court opinion addressing the Trulia standard, the Chancery Division in Strougo v. Ocean Shore Holding Co. followed Trulia in holding that disclosure-only settlements are to be...

Accepting the Risks of Arbitration Clauses: The Southern District of New York Upholds Arbitrator’s Decision Allowing Class-Wide Arbitration

Accepting the Risks of Arbitration Clauses: The Southern District of New York Upholds Arbitrator’s Decision Allowing Class-Wide Arbitration

On January 2, 2019, the Southern District of New York (SDNY) in Wells Fargo Advisors LLC v. Tucker, declined to vacate an arbitrator’s clause construction award, which construed the parties’ arbitration agreement as permitting class-wide arbitration. Importantly, prior decisions from the SDNY and Second Circuit concluded the parties’ arbitration agreement clearly and unmistakably expressed the parties’ intent that an arbitrator should decide the gateway issue of whether the agreement permitted class arbitration. Having delegated that authority to the arbitrator, the District Court found no basis in law to overturn that clause construction award. The two prior decisions in this matter, addressing the issue of who should decide whether an agreement permits class arbitration, align well with the United States Supreme Court’s January 9, 2019 holding in Henry Schein, Inc. v. Archer & White Sales, Inc. There—resolving a circuit split—the High Court held that when the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract, and possesses no power to decide the arbitrability issue, even if the court believes the argument that the arbitration agreement applies to a particular dispute is “wholly groundless.” The clause construction award in Wells Fargo Advisors LLC arose out...