In a highly anticipated decision, the US Supreme Court declined to overrule the fraud on the market presumption established in Basic Inc. v. Levinson for securities fraud class actions.

In Halliburton Co. v. Erica P. John Fund, Inc., the Supreme Court ruled that plaintiffs in securities fraud class actions may continue to invoke the presumption, but clarified that defendants may rebut this presumption at the class certification stage with evidence that the alleged misrepresentation did not impact the market price of the stock. (134 S. Ct. 2398 (2014).)

See Legal Update, Supreme Court: Evidence on Price Impact May Be Considered at Class Certification Stage and Article, Expert Q&A on the Fraud on the Market Presumption for more on this decision.

See Practice Note, Class Actions: Certification for more on class certification.

The Supreme Court clarified the procedure a bankruptcy court must follow when deciding a related, non-bankruptcy claim.

In Executive Benefits Insurance Agency v. Arkison, the bankruptcy trustee filed a complaint including fraudulent conveyance claims against Executive Benefits Insurance Agency (EBIA) and its principal in bankruptcy court, in connection with the Chapter 7 filing of another company owned by the principal. The bankruptcy court granted summary judgment to the trustee on all claims, including the fraudulent conveyance claims, and the district court reviewed de novo and affirmed. EBIA appealed the judgment to the Ninth Circuit.

While EBIA’s appeal was pending, the Supreme Court decided Stern v. Marshall, finding that Article III of the US Constitution forbids a bankruptcy court from entering final judgment on non-bankruptcy claims. Relying on Stern, EBIA moved to dismiss the appeal for lack of jurisdiction. The Ninth Circuit affirmed the district court’s decision based, in part, on the parties’ implied consent to the bankruptcy court’s jurisdiction, and the Supreme Court granted certiorari.

Clarifying its holding in Stern, the Supreme Court held that a bankruptcy court should issue proposed findings of fact and conclusions of law for non-bankruptcy claims, and a district court should review those findings de novo. Counsel should note, however, that the Supreme Court did not address whether the parties’ implied consent to jurisdiction would impact this analysis. (134 S. Ct. 2165 (2014).)

See Legal Update, Supreme Court Clarifies Bankruptcy Court Procedure when Facing a Non-Bankruptcy Claim for more on this decision.

See Practice Note, Bankruptcy Basics: What Commercial Litigators Need to Know for more on bankruptcy generally.

The Foreign Sovereign Immunities Act of 1976 (FSIA) does not immunize a foreign country debtor from post-judgment discovery of information about its extraterritorial assets.

In Republic of Argentina v. NML Capital, Ltd., the Supreme Court affirmed the Second Circuit’s decision that extraterritorial asset discovery does not infringe on a foreign country’s sovereign immunity. After the Republic of Argentina had defaulted on external debt securities, NML Capital, Ltd., one of its bondholders, successfully sued to recover the debt. Unable to recover the $2.5 billion awarded by the judgments, NML served subpoenas on two non-party banks seeking information on Argentina’s account activity and balances, which Argentina and one of the banks moved to quash.

The Supreme Court held that the FSIA provides no immunity from the federal discovery process. Reasoning that the FSIA provides foreign sovereigns with immunity from the jurisdiction of US courts and, under certain circumstances, from the attachment, arrest and execution of the sovereign’s property, the Supreme Court noted that Argentina waived its right to the first type of immunity and the second did not apply. (134 S. Ct. 2250 (2014).)

See Legal Update, US Supreme Court Rules FSIA Does Not Protect Foreign Countries from Post-judgment Discovery for more on this decision.

See Practice Note, A Primer on Foreign Sovereign Immunity for more on the FSIA.

District courts may regulate communications with potential future class members to prevent a defendant from limiting the size and scope of the class, according to a recent decision from the US District Court for the Northern District of California.

O’Connor v. Uber Technologies, Inc. is one of several pending class actions against Uber, a company that licenses to drivers a mobile application for on-demand car services, concerning the gratuities owed to drivers. While these actions were pending, Uber notified drivers that they were required to approve a new licensing agreement that included a mandatory arbitration provision, which effectively prevented drivers from participating in the class actions.

The district court issued a protective order requiring Uber, among other things, to notify past, current and new drivers of their ability to opt out of the arbitration provision and the effect of the provision on their participation in a class action. The order also forbade Uber from issuing any licensing agreement waiving putative class members’ rights until after the court approves the notices and procedures.

Denying Uber’s motion to reconsider the order, and declining to follow the holdings of two other US district courts that addressed the issue, the district court held that Federal Rule of Civil Procedure (FRCP) 23(d) reaches communications with “future and potential putative class members.” The district court rejected Uber’s argument that the court exceeded its authority by regulating communications with prospective drivers who were not putative class members presently. Without this authority, a defendant could unilaterally limit the size of the class through its actions and undermine the fair administration of justice. The district court also found the parties’ proposed notices to potential future class members to be inadequate. (No. 13-3826, (N.D. Cal. May 2, 2014).)

See Legal Update, Uber’s Communications with Potential New Drivers Governed by FRCP 23 Holds N.D. Cal. for more on this decision.

See Class Action Toolkit for a collection of resources designed to assist counsel with class action procedure, requirements and practice in federal court.

The Second Circuit clarified and reinterpreted its position on the applicability of the Foreign Trade Antitrust Improvements Act (FTAIA), adding to a growing circuit court split on the issue.

The plaintiff in Lotes Co. v. Hon Hai Precision Industry Co., a foreign USB connector manufacturer, alleged that the defendants, also foreign USB connector manufacturers, violated Sections 1 and 2 of the Sherman Act by attempting to use their ownership of key patents to acquire a monopoly in the USB connector industry. The plaintiff argued that the defendants’ foreign conduct directly caused harm to US consumers, as required by the FTAIA, because USB connectors are integrated into most personal computers bought in the US.

The Second Circuit held that the FTAIA barred the plaintiff’s antitrust claims and affirmed the district court’s dismissal of the case, though on different grounds, concluding that:

The Second Circuit did not rule on whether the plaintiff satisfied the proximate cause standard because it found that the alleged domestic effects did not give rise to the plaintiff’s alleged harm. (No. 13-2280, (2d Cir. June 4, 2014).)

See Legal Update, Second Circuit Reinterprets FTAIA for more on this decision.

See Practice Note, Foreign Trade Antitrust Improvements Act (FTAIA) for more on the FTAIA.

A recent Supreme Court decision will make it easier for companies to bring lawsuits against their competitors for misleading advertising and labeling. To avoid private liability under the Lanham Act, companies should accurately label their products, regardless of whether inaccurate labels are subject to, authorized by or approved under a separate regulatory scheme.

In POM Wonderful LLC v. Coca-Cola Co., the Supreme Court reversed the Ninth Circuit and held that commercial entities may bring lawsuits alleging unfair competition through false or misleading advertising and labeling under Section 1125(a) of the Lanham Act to challenge labels authorized by the Food, Drug, and Cosmetic Act (FDCA). The dispute involved a juice blend made by Coca-Cola with a label that displayed the words “POMEGRANATE BLUEBERRY” but contained only 0.3% pomegranate juice and 0.2% blueberry juice. POM sued for unfair competition under the Lanham Act.

The Supreme Court found that the FDCA does not preclude Lanham Act unfair competition claims against juice blend labels, even if the labeling is subject to and authorized by the FDCA, because:

(134 S. Ct. 2228 (2014).)

See Legal Update, Supreme Court: Lanham Act False Advertising Claims Not Precluded by Food Labeling Rules for more on this decision.

See Practice Note, Product Labeling for more on the federal laws governing product labeling in the US.

A resolution passed by the Delaware State Senate and House of Representatives, with the approval of the Governor, indicates support for limiting fee-shifting by-laws to non-stock corporations, but with reservations about the scope of legislation that would implement that limitation. The legislature will reconsider new legislation on the issue in its 2015 session.

Senate Joint Resolution No. 12 directs the Delaware State Bar Association, its Corporate Law Section and the Council of that section to continue examining the proposed amendments to the Delaware General Corporation Law (DGCL) regarding fee-shifting by-laws and other aspects of corporate litigation. The resolution follows the proposal approved by the Delaware State Bar Association to amend the DGCL to limit to non-stock corporations the Delaware Supreme Court’s holding in ATP Tour, Inc. v. Deutscher Tennis Bund that fee-shifting by-laws are facially valid.

The resolution implies that the Delaware General Assembly and the Governor support the proposal in order to:

However, the resolution also recognizes the proliferation of “meritless and duplicative litigation” and the costs borne by stockholders as a result. Therefore, the General Assembly and the Governor are seeking further examination into possible provisions of the certificate of incorporation, by-laws and similar entity documents that affect:

The resolution specifically directs that the examination consider the appropriateness of any further amendments or modifications to the proposal, which should be presented to the next session of the General Assembly for consideration. (2013 DE S.J.R. 12 (NS) (Del. June 30, 2014).)

See Legal Update, Delaware General Assembly and Governor Direct Further Investigation into Fee-shifting By-laws for more on this joint resolution.

See Article, Using Board-adopted By-laws to Reduce Corporate Threats for more on by-laws that allocate the cost of intra-company litigation to a losing plaintiff.

Health care reform’s contraceptives coverage mandate, part of the law’s preventive services rules, violates the Religious Freedom Restoration Act (RFRA) as applied to for-profit closely held corporations with religious objections to the contraceptives mandate, according to a 5-4 decision by the Supreme Court.

In Burwell v. Hobby Lobby Stores, Inc., the Supreme Court reviewed two consolidated appeals brought by for-profit corporations and their owners seeking exemption from the contraceptives coverage mandate in connection with four contraceptive methods approved by the Food and Drug Administration. The circuit courts had disagreed regarding the corporations’ ability to raise claims involving their exercise of religion.

The Supreme Court affirmed the Tenth Circuit’s decision in Hobby Lobby Stores, Inc. v. Sebelius and reversed the Third Circuit’s decision in Conestoga Wood Specialties Corp. v. Sebelius, and held that:

The Supreme Court cited the government’s accommodations for nonprofit organizations in concluding that a less restrictive means existed for achieving its interest, but expressly declined to decide whether those accommodations would satisfy the RFRA’s least-restrictive-means standard, which it characterized as “exceptionally demanding.” (Nos. 13-354, 13-356, (U.S. June 30, 2014).) Whether those accommodations are satisfactory, as applied to for-profits and nonprofits alike, may now become the key disputed issue in the government’s efforts to implement the contraceptives coverage mandate.

See Legal Update, Supreme Court Strikes Contraceptives Mandate as Applied to For-profits with Religious Beliefs for more on this decision.

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

The US Bankruptcy Court for the Eastern District of Virginia held that cause existed to limit a secured creditor’s right to credit bid under section 363(k) of the Bankruptcy Code because of its “overly zealous loan-to-own strategy” and the negative impact its misconduct had on the auction process.

In In re Free Lance-Star Publishing Co. of Fredericksburg, VA, the court determined that the secured creditor’s right to credit bid should be limited at a section 363 sale of substantially all of the debtors’ assets because:

The court suggested in dicta that the mere use of a loan-to-own strategy may be sufficient cause to limit credit bidding, explaining that a secured party in a loan-to-own transaction can use credit bidding to chill bidding during or before an auction, or to discourage prospective bidders from participating in the sales process. (No. 14-30315, (Bankr. E.D. Va. Apr. 14, 2014).)

Free Lance-Star, together with the recent decision by the US Bankruptcy Court for the District of Delaware in In re Fisker Automotive Holdings, Inc., may indicate an emerging trend by some courts to expand the “for cause” exception to limit credit bidding by closely scrutinizing a secured creditor’s motives and conduct.

See Legal Update, In re Free Lance-Star Publishing Co: Court Follows Fisker and Caps Credit Bidding Rights “For Cause” for more on this decision.

See Practice Note, Credit Bidding in Section 363 Bankruptcy Sales for more on the “for cause” exception to limit credit bidding and Legal Update, In re Fisker Automotive: Delaware Bankruptcy Court Caps Credit Bid to Amount Paid for Claim for more on the Fisker case.

Where a “no-action” clause in a securities transaction document bars certain legal action, litigants should review the clause carefully to assess whether it covers only the issuing document or the securities issued under the document as well. The no-action clause may not cover all claims relating to the transaction, as shown by a recent New York Court of Appeals decision.

In Quadrant Structured Products Co., Ltd. v. Vertin, the court held that a no-action clause in an asset-backed securities (ABS) trust indenture that barred ABS noteholders from bringing claims arising under the indenture, but did not specifically refer to claims arising under the notes issued, did not bar the noteholders from bringing claims against the issuer and its affiliates in connection with the transaction.

The court rejected the defendants’ argument that, under New York law, the parties’ intent was to bar all legal action by individual noteholders. The court concluded that the clear and unambiguous text of the clause, with its specific references to the indenture, on its face limits the clause to the contract rights recognized by the indenture agreement itself. Since the no-action clause made no mention of individual suits relating to the securities, it did not preclude enforcement of the noteholders’ independent common law or statutory rights under the notes. ( (N.Y. June 10, 2014).)

See Legal Update, Quadrant Structured Products v. Vertin: ABS Claims Allowed Despite No-action Clause in Indenture for more on this decision.

See Practice Note, Securitization: US Overview for information on the various types of ABS transactions.

The Supreme Court held that Aereo, Inc.’s one-to-one transmissions of over-the-air broadcast signals are public performances within the meaning of the Copyright Act’s Transmit Clause. However, the decision’s narrow focus leaves open questions on the Copyright Act’s application to cloud storage, remote DVR or other new technologies, and highlights the risk of infringement liability when using technology to exploit perceived loopholes in the statute.

In American Broadcasting Cos. v. Aereo, Inc., a group of television producers, programmers, broadcasters and marketers sued Aereo for copyright infringement based on transmission of television programming over Aereo’s internet streaming service. Aereo’s service assigns subscribers individual tiny antennas when they wish to access over-the-air broadcast television programs. The service then stores the programming on its servers in a subscriber-specific folder and streams it over the internet for viewing only by that subscriber with a delay of a few seconds.

Reversing the Second Circuit’s denial of the plaintiffs’ motion for a preliminary injunction, the Supreme Court held that Aereo’s service:

The Supreme Court clarified that its holding was limited and not applicable to other technologies. It also noted that only the issue of Aereo’s near-live streaming, not its time-shifting functionality, was before it. (134 S. Ct. 2498 (2014).)

See Legal Update, Supreme Court Holds Aereo Transmissions Are Public Performances for more on this decision.

See Practice Note, Copyright: Overview for more on the public performance right and the Copyright Act generally.

A recent Supreme Court decision should make it easier to defeat software and method claims that are directed to abstract ideas and recite generic features and components.

In Alice Corp. Pty. Ltd. v. CLS Bank International, the Supreme Court held that claims covering a computerized method of mitigating settlement risk are unpatentable under 35 U.S.C. § 101 because they cover the abstract idea of intermediated settlement (134 S. Ct. 2347 (2014)). Alice’s patents concerned computerized methods of mitigating settlement risk in a financial transaction by using an intermediary to ensure that both parties to the transaction have sufficient funds to satisfy their mutual obligations. The Supreme Court unanimously affirmed the Federal Circuit’s decision that Alice’s claims are patent ineligible.

Applying the two-step framework from the Supreme Court’s decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc., it concluded that Alice’s claims:

For the same reasons that the method claims were patent ineligible, the Supreme Court held that Alice’s claims to a computer system and a computer-readable medium for performing the claimed method were patent ineligible, explaining that none of the claimed generic computer components provide a meaningful limitation beyond linking the use of the abstract idea to a particular technological environment.

See Legal Update, Supreme Court: Computerized Methods for Mitigating Settlement Risk Are Unpatentable Abstract Ideas for more on this decision.

See Practice Note, Patent-eligible Subject Matter for more on patent subject matter eligibility.

In Petrella v. Metro-Goldwyn-Mayer, Inc., the Supreme Court held that laches does not bar a copyright infringement claim for damages brought within the Copyright Act’s three-year statute of limitations. However, the Supreme Court concluded that in extraordinary circumstances, laches may limit the equitable relief awarded. (134 S. Ct. 1962 (2014).)

See Legal Update, US Supreme Court Rules Laches Does Not Bar “Raging Bull” Copyright Infringement Claim and Article, Expert Q&A on Time-based Defenses in Copyright Litigation for more on this decision.

See Practice Note, Copyright Infringement Claims, Remedies and Defenses for information on additional defenses to copyright infringement claims.

The Supreme Court has significantly narrowed the scope of induced patent infringement, particularly for software and business method patents.

In Limelight Networks, Inc. v. Akamai Technologies, Inc., the Supreme Court held that liability for induced patent infringement under 35 U.S.C. § 271(b) exists only if there is direct infringement under 35 U.S.C. § 271(a). The Supreme Court rejected the Federal Circuit’s holding that inducement liability does not require direct infringement attributable to a single entity. Because Limelight had failed to perform a claimed method step and did not control its customers’ performance of that step, the Supreme Court found no induced infringement. (134 S. Ct. 2111 (2014).)

Notably, the Supreme Court declined to review the direct infringement standard set by the Federal Circuit in Muniauction, Inc. v. Thomson Corp., under which direct infringement of a patented method exists if a party either performs:

As a result of the Limelight decision:

See Legal Update, Supreme Court Rejects Federal Circuit’s Liberal Induced Infringement Standard and Holds Inducement Requires Direct Infringement for more on this decision.

See Practice Note, Patent Infringement Claims and Defenses for more on induced infringement and other types of patent infringement.

Accused infringers should find it easier to prevail on indefiniteness defenses based on the new standard adopted by the Supreme Court.

In Nautilus, Inc. v. Biosig Instruments, Inc., the Supreme Court held that a claim is invalid for indefiniteness under 35 U.S.C. § 112, ¶ 2 if it fails to inform a person skilled in the relevant art of the invention’s scope with reasonable certainty, when read in light of the specification and prosecution history. In adopting this standard, the Supreme Court unanimously rejected the Federal Circuit’s narrower “insolubly ambiguous” indefiniteness standard, explaining that:

The Supreme Court remanded the case to the Federal Circuit to decide whether the patent at issue is indefinite under the appropriate standard. (134 S. Ct. 2120 (2014).)

See Legal Update, Supreme Court Rejects Federal Circuit’s Insolubly Ambiguous Indefiniteness Standard for more on this decision.

See Practice Note, Patent Litigation: Claim Construction Considerations (Patent Owner) for more on indefiniteness and other claim construction considerations.

The Supreme Court considered for the first time the scope of the President’s power to make recess appointments under the US Constitution’s Recess Appointments Clause.

In NLRB v. Noel Canning, the Supreme Court unanimously held that the three-day gap between a series of pro forma Senate sessions was insufficient to bring a recess. Therefore, the President did not have the authority to make the January 4, 2012 recess appointments of Members Griffin, Block and Flynn to the National Labor Relations Board (NLRB). (134 S. Ct. 2550 (2014).) This holding renders invalid and unenforceable any NLRB decisions that Members Griffin, Block and Flynn participated in as recess appointees for lack of a three-member quorum.

If the NLRB’s actions after the Supreme Court’s 2010 New Process Steel decision are any indication of what it may do after Noel Canning, parties may expect that the NLRB will:

It should also be noted that petitions are pending with the Supreme Court and cases are pending in the circuit courts regarding the April 2010 recess appointment of former Member Becker. If the Supreme Court grants certiorari in those cases, it will likely be, in part, to resolve an emerging circuit court split about whether recess appointment challenges are non-jurisdictional and therefore can be waived.

See Legal Update, Supreme Court Holds 2012 Recess Appointments to the NLRB Were Invalid, Effectively Invalidates 20 Months of NLRB Decisions and Article, Expert Q&A on Noel Canning and Its Aftermath for more on this decision.

In a case of first impression, the First Circuit created a new Title VII cause of action, holding that an employer can be liable under Title VII for negligently permitting a co-worker’s discriminatory efforts to cause a plaintiff’s termination.

In Velázquez-Pérez v. Developers Diversified Realty Corp., the First Circuit found that an employer was negligent for allowing a human resources employee to sexually harass a co-worker and then cause that co-worker’s termination when he rejected the sexual advances. Even though the human resources employee was not the co-worker’s supervisor under the definition set in the Supreme Court’s 2013 decision, Vance v. Ball State University, the First Circuit explained that an employer can be liable under Title VII if:

The First Circuit also held as a matter of first impression that a Title VII retaliation claim in Puerto Rico is subject to the longer 300-day limitations period under a worksharing agreement between the Equal Employment Opportunity Commission and the Puerto Rico Department of Labor and Human Resources. (No. 12-2226, (1st Cir. May 23, 2014).)

It is not clear whether other circuit courts will adopt the First Circuit’s analysis, which seems like a cat’s paw theory of liability that imposes lighter evidentiary burdens on a plaintiff. It is also not clear whether courts will otherwise find this type of claim barred by state workers’ compensation laws, which generally provide that workers’ compensation benefits are the exclusive remedy for harm to an employee caused by an employer’s negligent acts or omissions.

See Legal Update, Employer Can be Liable under Title VII For Negligently Permitting a Co-worker’s Discriminatory Efforts to Cause an Employee’s Termination: First Circuit for more on this decision.

See Practice Note, Harassment for more on an employer’s vicarious liability for harassment.

A recent decision by the NLRB vastly expands the extent to which employees can engage in offensive conduct, provided their behavior touches on arguably concerted activity related to the terms and conditions of employment.

On remand from the Ninth Circuit, the NLRB in Plaza Auto Center, Inc. & Nick Aguirre found that an employee who used obscene and belittling language, pushed a chair and warned that the employer would regret firing him, retained National Labor Relations Act (NLRA) protections. The NLRB overruled an NLRB administrative law judge’s (ALJ’s) factual findings that the employee’s outburst was menacing, physically aggressive or belligerent. It determined that even though the nature-of-the-outburst factor weighed against the employee, the remaining factors set out by the NLRB in Atlantic Steel weighed in favor of finding that he remained protected under the NLRA. In particular, the NLRB reasoned that the employee:

The NLRB concluded that the employer violated NLRA Section 8(a)(1) by discharging the employee for engaging in protected concerted activity. (360 N.L.R.B. slip. op. 117, (May 28, 2014).)

In light of this decision, employers that terminate employees for using obscene language or intimidating behavior should copiously chronicle the employee’s inappropriate actions in internal memos and NLRB position statements, and elicit witness testimony about it to reduce the chance that the NLRB, in later unfair labor practice proceedings, could reject related ALJ factual findings and conclusions when applying the Atlantic Steel test.

See Legal Update, Employee Who Pushed Chair Aside and Hurled Obscenities at Manager Punctuated by Threat Did Not Lose NLRA Protections: NLRB for more on this decision.

See Practice Note, Discipline and Discharge in a Unionized Workplace for more on the Atlantic Steel test and Practice Note, Employee Rights and Unfair Labor Practices under the National Labor Relations Act for more on employees’ Section 7 rights.