Tag: Litigation

Lessons From Above: SCOTUS Declines to Review a Class Arbitrability Case (the Issue Had Been Delegated to an Arbitrator)

In its restraint, SCOTUS has shown us the mischief that arbitrators may do if parties are lax in setting boundaries in their agreement to arbitrate.  By declining to grant certiorari regarding the Second Circuit’s most recent decision in Jock v. Sterling Jewelers, Inc., 2019 U.S. App. LEXIS 34205 (2d Cir. Nov. 18, 2019), cert. den., No. 19-1382, 2020 U.S. LEXIS 4133 (Oct. 5, 2020), SCOTUS reminds us of the significance of the doctrine of judicial deference to the authorized decisions of an arbitrator.

In Jock, the ultimate issue was formidable — class arbitrability.  And the subsidiary issues were and are daunting. For example,

(1) parties to an arbitration agreement can delegate the class arbitrability issue (is class arbitration permitted?) to an arbitrator in the first instance, but would that delegation bind non-appearing putative class members, who are of course not parties to the operative arbitration agreement?

(2) who decides that delegation issue?

(3) would an arbitrator’s determination that class arbitration is permitted bind (a) non-appearing putative class members or (b) an unwilling respondent vis-à-vis those non-appearing putative class members?

The Second Circuit held that an arbitrator had acted within her authority in “purporting to bind the absent class members to class procedures,” 2019 U.S. App. LEXIS 34205 at *14, and that that determination therefore would stand “regardless of whether [it] is, as the District Court believes, ‘wrong as a matter of law.’”  Id.  Indeed, the Second Circuit had framed its inquiry as “whether the arbitrator had the power, based on the parties’ submissions or the arbitration agreement, to reach a certain issue” and “not whether the arbitrator correctly decided that issue.”  Id. at *8-*9, citing Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569 (2013).

Thus, the Court of Appeals did not review the merits of the arbitrator’s Class Determination Award (“CDA”), but rather defended it from scrutiny on the merits.  Instead, the Second Circuit focused on the delegation question — did the parties clearly and unmistakably delegate the class arbitrability issue to the arbitrator for determination in the first instance?

The first lesson:  if the issue of class arbitrability is delegated to an arbitrator for determination in the first instance, the resulting award becomes a hardened target with respect to its legal merits.  It may be challenged on the narrow grounds for vacatur set out in Section 10(a) of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 10(a), and it then benefits from the deference accorded to all arbitral awards.  Consequently, a decision concerning class arbitrability that might be reversed on de novo review if issued by a court will likely be left undisturbed if issued by an arbitrator.

That lesson alone is important to any company that uses a form arbitration clause in many substantially similar contracts – e.g, employment, consumer, financial, or insurance agreements.  It highlights the urgency of getting one’s form(s) of arbitration agreement in order, including the advisability (i) to state clearly whether arbitrability issues – and class and/or collective arbitrability issues in particular – are to be determined by a court or an arbitrator in the first instance, and (ii) to expressly prohibit class and collective arbitration if bilateral arbitration is the sole desired structure for dispute resolution.

To illustrate the point, consider that SCOTUS decided in Lamps Plus, Inc. v. Varela, 139 S.Ct. 1407, 2019 U.S. LEXIS 2943 (U.S. Apr. 24, 2019), that when a court is deciding the matter under the FAA in the first instance, neither silence nor ambiguity in an arbitration agreement regarding the permissibility of class arbitration is a sufficient basis to find that the parties agreed to permit class arbitration.  And SCOTUS implied that incorporation by reference of institutional rules such as those of the American Arbitration Association (“AAA”), including its Supplementary Rules for Class Arbitration, is not a sufficient basis to infer an agreement to permit class arbitration.  (The AAA’s Supplementary Rules are expressly consistent with that. See R-3.)

But, as the Second Circuit pointed out, the parties in Lamps Plus had agreed that a court, not an arbitrator, should resolve the class arbitrability question, and so the District Court’s decision in Lamps Plus was subject to de novo review on appeal, rather than the deferential review that applies concerning a motion to vacate an arbitrator’s award.  See, 2019 U.S. App. LEXIS 34205 at *18.

In the Jock case, on the other hand, the class arbitrability issue had been delegated to an arbitrator for determination in the first instance:  (1) the appearing arbitrating parties had “squarely presented to the arbitrator” the issue of whether the controlling arbitration agreement permitted class arbitration, id. at *6, in effect resolving the delegation issue via an ad hoc agreement; (2) the operative arbitration agreement provided that the arbitrator shall decide questions of arbitrability and procedural questions, see id. at *12-*13; and (3) the operative arbitration agreement incorporated the AAA’s arbitration rules, including the delegation provision (see R-3) of its Supplementary Rules for Class Arbitration, which “evinces agreement to have the arbitrator decide the question of class arbitrability,” id. at *12, citing Wells Fargo Advisors, LLC v. Sappington, 884 F.3d 392, 396 (2d Cir. 2018).  The Second Circuit justifiably took these manifestations to be “clear and unmistakable evidence” of an intent by the appearing parties to delegate the class arbitrability issue to an arbitrator.

The wild card question, however, was whether the non-appearing putative class members should be deemed bound by that delegation.

It is worth recalling that the Jock case has a lengthy history in the Southern District of New York and the Second Circuit, having bounced back and forth between those courts several times already.  In an earlier go-round, after an arbitrator had “certified” a class of 44,000 employee claimants (including 250 active claimants),1 the District Court denied respondent Sterling’s motion to vacate that CDA, but the Second Circuit reversed and remanded, noting that it had not previously squarely determined “whether the arbitrator had the power to bind absent class members to class arbitration given that they…never consented to the arbitrator determining whether class arbitration was permissible under the agreement in the first place.”  2019 U.S. App. LEXIS 34205 at *6.  On remand, the District Court then vacated the arbitrator’s CDA.  But the Second Circuit reversed again, this time based principally on the appellate court’s determination that the arbitrator had been authorized to adjudicate class arbitrability in the first instance, and so the District Court’s review of that award was therefore limited by (a) the narrow grounds for vacatur set out in FAA § 10(a)(4) and (b) the requisite deferential standard of review of such awards.

In that decision, which SCOTUS eventually let stand, the Second Circuit arguably could have addressed a number of issues:

(1) did the parties to the operative arbitration agreement delegate the class arbitrability issue to an arbitrator?

(2) did the non-appearing members of a putative class too delegate the class arbitrability issue to the particular arbitrator in the pending arbitral proceeding?

(3) are the non-appearing putative class members, who were not parties to the operative arbitration agreement, bound by that arbitrator’s decision regarding class arbitrability?

(4) should the District Court have vacated the arbitrator’s CDA?

The Second Circuit first determined that the class arbitrability issue had been delegated to an arbitrator.  It also decided that the District Court should not have vacated the CDA because the arbitrator had the authority, based on the delegation, to resolve the class arbitrability issue in the first instance, and the merits of that determination therefore were not up for review even if the District Court believed that it had been wrongly decided as a matter of law.

Finally, the Second Circuit decided– and this was novel– that the arbitrator had the authority to reach the class arbitrability issue even with respect to the non-appearing putative class members.  2019 U.S. App. LEXIS 34205 at *15.  Thus, the appellate court decided that, in the circumstances, the non-signatory “absent class members” (a) were deemed to have delegated the class arbitrability issue to the particular arbitrator in the proceeding in question, and (b) were bound by her determination that class arbitration was permitted.

The court’s rationale was:  (1) each of the non-appearing putative class members respectively had made an arbitration agreement with respondent Sterling Jewelers that was substantially identical to the agreement upon which the appearing arbitration participants relied; (2) they thereby consented to, and indeed “bargained for,” an arbitrator’s authority to decide the class arbitrability issue, see id. at *11, *14; (3) that constituted an express contractual consent to delegation by the non-appearing putative class members, see id. at *17; and (4) even if the non-appearing class members had not expressly agreed to “this particular arbitrator’s authority,” id. at *15, that did not matter because judicial class actions routinely bind absent members of mandatory or opt-out classes, id. at *15-*16.  (But of course, arbitration is not litigation, and Fed. R. Civ. P. 23 does not apply in arbitrations.)

Notably, this rationale appears to be inconsistent with the skepticism in this regard expressed by Justice Alito in his concurring opinion in the Oxford Health case.  Justice Alito had opined that an arbitrator’s interpretation of an arbitration agreement generally “cannot bind someone who has not authorized the arbitrator to make that determination,” and that “it is difficult to see how an arbitrator’s decision to conduct class proceedings could bind absent class members who have not authorized the arbitrator to decide on a class-wide basis when arbitration procedures are to be used.”  Oxford Health Plans, LLC v. Sutter, 133 S.Ct. at 2072 (Alito, J., concurring).  Thus too, “an arbitrator’s ‘erroneous interpretation’ of a contract that does not authorize class procedures cannot bind absent class members who have ‘not authorized the arbitrator to make that determination.’”  2019 U.S. App. LEXIS 34205 at *10-*11, citing Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 574 (2013) (Alito, J., concurring).

Nevertheless, SCOTUS let the Jock decision, with all it entails, stand.  And we are left to puzzle out what further lessons SCOTUS intended to convey in this regard.

1 The arbitrator “certified” an arbitration class solely for purposes of injunctive and declaratory relief, and it was an opt-out class (which is usually certified for class action litigations seeking money damages) rather than an opt-in class (which might have lent more justification to the CDA) or a mandatory class.

©1994-2020 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.
ARTICLE BY Gilbert A. Samberg  of Mintz
For more articles on litigation, visit the National Law Review ADR / Arbitration / Mediation section.

Spooktacular Severability Ruling Raises Barr From The Dead, Buries TCPA Claims Arising Between November 2015 and July 2020

A few weeks ago, the Eastern District of Louisiana held that courts cannot impose liability under Sections 227(b)(1)(A) or (b)(1)(B) of the TCPA for calls that were made before the Supreme Court cured those provisions’ unconstitutionality by severing their debt collection exemptions.  The first-of-its-kind decision reasoned that courts cannot enforce unconstitutional laws, and severing the statute applied prospectively, not retroactively. Plaintiffs privately panicked but publicly proclaimed that the Creasy decision was “odd” and would not be followed.

So much for that. Yesterday, the Chief Judge of the Northern District of Ohio followed Creasy and dismissed another putative class action.  The new case—Lindenbaum v. Realgy—arose from two prerecorded calls, one to a cellphone and another to a landline. The defendant moved to dismiss, arguing that “severance can only be applied prospectively,” that Sections 227(b)(1)(A) and (b)(1)(B) were unconstitutional when the calls were made, and that courts lack jurisdiction to enforce unconstitutional statutes. The plaintiff opposed the motion, arguing, among other things, that a footnote in Justice Kavanaugh’s plurality opinion in Barr v. AAPC suggests “that severance of the government-debt exception applies retroactively to all currently pending cases.”

The court sided with the defendant. It began by agreeing with Creasy that this issue “was not before the Supreme Court,” and the lone footnote in Justice Kavanaugh’s plurality opinion is “passing Supreme Court dicta of no precedential force.” It then surveyed the law and found “little, if any, support for the conclusion that severance of the government-debt exception should be applied retroactively so as to erase the existence of the exception.” It reasoned that, while judicial interpretations of laws are “given full retroactive effect in all cases still open on direct review and as to all events,” severance is different because it is “a forward-looking judicial fix” rather than a backward-looking judicial “remedy.” In short, severance renders statutes “void,” not “void ab initio.”

Defendants are now two-for-two in seeking dismissal of claims based on the now-undeniable unconstitutionality of the debt-collection exceptions in Section 227(b)(1)(A) or (b)(1)(B). With more such motions pending in courts across the country, this may become a powerful weapon against whatever claims remain after the Supreme Court’s decision in Facebook v. Duguid.

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.
For more articles on the TCPA, visit the National Law Review Litigation / Trial Practice section.

California Court of Appeal Rules that Challenge to Google’s Confidentiality Agreements May Proceed Past the Pleading Stage

On September 21, 2020, in a published 2-1 opinion in Doe v. Google Inc., the California Court of Appeal (Dist. 1, Div. 4), permitted three current and former Google employees to proceed with their challenge of Google’s confidentiality agreement as unlawfully overbroad and anti-competitive under the California Private Attorneys General Act (“PAGA”) (Lab. Code § 2698 et seq.).  In doing so, the Court of Appeal reversed the trial court’s order sustaining Google’s demurrer on the basis of preemption by the National Labor Relations Act (“NLRA”) (29 U.S.C. § 151 et seq.) under San Diego Bldg. Trades Council v. Garmon, 359 U.S. 236, 244–245 (1959).  The court held that while the plaintiffs’ claims relate to conduct arguably within the scope of the NLRA, they fall within the local interest exception to Garmon preemption and may therefore go forward.  It remains to be seen whether plaintiffs will be able to sustain their challenges to Google’s confidentiality policies on the merits.  However, Doe serves as a reminder to employers to carefully craft robust confidentiality agreements, particularly in the technology sector, in anticipation of potential challenges employees may make to those agreements.

Google requires its employees to sign various confidentiality policies.  The plaintiffs brought a lawsuit challenging these policies on the basis that they restricted their speech in violation of California law.  Specifically, the plaintiffs alleged 17 claims that fell into three subcategories based on Google’s confidentiality policies: restraints of competition, whistleblowing and freedom of speech.  The claims were brought under PAGA, a broad California law that provides a private right of action to “aggrieved employees” for any violation of the California Labor Code.  PAGA claims are brought on a representative basis—with the named plaintiffs deputized as private attorneys general—to recover penalties on behalf of all so-called “aggrieved employees,” typically state-wide, with 75% of such penalties being paid to the State and 25% to the “aggrieved employees” if the violation is proven (or a court-approved settlement is reached).

In their competition causes of action plaintiffs alleged that Google’s confidentiality rules violated Business & Professions Code sections 17200, 16600, and 16700 as well as various Labor Code provisions by preventing employees from using or disclosing the skills, knowledge, and experience they obtained at Google for purposes of competing with Google.  The court noted that section 16600 “evinces a settled legislative policy in favor of open competition and employee mobility” that has been “instrumental in the success of California’s technology industry.”  The plaintiffs complained that Google’s policies prevented them from negotiating a new job with another employer, disclosing who else works at Google, and under what circumstances the employee may be receptive to an offer from a rival employer.

With respect to their whistleblowing claims, the plaintiffs alleged that Google’s confidentiality rules prevent employees from disclosing violations of state and federal law, either within Google to their managers or outside Google to private attorneys or government officials in violation of Business & Professions Code section 17200 et seq. and Labor Code section 1102.5.  Similarly, it is alleged that the policies ostensibly prevented employees from disclosing information about unsafe or discriminatory working conditions, a right afforded to them under the Labor Code.

In their freedom of speech claims, plaintiffs alleged that Google’s confidentiality rules prevent employees from engaging in lawful conduct during non-work hours and violate state statutes entitling employees to disclose wages, working conditions, and illegal conduct under various Labor Code provisions.  The employees argued this conduct could be writing a novel about working in Silicon Valley or to even reassure their parents they are making enough money to pay their bills—i.e., matters seemingly untethered to a legitimate need for confidentiality.

While Google’s confidentiality rules contain a savings clause—confirming Google’s rules were not meant to prohibit protected activity—the plaintiffs argued that the clauses were meaningless and not implemented in its enforcement of its confidentiality agreements.

Google demurred to the entire complaint, and the trial court sustained the demurrer as to plaintiffs’ confidentiality claims, agreeing that the NLRA preempted such claims.

On appeal, the Court of Appeal recognized that the NLRA serves as a “comprehensive law governing labor relations [and] accordingly, ‘the NLRB has exclusive jurisdiction over disputes involving unfair labor practices, and “state jurisdiction must yield’ when state action would regulate conduct governed by the NLRA.  (Garmon, [supra, 359 U.S.] at pp. 244-245.)”  But the court cautioned that NLRA preemption under Garmon cannot be applied in a “mechanical fashion,” and its application requires scrutiny into whether the activity in questions is a “merely peripheral concern” of the NLRA or where the “regulated conduct touche[s] interests so deeply rooted” in state and local interests.

In analyzing the federal and state issues at state, the Court of Appeal found that several of the statutes undergirding plaintiffs’ PAGA claims did not sound in principles of “mutual benefit” that are the foundation of the NLRA but protected the plaintiff’s activities as individuals.  The court cited several examples, including Labor Code section 242 prohibition of employers preventing employees from disclosing the amount of his or her wages (a statute enacted to prevent sex discrimination) and Labor Code section 232.5, prohibiting an employee from disclosing information about the employer’s working conditions (manifesting California’s policy to prohibit restrictions on speech regarding conditions of employment).  The court likewise found that the NLRA did not protect much of the activity prohibited by the statutes that supported plaintiffs’ PAGA claims, noting that the NLRA did not prohibit rules inhibiting employees from seeking new employment and competing with Google, as plaintiffs alleged Google’s confidentiality rules did.  It further does not protect whistleblowing activity unconnected to working conditions, such as violations of securities law, false claims laws, and other laws unrelated to terms and conditions of employment.

Nevertheless, the court held that, regardless of diverging purposes of the NLRA and the laws that support the plaintiffs’ PAGA claims, plaintiffs’ claims fall squarely in the local interest exception to NLRA preemption.  Where an employer’s policies are arguably prohibited by the NLRA, the local interest exception to NLRA preemption applies when (1) there is a “significant state interest” in protecting the citizen from the challenged conduct, and (2) the exercise of state jurisdiction entails “little risk of interference” with the NLRB’s regulatory function.  The court found no difficulty in determining that an action under PAGA, where the plaintiffs are serving as a “proxy or agent of the state’s labor law enforcement agencies” grows from “deeply-rooted local interests” in regulating wages, hours, and other terms of employment.  It also found that a state’s enforcement of its minimum employment standards, particularly in relation to the plaintiffs claims in this case, were peripheral to the NLRA’s purpose of safeguarding, first and foremost, workers’ rights to join unions and engage in collective bargaining.  Thus, the court held, there was no basis for NLRA preemption in this case.

Particularly in light of this opinion, employers who require employees to execute confidentiality agreements with their employees should be cognizant of the myriad of ways that they can be challenged.  As in the case of Doe v. Google, Inc., such challenges may not be just from individuals bringing claims in their own capacity, but as private attorneys general bringing representative claims on behalf of all California employees.  Nor can NLRA preemption be mechanically applied to preempt claims based upon such agreements.  Employers would be well-advised to review their existing confidentiality agreements and consult experienced counsel before revising or rolling out such agreements.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.
For more articles on labor law, visit the National Law Review Labor & Employment section.

Louis Vuitton Playing Chess or Checkers? The CJEU Annuls’ The Invalidation of Louis Vuitton EU Trademark

Louis Vuitton received a favorable decision from the EU General Court (“General Court”) in June 2020 which may assist brand owners seeking IP protection of their decorative patterns. The decision confirms the distinctive character an EU trade mark must possess in order to benefit from protection throughout the EU as well as highlighting how patterns may be protected through registration as a trade mark rather than under other forms of IP protection such as copyright or design protection. However, the decision also reaffirmed the EU’s strict approach to assessing the unitary character of EU trade marks, which potentially sets a high bar for applicants to clear.

Background

In 2008, Louis Vuitton had obtained EU trade mark protection for the mark displayed below, the Damier Azur mark, in relation to class 18 goods including luggage, bags and leather goods. In 2015 a Polish individual, Norbert Wisniewski, challenged the validity of the mark by filing an application for invalidity with the EUIPO.

 

 

The ‘Damier Azur’ mark

In 2016 the Cancellation Division of the EUIPO declared Louis Vuitton’s trade mark invalid under Article 59(1)(a) of the EU Trade Mark Regulation (“EUTMR”) on the grounds that the mark was devoid of any distinctive character in line with Article 7(b) of the EUTMR. The Cancellation Division did not agree with Louis Vuitton’s claim that the mark had acquired distinctiveness through its use. Louis Vuitton then took its claim to the EUIPO Second Board of Appeal who also dismissed their claim and agreed with the Cancellation Division.

General Court

In 2019 the matter was appealed to the General Court of the CJEU and Louis Vuitton put forward two main arguments that:

  1. the Second Board of Appeal had incorrectly assessed the inherent distinctive character of the Damier Azur mark as the Board had relied on ‘well-known facts’ to supplement the arguments presented by Mr Wisniewksi in the absence of any concrete and substantial evidence for a declaration of invalidity; and
  2. the Board of Appeal had failed to carry out an overall assessment of the Damier Azur mark and had therefore erred in its assessment of the distinctive character acquired through use of the mark.

With regard to point one, the General Court considered that the Board of Appeal had relied upon a number of well-known facts in its decision including how the chequerboard pattern of the mark was a commonplace figurative pattern, which is permissible. The General Court determined that the Board had been correct in its finding that the mark was a basic and a commonplace pattern that did not depart significantly from the norms of the sector and that this was a well-known fact within the meaning of case law. The first argument was therefore rejected.

As to argument two, the General Court inferred that the Board of Appeal had focused on evidence which expressly referred to a specific set of Member States and had excluded other evidence without conducting any further analysis on said evidence. The General Court determined that the excluded evidence did contribute to the arguments put forward by Louis Vuitton concerning the acquired distinctiveness of the mark including the widespread use of the mark across the whole of the EU and the market shares held by the mark in each Member State. The General Court thus found that the Board of Appeal had failed to sufficiently take into account the distinctive character of the mark in relation to the goods and services for which it is registered.

Takeaway points

The decision by the General Court reaffirms the wide scope of evidence and rigorous determination that must be followed by the courts and IP administrative bodies. The General Court also emphasized the need for a mark to be distinctive throughout the whole of the EU rather than just across a defined set of Member States, which is often a high threshold for applicants to meet (as seen in the Kit Kat case, among others). Although the General Court did annul the decision of the Second Board of Appeal on the basis of an error in the full assessment of the evidence, it is still not yet fully clear whether Louis Vuitton’s excluded evidence would be sufficient to prove the required distinctiveness of the mark as the General Court made no comment on this point. This is an intriguing space to follow and we will keep you updated as the case progresses.

Copyright 2020 K & L Gates
For more articles on IP law, visit the National Law Review Intellectual Property section.

Court Affirmed Finding That Testator Had Capacity To Execute A Will, Was Not Unduly Influenced, And That The Appointment of Co-Executors Was Appropriate

In In the Estate of Flarity, a son of the testator challenged the trial court’s probating of a 2004 will and the appointment of two of his siblings, named in that will, as executors. No. 09-19-00089-CV, 2020 Tex. App. LEXIS 7536 (Tex. App.—Beaumont September 17, 2020, no pet. history). The contestant alleged that the testator did not have mental competence. The court of appeals disagreed. The court first addressed the standard for mental competency challenges:

In reviewing evidence addressing a testator’s capacity, we focus on the condition of the testator’s mind on the day the testator executed the will. Under Texas law, whether a testator has the testamentary capacity hinges on the condition of the testator’s mind the day the testator executed her will. Thus, the proponents of the will must prove that, when the testator signed the will, she could understand: the business in which she was engaged, the nature and extent of her property, the persons to whom she meant to devise and bequeath her property, the persons dependent on her bounty, the mode of distribution that she elected to choose among her beneficiaries, a sufficient memory so she could collect the elements of the business she wanted to transact and hold it in mind long enough to allow her to perceive the relationship between property and how she wanted to dispose of it, all so she could form reasonable judgments about doing those things.

Id. Applying those legal principals, the court held that the evidence was sufficient to support the trial court’s finding that the testator had capacity. There was testimony from the two children that were executors that the testator knew what she was doing. The contestant relied on his own testimony that the testator suffered from recurring depression many times in her life, including 2004. The court held:

But there is no expert testimony showing Paula was clinically depressed. There are not medical records in evidence that support Joe’s claim. While Joe argues Paula was not being treated for her condition in 2004, he never established that she was suffering from depression that year, as the parties never developed evidence about whether Paula was or was not seeing doctors at any time for any reasons at a time relevant to the day Paula signed the will. Furthermore, even Joe and Becky never testified that Paula told them at any time in 2004 that she was being treated for depression.

Id. Further, the court held that the testator had a reason for her will and there was no evidence that the executors influenced her:

Generally, the evidence admitted in the trial reflects that Paula chose to give her children a percentage share of her estate based on how much time they spent with her as she aged. Joe does not contend the evidence shows he spent more time with Paula than his siblings. Nor does he suggest that Paula miscalculated how much time he spent with her when compared with his siblings. Instead, Joe argues that Wes and Merrie obtained a larger share because they spent more time with her. That may be true, but that evidence does not show that Merrie and Wes used their influence to get Paula to change her will in a way that favored them during a period that Paula could not freely make that decision on her own.

Id.

Finally, the court of appeals affirmed the trial court’s appointment of the co-executors. The court stated the legal standard as:

When a testator nominates a person to be the executor of her will, the law requires the probate court to appoint that person to that office unless one of the enumerated exceptions in the Estates Code applies. The exceptions allow the probate court to choose someone else other than the person the testator named if the person the testator named renounces the appointment, or the evidence shows the person is “not qualified,” statutorily disqualified, or “unsuitable” for the office. Since the Estates Code requires probate courts to appoint the person the testator nominated in her will absent one of the listed exceptions, Joe was required to prove in the trial that Wes and Merrie were not qualified, statutorily disqualified, or unsuitable for the office. Thus, since Joe is attacking an adverse finding on which he had the burden of proof in the trial, he “must demonstrate on appeal that the evidence establishes, as a matter of law, all vital facts in support of the issue.” To do that, he must show the evidence before the probate court conclusively shows one of the enumerated exceptions to the provisions requiring probate courts to appoint the person the testator designated applies

Id. The court held that evidence from the contestant of hostility was not sufficient to show that the co-executors were not suitable. The court also held that the fact that one of the co-executors let her son live a home owned by the estate without the payment of rent was not a conflict as that could be viewed as a benefit to the estate (having someone protect and upkeep estate property) and that the co-executor was a part owner of the home and had the right to have her son live there without paying rent (in the absence of an objection co-owner). The court of appeals affirmed the trial court in all things.

© 2020 Winstead PC.
For more articles on wills, visit the the National Law Review Estates & Trusts section.

When Increasing Productivity Can Backfire

Time theft, especially in an age of booming remote work, is a serious concern for employers.

Time theft’s cost on productivity motivates many companies to explore ways to reduce it.  In a recent case, time theft motivated a company to implement a timekeeping system that clocked employees through their fingerprints instead of the usual badges or employee numbers.  As this case illustrates, however, an attempt to increase productivity by decreasing time theft can quickly lead to bleeding resources into litigation.  Further, in some circumstances, the bleeding can turn into hemorrhaging, such as when a defendant finds itself simultaneously litigating in state and federal court.

In Burlinski v. Top Golf USA, Inc., No. 19-cv-06700, 2020 U.S. Dist. LEXIS 161371 (N.D. Ill. Sep. 3, 2020), the defendant faced a class action lawsuit by former employees over alleged timekeeping practices.  It allegedly required its employees to record their time by scanning their fingerprints.  The defendant’s purpose for using fingerprints in lieu of timecards or unique employee numbers was to prevent time theft by precluding employees from recording time for anyone but themselves.

The plaintiffs were employed in Illinois, which implicated state privacy laws.  Illinois is one of a few states with laws regulating the collection of fingerprints and other biometric data.  A company may be liable under the Illinois Biometric Privacy Act (“BIPA”) if it does not:  (1) maintain a public retention and destruction schedule before collecting biometric data; or (2) acquire written consent prior to collecting biometric data or disclosing such data to third parties.

Procedural trouble began when the defendant removed the suit.  While the district court was evaluating the defendant’s motion to dismiss and the plaintiffs’ motion to remand, the Seventh Circuit issued an opinion that changed everything.  In Bryant v. Compass Grp. USA, Inc., 958 F.3d 617, 624-26 (7th Cir. 2020), the Seventh Circuit ruled on whether district courts had Article III jurisdiction over BIPA claims.  The court found there was jurisdiction over claims alleging that a company failed to obtain written consent prior to collecting biometric data.  The court, however, found there was no jurisdiction over claims alleging a failure to maintain a public retention and destruction schedule prior to collecting biometric data.  In other words, federal courts have jurisdiction over some BIPA claims, but not others.  Burlinski contained both types of claims.

Bryant had an immediate effect in Burlinski.  The court remanded one claim to state court and kept the remaining claims.  The court then rejected the defendant’s arguments to dismiss the removed claims, and the defendant found itself simultaneously litigating in state and federal courts.

To sum it up, Burlinski serves as a reminder for companies to vigorously ensure their own compliance with any applicable privacy statutes.  With many services now turning remote, time theft will likely become only a larger problem.  Before implementing a new timekeeping system, however, companies should recall the tale of Burlinski and its double litigation.

© Copyright 2020 Squire Patton Boggs (US) LLP
For more articles on employment, visit the National Law Review Labor & Employment section.

Subpoena Motion Practice in Multidistrict Litigation: The Conflict on Authority Over Subpoena-Related Disputes

A key purpose of multidistrict litigation (MDL) is centralized management of pretrial proceedings to avoid duplicative discovery and resolve common issues in an efficient manner.  An MDL court becomes sufficiently familiar with the facts, scientific issues, and procedural history of the litigation to often allow a just and efficient resolution of complex discovery disputes.

One type of dispute common in MDL proceedings concerns third-party discovery.  Often, third parties are essential sources of critical information about a claim—such as physicians who treated a plaintiff in product liability litigation.  Just as frequently, these third parties are located outside the district of the MDL judge, forcing parties to serve extra-district subpoenas to obtain such discovery.

When disagreements arise over the scope or content of a subpoena, Rule 45 of the Federal Rules of Civil Procedure requires such disputes to be brought in the “district court where compliance is required,” which is rarely the MDL court.  Those situations raise the question whether the MDL court can exercise jurisdiction over subpoena-related disputes despite the mandate of Rule 45.  This article analyzes the apparent conflict between Section 1407’s authorization of MDL courts to resolve pretrial disputes and Rule 45’s subpoena requirements, and how courts have resolved this conflict for MDL litigants.

  1. The Conflict Between the MDL Court’s Authority to Manage Pretrial Proceedings and Rule 45’s “Where Compliance Is Required” Requirement.

At the heart of the dispute over where parties should bring subpoena-related motions in MDL proceedings is the conflict between Rule 45 and Section 1407.  In ordinary cases, Rule 45(d) provides that a party must move to enforce or quash a subpoena in “the district where compliance is required”—typically, the district where the individual or entity resides.  But in enacting Section 1407, Congress centralized management of pretrial proceedings in a single federal court to ensure the “just and efficient” conduct of the litigation.[1]  Indeed, a key role of multidistrict consolidation is to “avoid duplicative discovery, prevent inconsistent pretrial rulings and conserve judicial resources.”[2]

To further these goals, Section 1407 also provides MDL courts with the authority to “exercise the powers of a district judge in any district for the purpose of conducting pretrial depositions.”[3]  Thus, whether this statutory language authorizes MDL courts to manage subpoena disputes involving extra-district nonparties requires courts to confront the “apparent conflict” between Rule 45 and Section 1407.[4]

  1. Who Has Jurisdiction Over Extra-District Nonparty Subpoenas?

  1. Leading Decisions Hold that MDL Courts Have Broad Authority to Enforce Extra-District Subpoenas Under Section 1407

The two leading decisions analyzing the conflict between Section 1407 and Rule 45 arose out of a multidistrict qui tam action consolidated in the District Court for the District of Columbia in U.S. ex rel. Pogue v. Diabetes Treatment Centers of America, Inc.  In Pogue, the relator served subpoenas duces tecum on nonparty businesses headquartered in Tennessee.[5]  After the parties failed to resolve disagreements over the scope of the subpoenas, the relator sought to enforce them in the MDL district court.  The nonparties opposed enforcement there, contending that under Rule 45, the subpoenas could only be enforced “where compliance is required”—in that case, the Middle District of Tennessee.[6]

The MDL court noted that “[w]ere this an ordinary case, [the nonparties] would be correct and this case would be easily disposed of” given Rule 45.[7]  But it observed that this was “not an ordinary case” because the Judicial Panel on Multidistrict Litigation had “transferred to this Court related qui tam actions pending across the country under the authority of 28 U.S.C. § 1407.”[8]  The court explained that the purpose of MDL actions is to ensure the “just and efficient” conduct of pretrial proceedings involving common issues and “to eliminate duplicative discovery, pretrial rulings, and conserve the resources of the parties, their counsel and the judiciary.”[9]  It then held that “to that end, § 1407 bestows upon the transferee court the power to exercise the powers of a district judge in any district for the purpose of conducting pretrial depositions in MDL cases.”[10]

Although the MDL court found that while it was not “a settled question” whether it had jurisdiction over extra-district subpoenas, “the weight of authority and effectuation of the purposes of multidistrict litigation support a finding of jurisdiction,” and that “§ 1407 confers on MDL judges the power to supervise depositions taking place in other jurisdictions.”[11]  The court also found that the use of the term “shall” in Section 1407(b) “mandates that such motions be heard by the MDL court.”[12]  Thus, the court determined that it had jurisdiction over the relators’ motions to compel the extra-district nonparties to comply with the subpoenas.[13]

In a later appeal, the Sixth Circuit[14] agreed with the MDL court, observing that “the Federal Rules are designed to ensure that district courts remain firmly in control of those depositions and document productions involving nonparties located in their districts.”[15]  Because the Federal Rules “could hamstring an MDL court’s ability to conduct coordinated pretrial proceedings over cases that have been consolidated from far-flung foreign districts, the MDL statute empowers an MDL judge to act as a judge of the deposition or discovery district.”[16]  The court, therefore, held that “[a] judge presiding over an MDL case” could rule on subpoena-related motions “notwithstanding the nonparty’s physical situs in a foreign district where discovery is being conducted.”[17]

  1. Courts Have Expressed Conflicting Views on Whether an MDL Court Can Enforce an Extra-District Subpoena Duces Tecum

As one court has observed, “[t]he overwhelming majority of courts that have considered the issue of whether Section 1407(b) authorizes a transferee judge the power to act as any judge of any district for pretrial depositions as well as subpoenas duces tecum, have found that it does.”[18]  For example, the District Court for the District of Puerto Rico in In re San Juan Plaza Hotel Fire Litig. found that to effectuate the purpose of multidistrict litigation, it is “necessary to append to the transferee judge enforcement powers in relation to subpoenas issued in the deposition district, including depositions and subpoenas addressed to nonparties.”[19]  Likewise, the District Court for the District of Kansas in In re EpiPen Mktg., Sales Practices and Antitrust Litig. observed that the “statute’s remedial purpose of eliminating the potential for conflicting contemporaneous pretrial rulings would be frustrated if the MDL court could not entertain motions to compel [compliance with subpoenas in other districts].”[20]  Other courts have reached similar conclusions when presented with the conflict between Rule 45 extra-district subpoenas and Section 1407.[21]

A small minority of courts, however, has narrowly construed Section 1407(b) as authorizing an MDL court to enforce deposition subpoenas—but not document subpoenas.  For example, in In re Packaged Seafood Prod. Antitrust Litig., the MDL court declined to exercise jurisdiction over enforcement of a subpoena duces tecum.  The court acknowledged that Section 1407(b) authorized it to exercise the powers of a district judge in any district “for the purpose of conducting pretrial depositions,” and that “may necessarily include the power to enforce deposition subpoenas.”[22]  But it drew a distinction between a deposition subpoena and a subpoena duces tecum—a distinction which it found “makes a difference.”[23]  In refusing to enforce the subpoena duces tecum, the court reasoned that “[t]he extension of jurisdiction in MDL cases to the conduct of pretrial depositions” is not “tantamount to extending jurisdiction to enforce document subpoenas on third parties.”[24]

Other courts have also interpreted Section 1407 narrowly.  In VISX, Inc. v. Nidek Co., et al., the District Court for the Northern District of California found that “§ 1407(b) expands a transferee court’s discovery powers only to pretrial depositions,” and that “[h]ad Congress wanted to expand these powers to document subpoenas, it would have said so.”[25]  In In re Monat Hair Care Prod. Mktg., Sales Practices & Prod. Liab. Litig., the District Court for the Southern District of Florida found “the reasoning of In re Packaged Seafood and VISX persuasive” that “Section 1407(b) does not expressly exempt MDL courts from Rule 45’s dictates; rather, it expressly gives MDL courts the discretion to exercise the powers of a district judge in any district only for the purpose of conducting pretrial depositions.”[26]  Thus, given that “Section 1407(b) makes no reference to subpoenas for the production of documents,” the court held that Rule 45 mandated that only the Middle District of Florida had jurisdiction to enforce the nonparty, nonresident subpoena.[27]

That said, courts holding that MDL courts lack jurisdiction over extra-district document subpoenas are in the minority.  Indeed, the 6th Circuit in Pogue noted that while “[a]n argument can be made that the Section 1407(b)’s grant of authority to the MDL judge to oversee nonparty discovery occurring outside of the MDL district does not extend to enforcement of documents-only subpoenas,” the “rationale underlying the MDL statute of ‘just and efficient’ resolution of pretrial proceedings requires the conclusion that Section 1407(b)’s grant of authority applies to both deposition and document-only subpoenas.”[28]  Most other courts that have considered the issue have similarly agreed that “[i]n keeping with the efficiency goals of the MDL statute,” an MDL court’s authority “extends to overseeing subpoenas for documents.”[29]

  1. A Motion to Transfer to the MDL Is a Viable Alternative

If an opposing party has already moved under Rule 45(d) to quash or modify a subpoena in the “district where compliance is required,” or an MDL court declines to exercise jurisdiction over the initial subpoena-related motion, a Rule 45(f) transfer for “exceptional circumstances” to the MDL court can be appropriate.  Although the term “exceptional circumstances” is not defined in Rule 45, the Advisory Committee Notes provide that while the “prime concern” when considering transfer “should be avoiding burdens on local nonparties subject to subpoenas,” in “some circumstances . . . transfer may be warranted in order to avoid disrupting the issuing court’s management of the underlying litigation[.]”[30]  And courts have found “exceptional circumstances warranting transferring subpoena-related motions . . . when transferring the matter is in the interests of judicial economy and avoiding inconsistent results.”[31]

In re Disposable Contact Lens Antitrust Litig. provides an especially applicable analysis of Rule 45(f) and MDL subpoenas.  Here, plaintiffs issued a subpoena duces tecum to a nonresident third party, which ultimately refused to comply with the subpoena.[32]  Plaintiffs moved to enforce the subpoena in the MDL court, which found that it lacked authority to rule on the motion because, under Rule 45, “a party seeking to compel compliance with a subpoena must file its motion in ‘the district where compliance is required.’”[33]  Following the MDL court’s ruling, plaintiffs filed an action in the District Court for the District of Columbia—where compliance was sought—to transfer the subpoena-enforcement motion to the MDL court under Rule 45(f) or, in the alternative, enforce the subpoena.[34]  After engaging in an exacting analysis, the district court found that transfer of the motion to enforce the subpoena to the MDL proceeding was appropriate.

First, the court observed that the “MDL status of the underlying litigation is surely an ‘exceptional circumstance’ that weighs strongly in favor of transfer to the Issuing Court under Rule 45(f), because the same concerns about orderliness and disruption that led to the consolidation of actions as an MDL in the first place arise with respect to pretrial disputes regarding subpoenas issued in the context of that complex litigation.”[35]  Second, the court noted that it was “highly unlikely” that the respondent would need to travel to the MDL court in Florida, as a telephonic hearing on the motion was likely, and thus there was no undue burden to the nonresident respondent.[36]  And lastly, given the that the MDL was a “rather a highly complex case and potentially a class action asserting nationwide antitrust claims against five large corporate defendants,” the district court found that the MDL court was best situated to decide whether the subpoena should be enforced.[37]  Thus, given that the “factors that weigh in favor of transferring this subpoena dispute” were abundant, the district court granted plaintiffs’ motion and transferred the motion to the MDL court.[38]

  1. Conclusion

While the language of Rule 45 suggests that subpoena-related disputes can only be resolved in the “district where compliance is required,” MDL litigants should be aware of the authority granted to MDL courts under Section 1407.  The MDL court is often better suited to resolve such disputes given its extensive knowledge of the facts and science surrounding the litigation and the history of the litigation.  In the event that an MDL court declines to exercise direct jurisdiction over a dispute concerning a subpoena duces tecum, a Rule 45(f) transfer of a motion from the local district to the MDL court is a feasible alternative.  With either approach, MDL litigants can better ensure that complex subpoena-related disputes are resolved by the MDL court in an efficient manner that reduces the potential for inconsistent rulings or duplicative discovery.

[1] In re New York City Mun. Sec. Litig., 572 F.2d 49, 51 (2d Cir. 1978) (quoting H.R. Rep. No. 1130, 90th Cong., 2d Sess.).

[2] In re Air Disaster, 486 F. Supp. 241, 243 (J.P.M.L. 1980).

[3] 28 U.S.C. § 1407(b).

[4] E.g., In re Mentor Corp. Obtape Transobturator Sling Prod. Liab. Litig., No. CIV.A. 09-3073JAP, 2009 WL 3681986, at *2 (D.N.J. Nov. 4, 2009); In re Subpoenas Served on Wilmer, Cutler & Pickering & Goodwin Proctor LLP, 255 F. Supp. 2d 1, 1 (D.D.C. 2003).

[5] 238 F. Supp. 2d. 270, 273 (D.D.C. 2002).

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id. (citing 28 U.S.C. § 1407(b); Man. for Complex Litig. (Third) § 21.424 (2002)) (internal quotations omitted).

[11] Id. at 273-74 (citing In re Corrugated Container Antitrust Litig., 662 F.2d 875, 879 (D.C. Cir. 1981)).

[12] Id. at 275.

[13] Id. at 279.

[14] As noted in the 6th Circuit’s opinion, appeal from exercise of an MDL judge’s authority to act as a judge of the deposition or discovery district “lies in the circuit court embracing that deposition or discovery district.”

[15] U.S. ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., Inc., 444 F.3d 462, 468 (6th Cir. 2006).

[16] Id. at 468.

[17] Id. at 468-69.

[18] In re: Intel Corp. Microprocessor Antitrust Litig., No. 05-1717-JJF, 2007 WL 9612142, at *3 (D. Del. May 18, 2007), report and recommendation adopted, No. 05-1717-JJF, 2007 WL 9612141 (D. Del. June 14, 2007); see also In re Mentor Corp. Obtape Transobturator Sling Prod. Liab. Litig., No. CIV.A. 09-3073JAP, 2009 WL 3681986, at *2 (D.N.J. Nov. 4, 2009) (finding that “most courts which have addressed this issue have concluded that section 1407(b) empowers an MDL transferee court to exercise the powers of any other district court, including the enforcement of subpoenas.”).

[19] 117 F.R.D. 30, 32 (D.P.R. 1987).

[20] 2018 WL 2926581, *3 (D. Kan. June 11, 2018).

[21] See, e.g., In re Am. Med. Sys., Inc. Pelvic Repair Sys. Prod. Liab. Litig., No. 2325, 2017 WL 1090029 (S.D.W. Va. Mar. 21, 2017); In re Neurontin Mktg., Sales Practices & Prod. Liab. Litig., 245 F.R.D. 55 (D. Mass. 2007); In re Accutane Prod. Liab. Litig., No. 804MD2523T30TBM, 2006 WL 1000311 (M.D. Fla. Apr. 14, 2006).

[22] No. 15-MD-2670-JLS-MDD, 2018 WL 454440, at *2 (S.D. Cal. Jan. 17, 2018) (citing 28 U.S.C. § 1407(b)).

[23] Id.

[24] Id.

[25] 208 F.R.D. 615, 616 (N.D. Cal. 2002).

[26] No. 18-MD-02841, 2020 WL 1950463, at *2 (S.D. Fla. Apr. 23, 2020).

[27] Id.

[28] U.S. ex rel. Pogue, 444 F.3d. at 468 n.2.

[29] In re Photochromic Lens Antitrust Litig., No. 8:10–md–2173–T–27, 2012 WL 12904391, at *2 (M.D. Fla. Dec. 20, 2012) (collecting cases); see also In re Bank of New York Mellon Corp. Forex Transactions Litig., No. 11 CIV. 9175 LAK JLC, 2014 WL 2884726, at *1 (S.D.N.Y. June 26, 2014) (“Despite [Section 1407(b)’s] limiting language as to depositions, however, it is widely accepted that this authority extends to all pretrial proceedings, including governance of non-party, extra-district subpoenas.”).

[30] Rule 45(f), 2013 Advisory Committee Note.

[31] Wultz v. Bank of China, Ltd., 304 F.R.D. 38, 46 (D.D.C. 2014); see also In re Braden, 344 F. Supp. 3d 83, 91 (D.D.C. 2018) (finding that transfer of subpoena-related motion to Southern District of Ohio “is appropriate to avoid disrupting the underlying litigation.”).

[32] 306 F. Supp. 3d 372, 374 (D.D.C. 2017).

[33] Id.

[34] Id.

[35] Id. at 378.

[36] Id. at 379-81.

[37] Id. at 381 (internal quotations omitted).

[38] Id. at 383.

© 2020 Winston & Strawn LLP

For more on subpoenas, see the National Law Review Civil Procedure Law section.

The Intersection of Libel Law and Politics

Libel Commentary

Since its beginning, the American Republic has debated sedition, free speech, and protection of reputation. After we cut our British roots we ensured our right to criticize our leaders, the politicians who control our government. The British crown demanded loyalty of its printers, but American courts would not tolerate such prosecutions as the notion of a truly free press emerged.

Today, we are witnessing an intense intersection of politics and libel law unlike anything we’ve seen since the 1960s. Politicians are suing for libel damages and being sued. The current overlap of politics and libel includes a push by the president of the United States to change libel law. Those who seek change, including President Trump, say they want to make it easier for plaintiffs to prevail and collect damages. Careful what you wish for, though, because such change would ease the path for plaintiffs seeking to collect damages from public officials such as Donald Trump.

Heading into the 2020 election, the Trump campaign filed three lawsuits in a 10-day period against mainstream media.

Legal scholars and pundits have opined that Trump’s pending libel complaints against The New York Times, The Washington Post, and CNN are weak or even dead on arrival. These analysts point out that Trump’s campaign is seeking damages due to political opinions, which are protected speech under the First Amendment.

As a life-long public figure and now public official, Trump (his re-election campaign is the plaintiff) must prove that the media defendants acted with actual malice, that is, reckless disregard for the truth or that they published information knowing it was false. The actual malice standard is well established through the First Amendment by a unanimous U.S. Supreme Court in New York Times v. Sullivan in 1964.

Win or lose in court, the president’s libel lawsuits also are political messaging, dramatic actions that complement his anti-press rhetoric. The stories about the libel suits are arguably more effective than the libel suits themselves in the president’s battles to discredit the mainstream press. In addition to political messaging, libel claims – even when they fail in court — can be a form of punishment.

Historical Context

Presidential involvement in libel litigation is rare, but not unprecedented. President Theodore Roosevelt was irritated by published allegations of corruption in the sale of the Panama Canal. He pushed the Justice Department to prosecute publisher Joseph Pulitzer and other newspapermen for criminal libel. Courts later quashed indictments.

After his presidency, Roosevelt was sued for libel by a New York political figure (William Barnes) who objected to being called corrupt by Roosevelt. The jury trial, in Syracuse in 1915, was grist for Dan Abrams’ book “Theodore Roosevelt for the Defense.” The jury ruled in Roosevelt’s favor; he seemed to thrive in legal combat, the book says.

Fifteen years ago, there was speculation about the prospect of President George W. Bush suing the National Enquirer. The Enquirer published a report based on unnamed sources who claimed that pressures of the job led Bush to drink, even though he said he gave up alcohol on his 40th birthday.

“The president would be exceptionally ill-advised to file suit over this story, even if he knows . . . it’s false,” wrote First Amendment lawyer Julie Hilden in 2005.

She suggested such a suit would likely fail because its “actual malice” claim appeared to be weak. Plus, she warned, the suit would expose the president to civil discovery. Bush did not sue.

After the 1964 election, Republican presidential candidate Barry Goldwater successfully sued Fact Magazine and its publisher for an article questioning Goldwater’s mental fitness to hold office (Goldwater v. Ginzburg). Federal courts found that Goldwater’s complaint met the actual malice standard, awarding $75,000. The U.S. Supreme Court, in 1970, declined to hear the case.

Trump’s Track Record

In seven earlier speech-related cases filed by Donald Trump or his companies before he became president, four were dismissed on the merits, two were voluntarily withdrawn, and one was an arbitration won by Trump by default. These findings were compiled by Susan E. Seager, a First Amendment attorney who teaches media law at University of Southern California. Indeed, this appears to be a way of life for the highly litigious Trump, who has been involved in approximately 4,000 legal battles over the past 30 years, both as a plaintiff and defendant. An exhaustive analysis by USA Today detailed those seven libel cases where he initiated the lawsuits and seven more where he was named defendant. These don’t even include the threats of suits, the so-called “I’ll sue you” effect that can too often chill speech.

A common thread of these cases is the pursuit of jumbo damages. Trump alleged $5 billion in damages (in New Jersey state court) because author Timothy O’Brien and his book publishers cast doubt on the size of the real estate mogul’s wealth. Trump lost after five years of litigation but assessed the outcome this way to The Washington Post: “I spent a couple of bucks on legal fees but they spent a whole lot more. I did it to make [O’Brien’s] life miserable, which I’m happy about.”

Judicial Nominations

Judicial appointments are a priority for the Trump Administration. Interestingly, a judge nominated by the president in 2018 dismissed (with prejudice) a case filed by a Republican congressman.

On August 5, 2020, U.S. District Court Judge C.J. Williams of the Northern District of Iowa dismissed Congressman Devin Nunes’ defamation complaint against Esquire writer Ryan Lizza and its publisher. The judge said published criticism of Nunes (R-CA) was not actionable (Devin G. Nunes v. Ryan Lizza and Hearst Magazine Media, Inc).

Interestingly, part of this recent case deals directly with President Trump and his tweets. I’ll quote Judge Willliams’ opinion regarding Trump’s tweet that “Obama had my ‘wires tapped’ in Trump Tower:”

First, to the extent defendants assert President Trump “made up” the tweet,

the statement is not of an concerning plaintiff (Nunes). Second, plaintiff has

not alleged that the statement is false. Third, even if the statement is factually inaccurate, the statement that plaintiff’s theory about surveillance of the Trump campaign “began” with President Trump’s tweet is not defamatory.

Other Political Cases

Sarah Palin, John McCain’s vice-presidential running mate in 2008, sued The New York Times for defamation, claiming that a 2017 editorial maliciously associated her with a mass shooting that injured Congresswoman Gabrielle Giffords (D-AZ). A federal judge dismissed her case, but a 3-0 panel of the U.S. Second Circuit Court of Appeals reversed, thus reviving the case (Sarah Palin v. The New York Times).

Besides the characters involved – and the reversal in federal court – this case is interesting because The New York Times published a correction: “An earlier version of this editorial incorrectly stated that a link existed between political incitement and the 2011 shooting of Representative Gabby Giffords. In fact, no such link was established.”

To prevail, Palin – a public figure — must show that the newspaper acted with actual malice.

Meanwhile, a former contestant on “The Apprentice,” Summer Zervos sued President Trump in 2017 claiming she was defamed because candidate Trump said her allegations of his sexual misconduct in 2007 were lies. In 2019, a 3-2 majority of a New York State appeals court rejected the argument from Trump’s counsel that a sitting president cannot be sued in state court (Zervos v. Trump).

In addition to its spotlight on the Supremacy Clause, the Zervos lawsuit also examines the boundaries of opinion-as-defense in defamation disputes. Trump’s lawyers argue that his campaign rhetoric and opinions are protected by the First Amendment.

Nicholas Sandmann, a student at Covington Catholic High School in northern Kentucky, alleged that he was defamed by news coverage and social media sharing of accounts of his encounter near the Lincoln Memorial with a Native American activist in early 2019. Sandmann sued The Washington Post for $250 million; NBC and CNN for $275 million each.  CNN and The Washington Post settled for undisclosed terms.

Are media rattled by all this litigation? Yes, I think that’s pretty apparent. How could they not be in this anti-press environment? Libel claims are part of a general, overarching criticism of press, reporting the news, and media prerogatives.

From a bottom-line standpoint, media must pay for legal defense. Newspaper publisher McClatchy — a defendant in one of Congressman Devin Nunes’ myriad libel suits — filed for bankruptcy in February. The Poynter Institute for journalism published commentary in 2019 that McClatchy could hire 10 reporters for the money it would spend on the Nunes lawsuit.

A small newspaper in Iowa (Carroll Times Herald) won a libel case but created a GoFundMe appeal in 2019 because the legal defense drained its resources. Response to the solicitation — mainly small donations, from across the country — was impressive.

Most certainly the Sandmann cases have drained considerable resources from some of the most noted media companies in the country as those out-of-court settlements show.

Non-political Cases

We also see a flurry of high-dollar claims not directly related to political speech.

On August 14, the unanimous North Carolina Supreme Court upheld a jury’s libel decision against the Raleigh newspaper (Beth Desmond v. The News & Observer Publishing Company). The Ohio private liberal arts Oberlin College is appealing the whopping $44 million in damages awarded to a local bakery stemming from an alleged shoplifting attempt by three African American students (Gibson’s Bakery v. Oberlin College). Rolling Stone paid dearly for its flawed article about a campus rape at the University of Virginia.

Is libel law likely to change?

Fundamental change is not likely in the near future. Justice Clarence Thomas suggested it’s time for the Supreme Court to examine/roll back the New York Times v. Sullivan standard created in 1964. The premise is that current strict standards intended to protect free speech and free press make it nearly impossible for public figures and public officials to prevail in libel cases.

Justice Thomas’ colleagues on the Court have not publicly joined him in urging review of Sullivan.

Libel cases are percolating in federal and state courts that eventually could ripen for Supreme Court review. The Roberts Court has been protective of speech, including commercial and political speech, such as:

  • Citizens United v. FEC, 2010 (political contributions)
  • Snyder v. Phelps, 2010 (picketing at funerals)
  • Sorrell v. IMS Health, 2011 (data mining, drug marketing)
  • Reed v. Town of Gilbert, 2015 (sign regulations cannot be based on content)
  • Matal v. Tam, 2017 (trademarks)​

We all can be grateful that American libel law does not mirror British libel law, where the burden of proof is on the defendant rather than the plaintiff. Surely by now we have all seen the clickbait coverage of actor Johnny Depp’s libel case against The Sun (Johnny Depp v. News Group Newspapers) for its 2018 reportage of his contentious divorce, which included a headline calling him a “wife beater.”

American libel law is not British libel law. And we need to keep it that way.

© Aimee Edmondson, PhD

Article by Aimee Edmondson, PhD E.W. Scripps School of Journalism at Ohio University and National Law Review Guest Contributor.
For more on free speech, see the National Law Review Constitutional Law section.

Amrock Lawsuit Spotlights Consequences of Litigious Gamesmanship

Trade Secret Litigation Commentary

 

On June 3, the Texas Fourth Court of Appeals reversed and remanded the dumbfounding $740 million award in Title Source v. HouseCanary – a welcome development for American innovation and business collaboration. On the back of years-long litigation, a fresh trial of the case can offer important signals for corporations on the risks and rewards of collaboration, as well as deliver much-needed guidance on best practices to navigate already murky trade secret protections.

For the uninitiated, litigation between HouseCanary and Title Source (now Amrock) was borne out of a contract the two companies entered in 2015. The arrangement obligated the delivery of an automated valuation model (AVM) and an app to Title Source at a rate of $5 million per year for HouseCanary’s efforts. Title Source intended to use the software and app as a platform to provide customers the ability to assess property values digitally alongside other services the company offers, like title insurance and closing services. After HouseCanary failed to meet its contractual obligation to deliver a working AVM app, Title Source sued for breach of contract.

HouseCanary then filed a counter claim including allegations that Title Source had misappropriated proprietary information, in this case trade secrets, in an attempt to make an app of its [Title Source’s] own. After a six-week trial that concluded in March 2018, a Texas jury decided in favor of HouseCanary and awarded nearly three-quarters of a billion dollars – one of the largest tort settlements of the year.

Should anyone be keeping score at home, that means the case’s settlement was valued at nearly 150 times the annual payout HouseCanary was to receive from its work with Title Source and dwarfed the firm’s multiple rounds of venture funding by over $600 million. For HouseCanary, litigation proved more profitable than any of its own business ventures, and the settlement certainly outstripped the going market rates on AVMs.

By the conclusion of the original trial, it seemed clear that Title Source had not misappropriated HouseCanary’s trade secrets or proprietary information in building its own app. Further, HouseCanary’s own expert witness testified that there weren’t “any fingerprints, any clues, any reference to any HouseCanary technology” in the app Title Source developed on its own.

Regrettably, the jury’s finding against Title Source was based on inaccurate and incomplete information, unsubstantiated inadmissible character attacks, and back-of-the-napkin math from a questionable damages ‘expert.’ It seemed to be more focused on sticking it to corporate America rather than the actual facts and merits of the case. Not only was the jury gravely mislead, but they also never heard critical information which came to light days after the trial concluded.

Post-trial statements by a former HouseCanary executive turned whistleblower clarified that there was never a “working version” of the app to be delivered to Title Source, and per three more former HouseCanary executives, that the company didn’t have “any IP to steal.” The cogency of HouseCanary’s allegations were further thrown into question when the company, six weeks after the trial’s closure, moved to seal a number of exhibited documents from court record.

As I wrote previously, once the sealing motion was overturned, the documents should “provide another look at the technology in question, which will provide clarity whether there were trade secrets to be stolen.” This is especially important when considered in tandem with the whistleblower testimony.

These and other erroneous inclusions and fatal procedural errors led to a Texas appellate court overturning the verdict and ordering a new trial. The ramifications of the decision in the new trial promise to be immense, especially if HouseCanary invokes Texas’ Uniform Trade Secrets Act for a second time. The Act has been adopted by 47 states total, and significantly broadens the implications of this trial for business operations in all kinds of industries by setting precedent for other lawsuits.

Trade secret litigation has increased tremendously in the past decade, with over 2,700 cases since 2009; add on the massive original settlement and the ruling may very well set the tone for the future of trade secret litigation and the standard of intellectual property protections.

Given the new evidence that has emerged since the jury delivered its decision in 2018, the cards certainly appear stacked against HouseCanary successfully duping the retrial jury. There is little doubt that businesses and innovators everywhere will be awaiting the verdict of the Texas court for clarity on trade secret protections and our court system’s tolerance for overwhelmingly apparent legal gamesmanship.

© George Nethercutt

Authored by George Nethercutt of The George Nethercutt Foundation, a guest contributor to the National Law Review.

For more on trade secrets, see the National Law Review Intellectual Property law section.

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

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

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

Background Trump v. Vance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

Reactions to Trump v. Mazars

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

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

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

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

Looking Ahead to What’s Next

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

 

Copyright ©2020 National Law Forum, LLC

 

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