Category: Litigation

“Obamacare” Survives – Including Path to Generic Biologicals

Recently featured in The National Law Review, “Obamacare” Survives – Including Path to Generic Biologicals, an article by Warren Woessner of  Schwegman, Lundberg & Woessner, P.A.:

Biotech patent attorneys rejoice – no matter if you represent generic companies or NDA holders,  the 5-4 decision of the Supreme Court upholding the “individual mandate” – not under the commerce clause, but as an appropriate use of Congress’ power to tax – means that all the CLE charges you incurred to attend seminars on the future of generic biologics was not wasted. (A copy of the decision and dissents is available at the end of this post.) If the “Patient Protection and Affordable Care Act” had been voided in its entirety, the path to generic biologics that was included in the Act in some detail would have vanished (Title IV, subtitle A).  I summarized the features of the Act in my post of March 26, 2010 and posted an alert on March 29, 2012.

I am not versed enough in regulatory law to opine on how, or if, the FDA would have continued to promulgate regulations and hold hearings on this touchy subject, but given that bureaucracies seldom opt for more work without direction from Congress, my guess is that the current process would have simply gone into limbo. I welcome your opinions on the way forward, but amidst the furious debate about whether the Act would waste or save the taxpayers’ dollars, it cannot be denied that generic versions of older biologicals would save patients a lot of money.

scotus_opinion_on_ACA_from_msnbc.com

© 2012 Schwegman, Lundberg & Woessner, P.A.

Supreme Court Upholds ACA, Including the Individual Mandate

The National Law Review recently featured an article by Meghan C. O’Connor of von Briesen & Roper, S.C. regarding The Supreme Courts Recent Ruling on ObamaCare:

This morning, June 28, 2012, the U.S. Supreme Court issued its opinion in theAffordable Care Act (ACA) cases. The individual mandate, requiring the purchase of health insurance, was held constitutional under Congress’ taxing power. The Court did not address the severability issue as to whether other ACA provisions are unconstitutional because the mandate survived. However, the Court did address Medicaid expansion, holding that the expansion is constitutional as long as states would lose only new federal funds – rather than all funding – for failing to comply with the new Medicaid requirements.

Stay tuned for a full summary of the Court’s decision as well as the potential effect of the decision on providers.

©2012 von Briesen & Roper, s.c

Reining in Blogging, Tweeting and Internet Surfing by Jurors

The National Law Review recently published an article about Jurors and Social Media, written by Carolyn M. Wendel of Barnes & Thornburg LLP:

It is estimated that in 2011, 64 percent of U.S. Internet users utilize social networks—Facebook, Twitter, MySpace, LinkedIn, and the like—on a regular basis, amounting to nearly 148 million people. In addition, with the expansion of the smartphone market to the general populace from more limited business usage, people can access their social networks virtually anytime and anywhere, including the courtroom.  Such access creates a host of problems and recent years have seen a dramatic increase in the number of mistrials and overturned verdicts as a result of jurors’ use of social networking and other Internet sites.

Jurors sharing too much information.

Until recently, what went on behind the closed doors of the jury room remained largely a secret. For better or worse, the ability of jurors to instantly share thoughts and observations via blogs and social networks has offered a glimpse into the decision making process. While these instances are often used as grounds for an appeal, they account for a very small portion of the cases that are actually overturned.

The Illinois Appellate Court recently upheld an award of $4.75 million to the widow of a blind man killed by a Metra commuter train despite the fact that a juror was blogging about the case throughout the trial.  Eskew v. Burlington Northern & Santa Fe Ry. Co., 2011 IL App. (1st) 093450.  The defense argued the verdict must be overturned because the juror’s blog entries showed she had discussed the case with her husband, the jurors had discussed the case among themselves prior to deliberations, and, before all the evidence was in, one juror had stated, “All that’s left now is deciding how much.”  The Court, however, noted that the blog entries showed the other jurors had chastised the juror who made the statement, were generally keeping an open mind, and had been offered no outside information that would influence their decision making process. The Court upheld the verdict, concluding, “The blog entries on which the defendants rely do not indicate that premature deliberations resulted in a jury that was biased when it commenced its deliberations or that the jury’s actual deliberations and verdict were affected by any discussions during trial.  In fact, the entries indicate just the opposite.”

Generally, allegations involving jurors’ texts, tweets, or blogs do not necessitate declaring a mistrial or vacating a verdict.  In a few extreme cases—such as where jurors posted pictures of a murder weapon, blogged about fellow jurors by name, or hosted a chat room where people could ask questions about the case—the courts have taken action. Overall, however, relatively few cases have been overturned because of jurors sharing general thoughts or experiences via posts and blogs.

Jurors seeking out impermissible input and information.

Seemingly more prevalent, and responsible for the majority of mistrials and overturned verdicts, is the situation where jurors impermissibly access the Internet to bring outside information into the jury room.  In 2009 a federal judge in Florida was forced to declare a mistrial eight weeks into a drug trial after learning that jurors were using Internet search engines, Wikipedia, and other Internet sites to research issues associated with the case. Other cases show that jurors have conducted Internet searches of defendants, researched sentencing guidelines, and looked up the social networking profiles of alleged victims.  In one extreme case, a juror in England posted key facts from the case and asked her Facebook friends to vote on whether the defendant was guilty or innocent.  More often than not, where jurors have conducted their own research or solicited outside opinions, judges have been forced to declare mistrials or overturn verdicts.

How courts are responding.

Courts across the country continue to struggle with how to curtail jurors’ use of the Internet and social networking sites. Some courts have banned jurors from using cell phones or similar electronic devices in the courtroom and jury room.  Other courts are warning jurors that violations could lead to jurors being held in contempt. At this point, however, the majority of courts addressing the issue are focusing on updating their jury instructions to emphasize the impermissible uses of the Internet and social networking sites.

In 2010, a committee of the Judicial Conference of the United States endorsed a set of model jury instructions for district judges aimed at deterring jurors from electronically communicating or researching about their case. The committee issued separate instructions to be given before trial and at the close of the case, specifying that during the course of the trial and deliberations, jurors “may not use any electronic device or media, such as a telephone, cell phone, smartphone, iPhone, Blackberry or computer, the Internet, any Internet service, or any text or instant messaging service; or any Internet chat room, blog, or website such as Facebook, My Space, LinkedIn, YouTube or Twitter, to communicate to anyone any information about this case or to conduct any research about this case.”

A 2011 survey of federal and state jury instructions revealed a majority of circuits and states have such “modern” civil jury instructions that address the Internet, social media, or specific social networking sites by name.  See Eric P. Robinson, Jury Instructions for the Modern Age: A 50-State Survey of Jury Instructions on Internet and Social Media, 1 Reynolds Courts & Media Law Journal 307 (2011).  A minority of the circuits and states retain “archaic” instructions that either have no language addressing jurors’ access to media, or only reference newspapers, radio, and television.Only one circuit and 10 states offer an explanation in their civil instructions as to why jurors should refrain from using the Internet and social networking sites during a trial.

As an example, Indiana’s Model Civil Jury Instructions represent one of the most thorough set of instructions. The instructions start out by informing jurors that their decision must be based only on the evidence presented in the courtroom and the judge’s instructions. After listing general activities that are forbidden, the instructions specifically emphasize electronic communication and research:

[Y]ou must not communicate with anyone or post information about the case, or what you are doing in the case, by any means, including telephone, text messages, email, Internet chat rooms, blogs, or social websites, such as Facebook, MySpace, or Twitter.

You also must not Google or otherwise search for any information about the case, or the law that applies to the case, or the people involved in the case, including the parties, witnesses, lawyers, or Judges.

Finally, the instructions offer an extensive explanation of why it is important that jurors not discuss the case with anyone outside of the jury, visit any place discussed in the testimony, or access any media coverage about the case or conduct their own research. The concept of fairness is repeatedly emphasized. “These rules are designed to guarantee a fair trial” and jurors should not conduct independent research because to do so “would not be fair.”  Jurors should not talk with anyone outside the jury because, “Only you have been found to be fair, and only you have promised to be fair – no one else has been so qualified.”

Not many instructions are as thorough in the conduct they prohibit or the rationale behind the rules as the Indiana instructions. However, more and more states will likely move in this direction as there is a growing belief that only if jurors are told specifically what they cannot do and, more importantly, why they cannot do it, will the increasing trend of juror violations be reversed.

© 2012 BARNES & THORNBURG LLP

Supreme Court: Pharmaceutical Sales Reps Are Exempt from Overtime Pay Requirements Per FLSA’S Outside Sales Exemption

An article by David Barmak of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., regarding The Supreme Court’s Ruling about Pharmaceutical Sales Reps, was recently featured in The National Law Review:

In a major win for pharmaceutical companies, the Supreme Court has ruled that pharmaceutical sales representatives (PSRs) are exempt from federal overtime pay requirements under the “outside sales exemption” of the Fair Labor Standards Act (FLSA). The case, Christopher v SmithKline Beecham Corp., DBA GlaxoSmithKline (No. 11-204, Decided June 18, 2012), resolves a conflict between the Second and Ninth Circuit Courts of Appeal and impacts some 90,000 pharmaceutical sales representatives throughout the United States.

Under the relevant provision of the FLSA’s outside sales exemption, the employee’s primary duty must be making sales. But because of the unique regulatory environment that applies to drug companies, PSRs do not actually sell their employer’s products to physicians. Rather, PSRs meet with physicians and provide information about the benefits and uses of the company’s drugs and other medical products in the hope that the physician will be persuaded to prescribe the products to patients, as medically appropriate. Prescription drugs are then sold by pharmacies that dispense the drugs to individual customers who have a physician’s prescription. Therefore, PSRs do not actually make sales in the usual sense of the word.

As the Supreme Court noted, pharmaceutical companies have promoted their drugs through “sales reps” or “detailers” since at least the early 1950s, treating PSRs as exempt from the FLSA’s overtime requirements without objection from the Department of Labor (DOL). In fact, the DOL did not voice any objection to this classification until 2009, when it filed an amicus brief in a case pending against Novartis in the Second Circuit Court of Appeals, In re Novartis Wage and Hour Litigation, 611 F. 3d 141 (2nd Cir. 2010). DOL supported the PSRs’ bid for overtime pay in that case, arguing that PSRs are not exempt under the outside sales exemption because they were not involved in a “consummated transaction,” as contemplated by the regulations issued under the FLSA. The Second Circuit gave substantial deference to the DOL’s interpretation of its regulations and ruled that the exemption did not apply, and the Supreme Court declined to review the Second Circuit’s ruling. Meanwhile, a similar case against SmithKline Beecham (which trades as “GlaxoSmithKline”) had proceeded to the Ninth Circuit Court of Appeals. The DOL supported the PSRs’ claims in that case, too, but the Ninth Circuit ruled that the DOL’s interpretation of the FLSA was not entitled to controlling deference and that the sales repsdid make sales within the meaning of the regulations. The Supreme Court then agreed to review the Ninth Circuit’s ruling. (During the same period that the Novartis and SmithKline Beecham cases were wending their way through the courts, two other pharmaceutical companies, Johnson & Johnson and Eli Lilly, had won rulings in the Third and Seventh Circuits, respectively, that pharmaceutical sales reps qualified as exempt under a separate FLSA exemption, the administrative exemption.)

In a 5-4 decision written by Justice Alito, the Supreme Court affirmed the Ninth Circuit, ruling that SmithKline Beecham’s PSRs qualified as outside salesmen within the meaning of the FLSA exemption, and holding that, at least in the highly regulated environment of pharmaceutical sales, the PSRs were engaged in sales even though physicians do not actually purchase prescription drugs from them. This is so, the Supreme Court reasoned, because the FLSA broadly defines “sale” to include “… any sale, exchange, contract to sell, consignment for sale, shipment for sale or other disposition.” It concluded that the “catchall phrase ‘other disposition’ is most reasonably interpreted as including those arrangements that are tantamount, in a particular industry, to a paradigmatic sale of a commodity,” and that the PSRs’ efforts to persuade physicians to prescribe their company’s drugs met this standard.

Significantly, the Supreme Court’s interpretation of the relevant FLSA and regulatory provisions was contrary to the DOL’s own interpretations. Usually, the agency’s interpretation would have been accorded substantial deference. It was not, in this instance, because the Court found that the DOL’s interpretation was, in effect, ex post facto, arrived at following decades of silence and only after there was litigation between Novartis and SmithKline Beecham and some of their PSRs.

While the Supreme Court was clearly influenced by the unique regulatory environment in which the pharmaceutical industry operates and its decision applies first and foremost to the pharmaceutical industry, the Court’s reasoning may provide the basis for other employers to argue for the application of exemptions in other situations where there has been a long history of treating a particular class of employees as exempt without DOL interpretive guidance or enforcement activity to the contrary.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Illuminating the “Invisible Branch” – the Supreme Court

The National Law Review recently featured an article by Health Government Relations Team of Drinker Biddle & Reath LLP regarding the Supreme Court:

While Congress’ deliberations over policy dominate the news, the Supreme Court often flies under the radar of the American people, unless there is a major case before it. Many Americans are not well-versed in the Supreme Court’s dealings; in fact, a Pew Research Center political knowledge survey found that in July 2010 only 28% of Americans polled could correctly identify John Roberts as the Chief Justice of the Court. As much of the health policy world’s attention is focused on the Supreme Court due to the Affordable Care Act case (Department of Health and Human Services, et al. v. Florida, et al.), below is a refresher on Supreme Court procedure and why there will be months of silence from the Court between the oral arguments and the announcement of the Court’s decision.

First, a few Supreme Court basics. The Supreme Court’s term begins on the first Monday in October and lasts for a year. The Court is typically in recess from late June or early July until the end of the term in October. The current term began on Monday, October 3, 2011, and will be wrapping up business for this term over the next two months. The next term will begin on Monday, October 1, 2012.

Each week when the Court is in session, the Justices hold a conference. Only the Justices are allowed in the room, and as a testament to the collegiality of the Court, each conference begins with each Justice shaking hands with every other Justice. During conferences, the Justices review petitions for certiorari or, in other words, decide which cases the Court will hear. The Justices then review the cases heard previously that week. Each Justice, beginning with the Chief Justice and going in order of seniority (who has been on the court the longest), is given time to state his or her views and raise any questions without interruption. Each Justice, in seniority order, then casts a preliminary vote on the case. In the case of the health reform arguments, which were heard March 26-28, the Justices met in conference to discuss the case and cast their votes on Friday, March 30.

So, if the votes have been cast and an outcome decided, why has there been no announcement of a decision yet? What has been going on since March 30?

After the votes are cast, the Court must then produce documents that state the Court’s reasoning for deciding a certain way. If the Chief Justice is in the majority (generally an opinion five or more Justices join), he or she assigns who will write the opinion. If the Chief Justice dissents from the majority opinion, the senior-most associate Justice in the majority assigns the opinion. The Chief Justice or most senior Justice may choose to write the opinion him or her self. Likewise, the most senior Justice in the minority assigns who will write the dissenting opinion. Dissenting opinions carry no legal weight or precedent, but might lay groundwork for future cases. Additionally, any Justice may write a concurring opinion, and anyone can write a separate dissenting opinion should they agree with the ruling but for a different rationale. In the case of a tie vote, which might happen if there is a vacant seat or if a Justice recuses themselves from the case, the decision of the lower court stands. In this situation, the case is not considered to be binding precedent.

Once the opinions have been drafted, they are circulated to all the other Justices for comments and recommended changes. If a Justice in the majority agrees with the outcome expressed but disagrees with the argument in the drafted opinion, they may write their own concurring opinion or, at anytime before the Court’s opinion is handed down, they may switch their vote. In some controversial cases, the outcome of the case has actually reversed from what the original outcome would have been, due to Justices flipping their vote. Then once the draft has been revised, the opinion is signed by the author. Other Justices who are in agreement then “sign on” to the opinion, and the verdict is subsequently made public.

In regard to the timing of decision announcements, there are no rules other than it must be released by the last day of term (before the Court goes into recess in June or July). Unanimous or less contentious decisions generally take less time than cases on more controversial subjects. Given the weight and attention given to the health reform cases, a decision is not expected until late in the term, with most people predicting an announcement coming June 21st, 25th or 28th.

©2012 Drinker Biddle & Reath LLP

After Gupta’s Insider-Trading Conviction, What’s Next?

An article by David Deitch of Ifrah Law, After Gupta’s Insider-Trading Conviction, What’s Next?, published in The National Law Review:

Yet another shoe has dropped in the long-running investigation and the series of prosecutions arising from allegations of insider trading in the stocks of Goldman Sachs and other companies. In May 2011, Raj Rajaratnam was convicted of insider trading and ultimately sentenced to 11 years in prison. On June 15, 2012, Rajat Gupta, a former director at Goldman Sachs, was convicted in the U.S. District Court for the Southern District of New York on four of six counts of an indictment that charged him with a conspiracy that included feeding inside tips to Rajaratnam in September and October 2008 about developments at Goldman Sachs.

As with the trial of Rajaratnam, the key pieces of evidence against Gupta appear to have been wiretapped conversations. The four charges on which Gupta was convicted all related to trades in support of which the government presented recorded conversations as evidence (though the government played only three recordings in the Gupta trial). The jury acquitted Gupta of two charges arising from other trades for which the government presented no such evidence. The jury clearly was influenced by hearing Rajaratnam on the recordings referring to his source on the Goldman Sachs board – powerful evidence that gave increased persuasive power to the government’s reliance on phone records showing substantial contacts between the two men.

Rajaratnam has appealed his conviction to the U.S. Court of Appeals for the Second Circuit, and one significant issue he has raised is whether the government improperly sought authority to wiretap the conversations that were the cornerstone of his conviction. That ruling will be very significant, both because a decision in Rajaratnam’s favor is likely to result in a reversal of Gupta’s conviction as well, and because the Second Circuit’s ruling may have a major impact on the future ability of prosecutors to continue to use wiretaps against white-collar targets.

While Gupta is likely to receive a prison sentence for his conviction, it seems likely that he will receive a lower sentence that Rajaratnam, who engaged in the trades in question and reaped the benefits of those trades – estimated at trial to have generated $16 million in gains or in avoided losses from Rajaratnam’s fund. While prosecutors may seek a higher sentence based on acquitted conduct, Gupta’s advisory range calculated under the U.S. Sentencing Guidelines may be as much as eight years in prison. There is also a significant question whether Judge Jed Rakoff, who has expressed frustration with what he calls “the guidelines’ fetish with abstract arithmetic,” will sentence Gupta to a shorter term than the one calculated under the Guidelines.

© 2012 Ifrah PLLC

Trial Court’s New Role in Willful Patent Infringement Decisions

Matthew J. Kreutzer of Armstrong Teasdale recently had an article regarding Patent Infringements published in The National Law Review:

The United States Court of Appeals for the Federal Circuit appears to have made it more difficult to prove willful infringement of a patent. Such a verdict could lead to an award of treble damages and attorneys’ fees. In a case that focuses on that portion of the willfulness test that requires a finding of an objectively high likelihood of patent infringement, the appellate court held that the trial court, not the jury, should make that determination.

In Bard Peripheral Vascular, Inc. v. W.L. Gore & Assoc., Inc., on rehearing en banc, the Federal Circuit considered the nature of the objective inquiry of the test for determining willful infringement. To establish willful infringement a patentee must prove two elements: (1) the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent and if that threshold standard is satisfied; (2) that the objectively-defined risk was either known or so obvious that it should have been known to the accused infringer. It is the first element of that test that was at issue in the case noted herein.

The objective prong of the test is generally not met if the accused infringer relies on a reasonable defense of invalidity or non-infringement. Determining the reasonableness of the defenses can involve both questions of law and fact. The Federal Circuit concluded that the court, not the jury, is in the best position for making this reasonableness determination. This determination will be subject to de novo review on appeal, which means that the trial court’s decision will receive no deference from the Federal Circuit.

While each case is different, it would not be unexpected for the trial court and/or the Federal Circuit to determine that an accused infringer was not unreasonable if it believed the subject patent was not infringed or was invalid. Even if the accused infringer was wrong in the belief, the reasonableness inquiry offers more room to defend the willfulness of the actions taken. How trial courts handle this inquiry remains an open question, but it would not be unexpected for there to be separate proceedings to aid the court in its required determination. Because the trial court’s decision will receive no deference on appeal, trial courts may be more reluctant to find willfulness out of fear of being reversed.

© Copyright 2012 Armstrong Teasdale LLP

Supreme Court of Texas to Federal Circuit: Don’t Mess with Texas but Feel Free to Mess with Texas Patent Attorneys; SCOTUS May Weigh In on “Arising-Under” Jurisdiction

Recently an article about Texas Patent Attorneys by Adam Auchter Allgood and Paul Devinsky of McDermott Will & Emery appeared in The National Law Review:

In a 5-3 decision, the Supreme Court of Texas, while specifically stating that it is not bound by the holdings of the U. S. Court of Appeals for the Federal Circuit, has relied on the Federal Circuit opinions in Immunocept (IP Update, Vol. 10, No. 10)and Air Measurement (IP Update, Vol. 14, No. 8) in determining that the federal courts possesses exclusive jurisdiction for state malpractice claims “arising-under” underlying patent matters. Minton v. Gunn, 355 S.W.3d 634, 653 (Supr. Ct. Tex., Dec. 16, 2011) (Green, J.) (Guzman, J., dissenting, joined by Medina, J. and Willett, J.). This decision is now at the U.S. Supreme Court as the subject of a petition for cert.

Minton is only one of a series of cases to explore the “arising under” jurisdiction of the Federal Circuit. The statute 28 U.S.C. §1338, which provides the federal courts with exclusive jurisdiction for any civil action “arising under” federal law relating to patents, has come under extensive scrutiny lately by the Federal Circuit. In several cases in which attorney malpractice was alleged in connection with patent procurement or enforcement, Circuit Judge O’Malley has taken the opportunity to present her views on the limits of the jurisdiction of the Federal Circuit to hear such disputes which are grounded in state law. For example, Judge O’Malley has dissented from the dismissal of a petition seeking an en banc review of the 2010 precedential Federal Circuit opinion in Davis v. Brouse McDowell, L.P.A. (see IP Update, Vol. 13, No. 3), which found federal jurisdiction over a legal malpractice action involving missed deadlines in which no patent actually issued. Recent cases in which Judge O’Malley has aired her view on this jurisdictional issue include the following:

  • Memorylink Corp. v. Motorola, Inc., Case No. 10-1533 (Fed. Cir., April 11, 2012) (per curiam order) (O’Malley, J., dissenting from the denial of the petition for rehearing en banc)
  • Minkin v. Gibbons, P.C., Case No. 11-1178 (Fed. Cir., May 4, 2012) (Reyna, J. (O’Malley, J., concurring in the result and conceding that under controlling Federal Circuit case law, the Federal Circuit is compelled to hear the case; but explaining why, in her view, it is not “proper” to do so)
  • Landmark Screens, LLC v. Morgan, Lewis, & Bockius, LLP, Case No. 11-1297 (Fed. Cir., April 23, 2012) (Clevenger, J.) (O’Malley, J., concurring and urging en banc consideration of the jurisdictional issue)
  • Byrne v. Wood, Herron & Evans, LLP, Case No. 11-1012 (Fed. Cir. March 22, 2012) (per curiam) (O’Malley, J., concurring in the Court’s opinion on the malpractice claim that address the issue on appeal, while noting that controlling Federal Circuit authority “compels us to do so”; but also pointing out the “federalism considerations” that mitigate against doing so)
  • USSPS, Ltd. v. Avery Dennison Corp., Case No. 11-1525 (Fed. Cir., April 17, 2012) (per curiam) (O’Malley, J., joined by Mayer, J., concurring while voicing what she regards as “significant” federalism concerns that are raised by the Federal Circuit’s exercise of jurisdiction over “these purely state laws claims”)

While Judge O’Malley, a former federal district judge who presided over more than 100 patent and trademark cases, continues to follow the binding Federal CircuitDavis precedent, it is clear that she feels that it is an incorrect application of Supreme Court case law. Both state and federal courts are applying the four-part standard enumerated by the Supreme Court in 2005 in Grable, 545 U.S. 308, for the general “arising-under” jurisdiction of §1331 to the specific patent section of §1338. In Judge O’Malley’s view federal question jurisdiction, as discussed in Grable, exists if resolving a federal issue is necessary to resolution of the state-law claim; the federal issue is actually disputed; the federal issue is substantial; and federal jurisdiction will not disturb the balance of federal and state judicial responsibilities.

Malpractice cases involving patents usually are one of two varieties involving either patent prosecution errors or non-asserted defenses during infringement litigation. Judge O’Malley tends to disagree with the application of the third Grable factor since most of the issues underlying malpractice claims are case-specific, factual inquiries and require only application, not interpretation of federal patent law and would have little or no bearing on other cases. As to the fourth factor, Judge O’Malley asserts that malpractice cases do not implicate any underlying patent rights themselves. Any patent issue that is decided will only inform the state law standards of causation or damages and would not have binding effect on other patent cases.

The majority in Minton (as well as controlling Federal Circuit case law) however, rely on the argument that a “case within a case” exists in malpractice claims, since patent issues must be analyzed in order for the plaintiff to prove a proximate causal connection that the harm or loss would not have occurred without the attorney’s malpractice. The Minton Court (like Federal Circuit precedent) is based on the rational that litigants benefit from judges who are familiar and experienced with complicated patent rules and that there is a strong federal interest in the uniform application of patent laws.

Practice Note: With the Texas Supreme Court decision in Minton currently teed up before the U.S. Supreme Court, Judge O’Malley may find her desired Federal Circuiten banc review bypassed as the issue may receive direct consideration by the Supreme Court. Certiorari briefs are currently being filed with the Supreme Court (Docket No. 11-1118). On April 26, Memorylink also filed a petition for cert to the Supreme Court drawing on Judge O’Malley’s dissent in Memorylink v. Motorola, arguing that by asserting jurisdiction on state law malpractice claims, the Federal Circuit is disturbing the appropriate balance between state and federal courts.

© 2012 McDermott Will & Emery

California Court Enforces Waivers of Class and Private Attorneys General Act “PAGA” Representative Claims

The National Law Review recently published an article regarding PAGA Representative Claims written by Labor & Employment Practice of Morgan, Lewis & Bockius LLP:

Recent court decision represents significant development for parties seeking to enforce arbitration agreements containing class and representative waivers.

On June 4, a unanimous panel of the California Court of Appeal for the Second District upheld a lower court’s ruling compelling individual arbitration of a plaintiff’s wage and hour claims and dismissing both class and representative claims under the California Labor Code Private Attorneys General Act (PAGA). Iskanian v. CLS Trans. Los Angeles, LLC, — Cal. Rptr. 3d —, No. B235158, 2012 WL 1979266 (Cal. Ct. App. 2d Dist. June 4, 2012). In so ruling, the court (i) held that the U.S. Supreme Court’s opinion in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (Concepcion), preempted any California law prohibiting arbitration of certain claims; (ii) rejected a recent decision from the National Labor Relations Board (NLRB); and (iii) held that employees may validly waive their right to bring PAGA claims on behalf of others as part of an arbitration agreement.

Background

As a driver for defendant CLS Transportation, LLC (CLS), plaintiff Arshavir Iskanian signed a “Proprietary Information and Arbitration Policy/Agreement” providing that any and all employment-related disputes would be submitted to binding arbitration. The arbitration agreement contained a waiver of the right to bring claims on behalf of a class or as a representative of others.

Notwithstanding this arbitration agreement, Iskanian filed a putative class action complaint against CLS, alleging that the company failed to pay overtime, provide meal and rest breaks, reimburse business expenses, provide accurate and complete wage statements, and pay final wages in a timely manner. CLS moved to compel arbitration, which the trial court initially granted. Shortly after the trial court issued its order, the California Supreme Court issued its opinion in Gentry v. Superior Court (Circuit City Stores), 42 Cal. 4th 443 (2007), holding that class action waivers in employment arbitration agreements were unenforceable as contrary to public policy. On appeal, CLS’s initial motion to compel arbitration was reversed, and the case proceeded to litigation in Superior Court.

Soon after the U.S. Supreme Court issued its opinion in Concepcion, which overruled California law in regards to class action waivers in commercial contracts, CLS renewed its motion to compel arbitration. The trial court granted the motion, and a second appeal followed.

Gentry Overruled

On appeal, the court affirmed, holding that Concepcion overruled Gentry and rejecting the plaintiff’s “vindication of statutory rights” argument. Finding that a purported intent to vindicate statutory rights “is irrelevant in the wake of Concepcion,” the court held that “[t]he sound policy reasons identified in Gentry for invalidating certain class waivers are insufficient to trump the far-reaching effect of the [Federal Arbitration Act (FAA)].” Iskanian, 2012 WL 1979266 at *5. Thus, the court held that any California statute or policy prohibiting arbitration of certain claims is invalid, and that under the FAA, class and representative waivers should be enforced according to their terms “so as to facilitate streamlined proceedings.” Id.

Rejection of D.R. Horton

The court also rejected the plaintiff’s argument that a recent decision by two members of the NLRB in D.R. Horton, Inc., 357 NLRB No. 184 (2012), barred enforcement of class and representative waivers in employment arbitration agreements as a violation of Section 7 of the National Labor Relations Act (NLRA).

Finding several faults with the D.R. Horton decision, the Iskanian court declined to give any deference to the NLRB, noting that “the FAA is not a statute the NLRB is charged with interpreting.” Iskanian, 2012 WL 1979266, at *6. The court instead followed the Supreme Court’s binding authority in CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012), that, unless the FAA is “overridden by a contrary congressional command,” then “agreements to arbitrate must be enforced according to their terms.” Iskanian, 2012 WL 1979266, at *7. Finding no such “congressional command” in the NLRA, the court rejected D.R. Horton. Id.

PAGA Waivers Enforceable

Departing from two prior decisions issued by other California Courts of Appeal, theIskanian court held that the representative action waiver of PAGA claims in the parties’ arbitration agreement was enforceable under Concepcion. The court compelled individual arbitration of the plaintiff’s PAGA claim, holding that “any state rule prohibiting the arbitration of a PAGA claim is displaced by the FAA.” Id. at *9. The court further held that California’s “Broughton-Cruz rule”—which bars arbitration of public injunctive relief actions—has been overruled by Concepcion. Accordingly, “the public policy reasons underpinning the PAGA do not allow a court to disregard a binding arbitration agreement. The FAA preempts any attempt by a court or state legislature to insulate a particular claim from arbitration.” Id. The court concluded that the plaintiff could not pursue representative claims against CLS.

Implications

The Iskanian decision, when coupled with another recent California opinion,Kinecta Alternative Financial Solutions, Inc. v. Superior Court (Malone), 205 Cal. App. 4th 506 (2012), which held that class allegations may be dismissed when a court compels individual arbitration, represents a significant development for parties seeking to enforce arbitration agreements containing class and representative waivers.

The Iskanian decision, however, creates a clear split in authority among California Courts of Appeal regarding the enforceability of PAGA representative action waivers. See, e.g., Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2d Dist. 2011) (holding that PAGA waivers were not enforceable); Reyes v. Macy’s, Inc., 202 Cal. App. 4th 1119 (1st Dist. 2011) (following Brown and refusing to compel individual arbitration of PAGA claims). This split may lead to California Supreme Court review, which means that the issue may not be resolved anytime soon.

While awaiting a final outcome, employers should carefully consider enforcement of arbitration agreements and the scope of waivers contained in such agreements.

Copyright © 2012 by Morgan, Lewis & Bockius LLP

Unpaid Internships: Free Today . . . Costly Tomorrow

An article by Rachel D. Gebaide and Melody B. Lynch of Lowndes, Drosdick, Doster, Kantor & Reed, P.A. was published recently in The National Law Review:

With the summer season approaching, college and high school students will be looking for opportunities to improve their resumes and gain valuable experience. The prospect of hiring a talented student – or someone transitioning between careers – who is willing to work for free is enticing to many employers.

In many cases, however, the unpaid aspect of the internship violates the Fair Labor Standards Act (FLSA). Lawsuits by unpaid interns to recover wages, including liquidated damages and attorney’s fees, although still uncommon, are on the rise.

Unpaid internship programs can be an appropriate method of providing training if they are designed properly and are primarily for the benefit of the intern and not the employer. However, to paraphrase this week’s Time magazine article titled “Hard Labor: Inside the Mounting Backlash Against Unpaid Internships,” employers are not entitled to free labor just because they slap the title “intern” on the position.

The U.S. Department of Labor uses the six criteria below to determine whether an unpaid internship falls outside the employment context covered by the FLSA.

  • The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  • The internship experience is for the benefit of the intern;
  • The intern does not displace regular employees, but works under close supervision of existing staff;
  • The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  • The intern is not necessarily entitled to a job at the conclusion of the internship; and
  • The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

We recommend that you evaluate your internship programs against these six criteria prior to extending offers of unpaid employment to prospective interns. Interns are unlikely to be exempt employees under the FLSA. As a result, if your internship program does not meet all six criteria, you should plan to pay interns at least minimum wage, currently $7.67 in Florida, and, when necessary, the applicable overtime rate for hours worked over 40 in a work week.

© Lowndes, Drosdick, Doster, Kantor & Reed, PA