Category: Litigation

TCPA Turnstile: 2022 Year in Review (TCPA Case Update Vol. 17)

As 2022 comes to a close, we wanted to look back at the most significant Telephone Consumer Protection Act, 47 U.S.C. § 227 (“TCPA”) decisions of the year.  While we didn’t see the types of landscape-altering decisions that we saw in 2021, there’s still plenty to take note of.  We summarize here the biggest developments since our last update, listed by issue category in alphabetical order.

Arbitration: In Kelly v. McClatchy Co., LLC, 2022 WL 1693339 (E.D. Cal.  May 26, 2022), the District Court denied the defendant’s motion to compel arbitration because the contractual relationship between the parties had terminated before the unwanted calls were made. Plaintiffs had originally signed defendant’s Terms of Service which bound them to an arbitration provision for all legal disputes. Plaintiffs then cancelled their subscriptions which subsequently ended the enforceability of the Terms of Service against them. However, plaintiffs then received unwanted calls from Defendant seeking service renewals which the court deemed were not covered by the arbitration clause, even under a theory of post-expiration enforcement.

ATDS: Following Facebook v. Duguid, 141 S. Ct. 1163 (2021), courts are still struggling to define an “automatic telephone dialing system,” and the Third Circuit weighed in through Panzarella v. Navient Sols., Inc., 2022 WL 2127220 (3d Cir. June 14, 2022).  The district court granted defendant’s motion for summary judgment on the grounds that plaintiffs failed to show that an ATDS was used to call their phones. The Third Circuit upheld the summary judgment ruling but did not decide whether the dialing equipment used constituted an “ATDS” under the TCPA. Rather, its ruling hinged on the fact that defendant’s dialer pulled phone numbers from its internal database, not computer-generated tables. As such, the Third Circuit found that even though the system may very well be an unlawful ATDS system under the TCPA, if it is not used in that way, defendants could not be held liable.

In an interesting move, the court in Jiminez v. Credit One Bank, N.A., Nco Fin. Sys., 2022 WL 4611924 (S.D.N.Y. Sept. 30, 2022), narrowed the definition of an “ATDS,” choosing to reject the Second Circuit approach in favor of the Third Circuit’s approach in Panzarella. Here, plaintiff alleged that defendant used a dialing system to send numerous calls without consent. The Second Circuit follows the majority view that, if a system used to dial numbers has the ability to store or generate random numbers, the call made violates the TCPA, even if the random dialing function is not actually utilized. But the court in Jiminez found the Third Circuit’s reasoning persuasive and applied it to the case, finding that plaintiff failed to show the dialing system was actually used in a way that violated the TCPA. It granted summary judgment to defendants on the TCPA claims because the evidence showed the numbers used were all taken from a pre-approved customer list, not generated from random dialing.

Similarly, in Borden v. Efinancial, LLC, 2022 WL 16955661 (9th Cir. Nov. 16, 2022), the Ninth Circuit also adopted a narrower definition of an ATDS, finding that to qualify as an ATDS, a dialing system must use its automation function generate and dial random or sequential telephone numbers. This means that a mere ability to generate random or sequential numbers is irrelevant, the generated numbers must actually be telephone numbers. Given the circuit split on this issue, it seems likely that the Supreme Court will eventually have to weigh in.

Notably, in May 2022, the FCC issued a new order which will target unlawful robocalls originating outside the country. The order creates a new classification of service providers called “Gateway Providers” which have traditionally served a transmitters of international robocalls. These providers are domestic intermediaries which are now required to register with the FCC’s Robocall Mitigation database, file a mitigation plan with the agency, and certify compliance with the practices therein.

Class Certification: In Drazen v. Pinto, 41 F. 4th 1354 (11th Cir. July 27, 2022), the Eleventh Circuit considered the issue of standing in a TCPA class action. Plaintiffs’ proposed settlement class included unnamed plaintiffs who had only received one unsolicited text message. Because the court held in an earlier case (Salcedo v. Hanna, 936 F.3d 1162 (11th Cir. 2019)) that just one unwanted message is not sufficient to satisfy Article III standing, it found that some of the class members did not have adequate standing. The district court approved the class with these members in it, finding that those members could remain because they had standing in their respective Circuit and only named plaintiffs needed to have standing. The Eleventh Circuit held otherwise and vacated the class certification and settlement in the case. It remanded, allowing for redefinition of the class giving all members standing.

Consent: Chennette v. Porch, 2022 WL 6884084 (9th Cir. Oct. 12, 2022), involved a defendant who used cell phone numbers posted on publicly available websites, like Yelp and Facebook, to solicit client leads to contractors through unwanted text messages. The court rejected defendant’s argument that plaintiffs consented to the calls because their businesses were advertised through these public posts with the intent of obtaining new business. Beyond that, the court also found that even though these cell phones were used for both personal and business purposes, the numbers still fell within the protection of the TCPA, allowing plaintiffs to satisfy both statutory and Article III standing.

Damages: In Wakefield v. ViSalus, 2022 WL 11530386 (9th Cir. Oct. 20, 2022), the Ninth Circuit adopted a new test to determine the constitutionality of an exceptionally large damages award. Defendant was a marketing company that made unwanted calls to former customers, soliciting them to renew their subscriptions to weigh-loss products. After a multi-day trial, a jury returned a verdict for the plaintiff with a statutory damages award of almost $1 billion. The Ninth Circuit reversed and remanded to the district court to consider the constitutionality of the award. While the district court’s test asked whether the award was “so severe and oppressive” as to violate defendant’s due process rights, the Ninth Circuit instructed it to reassess using a test outlined in a different case, Six Mexican Workers. The Six Mexican Workers test assesses the following factors in determining the constitutionality of the damages award: “1) the amount of award to each plaintiff, 2) the total award, 3) the nature and persistence of the violations, 4) the extent of the defendant’s culpability, 5) damage awards in similar cases, 6) the substantive or technical nature of the violations, and 7) the circumstances of each .” We are still awaiting that determination on remand.

Standing: In Hall v. Smosh Dot Com, Inc., 2022 WL 2704571 (E.D. Cal July 12, 2022), the court addressed whether plaintiff had standing under the TCPA as a cell phone plan subscriber where the text messages were only received by someone else on the plan; in this case, plaintiff was the subscriber and her minor son was the recipient of the unwanted text messages. The court granted defendant’s motion to dismiss for lack of standing because she could not show that status of a subscriber alone could convey adequate standing under Article III.

In Rombough v. State Farm, No. 22-CV-15-CJW-MAR, (N.D. Iowa June 9, 2022), the court evaluated standing under the TCPA based on a plaintiff’s number being listed on the Do Not Call list. It determined that being on the DNC was not an easy ticket into court, plaintiff needed to allege more than just having its number on the list. Rather, the plaintiff need have actually registered their own numbers on the list.

© 2022 Vedder Price
For more Cybersecurity and Privacy Law news, click here to visit the National Law Review.

SCOTUS Takes a Pass on “Gap Time” Dispute

It’s two months into argument season at the Supreme Court, and we’re always keeping our fingers crossed that the justices will take up a wage and hour issue and clear up some ambiguities in the law or a circuit split.

Top billing this SCOTUS term goes to Helix Energy Solutions Group, Inc. v. Hewitt, in which the Court will address whether a supervisor who earned more than $200,000 a year but was paid on a daily basis is exempt from the overtime laws as a “highly compensated employee” under 29 C.F.R. § 541.601, notwithstanding the salary basis rules in 29 C.F.R. § 541.602 and 29 C.F.R. § 541.604.  The Court held arguments on October 12, and you can read the transcript here.  We’ll report on that decision as soon as it’s published.

This week’s news is a denial of a petition for a writ of certiorari in Cleveland County, North Carolina v. Conner, a case about gap time.  The plaintiff in the case—an EMT worker—was paid under a fairly complex set of ordinance-based and contractual terms, but the gist of her claim was that the county shorted her on straight-time pay she was owed under her contract, and by doing do violated the Fair Labor Standards Act.  The district court dismissed the claim, on the ground that the FLSA governs minimum wage and overtime pay, but not straight-time pay (assuming no minimum wage violation).  On appeal, however, the Fourth Circuit noted that “there are situations … that fall between [the minimum wage and overtime] provisions of the FLSA.  It explained:

In addition to seeking unpaid overtime compensation, employees may seek to recover wages for uncompensated hours worked that fall between the minimum wage and the overtime provisions of the FLSA, otherwise known as gap time ….  Gap time refers to time that is not directly covered by the FLSA’s overtime provisions because it does not exceed the overtime limit, and to time that is not covered by the FLSA’s minimum wage provisions because … the employees are still being paid a minimum wage when their salaries are averaged across their actual time worked.  (Internal citations and alterations omitted.)

The Court of Appeals differentiated between two types of gap time—“pure gap time” and “overtime gap time”—with the former referring to unpaid straight time in a week in which an employee works no overtime, and the latter referring to unpaid straight time in a week in which the employee works overtime.  The court noted, correctly, that no provision of the FLSA addresses gap time of either type, and that there is no cause of action under the FLSA for “pure gap time” absent a minimum wage or overtime violation by the employer.  Such claims would arise, if at all, under state law.

On the other hand, the circuit court noted that courts are divided on whether an employee can bring an “overtime gap time claim” under the FLSA.  While the statute itself is silent on the issue, the U.S. Department of Labor’s interpretation of the FLSA—set forth in 29 C.F.R. § 778.315—states that:

[C]ompensation for … overtime work under the Act cannot be said to have been paid to an employee unless all the straight time compensation due him for the nonovertime hours under his contract (express or implied) or under any applicable statute has been paid.

In its simplest sense, the argument for recognizing “overtime gap time” claims under the FLSA is this:  Say an employer promises an overtime-eligible employee base pay of $1,000 per week for up to 40 hours of work, and the employee works more than 40 hours in a given week.  In that scenario, the employee’s hourly overtime rate would by $37.50 ($1000 ÷ 40 yields a regular rate of $25, and time-and-a-half on $25 is $37.50).  But if the employer only pays the employee $800 in base pay for the week and not the promised $1,000, the regular rate becomes $20 ($1000 ÷ 40) and the hourly overtime rate becomes $30 (time-and-a-half on $20).  So the employee is short-changed $7.50 on each overtime hour, which the Fourth Circuit found violates 29 C.F.R. § 778.315 and the spirit, if not the letter, of the FLSA.

“Pure gap time” is different, in this important sense:  it only arises when the employee has not worked any overtime in the week.  So there is no possibility of short-changing the employee on overtime pay, and—assuming the employee has, on average, received the minimum wage for all hours worked that week—no other provision of the FLSA that provides any relief.  (The employee is ostensibly free to seek relief under an applicable state wage payment law or common law for failure to pay promised compensation.)

The Fourth Circuit concluded that 29 C.F.R. § 778.315 has the “power to persuade,” and therefore is entitled to “considerable deference” under Skidmore v. Swift & Co., 323 U.S. 134 (1944).  As such, the court held that “overtime gap time claims” are indeed cognizable under the FLSA, and that “courts must ensure employees are paid all of their straight time wages first under the relevant employment agreement, before overtime is counted.”  The court acknowledged a circuit split on the issue, with the Second Circuit declining to afford deference to 29 C.F.R. § 778.315 and rejecting “overtime gap time” claims as lacking a statutory basis (“So long as an employee is being paid the minimum wage or more, [the] FLSA does not provide recourse for unpaid hours below the 40–hour threshold, even if the employee also works overtime hours the same week.”).

The county filed a petition for a writ of certiorari with the Supreme Court, presenting not only the question of whether the FLSA permits “overtime gap time” but also seeking clarification on how federal courts should apply the Skidmore doctrine to agency interpretations such as 29 C.F.R. § 778.315.  The Supreme Court denied the petition on December 12, leaving both questions for another day.

© 2022 Proskauer Rose LLP.
For more Employment Law News, click here to visit the National Law Review.

NetEase Wins 50 Million RMB & Injunction on Appeal in Minecraft Infringement Litigation at the Guangdong Higher People’s Court

On November 30, 2022, the Guangdong Higher People’s Court announced that NetEase was awarded 50 million RMB (over $7 million USD) and an injunction in an unfair competition case against Shenzhen Mini Play Company (深圳迷你玩公司) involving Minecraft and Mini Play’s similar sandbox game Mini World (迷你世界).  NetEase has the exclusive right to operate Minecraft in China since 2016.  This is believed to be the highest damages award in China for game infringement.

 

 

 

 

Minecraft on left versus Mini World on right.

Minecraft (我的世界) is a sandbox game developed by the Swedish company Mojang Studios in 2009. In May 2016, NetEase announced that it had obtained the exclusive right to operate the game in China, and had the right to enforce any intellectual property infringement and unfair competition claims. In the same month, Shenzhen Mini Play Company launched “Mini World” on Android , and then launched the iOS version and the computer version successively. In 2019, NetEase filed a lawsuit with the Shenzhen Intermediate People’s Court, accusing multiple core elements of the game Mini World of plagiarizing Minecraft. Specifically, NetEase alleged that the overall screens of the two games are highly similar, which constitutes copyright infringement and unfair competition. The court ordered Mini Play to stop the unfair competition, eliminate the impact, and pay 50 million RMB in compensation. The Shenzhen Intermediate People’s Court also determined that “Mini World” was infringing the copyright in Minecraft, and ordered Mini Play to delete the infringing game elements and compensate NetEase more than 21.13 million RMB. Subsequently, both parties appealed to the Guangdong High Court.

The Guangdong Higher Court found that the two games involved in the case are sandbox games, which only set basic game goals and rules, and provided players with basic game resources or elements such as wood, food, creatures, etc. Players freely explore and interact in the virtual world. Players can use the basic game resources preset in the game to create virtual objects, buildings, landscapes, and even game worlds by destroying, synthesizing and building using the basic game resources. Minecraft mainly makes profits through user charges with the cumulative number of downloads from various channels exceeding 3.36 billion with more than 400 million registered users since its launch.

The Guangdong High Court held that the overall screens of the two games constitute electronic works, that is, “audio-visual works” under the newly amended copyright law, but the similarity between the two lies in the design of the game elements rather than the screens of the games. Therefore, it rejected NetEase’s claim of copyright infringement. At the same time, the court held that Mini World and Minecraft are highly similar in terms of gameplay rules, and there are many overlaps in the details of game elements that have exceeded the limit of reasonable reference. By plagiarizing the design of game elements, Mini Play directly seized the key and core personalized commercial value of other people’s intellectual achievements, and seized business opportunities by improperly obtaining other people’s business benefits, which constituted unfair competition.

In determining the amount of compensation, the court held that Mini Play, as the infringing party, should have on hand relevant data of its business income, but refused to provide it to the court without justified reasons, and should bear the legal consequences of adverse presumption.  According to evidence from a third-party platform, the profits of infringement by Mini Play far exceeded the amount of compensation requested by NetEase and therefore the upheld the award of 50 million RMB in compensation for unfair competition.  The Court further ordered Mini Play to delete 230 game elements from Mini World that infringed.

The original announcement from the Guangdong Higher People’s Court can be found here (Chinese only).

Article By Aaron Wininger of Schwegman, Lundberg & Woessner, P.A.

For more intellectual property legal news, click here to visit the National Law Review.

© 2022 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

Supreme Court to Consider First Amendment Protection for Parody Dog Toy

The Supreme Court of the United States has agreed to consider the scope of protection afforded by the First Amendment to commercial parody products that feature the unauthorized use of another party’s trademark(s). Jack Daniel’s Properties, Inc. v. VIP Products LLC, Case No. 22-148 (Supr. Ct. Nov. 21, 2022) (certiorari granted). The questions presented are as follows:

  1. Whether humorous use of another’s trademark as one’s own on a commercial product is subject to the Lanham Act’s traditional likelihood-of-confusion analysis, or instead receives heightened First Amendment protection from trademark-infringement claims.
  2. Whether humorous use of another’s mark as one’s own on a commercial product is “noncommercial” under 15 U.S.C. § 1125(c)(3)(C), thus barring as a matter of law a claim of dilution by tarnishment under the Trademark Dilution Revision Act.

This is the second time Jack Daniel’s has filed a petition for certiorari in connection with this case. The Supreme Court first considered the matter in January 2021, following the US Court of Appeals for the Ninth Circuit’s decision to vacate and remand the district court’s finding of trademark infringement, reverse the judgment on dilution and uphold the validity of Jack Daniel’s trademark and trade dress rights.

The case then returned to the district court, which granted summary judgment to VIP Products. The Ninth Circuit affirmed and then Jack Daniel’s filed its second petition for certiorari.

The Supreme Court will seek to settle the long-standing split amongst the US Courts of Appeal regarding the proper analysis for parody in trademark infringement and dilution claims and the scope of protection afforded to it via the First Amendment.

For more Supreme Court and Litigation News, click here to visit the National Law Review.

© 2022 McDermott Will & Emery

PFAS Medical Monitoring Goes To State Supreme Court

A year-and-a-half ago, we predicted that in the PFAS litigation world, medical monitoring claims would quickly become a claim that finds its way into numerous PFAS cases with ever-increasing risks and cost to companies embroiled in the lawsuits. On November 15, 2022, the viability of medical monitoring claims with respect to PFAS found its way to the New Hampshire Supreme Court for oral argument. While courts are currently divided as to whether medical monitoring claims should be permitted to proceed without proof of actual injury to the plaintiffs, the result of the New Hampshire Supreme Court case will likely have ripple effects in other states where medical monitoring claims continue to proliferate.

PFAS Medical Monitoring Costs – The Current Landscape

PFAS medical monitoring costs is not a new topic for the litigation – it is something that plaintiffs’ counsel push for either as a damages component to a cause of action or as a term for settlement negotiations in PFAS cases. Yet, to date, only a few states allow for medical monitoring costs to be pled as a cause of action unto itself. Instead, states either require an underlying harm to be proven before the courts will consider awarding medical monitoring costs or states have outright rejected the medical monitoring theory of damages altogether.

The American Law Institute (ALI) is a prestigious legal organization that develops “Restatements” of various laws in the United States, including tort law. The ALI’s work and the Restatements, while not binding on courts, are widely regarded by attorneys, judges and legal scholars as a comprehensive understanding of many of the nuanced parts of legal theories. Through decades of work and revisions, the Restatement (Third) of Torts is now nearing the final stages of completion.

Significantly, the Restatement (Third) is contemplating including recommendations that courts allow plaintiffs to recover monetary damages for medical monitoring expenses, even though the plaintiffs do not have any present bodily harm. With respect to PFAS litigation, medical monitoring costs have been awarded in some states or through settlements to plaintiffs alleging some degree of injury from PFAS. The Restatement (Third) approach, though, opens the door to citizens in the country with no bodily injury from PFAS to participate in free (to the plaintiffs) medical monitoring to ensure that health issues do not arise related to PFAS.

The ALI’s approach to medical monitoring is a topic that is hotly contested in many legal circles, as awarding medical monitoring costs absent any injury is a highly controversial recommendation that seems to upend decades of tort law. Opponents argue that one of the very tenants of tort law is that there is an injury to the plaintiff – without an injury, there is no tort. Courts are currently split on whether they permit medical monitoring costs to be awarded to plaintiffs without any injury.

PFAS Medical Monitoring In New Hampshire

In Kevin Brown v. Saint Gobain, the plaintiffs’ drinking water was allegedly contaminated with PFOA as a result of a Saint-Gobain facility that discharged PFOA into local waterways, which fed drinking water sources. The case made its way through the USDC-NH, but the defendant certified the question to the New Hampshire Supreme Court of whether New Hampshire law permits the plaintiffs, who are asymptomatic, to bring a claim for the costs of their being periodically medically monitored for symptoms of disease caused by exposure to PFOA.

At oral argument on the issue, the parties and the Court held a spirited debate as to whether the seventeen states that allow medical monitoring as a form of relief are similar legally to New Hampshire, such that the state should adopt a broad interpretation and allow medical monitoring claims without proof of present injury. Defendant and parties who filed amicus briefs in support of defendants argued that the Court should defer to the legislature on the issue, as the legislature has primary responsibility for declaring public policy.

Impact On Companies

The issue of permitting PFAS medical monitoring claims without any present injury is one that has enormous impacts not only on PFAS manufacturers, but any downstream commerce company that finds itself in litigation (often class action lawsuits) alleging medical monitoring damages. The litigation is already shifting in such a way that downstream commerce companies (i.e. – companies that did not manufacture PFAS, but utilized PFAS in manufacturing or products) are being named in lawsuits for personal injury and environmental pollution at increasing rates. Allowing a medical monitoring component to the recoverable costs that can pled would significantly raise the risks and potential liability costs to downstream companies.

It is of the utmost importance that businesses along the whole supply chain in various industries evaluate their PFAS risk. Public health and environmental groups urge legislators to regulate PFAS at an ever-increasing pace. Similarly, state level EPA enforcement action is increasing at a several-fold rate every year. Companies that did not manufacture PFAS, but merely utilized PFAS in their manufacturing processes, are therefore becoming targets of costly enforcement actions at rates that continue to multiply year over year. Lawsuits are also filed monthly by citizens or municipalities against companies that are increasingly not PFAS chemical manufacturers.

Article By John Gardella of CMBG3 Law

For more environmental legal news, click here to visit the National Law Review.

©2022 CMBG3 Law, LLC. All rights reserved.

ANOTHER TRILLION DOLLAR CASE:? TikTok Hit in MASSIVE CIPA Suit Over Its Business Model of Profiting from Advertising by Collecting and Monetizing User Data

Data privacy lawsuits are EXPLODING and one of our country’s most popular mobile app — TikTok’s privacy issues keep piling up.

Following its recent $92 million class-action data privacy settlement for its alleged violation of Illinois Biometric Information Privacy Act (BIPA), TikTok is now facing a CIPA and Federal Wire Tap class action for collecting users’ data via its in-app browser without Plaintiff and class member’s consent.

The complaint alleges “[n]owhere in [Tik Tok’s] Terms of Service or the privacy policies is it disclosed that Defendants compel their users to use an in-app browser that installs JavaScipt code into the external websites that users visit from the TikTok app which then provides TikTok with a complete record of every keystroke, every tap on any button, link, image or other component on any website, and details about the elements the users clicked. “

Despite being a free app, TikTok makes billions in revenue by collecting users’ data without their consent.

“The world’s most valuable resource is no longer oil, but data.”

While we’ve discussed before, many companies do collect data for legitimate purposes with consent. However this new complaint alleges a very specific type of data collection practice without the TikTok user’s OR the third party website operator’s consent.

TikTok allegedly relies on selling digital advertising spots for income and the algorithm used to determine what advertisements to display on a user’s home page, utilizes tracking software to understand a users’ interest and habits. In order to drive this business, TikTok presents users with links to third-party websites in TikTok’s in-app browser without a user  (or the third party website operator) knowing this is occurring via TikTok’s in-app browser. The user’s keystrokes is simultaneously being intercepted and recorded.

“Specifically, when a user attempts to access a website, by clicking a link while using the TikTok app, the website does not open via the default browser.  Instead, unbeknownst to the user, the link is opened inside the TikTok app, in [Tik Tok’s] in-app browser.  Thus, the user views the third-party website without leaving the TikTok app. “

The Tik-Tok in-app browser does not just track purchase information, it allegedly tracks detailed private and sensitive information – including information about  a person’s physical and mental health.

For example, health providers and pharmacies, such as Planned Parenthood, have a digital presence on TikTok, with videos that appear on users’ feeds.

Once a user clicks on this link, they are directed to Planned Parenthood’s main webpage via TikTok’s in-app browser. While the user is assured that his or her information is “privacy and anonymous,” TikTok is allegedly intercepting it and monetizing it to send targeted advertisements to the user – without the user’s or Planned Parenthood’s consent.

The complaint not only details out the global privacy concerns regarding TikTok’s privacy practices (including FTC investigations, outright ban preventing U.S. military from using it, TikTok’s BIPA lawsuit, and an uptick in privacy advocate concerns) it also specifically calls out the concerns around collecting reproductive health information after the demise of Roe v. Wade this year:

“TikTok’s acquisition of this sensitive information is especially concerning given the Supreme Court’s recent reversal of Roe v. Wade and the subsequent criminalization of abortion in several states.  Almost immediately after the precedent-overturning decision was issued, anxieties arose regarding data privacy in the context of commonly used period and ovulation tracking apps.  The potential of governments to acquire digital data to support prosecution cases for abortions was quickly flagged as a well-founded concern.”

Esh. The allegations are alarming and the 76 page complaint can be read here: TikTok.

In any event, the class is alleged as:

“Nationwide Class: All natural persons in the United State whose used the TikTok app to visit websites external to the app, via the in-app browser.

California Subclass: All natural persons residing in California whose used the TikTok app to visit websites external to the app, via the in-app browser.”

The complaint alleges California law applies to all class members – like the Meta CIPA complaint we will have to wait and see how a nationwide class can be brought related to a CA statute.

On the CIPA claim, the Plaintiff – Austin Recht – seeks an unspecific amount of damages for the class but the demand is $5,000 per violation or 3x the amount of damages sustained by Plaintiff and the class in an amount to be proven at trial.

We’ll obviously continue to keep an eye out on this.

Article By Puja J. Amin of Troutman Firm

For more communications and media legal news, click here to visit the National Law Review.

© 2022 Troutman Firm

U.S. Supreme Court Refuses Review of Case Involving Technical Issue With Plaintiff’s EEOC Charge

Refusing to weigh in on the impact of a plaintiff’s failure to verify her discrimination charge filed with the Equal Employment Opportunity Commission (EEOC), the U.S. Supreme Court lets stand the lower court’s conclusion that the plaintiff’s failure to verify her charge barred her from filing a lawsuit. Mosby v. City of Byron, No. 21-10377, 2022 U.S. App. LEXIS 10436 (11th Cir. Apr. 18, 2022), cert. denied, No. 22-283 (U.S. Nov. 7, 2022).

Background

Rachel Mosby served as the fire chief of Byron, Georgia, for 11 years. One month after she came out as transgender, the city fired her.

Mosby filed a charge of discrimination with the EEOC, alleging violations of Title VII of the Civil Rights Act and the Americans with Disabilities Act (ADA). Title VII states that charges filed “shall be in writing under oath or affirmation and shall contain such information and be in such form as the Commission requires.” 42 U.S.C. § 2000e-5. This process is called “verification.” The parties did not dispute that Mosby did not properly verify her charge.

The City of Byron submitted a position statement with the EEOC on the merits of Mosby’s claim, but it did not raise the fact that Mosby failed to verify her charge. Mosby never amended her charge to meet the verification requirement.

After receiving a “right to sue” letter from the EEOC, Mosby sued the City of Byron. Before answering Mosby’s complaint, the City of Byron moved to dismiss because Mosby failed to verify her charge, requiring dismissal as a matter of law. After converting the City’s motion to dismiss to a motion for summary judgment, the district court held the failure to verify the charge barred Mosby’s Title VII and ADA claims.

Jurisdictional or Procedural?

Whether EEOC’s charge filing requirements are prerequisite to filing a lawsuit is jurisdictional or procedural remains in dispute. While procedural requirements can be waived or cured, jurisdictional requirements cannot. In 2019, the Supreme Court provided guidance in Fort Bend City v. Davis, 139 S. Ct. 1843, in which it held that a charge’s lack of verification does not strip the federal courts of jurisdiction to consider in a subsequent federal lawsuit. Unlike a jurisdictional issue, the Court reasoned, the lack of verification can be waived or forfeited by the parties. Accordingly, the Court held that an employer forfeited the issue of verification when it failed to raise it promptly at the outset of litigation.

Eleventh Circuit’s Reasoning

In appealing the dismissal of her claims to the U.S. Court of Appeals for the Eleventh Circuit (which has jurisdiction over Alabama, Florida, and Georgia), Mosby argued that Fort Bend required a finding that the City of Byron waived its verification defense because it did not raise the defense in its position statement submitted with the EEOC. The Eleventh Circuit disagreed. In the Supreme Court decision, the Eleventh Circuit said, Fort Bend City did not raise the verification defense until four years and “an entire round of appeals all the way to the Supreme Court” had passed. By contrast, the City of Byron raised the defense in a pre-answer motion to dismiss before causing “a waste of adjudicatory resources.”

The Eleventh Circuit affirmed the lower court, holding that “a charge neither filed under oath or affirmation nor subsequently cured by amendment fails to satisfy the statutory requirement that an employee submit [her] charge to the Commission.” The Fifth Circuit reached a similar conclusion in 2021, making these the only two circuits that have addressed the issue. See Ernst v. Methodist Hosp. Sys., 1 F.4th 333.

Takeaway for Employers

An employer responding to a charge of discrimination filed with the EEOC should evaluate whether the claimant properly verified the charge. If not, preserve the defense by raising it as soon as practicable at the EEOC charge stage and in any ensuing litigation.

Article By Stephanie L. Adler-Paindiris and Stephanie E. Satterfield of Jackson Lewis P.C.

For more litigation and Supreme Court legal news, click here to visit the National Law Review.

Jackson Lewis P.C. © 2022

Top Legal Industry Highlights for November 2022: Law Office Hiring and Expansion, Industry Awards and Recognition, and the Latest Updates in Diversity and Inclusion

Happy Holidays from the National Law Review! We hope you are remaining safe and healthy as Thanksgiving rolls around. Read more below for the latest in law firm hiring and expansion, noteworthy industry awards and recognitions, and the latest news in law firm diversity, equity, and inclusion efforts.

Additionally, please be sure to check out the latest Legal News Reach podcast episode from the NLR: “What’s New In Law Firm Thought Leadership? with Alistair Bone, Vice President for Passle.”

Law Firm Hiring and Expansion

Oblon, McClelland, Maier & Neustadt, LLP has added attorney Mark Nagumo as Of Counsel in the firm’s Chemical Patent Practice Group. Mr. Nagumo, who is a former U.S. Patent and Trademark Office administrative patent judge, has a great deal of experience in chemical research, particularly with regard to biomolecules, materials, and a wide range of other analytical techniques.

“We are thrilled to welcome Mark to our firm,” said Oblon Managing Partner Philippe Signore. “Mark is an extremely knowledgeable and respected chemical patent attorney whose many years of experience at the USPTO offers tremendous value and benefits to our clients. He is a great addition to our team.”

Polsinelli PC has appointed two new co-chairs of the firm’s Business Department: Jane Arnold and Kolin Holladay. Ms. Arnold, an experienced attorney in mergers and acquisitions, is based in the St. Louis office, where she currently serves as Office Managing Partner. Mr. Holladay, who also focuses his practice on mergers and acquisitions, is a Shareholder in the firm’s Nashville office.

“The selection of Arnold and Holladay as Business Department Co-Chairs reflects the firm’s long-standing commitment to inclusion, representation, and geographic diversity at every level,” said Chase Simmons, Chairman and Chief Executive Officer of Polsinelli. “Both are leaders who are highly respected within our firm and the industries in which they practice. Under their leadership, the Business Department will continue to create meaningful opportunities for our lawyers and clients, all consistent with our strategic priorities.”

James M. Tartaglia has rejoined Steptoe & Johnson PLLC as Of Counsel in the firm’s Charleston office. With a background in mineral title opinions and due diligence, Mr. Tartaglia joins the firm’s Energy Group , where he will focus his practice on energy contract law.

“We’re looking forward to having Jim back at the firm,” said Steptoe & Johnson CEO Christopher L. Slaughter. “His skill set and knowledge of the oil and gas industry strengthens our energy contracts practice and will be an asset to our clients.”

As of November 1st, 2022, Proskauer Rose LLP has promoted 33 of its attorneys – 25 to partner, and 8 to senior counsel. This class of promotions is the firm’s largest to date, and it includes attorneys from nine different offices around the world.

“We are delighted to promote this talented group of lawyers, whose values, entrepreneurial spirit and drive represent the best of the Firm,’” said Steven M. Ellis, Chairman of Proskauer. “We congratulate each of these new partners and senior counsel on this milestone and wish them continued success as they support our clients, secure historic victories, set precedents and serve as strategic partners.”

The following attorneys have been promoted to partner: Michelle Annese, Kimberly Braun, Ryan Carpenter, Aliza Cinamon, Grant Darwin, Christopher Elson, Nolan Goldberg, Laura Goldsmith, Oliver Howley, John Ingrassia, Philip Kaminski, Christine Lazatin, Shawn Ledingham, Matthew Levy, Stéphanie Martinier, Richard Miller, Bharat Moudgil, Adam Nelson, Caroline Robbins, Cameron Roper, Bradley Schecter, Adam Scoll, Sean Spence, Scott Patrick Thurman, and Harriet West.

The following attorneys have been promoted to senior counsel: Stephen Chuk, Pinchos Goldberg, Allison Lynn Martin, Jennifer Rigterink, Jurate Schwartz, Jennifer Yang, Edward Young, and Oleg Zakatov.

Frost Brown Todd has combined with California-based law firm Alvarado Smith, effective January 1, 2023. The combined firm will have more than 575 attorneys in 17 offices across nine states and Washington, D.C, with AlvaradoSmith’s addition providing strategic expansion into the Los Angeles, Orange County, and San Francisco markets.

“AlvaradoSmith is known for successfully taking on matters and clients often associated with big firms, while FBT has the resources of a large firm with the culture of a boutique shop,” said AlvaradoSmith Managing Shareholder Ruben Smith. “That’s why we’re confident this combination will be an excellent fit, allowing us to grow our capacity and resources while still retaining our deep connection to clients and community. We look forward to a very productive future with Frost Brown Todd.”

“This merger is a natural next step and tremendous growth opportunity for both Frost Brown Todd and AlvaradoSmith,” said FBT Chief Executive Officer Adam Hall. “As one of the largest and most influential economies in the world, California intersects with every one of Frost Brown Todd’s practice groups and many of our offices. We know our clients will benefit greatly from the extensive knowledge and relationships that AlvaradoSmith attorneys have cultivated throughout the state for decades. We look forward to working with them as we significantly expand our presence in California and strengthen Frost Brown Todd’s preeminent industry teams.”

Legal Industry Awards and Recognition

Ballard Spahr has received 26 National Tier 1 rankings in the 2023 Best Law Firms and a total of 160 rankings across all Best Law Firms categories. Best Law Firms rankings are gathered based on surveys from clients and professional references. To qualify, a law firm must have one attorney who is recognized in the current edition of Best Lawyers in a Best Law Firms-ranked practice area or metro area.

Ballard Spahr received National Tier 1 rankings in the following categories:

  • Banking and Finance Law
  • Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law
  • Commercial Litigation
  • Copyright Law
  • Corporate Law
  • Criminal Defense: White-Collar
  • Employment Law – Management
  • Environmental Law
  • Labor Law – Management
  • Land Use & Zoning Law
  • Litigation – Banking & Finance
  • Litigation – Bankruptcy
  • Litigation – First Amendment
  • Litigation – Intellectual Property
  • Litigation – Labor & Employment
  • Litigation – Patent
  • Litigation – Real Estate
  • Media Law
  • Mergers & Acquisitions Law
  • Patent Law
  • Public Finance Law
  • Real Estate Law
  • Securities / Capital Markets Law
  • Securities Regulation
  • Trademark Law
  • Trusts & Estates Law

Lauren Wachtler, partner at Barclay Damon’s New York office, will be honored with the prestigious Hon. Shira A. Scheindlin Award for Excellence in the Courtroom by the New York State Bar Association’s Commercial & Federal Litigation Section. Ms. Watchler’s practice focuses on commercial and business litigation matters, and she advocates for women’s equality in the legal profession as well as mentoring and educating young attorneys.

The Scheindlin Award is presented annually on or around November 6, the date women were granted the right to vote in 1917 in New York state. “It is a true honor to receive the Scheindlin Award,” said Ms. Wachtler. “Judge Scheindlin was a gifted jurist and continues to be a role model for women in our profession.”

The award honors its namesake Shira A. Scheindlin, the Commercial & Federal Litigation Section’s former chair and former district judge for the Southern District of New York. Scheindlin said, “I extend my sincerest congratulations to Lauren for being selected to receive the Scheindlin Award. Her commitment to the legal profession and mentoring young women attorneys is truly inspiring and continues to grow year after year. Women litigators still face adversity in the courtroom; however, Lauren’s work will hopefully pave the way for future generations of women litigators.”

Foley & Lardner LLP has received the Corporate Citizen Award from the Three Harbors Boys Scouts of America Council, which seeks to honor a particular organization that exemplifies the Scout Law through community service and upstanding business practices. The award will be presented at the Distinguished Citizen Award Dinner in Milwaukee on November 17, 2022.

Foley was selected for its long-standing support of Scouting, as well as the firm’s significant pro bono support through Partner Peter Fetzer to Three Harbors Council. Mr. Fetzer is a partner in the firm’s Milwaukee office, where he focuses his practice on securities regulation, mergers and acquisitions, corporate governance and general corporate counseling to mutual funds, exchange traded funds, publicly traded investment advisers and public companies.

Diversity, Equity, and Inclusion in the Legal Profession

Womble Bond Dickinson attorneys Britt Biles and Stephanie Yarbrough have been selected for inclusion on Women We Admire’s 2022 Top 50 Women Leaders in the Law list, which celebrates influential and successful women in the legal field.

Ms. Biles is a Litigation Group Partner who played a key role in the federal government’s response to the Covid-19 pandemic. After her time as Associate White House Counsel and SEC senior enforcer, Biles became Senior Counsel of the Small Business Administration, where she was principal legal advisor to the CARES Act Administrator and an active participant in drafting guidance for the Paycheck Protection Program. At Womble Bond Dickinson, she focuses her practice on business litigation and government investigations.

Ms. Yarbrough is a Womble Bond Dickinson Global Board Member and Economic Development Team Co-Chair who has spent her two-decade legal career aiding economic development in the southeastern United States by helping domestic and international companies expand their operations to Charleston and surrounding regions. Yarbrough’s role in creating thousands of new jobs and billions in investments has led her to become an industry thought leader, speaking at local and national events and appearing in a 2017 New York Times article about Charleston’s economy.

Bradley Arant Boult Cummings LLP Partner Gary L. Howard has been selected to serve a one-year term as Vice Chair of the Defense Research Institute’s Diversity and Inclusion Committee. The Birmingham, Alabama attorney has been active with DRI for many years, previously serving as Diversity Expo Chair, Diversity for Success Seminar & Corporate Expo Program Chair, and Annual Meeting Steering Committee Member. Howard’s appointment comes on the heels of his 2021 Albert H. Parnell Outstanding Program Chair Award, which he received for creating engaging educational programming for DRI.

Mr. Howard’s 25-year legal career has seen him managing commercial litigation related to class actions, mass torts, contract disputes, insurance cases, and related matters. He has argued in state and federal courtrooms and is admitted to practice in more than ten states.

Moore & Van Allen have announced the creation of a new Civil Rights & Racial Equity Assessments Practice within their White Collar, Regulatory Defense & Investigation Practice. Fifteen of MVA’s most experienced investigative attorneys will harness the firm’s ESG, internal and cross-border probe, and human trafficking prevention expertise to conduct public-facing racial equity and civil rights audits. These reviews will assist businesses interested in improving their internal and external diversity practices.

Valecia M. McDowell, who will be leading the new practice, commented, “Our Civil Rights & Racial Equity Assessments Practice brings together our deep experience and bench strength in key areas to help our clients strategically assess their internal and external practices, programs, and policies to more thoroughly and thoughtfully address diversity, equity, and inclusion (DEI).”

Article By Chandler Ford, Shelby Garrett, and Crissonna Tennison of The National Law Review / The National Law Forum LLC

For more business of law legal news, click here to visit the National Law Review.

Copyright ©2022 National Law Forum, LLC

REI PFAS Consumer Fraud Lawsuit Continues Trend of Similar Lawsuits

On October 28, 2022, a PFAS consumer fraud class action lawsuit was filed in Washington against REI over alleged PFAS content in various articles of waterproof clothing sold by the company. The REI PFAS consumer fraud lawsuit is but the latest in a growing line of PFAS lawsuits that allege that certain consumer goods contain PFAS, that the products or company’s values were marketed as healthy or environmentally friendly, and that consumers would not have purchased the products if they knew that the products contained PFAS.

As we predicted in early 2021, the increased attention on PFAS content in consumer goods in the scientific community and media presented significant risks to various industries, including the apparel and cosmetics industry, and our prediction was that the developments would lead to a significant number of lawsuits alleging consumer fraud. Consumer goods industries, insurers, and investment companies interested in the consumer goods vertical with niche interest in cosmetics companies must pay careful attention to the cosmetics lawsuits and the increasing trend of lawsuits targeting the industry.

REI PFAS Consumer Fraud Lawsuit

On October 28, 2022, plaintiffs Jacob Krakauer and Joyce Rockwood filed a lawsuit in Washington federal court seeking a proposed class action against REI. The lawsuit alleges that REI markets the company and its products as environmentally friendly and sustainable. Further, the lawsuit cites to statements made by REI that the company is taking proactive steps with respect to chemical use in its products to argue that such statements were false, misleading or induced consumers to purchase products when the presence of PFAS in the products was not disclosed.

In the Complaint, plaintiffs allege the following counts against REI:

  • Violation of state consumer protection laws and the federal Magnuson-Moss Warranty Act

  • Breach of warranty (implied and express)

  • Fraud (actual and constructive)

  • Fraudulent inducement

  • Money had and received

  • Fraudulent omission or concealment

  • Fraudulent misrepresentation

  • Negligent misrepresentation

  • Unjust enrichment

  • Negligent failure to warn

The plaintiffs seek certification of a nationwide class action lawsuit, with subclasses defined as consumers n Washington and Arizona. In addition, the lawsuit seeks damages, fees, costs, the establishment of medical monitoring, and a jury trial.

Just the Beginning For Consumer Products Companies

With studies underway, legislation pending that targets consumer goods, and increasing media reporting on PFAS in consumer goods and concerns over human health, product manufacturers should be increasingly wary of lawsuits similar to the REI lawsuit being filed against them. There are an increasing number of PFAS consumer fraud cases being filed, with some of the below as representative of recent trends:

  • Cosmetics industry:

    • Brown v. Cover Girl, New York (April 1, 2022)

    • Anderson v. Almay, New York (April 1, 2022)

    • Rebecca Vega v. L’Oreal, New Jersey (April 8, 2022)

    • Spindel v. Burt’s Bees, California (March 25, 2022)

    • Hicks and Vargas v. L’Oreal, New York (March 9, 2022)

    • Davenport v. L’Oreal, California (February 22, 2022)

  • Food packaging industry:

    • Richburg v. Conagra Brands, Illinois (May 6, 2022)

    • Ruiz v. Conagra Brands, Illinois (May 6, 2022)

    • Hamman v. Cava Group, California (April 27, 2022)

    • Azman Hussain v. Burger King, California (April 11, 2022)

    • Little v. NatureStar, California (April 8, 2022)

    • Larry Clark v. McDonald’s, Illinois (March 28, 2022)

  • Feminine hygiene products:

    • Gemma Rivera v. Knix Wear Inc., California (April 4, 2022)

    • Blenis v. Thinx, Inc., Massachusetts (June 18, 2021)

    • Destini Canan v. Thinx Inc., California (November 12, 2020)

As the above is indicative of, several major companies now find themselves embroiled in litigation focused on PFAS false advertising, consumer protection violations, and deceptive statements made in marketing and ESG reports. The lawsuits may well serve as test cases for plaintiffs’ bar to determine whether similar lawsuits will be successful in any (or all) of the fifty states in this country. Companies must consider the possibility of needing to defend lawsuits involving plaintiffs in all fifty states for products that contain PFAS.

It should be noted that these lawsuits would only touch on the marketing, advertising, ESG reporting, and consumer protection type of issues. Separate products lawsuits could follow that take direct aim at obtaining damages for personal injury for plaintiffs from consumer products. In addition, environmental pollution lawsuits could seek damage for diminution of property value, cleanup costs, and PFAS filtration systems if drinking water cleanup is required.

Conclusion

It is of the utmost importance that businesses along the whole supply chain in the consumer products industry evaluate their PFAS risk. Public health and environmental groups urge legislators to regulate PFAS at an ever-increasing pace. Similarly, state level EPA enforcement action is increasing at a several-fold rate every year. Now, the first wave of lawsuits take direct aim at the consumer products industry. Companies that did not manufacture PFAS, but merely utilized PFAS in their manufacturing processes, are therefore becoming targets of costly enforcement actions at rates that continue to multiply year over year. Lawsuits are also filed monthly by citizens or municipalities against companies that are increasingly not PFAS chemical manufacturers.

For more Environmental Law news, click here to visit the National Law Review.

©2022 CMBG3 Law, LLC. All rights reserved.

What Brokers, Company Insiders, and Others Need to Know about Securities Litigation

Individuals, companies, and firms involved in all aspects of the securities industry face litigation risks daily. From whistleblower lawsuits and U.S. Securities and Exchange Commission (SEC) enforcement actions to Financial Industry Regulatory Authority (FINRA) arbitration and private-right-of-action cases under the Securities Exchange Act of 1934, all types of securities litigation present risks for civil liability. In some cases, securities litigation can present risks for criminal penalties as well.

With this in mind, there is a lot that brokers, company insiders, investment advisers, and others need to know when targeted in lawsuits and investigations. When brokers, company insiders, and others make informed decisions based on the advice of experienced counsel, they can significantly mitigate their risk in both private and governmental securities litigation.

“Securities litigation can present substantial risks for individuals, companies, and firms. Whether facing allegations in civil litigation, SEC enforcement proceedings, or FINRA arbitration, the key to mitigating these risks is to build and execute a comprehensive, strategic and forward-thinking defense.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C. law firms.

Answers to 10 Frequently Asked Questions (FAQs) about Securities Litigation

Here are answers to 10 frequently asked questions (FAQs) about securities litigation:

1. What Are Some of the Most Common Claims Against Brokers and Brokerage Firms in Securities Litigation?

Brokers and brokerage firms have faced a growing volume of litigation in recent years. This includes private litigation involving individual investors as well as litigation involving the SEC. Investigations, lawsuits, and arbitration filings targeting brokers and brokerage firms primarily focus on acts and omissions constituting investor fraud, though brokers and brokerage firms can face a variety of other claims in securities litigation as well.

Some examples of common claims against brokers and brokerage firms in securities litigation include:

  • Making unsuitable investment recommendations

  • Unauthorized trading and account churning

  • Charging excessive fees and commissions

  • Failing to disclose or misconstruing material information (especially in connection with structured products and other high-risk investments)

  • Failure to supervise or implement adequate internal controls

2. What Are Some of the Most Common Claims Against Company Insiders and Issuers in Securities Litigation?

Securities fraud lawsuits and enforcement actions targeting company insiders and securities issuers can also involve an extremely broad range of allegations. These cases are typically very different from those targeting brokers and brokerage firms; and, while both falls under the umbrella of “securities litigation,” the resemblances between the two categories are minimal. Some examples of common claims against company insiders and issuers in securities litigation include:

  • Accounting and recordkeeping violations

  • Submitting false SEC filings

  • Insider trading

  • Market manipulation

  • Selling unregistered securities and conducting unregistered IPOs

3. What Are Some of the Most Common Triggers for Securities Fraud Lawsuits and Investigations?

Many securities fraud lawsuits and investigations result from investor complaints. Typically, investors will have concerns about losses in their portfolios that they believe cannot be explained by ordinary market forces. These concerned investors will contact plaintiffs’ lawyers to help them file claims alleging fraud in federal courts, district courts or FINRA arbitration.

In some cases, concerned investors will file whistleblower claims with the SEC. The SEC has an obligation to investigate all whistleblower complaints that meet the basic filing requirements, and SEC whistleblowers can receive substantial compensation awards.

The SEC also initiates investigations on its own. Questionable EDGAR filings, market activity, media reports, and referrals from other federal law enforcement agencies can all trigger SEC investigations that may lead to civil or criminal enforcement action. The SEC also monitors activity on social media and other online platforms, and activity on these platforms is increasingly serving as the basis for SEC enforcement activity.

4. What Types of Claims Are Most Likely to Lead to Class Action Securities Litigation?

While all securities litigation presents liability risks for the individuals or entities targeted, companies and firms targeted in class action litigation face risk on an entirely different scale. Class action lawsuits lead to devastating liability that can threaten companies’ and firms’ viability as a going concern.

The types of claims that are most likely to lead to class action securities litigation are those that involve violations affecting large groups of investors. Inadequate brokerage controls that lead to systemic unsuitable investment recommendations, omitting material information from companies’ 10-K or 10-Q filings, mismanagement of investors’ funds, and market manipulation resulting in widespread losses are all examples of issues that can lead (and have led) to securities-related class action lawsuits.

5. How Does the SEC’s Whistleblower Program Work?

The SEC’s Office of the Whistleblower accepts tips from company employees, investors, and others who believe they have information about securities fraud. When a whistleblower complaint spurs enforcement action resulting in sanctions of $1 million or more, the whistleblower can receive between 10% and 30% of the amount collected.

As a result, individuals have a strong financial incentive to come forward and work with the SEC. Additionally, even if the SEC declines to pursue enforcement action based on a whistleblower’s tip, the whistleblower can still choose to pursue a claim directly, and whistleblower compensation awards are higher in these cases. Due to these incentives, whistleblower litigation is a key component of the SEC’s overall securities law enforcement strategy.

6. When Is It Advantageous to Settle a Securities Fraud Lawsuit or Arbitration Claim?

When facing substantiated allegations of securities fraud, settling will often prove to be the most cost-effective solution. However, targeted individuals and entities must be careful not to settle too soon, as there are numerous ways to fight securities fraud allegations even in scenarios that seem highly unfavorable (more on this below).

So, when is it advantageous to settle? Simply put, the costs of settling need to be less than the costs of any other alternative. This includes not only legal costs and any potential judgment liability, but reputational and administrative (i.e. suspension or debarment) costs as well.

7. When Can the U.S. Department of Justice Pursue Criminal Securities Fraud Litigation?

The U.S. Department of Justice (DOJ) pursues criminal securities fraud litigation in cases involving intentional (or apparently intentional) securities law violations. According to the DOJ’s website, the Department’s Market Integrity and Major Frauds (MIMF) Unit, “focuses on the prosecution of complex securities, commodities, cryptocurrency, and other financial fraud and market manipulation cases.” In criminal securities fraud cases, the DOJ can seek penalties ranging from substantial fines to long-term imprisonment for company executives and other insiders.

8. What Remedies Can Investors Seek in Securities Litigation?

In private securities litigation and FINRA arbitration, retail investors can seek compensatory damages for their fraudulent investment losses. An investor’s losses may be deemed fraudulent if they result from either: (i) broker fraud or mismanagement (i.e., making unsuitable investment recommendations), or (ii) a drop in the value of their securities that is not attributable to ordinary market forces. Along with the recovery of their lost principal and investment earnings, investors can seek to recover interest, fees, and other costs as well.

9. What Remedies Can the SEC Seek in Securities Litigation?

When pursuing enforcement actions against brokers, brokerage firms, company insiders, and issuers, the SEC can seek a range of civil and administrative penalties. These include fines, disgorgement, and restitution as well as cease-and-desist orders, suspension, and debarment from the securities industry.

10. What Defenses Can Individuals, Companies, and Firms Use to Protect Themselves in Securities Litigation?

While securities litigation can involve a broad range of allegations and present substantial risk for liability and other penalties, targeted individuals and entities may be able to successfully defend themselves by several means. Whether securing a favorable result means avoiding liability entirely or negotiating a favorable settlement, the key to success is making informed decisions in light of the available opportunities.

For brokers and brokerage firms, some examples of potential defenses include:

  • Misguided Allegations – In many cases, investors (and their counsel) simply lack an adequate understanding of the law. Demonstrating that an investor’s allegations are misguided can serve as an efficient and complete defense against liability.

  • Investor Authorization – One particular area of confusion for many investors is the area of authorization (including discretionary authorization). If an investor is challenging a trade that he or she authorized, providing documentation of authorization can be sufficient to avoid liability.

  • Statutory and Regulatory Compliance – Brokers and brokerage firms will also be able to successfully defend against securities fraud allegations by demonstrating compliance with the relevant statutes, regulations, or FINRA rules.

For company insiders and issuers, some examples of potential defenses include:

  • Compliance with Pre-Arranged Trading Plans – In cases involving insider trading allegations, company insiders can avoid liability by demonstrating compliance with a pre-arranged trading plan.

  • Good-Faith Disclosure – Issuers accused of withholding material information or publishing incomplete or misleading information can often defend against fraud allegations by demonstrating good-faith efforts to maintain disclosure compliance.

  • Qualifying for a Registration Exemption – Issuers can qualify for registration exemptions in various scenarios. If security is exempt, then offering security without registration is 100% permissible.

The fact that these are just examples cannot be overemphasized. Securities litigation can involve an extraordinarily broad range of allegations under numerous laws, rules, and regulations. In many cases, targeted companies and individuals will be able to assert a successful defense by focusing on discrete elements of the plaintiff’s or SEC’s burden of proof. From asserting the applicable statute of limitations to preventing class certification, several technical defenses can prove highly effective in securities litigation as well. As with all types of litigation, the key is to explore all viable defenses, build a comprehensive and cohesive defense strategy, and then execute that strategy while remaining prepared to adapt as necessary.

Article By Dr. Nick Oberheiden of Oberheiden P.C.

For more securities and SEC legal news, click here to visit the National Law Review.

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