Commercial Litigation Alert Blog

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 The CCPA, originally enacted in June 2018 and first amended in September 2018, sets forth an entirely new privacy and security regime for many entities doing business in California.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...

New Jersey Federal Court Holds that Cryptocurrency Allegations Sufficiently Alleged a “Security” Subject to ’33 Act Registration Requirements

New Jersey Federal Court Holds that Cryptocurrency Allegations Sufficiently Alleged a “Security” Subject to ’33 Act Registration Requirements

In Solis v. Latium Network, Inc., Susan D. Wigenton, a United States District Judge in the District of New Jersey, held that a class action plaintiff adequately alleged that a particular cryptocurrency was a “security” subject to the registration requirements of the Securities Act of 1933 and, by extension, the regulatory strictures of the Securities Exchange Act of 1934. Solis alleged that Latium operates a blockchain-based, crowdsource tasking platform, which allows users to create tasks, find people to complete the tasks, and then verify completion of the tasks according to specified standards. Users of the platform pay for the completed tasks using Latium X tokens, Latium’s proprietary cryptocurrency, which can be used only on Latium’s platform. Solis also alleged that, to raise money for the platform, Latium offered its tokens for sale to the public in exchange for U.S. dollars or the cryptocurrency Ether. The sale was conducted in several stages, with the cost of a token increasing with each successive stage. When marketing the tokens, Latium stressed the limited quantity of tokens to be issued and characterized its tasking platform, particularly in tandem with the tokens, as a “unique investment opportunity.” Solis purchased $25,000 in Latium X tokens and...

Third Circuit Rejects Buyer’s Remorse as a Cognizable Injury Under Article III

Third Circuit Rejects Buyer’s Remorse as a Cognizable Injury Under Article III

In In Re: Johnson & Johnson Talcum Powder Products Marketing, Sales Practices and Products Liability Litigation, the United States Court of Appeals for the Third Circuit held that buyer’s remorse, without more, does not constitute an economic injury sufficient to establish standing under Article III of the United States Constitution. Plaintiff brought a putative class action against defendant Johnson & Johnson, alleging that perineal use of defendant’s baby powder by women could lead to an increased risk of ovarian cancer. Plaintiff did not allege that she had developed or was at an increased risk of developing ovarian cancer. Nor did she allege that the product was defective in performing the functions for which it was advertised. Furthermore, Plaintiff had used all the product and, thus, was not seeking reimbursement for a product she cannot use. Rather, Plaintiff alleged that she would not have bought the baby powder had she known that it could lead to an increased risk of cancer. The District Court of New Jersey dismissed her complaint for lack of Article III standing. The Third Circuit affirmed. It relied on its analyses in Finkelman v. Nat’l Football League and Cottrell v. Alcon Laboratories to determine that Plaintiff’s allegations were too...

Eleventh and Seventh Circuits Hold Class and Collective Arbitration Are Questions of Arbitrability

Eleventh and Seventh Circuits Hold Class and Collective Arbitration Are Questions of Arbitrability

In two recent precedential decisions, JPay, Inc. v. Kobel and Herrington v. Waterstone Mortgage Corp., the Eleventh and Seventh Circuits, respectively, held that whether an arbitration may proceed on a class-wide basis (or as a collective action when a claimant is seeking relief under the Fair Labor Standard Act) is a “question of arbitrability” to be decided by the courts, unless the parties specifically delegate that responsibility to an arbitrator. The Supreme Court previously noted the lack of a majority decision on the subject in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. and declined to address this question in Oxford Health Plans LLC v. Sutter, leaving the decision to the circuits. In JPay, the dispute arose when two plaintiffs, users of JPay’s fee-for-service amenities to send money to inmates, filed suit alleging the service dissuaded users from sending funds through free paper money orders, and that the fees charged by JPay were “exorbitant” and used to “fund kickbacks to corrections departments.” JPay’s Terms of Service included a provision that the American Arbitration Association (AAA) would arbitrate and govern any disputes, claims, or controversies that arose between the parties and “[t]he ability to arbitrate the dispute, claim or controversy shall likewise be determined in...