An unaccepted Federal Rule of Civil Procedure (FRCP) 68 offer of judgment that would fully satisfy the plaintiff’s claim is insufficient to render the claim moot, says the Ninth Circuit.

In Diaz v. First American Home Buyers Protection Corp., the defendant made an FRCP 68 offer of judgment to the plaintiff on her remaining individual claims following denial of her motion for class certification. When the plaintiff did not accept the offer, the defendant moved to dismiss the action for lack of subject matter jurisdiction. The district court found that the unaccepted FRCP 68 offer rendered the plaintiff’s remaining claims moot and granted the defendant’s motion to dismiss.

The Ninth Circuit vacated the district court’s dismissal of the claims. Acknowledging a circuit split on the issue, the Ninth Circuit cited US Supreme Court Justice Kagan’s dissent in Genesis Healthcare Corp. v. Symczyk. In Genesis, Justice Kagan explained that an unaccepted offer of judgment cannot moot a case because:

(732 F.3d 948 (9th Cir. 2013).)

See Legal Update, Ninth Circuit: Unaccepted FRCP 68 Offer of Judgment Insufficient to Moot Plaintiff’s Claim for more on this decision.

See Article, Genesis Healthcare Corp. v. Symczyk: Expert Q&A and Legal Update, Supreme Court: FLSA Collective Action Properly Dismissed after Plaintiff’s Individual Claims Are Rendered Moot for more on the Genesis decision and the unresolved circuit split.

The Southern District of New York (SDNY) imposed sanctions on an American attorney and certain co-defendants for failing to comply with an order to produce documents, despite an Ecuadorian court order prohibiting their release.

Chevron Corp. v. Donziger involved a suit filed in New York by Chevron to enjoin an $18.2 billion judgment issued against it by an Ecuadorian court, on the ground that the judgment had been obtained through fraud and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). Chevron moved to compel production of certain Ecuadorian documents from the defendants, and the SDNY granted Chevron’s motion. However, the defendants refused to produce the requested documents, relying on an injunction barring their disclosure, which was obtained from an Ecuadorian court without notice to Chevron or the SDNY. Chevron then moved for sanctions against the defendants.

In granting the motion to compel and the motion for sanctions, the SDNY conducted a comity analysis to determine whether the injunction, which was based on Ecuadorian privilege laws that conflicted with those of the US, was a valid ground to withhold the documents. The SDNY concluded that:

(No. 11-0691, (S.D.N.Y. Oct. 10, 2013).)

See Legal Update, SDNY Sanctions Defendants for Failing to Produce Documents Despite a Conflicting Foreign Court Order for more on this decision.

See Practice Note, International Litigation: Requesting Discovery Abroad for US Proceedings for information on requesting discovery located outside the US for use in US litigation.

According to a recent Central District of Illinois decision, an objective test should be applied when determining whether the term “considered,” as used in FRCP 26(a)(2)(B)(ii), includes materials given to the expert during prior retentions involving the same subject matter as in the expert’s current report.

In United States v. Dish Network, L.L.C., the defendant submitted a rebuttal report written by an expert who the defendant had previously consulted for many years. The plaintiffs moved to compel discovery, under FRCP 26(a)(2)(B)(ii), of the facts and data underlying the expert’s previous work with the defendant. The magistrate judge ordered the production of any documents concerning the expert’s prior experiences (including those with the defendant) and containing facts or data that the expert considered in formulating his opinions. However, the magistrate judge rejected the plaintiff’s argument that the term “considered” under FRCP 26 “encompasses all aspects of an expert’s prior retentions that objectively involve the subject matters covered by the expert’s report and not just what the expert admits to have used in forming his opinion.”

Upon review, the district court agreed with the plaintiff that an objective test is appropriate, reasoning that an expert should not be able to limit the discoverability of facts and data learned during a prior retention simply by asserting that they were not considered in the present action. (No. 09-3073, (C.D. Ill. Oct. 9, 2013).)

See Legal Update, District Court Adopts Objective Approach to Determining What Facts Were “Considered” by an Expert under FRCP 26 for more on this decision.

See Article, Expert Discovery: An Update on the Rule 26 Amendments and Article, Expert Q&A on the Rule 26 Amendments: One Year In for more on the 2010 amendments to FRCP 26 and the use of expert witnesses in federal litigation.

A recent decision from the Northern District of California certifying a class of employees claiming wage suppression in violation of federal antitrust laws warns employers to consider the antitrust consequences of non-solicit agreements.

In In re High-Tech Employee Antitrust Litigation, the plaintiffs alleged that various Silicon Valley employers, including, among others, Adobe, Apple, Google, and Intel, violated the Sherman and Clayton Acts by agreeing not to solicit each others’ employees, which suppressed wages to artificially low levels.

The court denied the plaintiffs’ initial motion for class certification earlier this year because the proposed class of all employees was too numerous and the plaintiffs did not adequately demonstrate that common issues would predominate over individual issues under FRCP 23(b). In their supplemental motion for class certification, however, the plaintiffs cured those flaws and successfully showed that common issues predominated by:

A trial is scheduled for May 2014. (No. 11-2509, (N.D. Cal. Oct. 24, 2013).)

See Legal Update, District Court Judge Certifies Class in Silicon Valley No-poaching Case for more on this decision.

See Practice Note, Class Actions: Overview for information on the basic framework of federal class actions.

The revised Commercial Arbitration Rules of the American Arbitration Association (AAA), which became effective on October 1, 2013, contain six significant changes:

See Practice Note, AAA Arbitration: A Step-By-Step Guide for a guide to conducting arbitration under the AAA Commercial Arbitration Rules.

Companies may label products “all natural” when a reasonable consumer would not be deceived under the circumstances.

In Pelayo v. Nestle USA, Inc., the plaintiff alleged that Nestle’s “All Natural” product labeling on mass-produced pastas is false, misleading and reasonably likely to deceive the public because the pastas actually contain at least two ingredients that are unnatural, artificial or synthetic. Under the California Unfair Competition Law and the California Consumer Legal Remedies Act, the plaintiff’s claims are governed by the reasonable consumer test, which focuses on whether members of the public are likely to be deceived.

The Central District of California found that the plaintiff failed to allege how the term “All Natural” could be deceptive to a consumer acting reasonably under the circumstances because:

(No. 13-5213, (C.D. Cal. Oct. 25, 2013).)

See Legal Update, Federal Court Dismisses “All Natural” False Advertisement Lawsuit for more on this decision.

See Practice Note, Advertising: Overview for information on advertising regulation in the US and the key legal issues to consider when planning an advertising campaign.

Delaware’s confidential judicial arbitration procedures violate the First Amendment’s right of access, according to the Third Circuit.

Last year, in Delaware Coalition for Open Government, Inc. v. Strine, the District of Delaware held that Delaware’s proposed non-public arbitration proceedings were unconstitutional because they would function essentially as civil bench trials to which there is a qualified right of public access under the First Amendment. The Third Circuit affirmed on different grounds. While the Third Circuit also found that the arbitration procedures violated the First Amendment, it held that the district court should have applied the “experience and logic” test described by the US Supreme Court in Press-Enterprise Co. v. Superior Court of California for Riverside County.

Under this test, the experience prong requires courts to consider whether “the place and process have historically been open to the press and general public.” The logic prong requires the court to examine whether “access plays a significant positive role in the functioning of the particular process in question.” Applying the test, the Third Circuit concluded that:

(No. 12-3859, (3d Cir. Oct. 23, 2013).)

See Legal Update, Third Circuit Finds Delaware Judicial Arbitration Procedures Unconstitutional for more on this decision.

See Legal Update, Delaware Chancery Court Adopts Voluntary Arbitration Rules for Business Disputes and Legal Update, Delaware Confidential Judicial Arbitration Procedures Unconstitutional for more on the proposed arbitration procedures and the district court’s ruling in Delaware Coalition.

A recent Seventh Circuit decision adds to the uncertain landscape for employers in implementing health care reform, particularly employers with multi-state operations.

Korte v. Sebelius involved two cases consolidated on appeal, both involving Catholic families and their for-profit, closely-held corporations seeking exemption from health care reform’s contraceptives coverage mandate (part of the law’s preventive health services rules). The district courts had concluded that the plaintiffs were unlikely to succeed on their claims under the Religious Freedom Restoration Act (RFRA), and denied the plaintiffs’ requests for preliminary injunctions barring the Department of Health and Human Services (HHS) from enforcing the mandate. The Seventh Circuit reversed and, over a rigorous dissent, held that:

The Seventh Circuit concluded that the plaintiffs were likely to succeed on their RFRA claims and remanded the consolidated appeals to the district courts with instructions to enter preliminary injunctions barring HHS from enforcing the mandate. (Nos. 12-3841, 13-1077, (7th Cir. Nov. 8, 2013).) Korte is consistent with the Tenth Circuit’s recent decision in Newland v. Sebelius, but inconsistent with decisions in the Third and Sixth Circuits. The US Supreme Court is expected to decide soon whether it will hear one or more of the contraceptives mandate cases it has been asked to review.

See Legal Update, Seventh Circuit Bars Enforcement of Contraceptives Mandate Against For-profit Corporations for more on this decision.

See Practice Note, Coverage of Preventive Health Services under Health Care Reform for more on the contraceptives mandate and related health care reform requirements.

A recent SDNY decision highlights a loophole in the effectiveness of the Bankruptcy Code’s safe harbors in avoidance actions for financial transactions. The decision suggests that potential defendants in avoidance actions should carefully limit their exposure to state-law constructive fraudulent conveyance (SLCFC) claims by individual creditors when negotiating releases and assignments of claims to litigation trusts.

In re Tribune Co. Fraudulent Conveyance Litigation involved a 2007 leveraged buyout (LBO) approved by Tribune Company. In 2008, Tribune filed for Chapter 11 bankruptcy protection. The Official Committee of Unsecured Creditors, created by the bankruptcy court to stand in the shoes of the bankruptcy trustee, filed claims against the shareholders and other parties who received payments in connection with the LBO, asserting that these transfers constituted intentional fraudulent conveyances. Tribune’s individual creditors subsequently filed actions in more than 20 state and federal courts seeking to unwind the LBO and avoid the LBO payments under an SLCFC theory.

After consolidation of the individual creditors’ and the committee’s actions in a multidistrict litigation in the SDNY, the defendants filed a motion to dismiss the individual creditors’ SLCFC actions. The defendants argued that section 546(e) of the Bankruptcy Code bars the SLCFC actions and that the individual creditors lacked standing.

The SDNY granted the defendants’ motion to dismiss. It held that section 546(e) does not preempt the individual creditors’ SLCFC claims, however the automatic stay under section 362 deprived the individual creditors of standing to avoid the same transactions that the committee was simultaneously suing to avoid under a different legal theory. (499 B.R. 310 (S.D.N.Y. 2013).)

See Legal Update, In re Tribune Co: Individual Creditors Lack Standing to Assert State-law Fraudulent Transfer Claims, but Not Barred by Section 546(e) Safe Harbor for more on this decision.

See Practice Note, Bankruptcy Code Avoidance Action Safe Harbors for more on section 546(e) and other Bankruptcy Code safe harbors.

An Abbreviated New Drug Application (ANDA) filing with the Food and Drug Administration (FDA) seeking approval to market a generic compound within the scope of a valid patent claim is an infringement as a matter of law, even where it is accompanied by a certification that the eventual commercial product, as manufactured, would not infringe the patent.

In Sunovion Pharmaceuticals, Inc. v. Teva Pharmaceuticals USA, Inc., the Federal Circuit reversed the district court’s grant of summary judgment of non-infringement in a patent infringement suit brought by patent owner Sunovion. The Federal Circuit concluded that the ANDA specification requesting regulatory approval for a generic drug should control the issue of infringement, rather than the defendants’ “unconventional and unforeseeable” certification to the district court in which it pledged not to infringe.

The Federal Circuit noted that while traditional patent infringement occurs when a patented product is made, used or sold, under the Hatch-Waxman Act, filing an ANDA itself constitutes a technical infringement for jurisdictional purposes. Further, under the Federal Circuit’s decision in Abbott Laboratories v. TorPharm, Inc., when an ANDA applicant asks the FDA to approve a product for sale that falls within the scope of an issued patent, a judgment of infringement must follow. The Federal Circuit held that:

(731 F.3d 1271 (Fed. Cir. 2013).)

See Legal Update, Certification Pledging Not to Infringe Insufficient to Avoid Infringement in Hatch-Waxman Litigation: Federal Circuit for more on this decision.

See Practice Note, Hatch-Waxman Act: Overview for more on patent litigation under the Hatch-Waxman Act.

The Federal Circuit affirmed a summary judgment of non-infringement based on a finding that the patentee exhausted its rights to assert infringement of method claims when it sold its patented product used to carry out the method.

In Keurig, Inc. v. Sturm Foods, Inc., Keurig alleged that Sturm Foods induced infringement of method claims of Keurig’s brewer patents by manufacturing and selling beverage cartridges used by consumers in the brewers. The district court granted summary judgment of non-infringement based on a finding that Keurig had exhausted its rights to assert the method claims when it sold its patented brewers because the brewers were used to practice every step of the method claims.

The Federal Circuit rejected Keurig’s arguments that the district court erred by declining to:

(732 F.3d 1370 (Fed. Cir. 2013).)

See Legal Update, Asserted Method Claims Exhausted by Patentee’s Sale of Product: Federal Circuit for more on this decision.

See Practice Note, Patent Infringement Claims and Defenses for more on the patent exhaustion doctrine.

The Northern District of Georgia recently adopted the standard for Lanham Act extraterritorial jurisdiction articulated by the First Circuit in McBee v. Delica Co. in deciding a motion to dismiss the plaintiffs’ trade dress infringement claim for lack of subject matter jurisdiction.

In RMS Titanic, Inc. v. Zaller, the Georgia district court granted in part and denied in part the defendants’ motion to dismiss. The individual defendant, Thomas Zaller, is a US citizen and CEO of the Singapore incorporated co-defendant, Imagine Exhibitions, PTE, LTD (Imagine-Singapore).

The court applied the McBee analysis, under which the court asks:

The plaintiffs argued that the court should ignore Imagine-Singapore’s status as a foreign corporation and exercise personal and subject matter jurisdiction over this corporate defendant as the alter ego of Zaller. Rejecting this reverse alter ego theory, the court concluded that the plaintiffs’ allegations were insufficient to support an extraterritorial application of the Lanham Act to Imagine-Singapore because its conduct did not have any effect on US commerce. Specifically, the plaintiffs did not allege that Imagine-Singapore:

(No. 13-0625, (N.D. Ga. Oct. 17, 2013).)

The full RMS Titanic opinion is noteworthy for rejecting a reverse alter ego theory as a basis for attaining extraterritorial jurisdiction, citing the different tests for establishing extraterritorial jurisdiction under the Lanham Act and demonstrating that the extraterritorial reach of Lanham Act claims may be determined, at least in part, by the plaintiff’s choice of forum.

See Legal Update, Georgia District Court Rejects Reverse Alter Ego Theory as Basis for Lanham Act Extraterritorial Jurisdiction for more on this decision.

See Practice Note, Trademark Litigation: Pre-suit Considerations for more on subject matter jurisdiction under the Lanham Act and Practice Note, Trademark Infringement and Dilution Claims, Remedies and Defenses for more on the extraterritorial application of the Lanham Act.

Companies enforcing their standard-essential patents should consider whether recent precedent may put downward pressure on the available damages in these cases. The Northern District of Illinois set a royalty rate for a portfolio of standard-essential patents asserted by Innovatio IP Ventures, finding that a reasonable and non-discriminatory (RAND) rate for the patents is 9.56 cents per accused Wi-Fi chip.

In re Innovatio IP Ventures, LLC Patent Litigation involved patents that are essential to the use of the 802.11 wireless networking standard. The court adopted, with some modifications, the framework applied by the Western District of Washington in Microsoft v. Motorola to determine the appropriate RAND rate, considering:

Additionally, the court determined Wi-Fi chip revenues to be the proper royalty base, not end-product revenues. (MDL No. 2303, No. 11-9308, (N.D. Ill. Oct. 3, 2013).)

See Legal Update, District Court Sets Low Royalty Rate for Standard-essential Patents for more on this decision.

See Article, Expert Q&A on Standard-essential Patents and Practice Note, Antitrust Risks in Standard-setting Organizations for more on standard-essential patents and determining a RAND rate.

The Fourth Circuit reversed a district court’s denial of the plaintiffs’ motion for leave to amend their class action complaint, holding that the denial was based on an erroneous interpretation of the US Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes and was therefore an abuse of discretion.

The plaintiffs in Scott v. Family Dollar Stores, Inc. alleged that Family Dollar discriminated against its female store managers in violation of Title VII and the Equal Pay Act. The district court granted Family Dollar’s motion to dismiss the class allegations and denied the plaintiffs’ motion for leave to amend the complaint.

Among other things, the district court reasoned that as a matter of law under Wal-Mart, the plaintiffs could not satisfy the FRCP 23(a) commonality requirement because they alleged they were discriminated against as a result of “subjective decisions made at the local store levels.” The district court held that amendment was futile because the only source of alleged discrimination in the proposed amended complaint was the “discretionary pay of managers,” which is “foreclosed” under Wal-Mart.

The Fourth Circuit disagreed and found that the district court’s denial of leave to amend based on Wal-Mart was erroneous because it failed to consider whether:

(733 F.3d 105 (4th Cir. 2013).)

See Legal Update, Sex Discrimination and Equal Pay Class Action Revived; District Court Misinterpreted Dukes when Denying Leave to Amend the Complaint: Fourth Circuit for more on this decision.

See Practice Note, Class Actions: Overview for more on the commonality requirement under FRCP 23 and other prerequisites to a class action.

The Ninth Circuit recently confirmed that courts will invalidate arbitration agreements that appear one-sided, and held that California’s unconscionability law is not preempted by the Federal Arbitration Act (FAA) because it applies to the formation of all contracts and does not disproportionately impact arbitration agreements.

In Chavarria v. Ralphs Grocery Co., the Ninth Circuit affirmed the denial of an employer’s motion to compel arbitration and invalidated an arbitration agreement. It held that under California law, the arbitration agreement was:

The Ninth Circuit reconciled its holding with the US Supreme Court’s decision in American Express Co. v. Italian Colors Restaurant, which upheld an arbitration agreement’s class waiver provision that effectively required the plaintiffs to pay an expert fee that exceeded the individual recovery. The American Express decision had noted that the result might be different if the costs of seeking arbitration essentially eliminate access to the arbitral forum, and the Ninth Circuit concluded that Chavarria fits squarely in this exception. (No. 11-56673, (9th Cir. Oct. 28, 2013).)

See Legal Update, Ninth Circuit Invalidates an Arbitration Agreement for Unconscionability for more on this decision.

See Standard Clause, Mandatory Arbitration of Employment-related Claims (California) for a sample California-compliant mandatory arbitration provision of employment-related claims, with explanatory notes and drafting tips.