Tag: Second Circuit

Regeneron v Novartis and Vetter: Walker Process Client Update

In an appeal that attracted a dozen amici, including the Department of Justice, the Federal Trade Commission, five states, and the District of Columbia, the Second Circuit gave the Walker Process antitrust doctrine a shot in the arm in a patent dispute related to pre-filled syringes (“PFSs”) used for injection of anti-VEGF biologic medicines into patients’ eyeballs (i.e., intravitreal injections).1 Under Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965), patentees who obtain patents through fraudulent behavior or inequitable conduct can be liable under the Sherman Antitrust Act. In a complaint filed in the Northern District of New York, Regeneron alleged Novartis and Vetter committed a Walker Process violation by obtaining and asserting patents for PFSs. The Second Circuit held that the district court made a mistake by dismissing Regeneron’s suit because it focused on the functional similarities in the markets for anti-VEGF medicines in PFSs and vials. In reversing, the Second Circuit held that the correct approach must focus on an economic market analysis rather than a functional market analysis, and that Regeneron’s complaint plausibly alleged that anti-VEGF PFSs constituted their own economic product market. As the amicus interest signals, the decision may have significant implications, both for the blockbuster market for anti-VEGF medicines and, more broadly, for defining the markets for different pharmaceutical methods of administration.

In its complaint, Regeneron alleges that in 2005, it had contracted with Vetter, a company providing pharmaceutical filling services, to collaborate on a PFS for its blockbuster anti-VEGF product, EYLEA.2 It alleges that its agreement with Vetter granted Regeneron ownership in any patent related to EYLEA PFSs. Id. Notwithstanding its agreement with Regeneron, Vetter later entered into a confidential agreement with Novartis to develop a PFS for anti-VEGF biologics, which are used to treat macular degeneration and other retinal conditions. Id. Indeed, both parties agree on the benefits of PFSs for patients and providers of anti-VEGF medicines—ease in administration, improved safety, and greater efficiency—compared to vials, which must be used to fill a separate syringe.3 Novartis has an anti-VEGF biologic, LUCENTIS, which Genentech markets in the United States.

Regeneron alleges that Vetter contributed to Novartis’s invention of U.S. Patent No. 9,220,631 (the “’631 Patent”) and that Novartis concealed Vetter’s contribution to inventorship from the PTO to avoid alerting Regeneron to its contractual violations. Id. Concealing inventorship from the PTO can constitute inequitable conduct and form the basis for a Walker Process claim. (Regeneron also alleges Novartis improperly withheld key prior art references from the PTO during prosecution.) Novartis’s resulting ’631 Patent specifically claims EYLEA’s active ingredient as a treatment for use in Novartis’s patented syringe.4 Regeneron contends that the defendants’ pattern of conduct delayed its entry into the PFS market, resulting in significant damages.5 Regeneron also alleges that, after the ’631 Patent issued, Vetter leaned on it in contract negotiations to enter a long-term deal and to agree not to challenge the validity of the ’631 Patent.6 Novartis sued Regeneron on the ’631 Patent in the ITC and the Northern District of New York in 2020, and there is a pending Federal Circuit appeal regarding the validity of the patent.7

The Second Circuit held that “the district court improperly concluded that Regeneron failed to plead adequately the existence of a distinct anti-VEGF PFS market because it… placed improper weight on the functional, rather than economic, similarities between anti-VEGF PFSs and vials.”8 Rather than look to the functional similarities in the markets for PFSs and vials (i.e., same drug, same medical condition), the Second Circuit held that the proper analysis was economic. That is, whether products are “reasonably interchangeable by consumers for the same purposes,” as assessed by examining “sufficient cross-elasticity of demand.”9 Regeneron’s complaint alleges that physicians transferred 80% of patients from vials to PFSs when they were offered for LUCENTIS. The Second Circuit found Regeneron’s allegation adequately pled a hypothetical monopoly market by pleading that the physicians’ switching behavior showed that a “small, but significant, price increase in the PFS version would not cause physicians to substitute the vial version for PFS.”10

Second, the Second Circuit held that the district court was wrong to decide that an antitrust market cannot be coextensive with a patent’s scope. Instead, “once an antitrust plaintiff has demonstrated that [1] a patent was obtained through fraud, it must [2] separately explain how the fraudulently obtained patent enabled the defendants to achieve market power within the relevant market.”11 Regeneron’s allegations regarding inventorship and improperly withheld prior art satisfied the “fraudulently obtained” prong of the test.12 Next, the Second Circuit found that Regeneron’s complaint adequately pled the “market power” prong, crediting Regenoron’s allegation that Novartis and Vetter attempted to use the ’631 patent to coerce Regeneron into a long-term exclusive PFS filling relationship and demanding other modifications to Regeneron and Vetter’s 2005 agreement.13

Why the Decision Matters

The Second Circuit’s decision stands out for two reasons. First, anti-VEGF biologics are a big business for innovator companies, biosimilar makers, and government payers. EYLEA’s total revenue for 2023 was nearly $5.9 billion.14 Roche, which through its subsidiary Genentech commercializes LUCENTIS in the US, reported $460 million CHF in 2023 revenue, down from approximately $1 billion CHF in 2022 after entry from two biosimilars, with more pending.15 Biosimilars referencing EYLEA are also pending FDA approval or in clinical trials.16 Government payers are naturally interested in age-related macular degeneration (AMD) medications: among Americans over 65, the CDC estimates that approximately 1.3 million have vision-threatening AMD, with another 10.9 million having milder AMD.17 Indeed, the state amici’s brief supporting Regeneron noted the states’ interest in the markets for AMD drugs.18

Second, and more broadly, a product’s presentation or method of administration—pill vs. liquid; standard vs. extended release; IV vs. subcutaneous injection—has major implications for patients, providers, and product lifecycle. Different methods of administration may expand a product’s commercial reach and, as this case shows, provide additional patent protection (and possibly market exclusivity). Antitrust scrutiny directed to narrowly defined markets for methods of administration—here PFSs—is noteworthy. The amicus brief from the DoJ and FTC makes clear that it is supporting neither side and “take[s] no position as to whether the complaint adequately pleads a relevant antitrust market or states an antitrust claim.”19 However, the Federal government’s amicus brief also stated that the district court erred in its decision, and the brief’s analysis of the proper market definition parallels the reasoning ultimately adopted by the Second Circuit.20

This decision relates to a motion to dismiss under Rule 12(b)(6), where the court only looks for a plausible, well-pled complaint. Novartis will have its day in court at the summary judgment and trial stages, where Regeneron will owe a higher burden of proof. However, antitrust claims are powerful tools because they carry the monetary risk of treble damages as well as the possibility of scrutiny from regulators. These risks must be weighed, not just by outside counsel and CLOs, but by CEOs and boards of directors.

Footnotes

[1] See Regeneron Pharm., Inc. v. Novartis Pharma AG et al., No. 22-427, slip op. at 1 (March 18, 2024). As the Second Circuit explains, “[t]he products in question are prescription medications used to treat the overproduction of vascular endothelial growth factor (‘VEGF’), a naturally occurring protein that, if overproduced, can lead to various eye disorders and, in some cases, to permanent blindness.”

[2] Slip op. at 9

[3] Id. at 8-9

[4] See ’631 Patent at Claim 12

[5] See slip op. at 10-11.

[6] Id. at 13-14.

[7] Id. at 15-16.

[8] Id. at 19.

[9] Id. at 20-21 (citing Brown Shoe Co. v. United States, 370 U.S. 294 (1962) and United States v. Am. Express. Co., 838 F.3d 179 (2d Cir. 2016)).

[10] Slip op. at 26; see, e.g., Am. Express, 838 F.3d at 199 (small but significant non-transitory increase in price (“SSNIP”) may demonstrate that the proposed market is relevant market).

[11] Slip op. at 30(citing Walker Process, 382 U.S. at 177).

[12] Id. at 30-31.

[13] Id. at 31-32. In addition to reversing the district court’s decision on the antitrust claim, the Second Circuit reversed the court’s dismissal of Regeneron’s claim for tortious interference with contract as time barred, crediting Regeneron’s equitable estoppel arguments.

[14] “Regeneron Reports Fourth Quarter and Full Year 2023 Financial and Operating Results,” Feb. 2, 2024, https://investor.regeneron.com/news-releases/news-release-details/regeneron-reports-fourth-quarter-and-full-year-2023-financial (last visited March 20, 2024).

[15] “Roche Finance Report 2023,” at 16, https://assets.roche.com/f/176343/x/3b1fb647e2/fb23e.pdf (last visited March 20, 2024).

[16] See, e.g., “New and Upcoming biosimilar launches,” at 6 https://www.cardinalhealth.com/content/dam/corp/web/documents/Report/cardinal-health-biosimilar-launches.pdf (last visited March 20, 2024).

[17] See “Prevalence of Age-Related Macular Degeneration (AMD), at Table 1, https://www.cdc.gov/visionhealth/vehss/estimates/amd-prevalence.html (last visited March 20, 2024).

[18] See Brief of Amici Curiae Nevada, District of Columbia, Illinois, Louisiana, Minnesota, and New Mexico as Amicus Curiae in Support of Plaintiff-Appellant, Regeneron Pharmaceuticals, Inc., Case 22-427, Dkt. 106 at 2.

[19] See Brief for the United States and the Federal Trade Commission as Amici Curiae in Support of Neither Party, Case 22-427, Dkt. 90 at 1.

[20] Id. at 12.

© Polsinelli PC, Polsinelli LLP in California
For more news on Patent Law, visit the NLR Intellectual Property law section.

Road to Victory Just Got a Little Easier for Whistleblowers

In 2017, a federal jury found whistleblower Trevor Murray was wrongfully terminated after he refused “to change his research on commercial mortgage-backed securities.” He won over $900,000. On appeal in 2022, the U.S. Court of Appeals for the Second Circuit overturned Murray’s award, finding whistleblowers who bring a retaliation claim against their employer under the Sarbanes-Oxley Act (SOX) must prove their employer acted with “retaliatory intent.”

Earlier this month, the U.S. Supreme Court weighed in, issuing a unanimous decision in Trevor Murray v. UBS Securities LLC, et al. The justices found that the Second Circuit was wrong. That is, “when it comes to a plaintiff’s burden of proof on intent under SOX, they only need to show that their protected activity contributed to an unfavorable personnel action, such as a firing.” Once the plaintiff does this, the Supreme Court found the burden of proof shifts to the employer to prove that “it would have taken the same adverse action regardless of the employee’s protected activity.” The justices found the law is intended ”to be plaintiff-friendly.”

In light of this development, employers should continue to be diligent in documenting the reasons that lead to an employee’s termination. This is especially true if that employee may be found to have engaged in a protected activity, cloaking them with certain whistleblower protections.

In siding with whistleblower Trevor Murray, the justices rejected UBS’ position that a separate finding of retaliatory intent is required for whistleblower protection under the Sarbanes-Oxley Act, or SOX, which governs corporate financial reporting and recordkeeping.
© 2024 BARNES & THORNBURG LLP
For more on Whistleblowers, visit the NLR Labor & Employment section.

The DOJ Throws Cold Water on the Frosties NFT Founders

The U.S. Attorney’s Office for the Southern District of New York recently charged two individuals for allegedly participating in a scheme to defraud purchasers of “Frosties” non-fungible tokens (or “NFTs”) out of over $1 million. The two-count complaint charges Ethan Nguyen (aka “Frostie”) and Andre Llacuna (aka “heyandre”) with conspiracy to commit wire fraud in violation of 18 U.S.C. § 1349 and conspiracy to commit money laundering in violation of 18 U.S.C. § 1956.   Each charge carries a maximum sentence of 20 years in prison.

The Defendants marketed “Frosties” as the entry point to a broader online community consisting of games, reward programs, and other benefits.  In January 2022, their “Frosties” pre-sale raised approximately $1.1 million.

In a so-called “rug pull,” Frostie and heyandre transferred the funds raised through the pre-sale to a series of separate cryptocurrency wallets, eliminated Frosties’ online presence, and took down its website.  The transaction, which was publicly recorded and viewable on the blockchain, triggered investors to sell Frosties at a considerable discount.  Frostie and heyandre then allegedly proceeded to move the funds through a series of transactions intended to obfuscate the source and increase anonymity.  The charges came as the Defendants were preparing for the March 26 pre-sale of their next NFT project, “Embers,” which law enforcement alleges would likely have followed the same course as “Frosties.”

In a public statement announcing the arrests, the DOJ explained how the emerging NFT market is a risk-laden environment that has attracted the attention of scam artists.  Representatives from each of the federal agencies that participated in the investigation cautioned the public and put other potential fraudsters on notice of the government’s watchful eye towards cryptocurrency malfeasance.

This investigation comes on the heels of the FBI’s announcement last month of the Virtual Asset Exploitation Unit, a special task force dedicated to blockchain analysis and virtual asset seizure.  The prosecution of the Defendants in this matter continues aggressive efforts by federal agencies to reign in bad actors participating in the cryptocurrency/digital assets/blockchain space.

Article By Matthew G. Lindenbaum, Robert L. Lindholm, and Daniel Curran of Nelson Mullins

For more crypto and cybersecurity legal news, click here to visit the National Law Review.

Copyright ©2022 Nelson Mullins Riley & Scarborough LLP

Fitness App Agrees to Pay $56 Million to Settle Class Action Alleging Dark Pattern Practices

On February 14, 2022, Noom Inc., a popular weight loss and fitness app, agreed to pay $56 million, and provide an additional $6 million in subscription credits to settle a putative class action in New York federal court. The class is seeking conditional certification and has urged the court to preliminarily approve the settlement.

The suit was filed in May 2020 when a group of Noom users alleged that Noom “actively misrepresents and/or fails to accurately disclose the true characteristics of its trial period, its automatic enrollment policy, and the actual steps customer need to follow in attempting to cancel a 14-day trial and avoid automatic enrollment.” More specifically, users alleged that Noom engaged in an unlawful auto-renewal subscription business model by luring customers in with the opportunity to “try” its programs, then imposing significant barriers to the cancellation process (e.g., only allowing customers to cancel their subscriptions through their virtual coach), resulting in the customers paying a nonrefundable advance lump-sum payment for up to eight (8) months at a time. According to the proposed settlement, Noom will have to substantially enhance its auto-renewal disclosures, as well as require customers to take a separate action (e.g., check box or digital signature) to accept auto-renewal, and provide customers a button on the customer’s account page for easier cancellation.

Regulators at the federal and state level have recently made clear their focus on enforcement actions against “dark patterns.” We previously summarized the FTC’s enforcement policy statement from October 2021 warning companies against using dark patterns that trick consumers into subscription services. More recently, several state attorneys general (e.g., in Indiana, Texas, the District of Columbia, and Washington State) made announcements regarding their commitment to ramp up enforcement work on “dark patterns” that are used to ascertain consumers’ location data.

Article By: Privacy and Cybersecurity Practice Group at Hunton Andrews Kurth

For more cybersecurity legal news, click here to visit the National Law Review.
 
Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.

Federal Court Strikes Down Portions of Department of Labor’s Final Rule on COVID-19 Leave, Expands Coverage

On August 3, 2020, the United States District Court for the Southern District of New York struck down portions of the DOL’s Final Rule regarding who qualifies for COVID-19 emergency paid sick leave under the Emergency Paid Sick Leave Act (“EPSLA”) and the Emergency Family and Medical Leave Expansion Act (“EFMLEA”), collectively referred to as the Families First Coronavirus Response Act (“FFCRA”).

Of particular importance to retail employers, the Court invalidated two provisions of the DOL’s Final Rule pertaining to: (1) conditioning leave on the availability of work and (2) the need to obtain employer consent prior to taking leave on an intermittent basis.

Neither the EPSLA nor the EFMLEA contains an express “work availability” requirement. The EPSLA grants paid leave to employees who are “unable to work (or telework) due to a need for leave because” of any of six COVID-19-related criteria. FFCRA § 5102(a). The EFMLEA similarly applies to employees “unable to work (or telework) due to a need for leave to care for . . . [a child] due to a public health emergency.” FFCRA § 101(a)(2)(A).  In its Final Rule, the DOL concluded that these provisions do not reach employees whose employers “do not have work” for them, reasoning a work-availability requirement is justified “because the employee would be unable to work even if he or she” did not have a qualifying condition set forth in the statute.

In rejecting the DOL’s interpretation, the Court stated that “the agency’s barebones explanation for the work-availability requirement is patently deficient,” given that the DOL’s interpretation “considerably narrow[s] the statute’s potential scope.”  Under the Court’s interpretation, employees are entitled to protected leave under either the EPSLA or EFMLEA if they satisfy the express statutory conditions, regardless of whether they are scheduled to work during the requested leave period.

The Court also rejected part of the DOL’s interpretation that employees are not permitted to take the protected leave on an intermittent basis unless they obtain their employer’s consent.  As an initial matter, the Court upheld the DOL’s interpretation that employees cannot take intermittent leave in certain situations in which there is a higher risk that the employee will spread COVID-19 to other employees (i.e., when the employees: are subject to government quarantine or isolation order related to COVID-19; have been advised by a healthcare provider to self-quarantine due to concerns related to COVID-19; are experiencing symptoms of COVID-19 and are taking leave to obtain a medical diagnosis; are taking care of an individual who either is subject to a quarantine or isolation order related to COVID-19 or has been advised by a healthcare provider to self-quarantine due to concerns related to COVID-19).

In those circumstances, the Court agreed that a restriction on intermittent leave “advances Congress’s public-health objectives by preventing employees who may be infected or contagious from returning intermittently to a worksite where they could transmit the virus.”  Therefore, in those situations, employees are only permitted to take the protected leave in a block of time (i.e., a certain number of days/weeks), not on an intermittent basis.  As a result, the Court upheld the DOL’s restriction on intermittent leave “insofar as it bans intermittent leave based on qualifying conditions that implicate an employee’s risk of viral transmission.”

The Court, however, rejected the requirement that employees obtain their employer’s consent before taking intermittent leave in other circumstances (i.e., when an employee takes leave solely to care for the employee’s son or daughter whose school or place of care is closed).  In doing so, the Court ruled that the DOL failed to provide a coherent justification for requiring the employer’s consent, particularly in situations in which the risk of viral transmission is low.  The Court’s opinion brings the EPSLA and EFMLEA in line with the existing FMLA, which does not require employer consent.

It is unclear if the DOL will challenge the Court’s decision or revise its Final Rule to bring it in compliance with the Court’s opinion.  Regardless, the Court’s decision takes effect immediately and retail employers should be mindful of this ruling and revisit their COVID-19 leave policies.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.

Reactions to the U.S. Supreme Court’s Rulings in Trump v. Vance & Trump v. Mazars

In Trump v. Vance and Trump v. Mazars the Supreme Court issued opinions in two cases concerning the release of President Trump’s financial records.  Reactions to the July 9th rulings have varied, with opinions differing on whether or not Trump’s reputation and presidency will be significantly impacted by what his financial records may reveal.

Below, we outline the details of each case and the reactions to the Supreme Court’s decisions.

Background Trump v. Vance

In Trump v. Vance, the court stated that Trump had no absolute right to block the Manhattan District attorney’s access to Trump’s financial records for the purposes of a grand jury investigation. The court held in a 7-2 decision that “Article II and the Supremacy Clause do not categorically preclude, or require a heightened standard for, the issuance of a state criminal subpoena to a sitting President.” The court’s opinion was written by Chief Justice John Roberts for the majority including Justices Ginsburg, Breyer, Sotomayor and Kagan with Justice Kavanaugh filing a concurring opinion joined by Justice Gorsuch, and Justice Thomas and Justice Alito writing separate dissenting opinions.

Trump v. Vance involves a state criminal grand jury subpoena not served on President Trump, but on two banks and an accounting firm that were custodians of the records. The subpoenaed records are for eight years of Trump’s personal and business tax returns and other banking documents in the years leading up to the 2016 election served on behalf of New York District Attorney Cyrus Vance., Jr. Vance’s investigation centered around payments made to two women — Karen McDougal and Stormy Daniels — who alleged they had affairs with Trump before he entered office.

The Supreme Court considered state criminal subpoenas could threaten “the independence and effectiveness” of the president as well as undermining the president’s leadership and reputation, weighing Trump’s circumstances against those in Clinton v. Jones, the 1997 case where President Bill Clinton sought to have a civil suit filed against him by Paula Corbin Jones dismissed on the grounds of presidential immunity, and that the case would be a distraction to his presidency.

Trump argued that the burden state criminal subpoenas would put on his presidency would be even greater than in Clinton because “criminal litigation poses unique burdens on the President’s time and will generate a considerable if not overwhelming degree of mental preoccupation” and would make him a target for harassment.

The Court addressed Trump’s argument, stating that they “rejected a nearly identical argument in Clinton, concluding that the risk posed by harassing civil litigation was not ‘serious’ because federal courts have the tools to deter and dismiss vexatious lawsuits. Harassing state criminal subpoenas could, under certain circumstances, threaten the independence or effectiveness of the Executive. But here again the law already seeks to protect against such abuse … Grand juries are prohibited from engaging in ‘arbitrary fishing expeditions’ or initiating investigations ‘out of malice or an intent to harass.’”

The Court also considered that Vance is a case addressing state law issues where Clinton was a case addressing federal law issues. Trump argued that the Supremacy Clause gives a sitting president absolute immunity from state criminal proceedings because compliance with subpoenas would impair his performance of his Article II functions. Arguing on behalf of the United States, the Solicitor General claimed state grand jury subpoenas should fulfill a higher need standard.  In response, the Court ruled, “A state grand jury subpoena seeking a President’s private papers need not satisfy a heightened need standard … there has been no showing here that heightened protection against state subpoenas is necessary for the Executive to fulfill his Article II functions.”

Notably, the Supreme Court decision does not allow for public access to Trump’s tax returns; they will be part of a Grand Jury investigation, which is confidential.  However, many took away the message that the majority’s decision–bolstered by Gorsuch and Kavanaugh, Trump appointees, who concurred–that the law applies to everyone.

Reactions to SCOTUS Decision from Jay Sekulow and Cyrus Vance, Jr.

Both Vance and Trump’s attorney Jay Sekulow expressed they were content with the Court’s ruling, albeit for different reasons.

“We are pleased that in the decisions issued today, the Supreme Court has temporarily blocked both Congress and New York prosecutors from obtaining the President’s financial records. We will now proceed to raise additional Constitutional and legal issues in the lower courts,” Sekulow tweeted.

“This is a tremendous victory for our nation’s system of justice and its founding principle that no one – not even a president – is above the law. Our investigation, which was delayed for almost a year by this lawsuit, will resume, guided as always by the grand jury’s solemn obligation to follow the law and the facts, wherever they may lead,” Vance said in a statement.

Other Reactions to the Supreme Court’s Trump v. Vance Ruling

Following the Supreme Court’s arguments in Vance, lawyers and legal scholars commented about what the decision could mean for the presidency.

In a C-SPAN interview with National Constitution Center President and CEO Jeffrey Rosen, Columbia Law School Professor Gillian Metzger spoke about the issue of burden on the president in Vance, “A lot of what is being shown in these cases is who bears the burden when. Clinton v. Jones said that first, you have to show the burden on the presidency…already the Solicitor General is trying to move us beyond where we had been in Clinton vs. Jones. Among the justices on the court, my sense is that they are really trying to figure out what the standards should be…I didn’t get the sense of a stark ideological divide on this.”

In agreement with seeing the ruling as a victory for the rule of law, David Cole, the ACLU National Legal Director said: “The Supreme Court today confirmed that the president is not above the law. The court ruled that President Trump must follow the law, like the rest of us. And that includes responding to subpoenas for his tax records.”

Harvard Law professor Laurence Tribe, a frequent Trump critic, highlighted the victory on Twitter, saying: “No absolute immunity from state and local grand jury subpoenas for Trump’s financial records to investigate his crimes as a private citizen. Being president doesn’t confer the kind of categorical shield Trump claimed.”

Of a practical matter, though, Mark Zaid, the Washington attorney who represented the whistleblower who set the stage for Trump’s impeachment proceedings, tweeted:

 

“Even if Trump’s tax returns reveal fraud, I find it doubtful that this fact would finally be straw that broke his supporters’ back on election day.  But importance of ruling is that criminal investigation continues & will exist past expiration of Trump’s presidential immunity.” (Should we embed the tweet?)

Background for the Supreme Court’s Ruling in Trump v. Mazars

The Supreme Court remanded back to the lower courts the second case, Trump v. Mazars in a 7-2 decision. The Mazars case involved three committees of the U. S. House of Representatives attempting to secure Trump’s financial documents, and the financial documents of his children and affiliated businesses for investigative purposes. Each of the committees sought overlapping sets of financial documents, supplying different justifications for the requests, explaining that the information would help guide legislative reform in areas ranging from money laundering and terrorism to foreign involvement in U. S. elections.

Additionally, the President in his personal capacity, along with his children and affiliated businesses—contested subpoenas issued by the House Financial Services and Intelligence Committees in the Southern District of New York.  Trump and the other petitioners argued in the United States Court of Appeals for the Second Circuit that the subpoenas violated separation of powers. The President did not, however, argue that any of the requested records were protected by executive privilege.  Justice Roberts wrote the majority opinion, with Thomas and Alito filing dissenting opinions.

In Mazars, the District Court for the District of Columbia upheld the Congressional subpoenas, indicating the investigations served a “legislative purpose” as they could provide insight on reforming presidential candidate’s financial disclosure requirements.  However, Roberts writes: “the courts below did not take adequate account of the significant separation of powers concerns implicated by congressional subpoenas for the President’s information.”

In the opinion, Roberts sets out a list of items the lower courts need to consider involving Congress’s powers of investigation and subpoena, noting that previously these disagreements had been settled via arbitration, and not litigation.  Additionally, Roberts summarizes the argument before the court, drawing on the Watergate era Senate Select Committee D. C. Circuit  made by the President and the Solicitor General, saying the House must demonstrate the information sought is “demonstrably critical” to its legislative purpose did not apply here.  Roberts, stated that this standard applies to Executive privilege, which, while crucial, does not extend to “nonprivileged, private information.”  He writes: “We decline to transplant that protection root and branch to cases involving nonprivileged, private information, which by definition does not implicate sensitive Executive Branch deliberations.”

However, Roberts detailed that earlier legal analysis ignored the “significant separation of powers issues raised by congressional subpoenas” and that congressional subpoenas “for the President’s information unavoidably pit the political branches against one another.” With these constraints in mind, Roberts charged the lower court to consider the following in regards to congressional investigations and subpoenas:

  1. Does the legislative purpose warrant the involvement of the President and his papers?
  2. Is the subpoena appropriately narrow to accomplish the congressional objective?
  3. Does the evidence requested by Congress in the subpoena further a valid legislative aim?
  4. Is the burden on the president justified?

Reactions to Trump v. Mazars

Nikolas Bowie, an assistant Harvard Law Professor, turning to Robert’s analysis in the opinion on Congressional investigations opinion discussing Congressional investigations indicated the decision “introduces new limits on Congress’s power to obtain the information that it needs to legislate effectively on behalf of the American people . . . the Supreme Court authorized federal courts to block future subpoenas using a balancing test that weighs ‘the asserted legislative purpose’ of the subpoenas against amorphous burdens they might impose on the President.”

Additionally, Bowie points out, “it seems unlikely that the American people will see the information Congress requested until after the November election.”

Writing for the nonprofit public policy organization, The Brookings Institution, Richard Lempert, Eric Stein Distinguished University Professor of Law and Sociology Emeritus at the University of Michigan, concurs with Bowie’s point, writing that the Mazars decision may set a new standard for Congressional subpoenas moving forward:

“The genius of Robert’s opinion in Mazars is that while endorsing the longstanding precedent that congressional subpoenas must have a legislative purpose and without repudiating the notion that courts should not render judgments based on motives they impute to Congress, the opinion lays down principles which form a more or less objective test for determining whether material Congress seeks from a president is essential to a legislative task Congress is engaged in … Congress should be able to spell out in a subpoena why it needs the documents it seeks.”

Looking Ahead to What’s Next

There is a lot of information in these decisions to unpack, especially in relation to Congressional investigations and subpoenas.  Additionally, questions remain on how the lower courts may interpret Roberts’ directive to examine “congressional legislative purpose and whether it rises to the step of involving the President’s documents” and how Congress will “assess the burdens imposed on the President by a subpoena.”

 

Copyright ©2020 National Law Forum, LLC

 

ARTICLE BY Rachel Popa, Eilene Spear and Jennifer Schaller at The National Law Review / The National Law Forum LLC.

A Glut of “Opportunistic” Margin Calls: Are Creditors Moving Too Quickly to Seize Assets?

What can companies expect from their funding sources as COVID-19 does damage to the economy? In at least some instances, perhaps, opportunistic attempts by lenders to illegally take control of business assets. A real estate investment trust (REIT) in New York alleges in a new lawsuit that it has already fallen victim to that type of misconduct.

AG Mortgage Investment Trust Inc. (AG) filed suit against the Royal Bank of Canada (RBC) on March 25 for allegedly taking advantage of the pandemic to unlawfully seize the trust’s assets and sell them at below-market prices. AG says RBC is just one of many banks that are now trying to trigger margin calls on entities like AG. It alleges that RBC is doing so by applying “opportunistic and unfounded” markdowns on mortgage-based assets. A margin call then occurs, according to AG, with RBC contending that the value of a margin account — an investment account with assets bought with borrowed money — has fallen, requiring the borrower either to make up the difference with more collateral or have the asset seized. RBC, the suit further alleges, is being unreasonable in its valuations. Having seized assets based on what AG calls an “entirely subjective and self-serving calculation” of true market value, RBC then auctioned off $11 million worth of AG’s commercial mortgage-backed securities.

Two days before filing the suit, AG had warned in a statement that it might not be able to satisfy the glut of margin calls it now faces from lending banks like RBC, as coronavirus crisis fears and fallout cripple the mortgage-based asset market. In its complaint, AG asserts that rampant, unwarranted margin calls have brought the nation’s mortgage-based REITs “to the brink of collapse.” AG notes, however, that unlike RBC, most banks have thus far agreed to hold back on taking action against those trusts’ assets — for the time being, at least.
“Recognizing the aberrant state of the markets, most banks have stopped short of taking precipitous steps that could push the mREIT industry into the abyss. This action is brought to stop one outlier bank—Royal Bank of Canada—that has not stopped short but is instead hitting the accelerator to unlawfully seize and unload a large portfolio of Plaintiffs’ assets at fire-sale prices into the seized markets which will have a cascading effect in the market for mortgage-based assets, and potentially the entire U.S. economy. These consequences are likely to undermine the emergent efforts currently being undertaken by federal and state agencies to provide breathing room and help stabilize the economy.”

Hours after filing its suit, AG sought a temporary restraining order to halt the auction. The auction had already begun that day by the time the judge had a chance to review AG’s request. RBC must soon respond to AG’s complaint, and, as the case progresses, will have to defend itself against AG’s claims for damages. If AG’s perception of a glut of unjustified margin calls is shared by other business entities, we should expect many similar suits to follow.

© 2020 Bilzin Sumberg Baena Price & Axelrod LLP

For more COVID-19 related business news, see the National Law Review Coronavirus News section.

Second Circuit Upholds District Court’s Choice of Equitable Remedies Under ERISA and Its Decision to Award Prejudgment Interest at the Federal Prime Rate

The Second Circuit Court of Appeals recently issued an opinion in Frommert v. Conkright, affirming a district court decision regarding appropriate equitable remedies under ERISA and the amount of prejudgment interest to be applied. The Second Circuit’s views on each of these issues should be of interest to plan fiduciaries as well as practitioners.

This litigation has a long history, dating back to 1999, and has generated many court opinions along the way, from the district court level all the way up to the U.S. Supreme Court. Indeed, this is the Second Circuit’s fourth decision in this case. (Readers are likely familiar with this case from the 2010 Supreme Court decision, which addressed the standard of review and held that an honest mistake does not strip a plan administrator of the deference otherwise granted to it to construe plan terms.)

By means of background, the litigation was initiated by Xerox employees who had left the company in the 1980s, received distributions of the retirement benefits they had earned up to that point, and who were subsequently rehired by Xerox. In addition to the issues concerning interpretation of the Plan and related documents, the primary focus of the case was how to account for the employees’ past distributions when calculating their current benefits so as to avoid a “double payment” windfall.

In 2016, the District Court for the Western District of New York issued two decisions that led to the instant appeal. After having been previously directed by the Second Circuit to fashion, in its discretion, an equitable remedy providing appropriate retirement benefits to the rehired employees (referred to as the “New Benefits”), the District Court chose the equitable remedy of reformation and held that the New Benefits should be calculated as if the plaintiffs were newly hired upon their return to Xerox, without any reduction of the benefits to account for prior distributions or any credit for prior years of service. In a second decision later that year, the District Court determined that the plaintiffs were entitled to prejudgment interest at the federal prime rate.

The plaintiffs appealed both decisions. As to the remedy, the plaintiffs argued that the “new hire” remedy fashioned by the District Court was inadequate, and the court should have chosen a calculation of New Benefits that was more favorable to them using either surcharge or estoppel. The Second Circuit was not persuaded. In affirming the District Court’s decision, the Second Circuit noted that each of the equitable approaches considered for calculating the New Benefits were imperfect and even the new hire approach had its flaws. Nevertheless, it found that the District Court did not abuse its discretion in selecting this method. The Second Circuit pointed out that the new hire approach accounted for the time value of money and better balanced the competing interests of the Plan Administrator and the plaintiffs. Having determined there was no abuse of discretion by the District Court, the Second Circuit found it unnecessary to address whether relief would alternatively have been proper pursuant to different equitable remedies such as surcharge or estoppel.

The plaintiffs also argued that the District Court was affirmatively required to interpret the Plan, which might have yielded a higher benefits award. Again, the Second Circuit was not persuaded, finding that this argument ran afoul of one of its prior decisions in the case finding that the District Court need not engage in plan interpretation if it determined an appropriate equitable remedy existed. Citing to Cigna v. Amara, the Second Circuit reaffirmed that district courts generally may avoid interpreting a pension plan and instead fashion equitable remedies for ERISA violations where the plan is “significantly incomplete” and misleads employees, and reformation is among the equitable remedies available.

As to the issue of prejudgment interest, the plaintiffs sought the New York statutory interest rate of nine percent, whereas the Plan Administrator proposed the federal post-judgment interest rate of 0.66 percent. The District Court rejected the state statutory interest rate as too high and the federal rate as too low. It awarded prejudgment interest at the federal prime rate of 3.5 percent, explaining that it struck an appropriate balance and fairly compensated the plaintiffs. Noting that the District Court enjoyed broad discretion as to whether to grant prejudgment interest in the first place and to select a rate, the Second Circuit upheld the decision, finding that the District Court had carefully considered all the relevant factors and thoroughly explained its reasoning for using the federal prime rate.

 

Copyright © 2019 Robinson & Cole LLP. All rights reserved.
This post was written by Jean E. Tomasco of Robinson & Cole LLP.

Iron Man Composer Battles Tech Giant Sony and Ghostface Killah

copyright infringementThe US Court of Appeals for the Second Circuit ruled in favor of the composer of the 1960s Iron Man theme song, finding material facts in dispute as to whether the song was commissioned as a work for hire. Jack Urbont v. Sony Music Entertainment, Case No. 15-1778-cv (2d Cir., July 29, 2016) (Hall, J).

In 1966, Jack Urbont wrote the theme songs for various characters in the “Marvel Super Heroes” television show, including Iron Man. In 2000, hip hop artist Dennis Coles (known as Ghostface Killah), Sony and Razor Sharp Records produced and released the album “Supreme Clientele” featuring the Iron Man theme song on two tracks, prompting Urbont’s June 2011 copyright infringement lawsuit against Sony, Razor Sharp Records and Ghostface Killah. At trial, the district court found that the defendants had standing to challenge Urbont’s ownership of the copyright under the “work for hire” doctrine, and granted the defendants’ motion for summary judgment on standing, finding that the Iron Man song was a “work for hire” composed at Marvel’s instance and expense, and that Urbont had not presented evidence of an ownership agreement with Marvel sufficient to overcome the presumption that the work was for hire. Urbont appealed.

Third-Party Standing to Assert Right to Hire Defense

On appeal, Urbont cited the US Court of Appeals for the Ninth Circuit’s 2010 holding in Jules Jordan Video v. 144942 Canada,which rejected third-party standing under the work for hire doctrine. The Second Circuit rejected Urbont’s argument, explaining that in that case both potential owners of the copyright were parties to the lawsuit, neither of which disputed ownership. Here, Marvel was not a party to the suit, and a plaintiff in a copyright infringement suit bears the burden of proving ownership of the copyright when ownership is challenged either by an employer or a third party. Citing Island Software & Computer Serv. v. Microsoft, the Court explained that Sony, a third party to an alleged employer-employee relationship, did have standing to raise the “work for hire” defense to try to refute Urbont’s alleged ownership of the copyright.

The Copyright Act Claim

Under the Copyright Act, an employer is considered an “author” of a copyrightable work in the case of works made for hire. Citing to its 2013 case Marvel Characters v. Kirby, the Second Circuit explained that absent an agreement to the contrary, a work is made for hire when it is “made at the hiring party’s ‘instance and expense,’” i.e., when the employer induces the creation of the work and has the right to direct and supervise the manner in which the work is carried out.

In reversing, the Second Circuit credited the district court’s reliance on evidence supporting the assertion that the song was a work for hire developed at Marvel’s instance, including that Urbont had not previously been familiar with the Marvel superheroes and had created the work from material given to him by Stan Lee, who had the right to accept or reject his song. However, the Court concluded that Urbont’s evidence that he retained all creative control over the project and that Lee was not permitted to modify the work, coupled with his testimony that he approached Lee, not the other way around, weighed against finding that the work was created at Marvel’s instance.

As for the expense factor, Urbont claimed that he created the song with his own tools and resources, including renting a recording studio, supported his assertion that it was he, not Marvel, who bore the risk of the work’s success. Although the $3,000 payment Urbont received weighed in favor of a finding that the work was created at Marvel’s expense, Urbont’s testimony that he also received royalties undermined such a conclusion. The Second Circuit explained that while a hiring party’s payment of a specific sum in exchange for an independent contractor’s work satisfies the “expense” requirement, the payment of royalties weighs against finding a “work for hire” relationship. The Court thus found that a genuine issue of material fact remained as to whether the Iron Man composition was a work for hire created at Marvel’s instance and expense.

Finally, the Second Circuit found that the district court erred in concluding that Urbont failed to produce evidence to rebut the presumption that Marvel owned the work, noting that on summary judgment, the district court was required to accept Urbont’s testimony in support of his position.  The Court reversed and remanded the case back to the district court.

ARTICLE BY Andrea Coronado of McDermott Will & Emery

© 2016 McDermott Will & Emery

Facebook: Second Circuit "Likes" Employee Rights Under the NLRA

Employers should continue to proceed with caution before disciplining employees for their Facebook activity. In Three D, LLC d/b/a Triple Play Sports Bar and Grille v. NLRB, the Federal Appeals Court for Connecticut, New York and Vermont recently upheld a National Labor Relations Board decision that found that one employee’s “liking” another employee’s comments about the terms and conditions of their employment deserved protection under the National Labor Relations Act. The Court upheld the Board’s decision that terminating those employees was illegal.

In Three D, LLC, the employees of a sports bar had a discussion on Facebook about their employer’s alleged mishandling of their tax withholding. The exchange included both negative comments about their workplace and profanity. One of the employees joined into the conversation by writing a response, while another simply “liked” a co-worker’s statements. The employees happened to be Facebook friends with the bar’s owner’s sister, who told the owner about the post. The owner fired the employees, some of whom were interrogated about the posting and threatened with legal action before their termination. The Board found that this was illegal, and the Employer appealed to the Second Circuit.

In recent years the NLRB has been very open about focusing its efforts on the non-unionized workforce. Many employers assume that because they do not have a union, they do not have to worry about the National Labor Relations Act. However, the Act protects the rights of all employees-unionized or not-to engage in concerted activities for their mutual aid or protection. This includes talking together about their working conditions, wages, and even criticizing management. Interfering with that right may be considered an unfair labor practice.

Before the decision in Three D, LLC, the Board had held that the Act protected Facebook posts/conversations about working conditions. The Board did not make clear whether or not simply “liking” a post constituted enough employee participation to count as protected activity. Three D, LLC made clear that at least in Connecticut, Vermont and New York, such activity merits NLRA protection.

An Employer naturally wants to act when its employees post negative or obscene comments about their workplace or their supervisor on Facebook. It is a public forum that the Employer cannot control, and interesting messages can go viral. Three D, LLC does not change the law that Employers have an interest in preventing negative comments about their products or services and protecting their business reputation. An employee’s public communications may lose protection of the Act if sufficiently disloyal or defamatory. This can happen if the statements are not connected with an ongoing labor dispute or are made maliciously and with knowledge of their falsity. However Employers must tread carefully before disciplining employees for their social media use to air workplace grievances.

All in all, Employers should continue to take a close look at their actions in response to employee Facebook posts, even if they do not “like” it.

Article By Michael Colgan Harrington & Jennifer A. Corvo of Murtha Cullina

© Copyright 2015 Murtha Cullina