Bankruptcy judges can decide claims for which parties are constitutionally entitled to adjudication by an Article III judge (known as Stern claims), with the parties’ knowing and voluntary consent. The implied consent standard articulated by the US Supreme Court in Roell v. Withrow can satisfy the requisite consent.

In Wellness International Network, Ltd. v. Sharif (135 S. Ct. 1932 (2015)), Wellness sought to collect on an attorneys’ fees award from Sharif. After Sharif filed for Chapter 7 bankruptcy, the bankruptcy court denied his request to discharge his debts and entered a default judgment against him in a separate adversary proceeding with Wellness. In that proceeding, the bankruptcy court declared that the previously undisclosed assets held by a trust administered by Sharif were part of his bankruptcy estate.

Sharif argued that under the Supreme Court’s decision in Stern v. Marshall, bankruptcy courts lack the constitutional authority to enter final judgment on certain claims for which litigants are entitled to an Article III adjudication. The Seventh Circuit agreed, concluding that the bankruptcy court lacked the constitutional authority to enter final judgment on the claim that the trust was part of Sharif’s bankruptcy estate.

The Supreme Court reversed, holding that Article III is not violated when the parties knowingly and voluntarily consent to adjudication by a bankruptcy judge. The Supreme Court emphasized that Article III’s guarantee of an impartial and independent federal adjudication is a personal right and subject to waiver. Stern does not compel a different result because the litigant in that case did not consent to the resolution of the claim in a non-Article III forum.

See Legal Update, Bankruptcy Judges May Adjudicate Stern Claims with Parties’ Consent: Supreme Court for more on this decision.

See Practice Note, Bankruptcy Basics: What Commercial Litigators Need to Know for a primer on bankruptcy litigation.

A recent Supreme Court decision provides more certainty about the statute of limitations for False Claims Act (FCA) defendants, but limits their ability to invoke the first-to-file bar. While this decision curtails the risk of indefinite liability, counsel should evaluate the timeliness of any FCA claims asserted.

In Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, a whistleblower brought FCA claims against defense contractors and their affiliates, alleging that the defendants fraudulently billed the government for deficient or non-existent services. The Supreme Court held that:

(135 S. Ct. 1970 (2015).)

Given the Supreme Court’s narrowing of the first-to-file bar, other defenses, such as the public disclosure bar, collateral estoppel or res judicata, may prove critical in defending against potential copycat litigation. Counsel should consider whether:

See Legal Update, Supreme Court Holds that False Claims Act’s First-to-file Bar Applies Only to Surviving Related Claims for more on this decision.

See Practice Note, Understanding the False Claims Act for more on the FCA.

A post-removal amendment that eliminates the class action allegations from a complaint does not defeat federal jurisdiction under the Class Action Fairness Act of 2005 (CAFA). In reaching this holding, the Second Circuit joins the Seventh Circuit.

In In Touch Concepts, Inc. v. Cellco Partnership, the plaintiff filed a class action against Verizon and several of its subsidiaries, alleging various state law claims. The defendants removed the case to federal court under CAFA, and the plaintiff subsequently filed an amended complaint that dropped the class action allegations. The district court maintained subject matter jurisdiction and ultimately dismissed the case on the merits.

The Second Circuit affirmed and held that the district court properly maintained jurisdiction in the case, even though the case lacked any federal claims, complete diversity or any class action claims. The Second Circuit explained that because removal cases raise forum shopping concerns, federal courts treat those cases differently than those that originated in federal court. Further, the Second Circuit noted that post-removal amendments do not eliminate federal jurisdiction when a defendant removes a case based on diversity or the presence of a federal question, and held that this principle extends to cases removed under CAFA. (788 F.3d 98 (2d Cir. 2015).)

See Legal Update, Post-removal Amendment Cannot Defeat Federal Jurisdiction Under CAFA: Second Circuit for more on this decision.

See Practice Note, Class Action Fairness Act of 2005 (CAFA): Overview for more on CAFA jurisdiction and removal under CAFA.

The Third Circuit concluded that the Supreme Court’s decision in FTC v. Actavis, which held that reverse payment settlements should be analyzed under the rule of reason, applies to non-cash reverse payments. This is the first time a court of appeals has ruled on the question of non-cash payments since Actavis was decided.

King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp. involved a settlement agreement between GlaxoSmithKline (GSK) and Teva Pharmaceutical Industries Ltd. (Teva) regarding production of a generic version of GSK’s drug lamotrigine. Among other things, the agreement provided that Teva would drop its challenge to GSK’s lamotrigine patents in exchange for GSK delaying entry of its own authorized generic form of the drug, effectively giving Teva a six-month period of market exclusivity for generic lamotrigine. The plaintiffs alleged that this no-authorized generic (no-AG) agreement violated Sections 1 and 2 of the Sherman Act.

The district court found that Actavis did not apply to the no-AG agreement because it did not involve a monetary payment. The Third Circuit disagreed, reasoning that the agreement:

The Third Circuit also rejected the argument that the settlement was protected as an exclusive license under patent law. (No. 14-1243, (3d Cir. June 26, 2015).)

See Legal Update, Third Circuit: Actavis Applies to Non-cash Pay-for-delay Agreements for more on this decision.

See Practice Note, Reverse Payment Settlement Agreements for more on these agreements and Actavis Case Tracker for summaries of district court cases interpreting the Actavis decision.

Practitioners drafting and litigating arbitration clauses in the Second Circuit should be aware of a recent decision demonstrating the limits to the presumption of arbitrability.

In Lloyd v. J.P. Morgan Chase & Co., the Second Circuit affirmed the district court’s denial of a defendant’s motion to compel arbitration in a class and collective action involving overtime violations, concluding that an arbitration clause in the parties’ employment agreement incorporated Financial Industry Regulatory Authority (FINRA) rules, which prohibit arbitration of putative class or collective action cases. Specifically, the clause at issue required arbitration for several categories of claims and controversies “required to be arbitrated by the FINRA rules.”

Analyzing the clause using standard rules of contract interpretation, the Second Circuit determined that the phrase “required to be arbitrated by the FINRA rules” applied to all claims and controversies arising under the employment agreement (meaning the plaintiffs’ class and collective action claims could not be arbitrated) rather than just claims arising out of the plaintiffs’ employment. Although the Second Circuit endorsed the presumption of arbitrability where an agreement is ambiguous, it stated that the presumption is not a bias in favor of arbitration where a clause is best construed to express the parties’ intent not to arbitrate. (No. 13-3963, (2d Cir. June 29, 2015).)

See Legal Update, Parties’ Contract Incorporated FINRA Rules Prohibiting Arbitration: Second Circuit for more on this decision.

See Drafting a Mandatory Arbitration Agreement: Best Practices Checklist for more on issues employers should consider when drafting a mandatory arbitration agreement.

A federal magistrate judge recommended disqualifying Kirkland & Ellis LLP from representing Teva Pharmaceuticals in its hostile takeover attempt of Mylan N.V. because of Kirkland’s previous work representing subsidiaries of Mylan.

In Mylan, Inc. v. Kirkland & Ellis LLP, the magistrate judge agreed with Mylan that Kirkland’s previous work for the company was sufficiently related to the counsel it would be providing Teva that it would raise a conflict of interest. Although the ruling was a non-binding recommendation to the district court, Teva announced that it was switching firms for its takeover bid.

The magistrate judge rejected Kirkland’s arguments that:

(No. 15-0581, slip op. (W.D. Pa. June 9, 2015).)

See Legal Update, Attorney Conflict of Interest as Takeover Defense for more on this decision.

See Practice Note, Navigating the Complex World of Conflicts for more on conflicts of interest among clients.

The amendments to the Delaware General Corporation Law proposed earlier this year to stem the tide of class action lawsuits relating to public M&A deals have been passed by the Delaware General Assembly and signed into law.

Regarding forum selection, the amendments:

On the controversial issue of “loser-pays” or fee-shifting provisions, the amendments invalidate any provision in the charter or by-laws of a stock corporation that purports to shift the corporation’s attorneys’ fees or expenses to a stockholder who brings an internal corporate claim. The amendments effectively prohibit fee-shifting charter or by-law provisions applicable to most stockholder litigation related to corporate governance and M&A transactions. A fee-shifting provision in a stockholders agreement or other writing signed by a stockholder remains enforceable against that stockholder.

The amendments become effective on August 1, 2015.

See Legal Update, DGCL Amendments on Fee-shifting and Forum Selection Passed by Delaware General Assembly for more on this development.

The Supreme Court held that ERISA’s six-year statute of limitations for a breach of fiduciary duty claim is triggered by the fiduciary’s failure to properly monitor plan investments and remove imprudent ones, in violation of his continuing fiduciary duty. The decision likely will lead to an increase in plan fee litigation because many claims that may have been considered time-barred will now be timely.

In Tibble v. Edison International, the plaintiffs alleged that the plan fiduciaries of Edison’s 401(k) plan breached their fiduciary duties by not removing three retail-class mutual funds as plan investments when materially identical institutional mutual funds with lower expense ratios were available. Edison argued that the plaintiffs’ claims were time-barred because the three mutual funds were added to the plan more than six years before the complaint was filed.

The Supreme Court rejected the Ninth Circuit’s holding that only a significant change in circumstances creates a fiduciary duty to undertake a full review of plan investments. In doing so, the Supreme Court held that:

(135 S. Ct. 1823 (2015).)

The Supreme Court essentially accepted a continuing violation theory of liability, which means that ERISA’s statute of limitations will remain open so long as the challenged investments are included as part of a retirement plan’s menu.

See Legal Update, Supreme Court Holds that ERISA’s Six-year Statute of Limitations Triggered by Continuing Duty to Monitor for more on this decision.

See Practice Note, ERISA Fiduciary Duties: Overview for more on the fiduciary duties imposed by ERISA.

In a matter of first impression, the Third Circuit found that, in rare circumstances, a Chapter 11 case may be resolved in a structured dismissal that deviates from the priority scheme of section 507 of the Bankruptcy Code.

The dispute in In re Jevic Holding Corp. arose after two adversary proceedings were brought during the pendency of a voluntary Chapter 11 case filed by Jevic Transportation, Inc. (Jevic). The parties eventually reached a settlement in one of the proceedings that contemplated a structured dismissal. Among other things, Sun Capital Partners, the private equity firm that had purchased Jevic in a leveraged buyout before the bankruptcy filing, would assign its lien on Jevic’s remaining $1.7 million in assets to a trust, which would pay tax and administrative creditors first and then the general unsecured creditors on a pro rata basis.

A group of Jevic’s terminated truck drivers (who brought the second adversary proceeding) and the US Trustee objected to the proposed settlement, arguing that it made distributions to creditors with lower priority than the drivers in violation of section 507 and that the Bankruptcy Code does not permit structured dismissals.

The Third Circuit affirmed the rulings of the bankruptcy court and district court, holding that a bankruptcy court:

(787 F.3d 173 (3d Cir. 2015).)

See Legal Update, In re Jevic Holding Corp.: Third Circuit Allows Structured Dismissal of Chapter 11 Case that Violates the Bankruptcy Code’s Priority Scheme for more on this decision.

See Practice Note, Order of Distribution in Bankruptcy for more on the Bankruptcy Code’s priority scheme.

A defendant’s good faith belief that an asserted patent is invalid is not a defense to an induced infringement claim under 35 U.S.C. § 271(b), according to the Supreme Court. Although the decision removes a potentially powerful defense to induced infringement claims, accused infringers that have a good faith belief in an asserted patent’s invalidity may still challenge the patent through litigation counterclaims and defenses, or at the US Patent and Trademark Office.

In Commil USA, LLC v. Cisco Systems, Inc. (135 S. Ct. 1920 (2015)), Commil sued Cisco alleging infringement of a patent directed to short-range wireless networks. At trial, Cisco argued that it should not be liable for induced infringement because it had a good faith belief that Commil’s patent was invalid. The district court excluded related evidence, but the Federal Circuit reversed, holding that a defendant’s belief that a patent is invalid is a defense to induced infringement.

The Supreme Court vacated the Federal Circuit’s decision and remanded, reasoning that infringement and invalidity are separate legal concepts and that a belief regarding invalidity is not relevant to the scienter requirement in 35 U.S.C. § 271(b), which speaks only to “actively inducing” infringement. The Supreme Court also cited practical reasons in support of its decision, including that accused infringers who believe a patent is invalid have several other ways to challenge the patent.

Further, the Supreme Court reaffirmed its decision in Global-Tech Appliances, Inc. v. SEB S.A., which held that to prevail on an induced infringement claim, a plaintiff must show that the alleged inducer knew both of the asserted patent and that the induced acts were infringing. This knowledge requirement remains a significant potential defense to an inducement claim.

See Legal Update, Supreme Court: Good Faith Belief in Patent Invalidity Is No Defense to Induced Infringement Claim for more on this decision.

See Practice Note, Patent Infringement Claims and Defenses for more on invalidity defenses to patent infringement claims.

Refusing to overrule its prior decision in Brulotte v. Thys Co., the Supreme Court recently held that a patent holder cannot charge royalties for the use of a patented invention after the patent’s expiration.

Kimble v. Marvel Entertainment, LLC involved a patent owned by Kimble covering a toy that shoots pressurized foam string. Marvel purchased the patent from Kimble in exchange for a lump sum payment and a 3% royalty on Marvel’s future sales of licensed products. The parties did not set an end date for the royalty payments. Marvel filed a lawsuit seeking a declaratory judgment that it could stop royalty payments in 2010 when Kimble’s patent expired. The lower courts granted Marvel’s requested relief relying on the Supreme Court’s holding in Brulotte that a patent holder like Kimble cannot recover royalties for the post-expiration use of the licensed invention.

The Supreme Court affirmed, noting that:

(135 S. Ct. 2401 (2015).)

See Legal Update, Supreme Court Reaffirms Bar on Post-expiration Patent Royalties in Kimble v. Marvel for more on this decision.

See Standard Clause, Patent License Agreement: Earned Royalties Clause for sample clauses providing for an earned royalty calculated as a percentage of the licensee’s sales of the product incorporating the claimed invention, with explanatory notes and drafting tips.

Reviewing an issue of first impression, the Ninth Circuit found that the Copyright Act does not preempt the enforcement of a contractual fee-shifting provision between licensing partners in copyright litigation.

In Ryan v. Editions Ltd. West, Inc., Ryan prevailed in a copyright infringement suit against Editions Ltd. West, Inc. (ELW), but was unable to recover attorneys’ fees under the Copyright Act because she failed to timely register her copyright. However, Ryan sought and received attorneys’ fees under a licensing agreement with ELW, which included a provision awarding costs and fees to the prevailing party in the event of litigation.

On appeal, the Ninth Circuit agreed with the district court’s determination that the licensing agreement allowed Ryan to collect attorneys’ fees. The Ninth Circuit concluded that Ryan’s claims under the agreement were not preempted by the Copyright Act either:

However, the Ninth Circuit vacated the district court’s decision and remanded the case because it determined that the district court abused its discretion by excluding most of the attorneys’ fees and inadequately explaining its calculation. (786 F.3d 754 (9th Cir. 2015).)

See Legal Update, Copyright Act Does Not Preempt Contractual Fee-shifting Claim: Ninth Circuit for more on this decision.

See Practice Notes, Copyright Infringement Claims, Remedies and Defenses and Copyright Litigation: Injunctive Relief for more on potential remedies under the Copyright Act.

An applicant seeking to prove a disparate treatment claim under Title VII of the Civil Rights Act of 1964 (Title VII) must show only that the need for a religious accommodation was a motivating factor in a prospective employer’s adverse decision, not that the employer had actual knowledge of the applicant’s need for an accommodation based on a religious practice. This Supreme Court ruling makes clear that even suspicions or assumptions about religious practices may trigger Title VII liability.

EEOC v. Abercrombie & Fitch Stores, Inc. involved a Muslim applicant who wore a headscarf to her job interview at an Abercrombie retail store but did not request a religious accommodation to wear the headscarf if hired. Although the applicant was rated as qualified by the interviewing manager, she was not hired because the headscarf would violate the company’s “Look Policy” prohibiting caps.

Reversing the Tenth Circuit’s decision awarding summary judgment to Abercrombie, the Supreme Court held that an employer may not make an applicant’s religious practice, confirmed or otherwise, a factor in employment decisions. The Supreme Court reasoned that:

(135 S. Ct. 2028 (2015).)

Following this decision, employers should review facially neutral workplace policies that may raise religious discrimination and accommodation issues, such as dress code or appearance policies, and train managers on how to respond to applicants and employees who may need a religious accommodation.

See Legal Update, Supreme Court: Title VII Protects Applicant Who Did Not Inform Abercrombie of Need for Headscarf Religious Accommodation for more on this decision.

See Practice Note, Religious Discrimination and Accommodation Under Title VII for more on the requirements for religious accommodations and Standard Document, Religious Accommodations Policy for a model employee policy, with explanatory notes and drafting tips.

Courts can review whether the Equal Employment Opportunity Commission (EEOC) has fulfilled its duty under Title VII to conciliate discrimination claims before filing suit. However, the scope of judicial review is narrow, enforcing only the EEOC’s statutory obligation to give the employer notice and an opportunity to achieve voluntary compliance.

In Mach Mining, LLC v. EEOC, the EEOC sued Mach Mining, alleging sex discrimination in hiring and maintaining that the condition precedent of attempting to end the challenged practice through conciliation had been fulfilled. In its answer, Mach Mining asserted that the EEOC had failed to conciliate in good faith before filing suit.

The EEOC moved for summary judgment on the issue, contending that conciliation is not subject to judicial review and that it had met its statutory duty to attempt conciliation. The district court denied the motion, concluding that it could review whether the EEOC had made a sincere and reasonable effort to negotiate. The Seventh Circuit reversed, holding that conciliation is not subject to judicial review.

In a unanimous decision, the Supreme Court vacated and remanded the Seventh Circuit’s judgment, explaining that to comply with Title VII’s conciliation provision, the EEOC must inform the employer about the specific discrimination allegation and try to engage the employer in a discussion to give it a chance to remedy the allegedly discriminatory practice. A sworn affidavit from the EEOC stating that it has performed these obligations is sufficient to satisfy the conciliation requirement. However, if the employer presents evidence that the EEOC did not satisfy these obligations, the court must conduct the fact-finding necessary to resolve the dispute. (135 S. Ct. 1645 (2015).)

See Legal Update, SCOTUS Clarifies Limited Judicial Review of EEOC Conciliation Efforts for more on this decision.

See Practice Note, Discrimination Under Title VII: Basics for more on conciliation and Title VII generally.

The Second Circuit recently rejected the Department of Labor’s (DOL’s) six-factor test for determining whether an unpaid intern is an employee for purposes of the Fair Labor Standards Act (FLSA) and established a more flexible primary beneficiary test. However, employers should be aware of possible conflicts between the Second Circuit’s approach and state law requirements. It may be that an individual qualifies as an intern under federal law or state law, but not both.

In Glatt v. Fox Searchlight Pictures, Inc., three former unpaid interns sued Fox for unpaid wages and overtime under the FLSA and New York labor law. The district court granted two of the interns’ partial motion for summary judgment, concluding that they were employees for purposes of both laws. It also granted one intern’s motion to certify a Rule 23 class under New York labor law and to conditionally certify a nationwide collective action under the FLSA.

The Second Circuit vacated the district court’s orders and remanded the case, concluding that the correct test for unpaid intern status focuses on whether the intern or the employer is the primary beneficiary of the working relationship. The Second Circuit set out seven non-exhaustive factors to consider in making this determination and explained that no one factor is dispositive.

Additionally, in vacating the district court’s certification orders, the Second Circuit concluded that application of the primary beneficiary test in the case required individualized analyses not suitable for class treatment. (Nos. 13-4478, 13-4481, (2d Cir. July 2, 2015).)

See Legal Update, New Primary Beneficiary Test for Unpaid Intern Status: Second Circuit for more on this decision.

See Practice Note, Interns, Trainees and Volunteers Under the FLSA for more on determining the employment status of unpaid interns.