A round-up of legal updates for litigation attorneys.
Practice & Procedure
Insider Trading Liability for Tippees: Supreme Court
In a unanimous decision, the US Supreme Court in Salman v. United States rejected the Second Circuit’s holding in United States v. Newman that a person who tips confidential information (tipper) to a trading friend or relative (tippee) must receive something of value in exchange for the tip to find that insider trading occurred. The court reasoned that the benefit one would obtain from making a gift of confidential information to a trading friend or relative is enough to satisfy the personal benefit requirement. This decision resolves a circuit split between the Second and Ninth Circuits. (137 S. Ct. 420 (2016).)
In Meyers v. Nicolet Restaurant of de Pere, LLC, the Seventh Circuit extended the Supreme Court’s holding in Spokeo, Inc. v. Robins (which involved a claim brought under the Fair Credit Reporting Act) to cases brought under the Fair and Accurate Credit Transactions Act (FACTA), holding that a plaintiff must show a concrete injury apart from a statutory violation to satisfy the Article III standing requirement (843 F.3d 724 (7th Cir. 2016)).
In Mason v. Lockwood, Andrews & Newnam, P.C., the Sixth Circuit held that each putative class member’s residence was presumptively his domicile for purposes of satisfying the Class Action Fairness Act’s (CAFA’s) local controversy exception (which, among other things, requires that more than two-thirds of the proposed class members be citizens of the state where the action was originally filed). In so holding, the Sixth Circuit split from five other circuit courts that have considered the issue. (842 F.3d 383 (6th Cir. 2016).)
Use of ALJs in SEC Administrative Proceedings: Tenth Circuit
A divided Tenth Circuit concluded in Bandimere v. SEC that the SEC’s use of administrative law judges (ALJs) in administrative proceedings is unconstitutional because their hiring process violates the Appointments Clause of the US Constitution. The Tenth Circuit determined that ALJs are inferior officers subordinate to the SEC Commissioners, rather than mere employees, and therefore must be appointed under the Appointments Clause. This decision creates a circuit split on the issue and makes it likely that the SEC will petition the Tenth Circuit for an en banc hearing or seek a Supreme Court review. (844 F.3d 1168 (10th Cir. 2016).)
The Antitrust Division of the DOJ issued an updated Model Second Request (formally known as a Request for Additional Information and Documentary Material) for parties to use in responding to Second Requests issued on or after December 12, 2016. The Model is intended to make it easier for parties to respond to, and for the DOJ to review, the information sought in a Second Request. Among other changes, the Model contains new instructions regarding e-discovery that better reflect current practices and seek to balance discovery burdens with the DOJ’s need for information, including instructions for the use of predictive coding and search terms.
Record Global Foreign Bribery Resolution: DOJ and SEC
The DOJ and the SEC recently announced that Odebrecht S.A. and its affiliate petrochemical unit, Braskem S.A., have agreed to pay at least $3.5 billion to resolve claims that the companies violated various countries’ anti-bribery and corruption laws, including the US Foreign Corrupt Practices Act (FCPA). The resolution, which includes payments to the US, Switzerland, and Brazil, is the largest-ever global foreign bribery resolution.
DeVry University and its parent company agreed to a $100 million settlement with the FTC to resolve claims that the university misled prospective students about graduates’ high employment success rates and income levels in violation of the FTC Act. The FTC’s action against and settlement with DeVry is part of a larger trend of claims against for-profit universities accused of misleading prospective students.
The Delaware Supreme Court held in El Paso Pipeline GP Co. v. Brinckerhoff that a plaintiff’s claim alleging that a general partner breached a limited partnership agreement was derivative of a claim owned by the limited partnership and therefore extinguished in a merger of the partnership ( (Del. Dec. 20, 2016)). This decision offers guidance for determining whether contractual claims stemming from limited partnership agreements, rather than standard commercial contracts, are direct or derivative claims under the framework set out in Tooley v. Donaldson, Lufkin & Jenrette, Inc. In a concurrence, Chief Justice Strine recommended that the Delaware Supreme Court’s 2006 decision in Gentile v. Rossette, which held that a claim of equity dilution can be both direct and derivative, be overturned.
In Sandys v. Pincus, the Delaware Supreme Court found that demand against a board should have been excused where there was reasonable doubt that a majority of the board was sufficiently independent to impartially consider a pre-suit demand on the board ( (Del. Dec. 5, 2016)). The decision illustrates how relationships in the venture capital world can be held to compromise a director’s independence, and demonstrates the Supreme Court’s willingness to reverse the Court of Chancery on questions concerning a director’s impartiality.
In Robinson v. Dignity Health, the US District Court for the Northern District of California granted an employer’s motion to stay a sex discrimination action brought under Section 1557 of the Affordable Care Act (ACA), pending the Supreme Court’s decision in Gloucester County School Board v. G.G. The Gloucester case could decide the issue of whether sex discrimination under Title IX of the Education Amendments of 1972 includes discrimination on the basis of gender identity. ACA Section 1557 expressly incorporates Title IX’s sex discrimination provision. ( (N.D. Cal. Dec. 6, 2016).)
The Third Circuit reversed the holdings of the US District Court for the District of Delaware and the US Bankruptcy Court for the District of Delaware in In re Energy Future Holdings Corp. that disallowed noteholders’ claims for make-whole premiums, and ruled that the relevant indenture provisions support payment of the make-whole amounts. Examining the contractual language under New York law, the Third Circuit concluded that the debtors’ refinancing of the notes was a voluntary redemption within the meaning of the indentures, thereby triggering the make-whole provisions notwithstanding the acceleration of the notes following a Chapter 11 bankruptcy filing. The Third Circuit’s decision departs from the approach of the US Bankruptcy Court for the Southern District of New York that an indenture must contain explicit language providing for payment of a make-whole premium despite acceleration. (842 F.3d 247 (3d Cir. 2016).)
In Samsung Electronics Co. v. Apple Inc., the Supreme Court held that under Section 289 of the Patent Act, an article of manufacture includes individual components of a multi-component product and not only the end product consumers purchase. Section 289 requires a court awarding damages for design patent infringement to identify the article of manufacture to which the infringed design has been applied and calculate the total profit the infringer made on that article of manufacture. The Supreme Court reversed the Federal Circuit’s $399 million damages award to Apple and remanded the case for further consideration. (137 S. Ct. 429 (2016).)
In a precedential decision, the Trademark Trial and Appeal Board (TTAB) dismissed an opposition based on likelihood of confusion in Primrose Retirement Communities, LLC v. Edward Rose Senior Living, LLC, concluding that there is no likelihood of confusion between two marks where extensive third-party uses of similar marks indicate the weakness of the opposer’s mark and consumers had been educated to look for minute details to distinguish marks. Applying the multi-factor analysis set out by the US Court of Customs and Patent Appeals in In re E.I. DuPont de Nemours & Co., the TTAB gave particular weight to the sixth factor, which requires consideration of the number and nature of similar marks in use on similar services. (Opposition No. 91217095 (T.T.A.B. Dec. 27, 2016).)
Standing to Appeal Adverse PTAB Decision: Federal Circuit
In Phigenix, Inc. v. Immunogen, Inc., the Federal Circuit held that a party challenging an adverse Patent Trial and Appeal Board (PTAB) decision lacked standing to appeal because the party did not show that it faced a risk of infringing the challenged patent. The court explained that although Article III standing is not required to bring an administrative agency action, a party seeking review of an agency’s final action in a federal court must provide proof of the requisite injury in fact to establish standing. ( (Fed. Cir. Jan. 9, 2017).)
Emotional Distress Damages for FLSA Retaliation: Fifth Circuit
In a matter of first impression, the Fifth Circuit joined the Sixth and Seventh Circuits by holding in Pineda v. JTCH Apartments, L.L.C. that a plaintiff alleging retaliation in violation of the Fair Labor Standards Act (FLSA) may recover damages related to emotional distress. The decision also is consistent with several other circuits that have approved emotional distress damages awards in FLSA retaliation cases without directly addressing the issue. (843 F.3d 1062 (5th Cir. 2016).)
Failure to Promote Claims Under USERRA: Third Circuit
Answering a legal question certified to it by the district court, the Third Circuit held in Carroll v. Delaware River Port Authority that a plaintiff alleging discriminatory failure to promote under the Uniformed Services Employment and Reemployment Rights Act (USERRA) is not required to plead and prove that he was objectively qualified for the position sought (843 F.3d 129 (3d Cir. 2016)).
In Aerotek, Inc., the National Labor Relations Board (NLRB) ordered unprecedented remedies in holding that an employer violated the National Labor Relations Act (NLRA) by discriminatorily failing to hire job applicants because of their union involvement. The NLRB panel concluded that an applicant was entitled to backpay and instatement, even though he engaged in conduct disloyal to the employer after being denied employment. Additionally, to ensure that applicants are made aware of their right to protection from discrimination under the NLRA, the panel held that the employer should be required to mail a remedial notice to all applicants and include employee rights statements on job applications and advertisements. (365 NLRB No. 2 (Dec. 15, 2016).)
In LSREF2 Clover Property 4, LLC v. Festival Retail Fund 1, LP, a California court of appeals rejected the use of the sham guaranty defense by a guarantor seeking to prevent a lender from collecting on a guaranty in a real estate transaction. California’s anti-deficiency laws prohibit a lender from obtaining a deficiency judgment from a borrower following a nonjudicial foreclosure of real property, but these anti-deficiency protections generally do not extend to guarantors. However, the sham guaranty defense claims that the guarantor is not a distinct entity from the borrower and cannot waive the anti-deficiency protections. The court determined that there was not substantial evidence sufficient to prove that the guarantor was the true principal obligor. (3 Cal. App. 5th 1067 (2016).)