Commercial Litigation Alert Blog

NJ Supreme Court Narrowly Construes Shareholder’s Right to Inspection of Corporate Records

NJ Supreme Court Narrowly Construes Shareholder’s Right to Inspection of Corporate Records

In R.A. Feuer v. Merck & Co., Inc., the New Jersey Supreme Court affirmed the Appellate Division’s narrow construction of the scope of a shareholder’s right to inspect a corporation’s records under N.J.S.A. 14A:5-28 and the common law. In the underlying case, a Merck & Co, Inc. shareholder sought documents in order to elicit evidence that Merck acted wrongfully in its acquisition of another pharmaceutical firm. Merck appointed a “Working Group” to respond to the shareholder’s demand, which rejected the shareholder’s request for documents relating to the acquisition. Following this rejection, the shareholder sought twelve broad categories of corporate documents, including documents pertaining to the Working Group’s activities, communications, and formation; documents provided to the board regarding the target pharmaceutical firm and two of its drugs; and the board’s consideration of the shareholder’s demands and the Working Group’s recommendation. Merck disclosed pertinent minutes of the board and of the Working Group, but denied the remainder of the shareholder’s demand. The shareholder sued Merck, alleging entitlement to the documents under N.J.S.A. 14A:5-28(4), which permits a shareholder to compel the corporation to produce its “books and records of account, minutes, and record of shareholders,” and the common law. The trial court denied...

Third Circuit Offers Reminder that Pansy Does Not Govern Sealing of Documents

Third Circuit Offers Reminder that Pansy Does Not Govern Sealing of Documents

The Third Circuit has clarified the standard for sealing documents filed with a court, emphasizing in In re Avandia that litigants who wish to prevent public access to such documents face a more exacting standard than litigants pursuing a protective order under Fed. R. Civ. P. 26. In connection with its motion for summary judgment as to consumer protection claims filed by two health plans, GlaxoSmithKline (GSK) filed certain documents under seal and sought to maintain the confidentiality of those documents after the plans appealed the District Court’s order granting summary judgment to GSK. The District Court granted GSK’s sealing motions in significant part, and the plans appealed. The Third Circuit held that, in ordering the documents to remain sealed, the District Court incorrectly applied the standard, articulated in Pansy v. Stroudsburg, for preserving the confidentiality of discovery materials under Rule 26. In so doing, the Third Circuit opined, the District Court failed to recognize the “strong presumption” of public access that applies to documents filed on the court’s public docket. The Third Circuit held that the District Court should have applied the more exacting common-law right-of-access standard to the motions for continued confidentiality. That standard “begins with a thumb...

Supreme Court Further Restricts Class Arbitration Finding It Must be Unambiguously Authorized

Supreme Court Further Restricts Class Arbitration Finding It Must be Unambiguously Authorized

In a 5-4 decision authored by Chief Justice Roberts, joined by Justices Thomas, Alito, Gorsuch, and Kavanaugh, the U.S. Supreme Court in Lamps Plus Inc. v. Varella held that courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis. Lamps Plus Inc. v. Varella involved an employee who had filed a class action against his employer. Lamps Plus responded by seeking to compel arbitration on an individual rather than a classwide basis. The district court dismissed the case and compelled arbitration, but on a class basis. Lamps Plus appealed, and the Ninth Circuit upheld the district court’s decision. The Ninth Circuit’s reasoning hinged on the fact that the arbitration agreement was ambiguous about the availability of class arbitration. The Ninth Circuit thus distinguished Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010), arguing that in Stolt-Nielsen the parties had stipulated that the agreement was silent about class arbitration, whereas the parties had no such stipulation in Lamps Plus. Because the Ninth Circuit held that the agreement was ambiguous, the appellate court turned to California’s contra proferentem rule and held that this state law contract principle required the court to...

Third Circuit Permits Extra-Strong Restrictive Covenants for Extra-Good Employees

Third Circuit Permits Extra-Strong Restrictive Covenants for Extra-Good Employees

In a recent “precedential” opinion, the Third Circuit, applying New Jersey law, approved an employer’s use of an additional, extra-stringent restrictive covenant for its high-performing salespeople, subject to careful blue lining by the court to ensure that the covenant does not create an unreasonable burden for the employees. ADP, LLC, the well-known provider of payroll and other human resources services, required its new sales employees, as a condition of employment, to sign a Sales Representative Agreement and a Non-Disclosure Agreement. Together, the two agreements essentially prohibited the employee, for one year after the termination of employment, from soliciting ADP customers “with which the Employee was involved or exposed” while employed at ADP. Once employed, ADP’s sales staff could earn stock awards by meeting certain sales targets. But to receive an award, the employee had to sign a third agreement, a Restrictive Covenant Agreement, which imposed still more post-employment restrictions on the employee. Among other things, the Restrictive Covenant Agreement essentially prohibited the employee for two years after termination from soliciting all current and prospective ADP customers, whether or not the employee was “involved or exposed” to the customer while employed by ADP. The Restrictive Covenant Agreement also contained a geographic...

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...