Tag: Litigation

Guilty Plea for Altering HSR Documents

Recently  posted in the National Law Review an article by Jonathan M. Rich and Sean P. Duffy of Morgan, Lewis & Bockius LLP about penalties for dishonesty in Hart-Scott-Rodino (HSR) filings:

The U.S. Department of Justice (DOJ) has provided a jarring reminder of the penalties for dishonesty in Hart-Scott-Rodino (HSR) filings. On August 15, the DOJ announced that Nautilus Hyosung Holdings Inc. (NHI) agreed to plead guilty to criminal obstruction of justice for altering documents submitted with an HSR filing. NHI agreed to pay a $200,000 fine, but the DOJ can still pursue criminal prosecution—and potential incarceration—of an NHI executive.

Companies must make HSR filings with the DOJ and Federal Trade Commission (FTC) and observe a waiting period before closing to enable the agencies to evaluate the likely impact of the transaction on competition. Item 4(c) of the HSR notification form requires parties to provide copies of “all studies, surveys, analyses and reports which were prepared by or for any officer or director . . . for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets.” Such “4(c) documents” provide the agencies with their first insight into the potential impact of a transaction on competition.

NHI, a manufacturer of automated teller machines (ATMs), made a filing in August 2008 in connection with its proposed acquisition of Trident Systems of Delaware (Trident), a rival ATM manufacturer. According to the plea agreement filed in the U.S. District Court for the District of Columbia, an unnamed NHI executive altered 4(c) documents to “misrepresent and minimize the competitive impact of the proposed acquisition on markets in the United States and other statements relevant and material to analyses . . . by the FTC and DOJ.”

Despite the altered documents, the DOJ initiated a merger investigation and requested additional documents from NHI, including copies of preexisting business plans and strategic plans relating to the sale of ATMs for the years 2006-2008. The company submitted the requested materials in early September 2008. According to the plea agreement, an NHI executive altered the business and strategic plans to misrepresent statements concerning NHI’s business and competition among vendors of ATMs.

In early 2009, NHI told the DOJ that an executive had altered 4(c) and other documents produced to the government. NHI and Trident abandoned the proposed transaction shortly thereafter. According to the plea agreement, NHI provided substantial cooperation with the DOJ’s obstruction of justice investigation.

According to the DOJ, the recommended fine of $200,000-$100,000 for each count-takes into account the nature and extent of the company’s disclosure and cooperation. NHI could have faced a maximum fine of up to $500,000 per count of obstruction of justice under 18 U.S.C. § 1512(c). The plea agreement reserves the DOJ’s right to pursue criminal prosecution of the executive involved in the alterations.

Copyright © 2011 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

Italian Competition Authority Finds Abusive Conduct in Withholding Data and Internal Communications Praising Company Strategy

Posted on August 25th in the National Law Review an article by Veronica Pinotti and Martino Sforza of McDermott Will & Emery which highlights the dangers faced by a dominant market player that owns intellectual property rights or data that are essential for other companies to compete. 

On 5 July 2011, the Italian Competition Authority imposed fines of €5.1 million on a multinational crop protection company for having abused its dominant position on the market for fosetyl-based systemic fungicides in breach of Article 102 of the Treaty on the Functioning of the European Union.  In addition, the Authority issued an injunction restraining the company from such conduct in the future.

The Authority considered that the multinational was able to increase its prices for finished products on the downstream market while increasing the volume of its own sales, showing a high degree of pricing policy independence.

In making its decision, the Authority also took into account the fact that, in addition to its high market share, the multinational was the only vertically integrated manufacturer with significant financial capability and it owned certain research data required for the commercialisation of fosetyl-based products.  According to the Authority, these data are vital for accessing the market, given that they are indispensable for competitors seeking to renew marketing authorisations, because the current legislation restricts the repetition of tests on vertebrate animals.  The Authority noted that certain competitors that had joined a task force for the purpose of negotiating access to the multinational’s data were disqualified from renewal of their marketing authorisations and had to leave the market.  Refusal by the multinational to grant access to the data was therefore found to be abusive.

The Authority reviewed a number of the multinational’s internal communications that praised the results obtained in the fosetyl-based business in Italy, thanks to the strategy adopted by the company.  According to the Authority, these communications proved that the company was aware of the anti-competitive character of their conduct.

In the Authority’s view, the company’s conduct constituted a serious infringement and therefore deserved a very high fine.

Comment

The case highlights the dangers faced by a dominant market player that owns intellectual property rights or data that are essential for other companies to compete.  The case also illustrates the importance of the language used by businesses in their internal communications, given that internal communications are often used by the Authority when reaching a decision on potential infringements. Refusals to licence or grant access to market-essential data can only be made if there are objective grounds for doing so.  This is a difficult issue on which dominant companies should seek legal advice.

© 2011 McDermott Will & Emery

NYC Condo Refinance Collapses Because There Was No "Meeting of the Minds"

Recently posted in the National Law Review an article by Eric S. O’Connor of Sheppard Mullin Richter & Hampton LLP wherein  plaintiffs sought damages arising out of their attempt to refinance a mortgage loan with the defendant bank:

In Trief v. Wells Fargo Bank, N.A., Index No. 105280/09, — N.Y.S.2d — (Sup Ct, NY County, Apr. 4, 2011) (“Trief”), the plaintiffs sought damages arising out of their attempt to refinance a mortgage loan with the defendant bank (the “Bank”), for breach of contract and violation of New York’s Unfair and Deceptive Practices Act, N.Y. General Business Law (“NYGBL”) § 349. Justice Charles Edward Ramos granted the Bank’s motion for summary judgment on both counts. The parties actually proceeded to closing when plaintiff walked away from the refinancing of a luxury midtown condominium located at 15 West 53rd Street, New York, NY – seemingly over a $518.75 dispute.

The main lesson is that all parties, especially when communicating via more informal modes of communications like email, must clarify and confirm an “agreement on all essential terms” or else a valid contract will not be formed.

The facts – negotiation, informal communications, the exchange of standard loan forms, etc… – follow a seemingly common pattern. A mortgage consultant from the Bank filled out the refinance application on the Triefs’ behalf by telephone and then sent an e-mail attaching a Good Faith Estimate of Settlement Charges (the “GFE”). The GFE proposed a 5.125% interest rate and a standard provision indicating that the “fees listed are estimated – the actual charges may be more or less.” The cover email asked to “let me know if you would like me to lock you in for 60 days”, which Mr. Trief responded “sure.” After a small dispute about the rate, the Bank faxed a Conventional Commitment Letter (the “Letter”) to the Triefs confirming the rate and other details. Despite language in the Letter that “You must sign and return this commitment letter within that period to ensure receiving the terms specified”, neither party signed the Letter. At the scheduled closing, the Triefs refused to proceed because the Bank sought to charge them a rate lock extension fee of $518.75, which the Triefs claim was never negotiated or agreed to.

The main issue was whether a contract was formed. The Court explained the classic rules that a plaintiff must establish an offer, acceptance of the offer, consideration, mutual assent, and an intent to be bound. Kowalchuk v. Stroup, 61 A.D.3d 118, 121 (1st Dept 2009).  Mutual assent means a “meeting of the minds” and must include agreement on all essential terms. Id. The Court held that there was not a meeting of the minds on all of the essential terms of a final contract for refinancing. The two key pieces of evidence – the email from the Bank asking to “let me know if you would like me to lock you in for 60 days” and the standard GFE language that terms were subject to change – were only seeking an acceptance to lock in the rate for a fixed period of time, rather than a final agreement to refinance. Further, the Real Estate Settlement Procedure Act(“RESPA”) shows that the legislature did not intend for the GFE to bind a lender to a final loan agreement. See 24 CFR § 3500.7 [a], [g] (the “GFE is not a loan commitment. Nothing in this section shall be interpreted to require a loan originator to make a loan to a particular borrower.”).

Finally, the Court also rejected the Triefs claim under NYGBL § 349. A claim for violation of GBL § 349 is based upon consumer-oriented conduct that is materially misleading, causing a plaintiff injury. The Court held that the Triefs failed to even identify consumer-oriented conduct on the part of the Bank because private contract disputes, unique to the parties, generally do not fall within the scope of the statute. The Triefs failed to demonstrate injury because they refused to close on the loan refinancing and did not pay any fees to the Bank.
Copyright © 2011, Sheppard Mullin Richter & Hampton LLP.

Hitting Non-Practicin Entities Where It Hurts

Recently posted in the National Law Review an article by Robert A. Gutkin and Jeff C. Dodd of Andrews Kurth LLP about the Federal Circuit affirmed a district court award of substantial sanctions against a Non-Practicing Entity (NPE) that had a business model of suing numerous companies for nuisance value settlements. 

 

 

The Federal Circuit Affirms an Award of Substantial Sanctions Against a NPE with a Business Model of Bringing Litigation To Extract Quick Settlements

 

Eon-Net LP v. Flagstar Bancorp, No. 2009 – 1308 (Fed. Cir., July 29, 2011) (Judges Lourie, Mayer and O’Malley)

 

In a July 29 decision, the Federal Circuit affirmed a district court award of substantial sanctions against a Non-Practicing Entity (NPE) that had a business model of suing numerous companies for nuisance value settlements. As the Court succinctly stated:

 

The record supports the district court’s finding that Eon-Net acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement from Flagstar. At the time that the district court made its exceptional case finding, Eon-Net and its related entities, Millennium and Glory, had filed over 100 lawsuits against a number of diverse defendants alleging infringement of one or more patents from the Patent Portfolio. Each complaint was followed by a “demand for a quick settlement at a price far lower than the cost of litigation, a demand to which most defendants apparently have agreed.” Slip Op at 22.

 

We think that this is a potentially important holding because the Federal Circuit approved an exceptional case for enhanced sanctions based on the business model adopted by some NPE’s—suit followed by quick settlement at lower-than-litigation cost. As we discuss below, the Eon-Net LP case represents the latest in a string of judicial opinions providing defendants with additional ammunition against NPE’s pursuing “objectively baseless” litigation. However, the threat of sanctions may also lead NPE’s to be more difficult in their settlement demands and willingness to offer quick and early settlements.

 

Background

 

The case at issue involved three document processing systems patents, U.S. Patent Nos. 6,683,697 (“the ‘697 Patent”), 7,075,673 (“the ‘673 Patent”), and 7,184,162 (“the ‘162 Patent”) (collectively “the Patents”) owned by Eon-Net LP, a patent holding company formed to enforce various patents. The Patents are part of a larger patent family (“the Patent Portfolio”) originating with a parent patent application filed in 1991. Between 1996 and 2001, Millennium L.P., an Eon-Net related company, filed four lawsuits asserting various claims of the Patent Portfolio. After 2001, Eon-Net hired new outside litigation counsel, and the number of patent cases filed on behalf of Eon-Net and its related entities skyrocketed. By the time the district court in the present matter had issued sanctions against Eon-Net, more than 100 lawsuits had been filed, almost all of which resulted in early settlements or dismissals.

 

Eon-Net sued Flagstar Bancorp in 2005, alleging infringement of the ‘697 patent. The district court entered summary judgment of noninfringement in favor of Flagstar, finding that Eon-Net failed to adequately investigate its claims prior to filing suit, and finding that the claims were baseless. The district court also assessed Rule 11 sanctions in the amount of $141,984.70 against Eon-Net and its attorney.

 

After the Federal Circuit vacated and remanded both the summary judgment and Rule 11 decisions in 2007, Eon-Net LP v. Flagstar Bancorp, 249 F. App’x 189 (Fed. Cir. 2007), Eon-Net pursued the case (even adding new claims for infringement). But after receiving an unfavorable Markman decision on claim construction, Eon-Net stipulated to noninfringement. The district court subsequently granted Flagstar’s motion for attorney fees under 35 U.S.C. §285, finding that Eon-Net pursued baseless claims; the lawsuit was brought for the improper purpose of seeking a nuisance value settlement; Eon-Net destroyed evidence; and, Eon-Net’s litigation tactics were improper. Upon invitation from the district court, Flagstar renewed its prior Rule 11 motion. The district court reinstated in full the $141,984.70 in attorneys fees and costs against Eon-Net and its attorney for violation of Rule 11. The district court also found the case to be exceptional under 35 U.S.C. §285, and awarded Flagstar $489,150.48 in attorneys fees and costs after Eon-Net continued to litigate the case after remand.

 

The Federal Circuit Decision

 

The Federal Circuit upheld the district court’s claim construction, and affirmed the judgment of noninfringement to which Eon-Net had stipulated.

 

In reviewing the district court’s finding of an exceptional case under 35 U.S.C. §285, the Federal Circuit stated:

 

Indeed, “[l]itigation misconduct and unprofessional behavior may suffice, by themselves, to make a case exceptional under § 285.” Absent litigation misconduct or misconduct in securing the patent, sanctions under § 285 may be imposed against the patentee only if both (1) the patentee brought the litigation in bad faith; and (2) the litigation is objectively baseless (citations omitted). Slip Op at 17.

 

Eon-Net failed to show that the district court’s findings regarding the accused litigation misconduct were clearly erroneous. Eon-Net also failed to overcome the finding that its infringement allegations could only be supported by baseless claim construction positions.

 

Certainly Eon-Net’s behavior during the course of the litigation was egregious, as the court described in detail.1 But that alone would not have warranted our Client Alert, for the behavior giving rise to sanctions in any given case is based on the particular facts of the case. What caught our eye was the Federal Circuit’s condemnation of the business model of filing litigation to obtain a quick return through settlement:

 

Eon-Net’s case against Flagstar had “indicia of extortion” because it was part of Eon-Net’s history of filing nearly identical patent infringement complaints against a plethora of diverse defendants, where Eon-Net followed each filing with a demand for a quick settlement at a price far lower than the cost to defend the litigation. Slip Op at 22.

Meritless cases like this one unnecessarily require the district court to engage in excessive claim construction analysis before it is able to see the lack of merit of the patentee’s infringement allegations…. Thus, those low settlement offers—less than ten percent of the cost that Flagstar expended to defend suit—effectively ensured that Eon-Net’s baseless infringement allegations remained unexposed, allowing Eon-Net to continue to collect additional nuisance value settlements. Slip Op at 23.

 

The Federal Circuit affirmed the finding that the case was exceptional under 35 U.S.C. §285, and was disturbed by the ability of an NPE, such as Eon-Net, to impose high costs on a company to defend against meritless claims, while at the same time the NPE faces little downside risk other than the loss of future licensing revenue.2

 

Potential Implications of Eon-Net LP

 

We stress that the Federal Circuit did not uphold sanctions merely because a NPE sought to enforce its patent rights. Rather, the Federal Circuit was clearly bothered by the ability of an NPE to exploit the “system” to extort nuisance value settlements while facing little downside risk.

 

Indeed, some NPE’s count on defendants to settle based on the inescapable fact that defense of even a suit on a bad patent is expensive. That cost is built into the architecture of patent litigation. As our colleague David Griffith chronicled in“Patents by the Numbers” in Andrews Kurth’s IP and Technology Developmentsthe median cost of defense in 2009 (as reported by AILPA) was $650,000 if less than one million was at risk, $2.5 million if $1 million to 25 million at risk – $2,500,000. In addition, the median time for an infringement case to get to trial was 2.5 years (2009 data from a report by PwC). While the rate of success was 38% in the 15 most active patent dockets (1995-2009) as reported by PwC (31% for NPE’s) if the patentee survives summary judgment motions and gets to a jury, its odds improve to a 75% win rate (according to the University of Houston Law Center’s patstats). Given these statistics, the temptation for any operating company faced with a lawsuit is to settle and move on with its business if the NPE’s offer of settlement is far less than the cost of defense. NPE’s count on that temptation.

 

The Federal Circuit stopped short of stating that business models like that of Eon-Net provide the sole basis for finding an exceptional case under 35 U.S.C. §285. However, the language of the decision does suggest that the business model may per se satisfy the “bad faith” element of the two part requirement for finding an exceptional case. This decision seems to be an attempt by the Court to try to level the playing field for patent litigation by increasing the downside risk for a NPE. Moreover, this case follows a string of other cases, including eBay (which held that irreparable harm would not be presumed in a preliminary injunction action even if infringement had been found) and MedImmune (which allows declaratory judgment actions to be brought under less stringent standards than the Federal Circuit had historically applied).

 

Just as importantly, we are seeing many other trends and techniques that defendants are starting to use to combat vexatious NPE litigation. Some defendants are finding success in obtaining venue transfers from courts thought to be more favorable to NPE litigation; others are using declaratory judgment actions; yet others are pursuing early summary judgments (by some accounts approximately 60% of patent cases are decided on summary judgment and patentee success at the summary judgment stage is only 12%).

 

Our firm also has had success strategically employing the re-examination to narrow or even eliminate patent claims from weak (or worse patents). Our success is consistent with some compelling statistics. Again our colleague David Griffith reported that the chances that PTO will grant an ex parte/inter partes reexamination application are greater than 90% (based on USPTO statistics as of March 2011). According to an AILPA 2009 report, the median cost of an ex parte reexamination was $10,000; for an inter-partes proceeding the median was $188,000. Moreover, according to USPTO statistics as of March 2011, in most cases claims were cancelled or modified:

 

ex parte reexamination (third party requested re-exam)

inter partes reexamination

All claims confirmed: 24%

All claims confirmed: 12%

All claims cancelled: 13%

All claims cancelled: 45%

Claims modified: 63%

Claims modified: 43%

 

The bottom line: defendants in NPE litigation should consider in the calculus of settlement not only litigation cost but also the trends and techniques favoring defendants over NPE’s, especially now that Eon-Net LP may encourage courts to shift the expenses of defense that NPE’s count on encouraging quick settlement—at least in the most abusive cases.

 

 

1. The court provided an extensive litany of Eon-Net’s sanctionable behavior throughout the course of the litigation, including: destroying relevant documents prior to the initiation of the lawsuit; flaunting the fact that as a patent enforcement company they did not believe they needed to have a document retention policy; refusing to participate in the claim construction process; lodging incomplete and misleading evidence with the court; submitting declarations contradicting deposition testimony; and, evidencing a general disdain and disrespect for the court process including statements made at a deposition by a party witnesses complaining that his deposition was “an inconvenience and a bother” and that he was “so sick of this stuff by now. I am so sick of this stuff, especially this haggling over stupidities and trivialities which is the name of the game in litigation.” Slip Op at 20.

 

2. The Federal Circuit also affirmed the Rule 11 sanctions, even though it was undisputed that Eon-Net’s counsel did examine portions of Flagstar’s website and reach a conclusion that it worked in a manner that infringed the ‘697 patent. “A reasonable pre-suit investigation, however, also requires counsel to perform an objective evaluation of the claim terms when reading those terms on the accused device.” Slip Op at 26. It was not clearly erroneous for the district court to conclude that Eon-Net’s claim construction position “borders on the illogical” and that “[t]he specification exposes the frivolity of Eon-Net’s claim construction position.” Id.

© 2011 Andrews Kurth LLP Traurig, LLP. All rights reserved.

http://www.natlawreview.com/article/fda-issues-draft-guidance-510k-device-modifications-new-emphasis-potential-impact-modificati

Recently posted in the National Law Review an article by  Sylvie A. Durham, Genna Garver and Dmitry G. Ivanov of Greenberg Traurig, LLP about a dismissed a lawsuit brought by noteholders under a New York law  indenture 

The U.S. District Court of the Southern District of New York dismissed a lawsuit brought by noteholders under a New York law indenture against the co-issuer of the notes and collateral manager for breach of contract because the noteholders failed to comply with the “limitation of suits” provision in the indenture.

The court stated that the allegation of the noteholders that they did not receive proper distribution amounts on the notes constituted an “event of default” under the indenture, and as such “falls squarely within the limitation on suits clause.” However, since the noteholders did not comply with all the contractual prerequisites for bringing a lawsuit set forth in the “limitation of suits” provision of the indenture, the court did not allow them to proceed with breach of contract claims against the co-issuer and collateral manager. However, the court did not dismiss the breach of contract claims against the indenture trustee based on the same “no-action” clause, since compliance with such clause “would require [noteholders] to demand that the [indenture trustee] initiate proceedings against itself to rectify the alleged error.”

A copy of the case can be accessed here.

 ©2011 Greenberg Traurig, LLP. All rights reserved.

Wisconsin Supreme Court Addresses Issues Concerning the Default Judgment Statute, the Direct Action Statute, and Personal Liability for Corporate Officers

Recently posted  posted in the National Law Review an article by Heidi L. Vogt and Jessica M. Swietlik of von Briesen & Roper, S.C. regarding the Wisconsin Supreme Court issued a decision in Casper, et al. v. American International South Ins. Co.

 Casper, et al. v. American International South Ins. Co., et al., 2011 WL 81

On July 19, 2011, the Wisconsin Supreme Court issued a decision in Casper, et al. v. American International South Ins. Co., et al., 2011 WI 81 (“Casper”) in which it addressed three issues: 1) the excusable neglect standard relative to default judgments; 2) whether an insurance policy must be delivered or issued in the State of Wisconsin in order to subject the insurer to a direct action under Wis. Stat. §§ 632.24 and 803.04(2); and 3) whether a corporate officer may be held personally liable for non-intentional torts that occur within the scope of employment.

The Casper case arises from a motor vehicle accident. Mark Wearing, a co-employee of Bestway Systems, Inc. (“Bestway”) and Transport Leasing/Contract Inc. (“TLC”), struck the Caspers’ minivan from behind, seriously injuring all five passengers in the Caspers’ vehicle.

Investigators learned that Wearing was under the influence of oxycodone, diazepam, and nordiazepam when the collision occurred. At the time of the accident, Wearing was en route to make a delivery for a Bestway customer. Jeffrey Wenham, the CEO of Bestway, had allegedly approved a driving route for Wearing on this particular delivery that required him to drive 536 miles through several states overnight. Wearing claimed he was told he would be fired if he did not complete the route as planned. However, Wenham had never met Wearing and the route that Wenham apparently approved was designed a year and a half prior to the accident. An expert hired by the Caspers opined that the route violated the hours of service requirements of the Federal Motor Carrier Safety Regulations (“FMCSR”) and was unsafe.

The Caspers brought suit against fourteen named defendants, including: Mark Wearing, his co-employers Bestway and TLC, Bestway’s CEO Jeffrey Wenham, and TLC’s excess insurer, National Union Fire Insurance Company of Pittsburgh PA (“National Union”). The appeals in this case stem from three orders issued by the trial court, all of which were affirmed by the court of appeals: 1) its order granting National Union’s request for a 7-day extension to file its answer and denying the Caspers’ motion for default judgment against National Union on the grounds that National Union had demonstrated excusable neglect; 2) its order granting summary judgment to National Union on the grounds that under Kenison v. Wellington Ins. Co., 218 Wis. 2d 700, 582 N.W.2d 69 (Ct. App. 1998) the Caspers could not maintain a direct action against National Union because its insurance policy was not issued or delivered in Wisconsin; and 3) its order denying Wenham’s motion for summary judgment on the Caspers’ claims for negligent training and supervision. The Wisconsin Supreme Court considered each of these issues separately, and affirmed in part, reversed in part, and remanded with instructions consistent with its decision.

The court affirmed on the first issue, holding that the trial court did not erroneously abuse its discretion by finding that National Union’s “lost in the mail” excuse amounted to excusable neglect such that granting an extension and denying the motion for default judgment was appropriate. The court noted that “although courts should be skeptical of glib claims that attribute fault to the United States Postal Service,” it was satisfied that a reasonably prudent person could neglect a deadline when correspondence gets lost, as was the case with National Union here.

Second, the court reversed on the direct action issue and thereby explicitly overruled Kenison. In doing so, the court acknowledged that the court of appeals properly applied Kenison as it lacked authority to ignore it. In Kenison, the court of appeals concluded that Wis. Stat. § 631.01 limited the application of the direct action statute, § 632.24, to insurance policies issued or delivered in Wisconsin. The Casper court disagreed. After carefully examining the plain language and the legislative history of Wis. Stat. §§ 631.01, 632.24, and 803.04(2), the court concluded that “Section 803.04(2) explicitly and § 632.24 by necessary implication are intended to apply to liability insurance policies delivered or issued for delivery outside Wisconsin, so long as the ‘accident, injury or negligence occurred in this state.’” Accordingly, the Caspers should have been allowed to maintain a direct action against National Union even though its policy was neither issued nor delivered in Wisconsin because the accident occurred in Wisconsin.

With regard to the third issue, the Wisconsin Supreme Court agreed with the lower courts that there are some instances where corporate officers like Wenham can be held personally liable for non-intentional torts committed in the course of employment. Both the trial court and the court of appeals had ended their inquiries there, finding that issues of fact existed regarding Wenham’s alleged negligent supervision and training of Wearing such that summary judgment was not appropriate on those claims. However, the Wisconsin Supreme Court considered and ultimately reversed on public policy grounds, holding that even if Wenham’s approval of the route that allegedly violated the FMCSR was a cause of the accident, “the results are so unusual, remote, or unexpected that, in justice, liability ought not be imposed.”

Justice Bradley issued an opinion concurring in part and dissenting in part, and Chief Justice Abrahamson joined in Justice Bradley’s concurrence/dissent.

©2011 von Briesen & Roper, s.c

Facebook & Extramarital Affairs: Beware!

Posted on Wednesday, August 3, 2011 in the National Law Review an  article by Rebecca L. Palmer  Timothy C. Haughee of Lowndes, Drosdick, Doster, Kantor & Reed, P.A. regarding a growing number of married people are using Facebook to reunite with old flames or to connect with those with whom they seek a romantic relationship.

With the advent of social networking sites such as Facebook, people are now able to reconnect with long-lost friends with just the click of a mouse. While many take advantage of Facebook’s added convenience to make innocent connections with others, a growing number of people are using Facebook to reunite with old flames or to connect with those with whom they seek a romantic relationship. For a married person, this can be a real marriage disaster.

According to a 2008 report by the Pew Internet and American Life Project, one in five adults, many of whom are married, use Facebook for flirting. A British divorce website, Divorce-Online, recently reported that the term “Facebook” appeared in nearly 20% of the petitions it was handling last year, out of a case load of 7,000. Indeed, in one recent survey conducted by the American Academy of Matrimonial Lawyers, two-thirds of lawyers said Facebook was the “primary source” of evidence in divorce proceedings.

So, does Facebook cause extramarital affairs? While the statistics referenced above may lead one to conclude that Facebook can cause extramarital affairs, there has yet to be evidence of such a causal link. In fact, the divorce rate has generally been stable during the last decade, and infidelity’s role as the primary cause of around 25% of divorces has also remained stable, despite advances in the digital age. However, while there may not be a direct causal link between Facebook and extramarital affairs, it is abundantly clear that Facebook enables married individuals to cheat on their spouses in a manner that is easier than previous methods. No longer do you have to write a letter to your old flame, or obtain their phone number and place a call, hoping that an irritated spouse does not answer. Instead, an online Facebook account allows easy connectivity, fast replies, mail accounts that can be easily deleted, advanced privacy settings, and the seamless sharing of pictures and other information, at any hour of the day or night. Simply stated, Facebook can tempt a married individual to pursue an extramarital relationship that they otherwise would not have pursued. If that temptation is acted upon, the married individual can maintain the extramarital relationship online and delete the evidence at their convenience, all without the knowledge of their spouse.

Facebook’s prevalence in extramarital affairs has, in turn, also led it to become a favorite evidence tool for divorce attorneys. The American Academy of Matrimonial Lawyers recently reported that 81% of its members have used or faced evidence taken from Facebook or other social networking sites over the last five years. Such evidence can have dramatic consequences for a party in a divorce case. For instance, a mother’s alienation of affliction claim may be bolstered by evidence of the father forcing the couple’s son to “de-friend” his mother on Facebook. A parent going through a divorce may have their request for additional timesharing with their child denied if the court is presented with pictures from Facebook depicting the parent drinking or doing drugs when the child is in their care. A divorcing spouse seeking alimony based on a lack of earning capacity may have their request denied by the court if the requesting spouse’s Facebook account is littered with pictures of the spouse spending their free time and money at restaurants and bars.

The law is currently unsettled regarding the use of information obtained from Facebook during a family law proceeding. However, recent case law should leave Facebook users, and their family law attorneys, wary. For instance, a judge in Pennsylvania recently found that the husband in a divorce case had to provide his wife’s attorneys with his Facebook username and password, despite the husband’s objection that his Facebook information was private and thus deserving of an evidentiary privilege. The judge rejected the husband’s arguments, noting that the husband had no expectation of privacy because Facebook’s End User License Agreement (“EULA”) notes that all user accounts are subject to, and are at any time accessible by, third party administrators. Since the husband accepted Facebook’s EULA when he signed up for Facebook, the court found an implicit waiver of confidentiality regarding the information contained on his Facebook page. While the Pennsylvania decision is not binding on Florida courts, it is most assuredly instructive.

Accordingly, a person should be extremely cautious with their Facebook account when going through a divorce. Among other things, a divorcing individual should refrain from denigrating their spouse on Facebook, and should generally avoid posting comments on their Facebook accounts that they would not want a judge to read in open court. Additionally, a divorcing spouse should abstain from posting pictures or videos that may be damaging to their divorce case, including pictures or videos that are sexually explicit or show the divorcing spouse binge drinking or doing drugs and exposing their children to the same. Similarly, a divorcing spouse should take note of the information posted by their Facebook “friends,” such as pictures or videos that “tag” the divorcing spouse, and should ask such “friends” to remove the damaging information from their Facebook page. Finally, a divorcing spouse should consider changing their Facebook privacy settings so that they can limit the information that they share, and if that is not enough, a divorcing spouse should consider deleting their Facebook account during their family law case.

We continue to find technology changing human relationships. From readily accessible pornography to explicit social networking websites (including at least one aimed at assisting married individuals to enter into extramarital affairs) to Facebook, family life is no longer made up of the innocence of Ward and June Cleaver. Consequently, using good judgment and carefully monitoring your Facebook account during a family law proceeding can have a significant impact on your case.

© Lowndes, Drosdick, Doster, Kantor & Reed, PA, 2011. All rights reserved.

This (Retractable) Needle Is Going to Sting a Bit: Next Chapter in the Adventures of Post-Phillips Claim Construction

Posted on July 31, 2011 in the National Law Review an article by David M. Beckwith and Paul Devinsky of McDermott Will & Emery regarding how the U.S. Court of Appeals for the Federal Circuit addressed the claim construction tension between broadly drafted claims and the written description contained in the patent specification:

The U.S. Court of Appeals for the Federal Circuit addressed the claim construction tension between broadly drafted claims, and the written description contained in the patent specification, revealing a deep split among the panel members. Retractable Technologies, Inc. v. Becton, Dickinson Co., Case No. 07-CV-0250 (Fed. Cir,. July 8, 2011) (Lourie, J.) (Plager, J., concurring) (Rader, J. dissenting-in-part).

Retractable Technologies (RT) sued Becton Dickenson (BD) for infringing three patents related to syringes with retractable needle technology. Following an adverse jury verdict, BD appealed on multiple grounds, including a challenge to the claim construction of the term “body,” which the district court had determined could include a multi-part structure.

The Federal Circuit affirmed in part and reversed in part, specifically rejecting the district court’s broad claim construction the term “body.”  BD argued that the district court erred in ruling the syringe “body” is not limited to a one-piece structure, noting the specifications describes “the invention” as including a one-piece body.  In addition, the background section of the patent criticized prior art syringes that contain a two-piece body.  Finally, BD argued that claim differentiation does not apply in light of the written description’s limiting statements concerning the nature of the invention and the structure of the syringe body.

RT responded that the ordinary meaning of the term “body” should apply and is not limited to a one-piece body.  RT also argued application of the claim differentiation canon based on a dependent claim that included the limitation of a one-piece body.

Judge Lourie wrote for the majority of the panel, agreeing with BD that the claim term “body” is limited to a one-piece structure as described in the specifications. The majority noted that the specification indicates what was invented, holding that the claim language should not be interpreted to extend the invention beyond that set forth in the written description.  The majority also rejected RT’s claim differentiation argument as “weak” in the face of the language of the specification.  The majority noted that no dependent claim recited a non-one piece structure and concluded that the language of the specification that criticized two-piece structures was of greater significance than the dependent claim to a one-piece body.

Judge Plager, concurring, warned courts to turn a deaf ear to the siren song of giving claims wide scope.  In Judge Plager’s opinion, the written description requirement imposes an obligation to make full disclosure of what is actually invented and to claim that and nothing more.  As Judge Plager noted, “I have written elsewhere about the curse of indefinite and ambiguous claims, divorced from the written description, that we are regularly are asked to construe, and the need for more stringent rules to control the curse.”

In dissent, Judge Rader focused on the ordinary meaning of the term “body” and explained that since there was no special meaning provided by the patent specification to supplant the ordinary meaning of the term “body,” it was error to limit the construction to only a one-piece structure.  Rader wrote,  “In this case, neither party contends that ‘body’ has a special, technical meaning in the field of art, and thus claim construction requires ‘little more than the application of the widely accepted meaning of commonly used words.’”

Practice Note:  This decision reflects a fundamental division within the Federal Circuit on the importance of the written description as a limitation on claim scope, as compared to the view that the claim language itself should be of paramount importance in construction. Until there is either some post-Phillips en bancclarification or Supreme Court consideration of the issue, the outcome of contested constructions in such a circumstance may demand on the panel hearing the appeal.

© 2011 McDermott Will & Emery

Unsecured Creditors Beware! The Western District of Texas Bankruptcy Court Declares an Unsecured Creditor Cannot Have Its Cake (Unsecured Claim) and Eat It Too (Post-Petition Legal Fees)

Recently posted in the National Law Review an article by Evan D. Flaschen, Renée M. Dailey, Mark E. Dendinger of Bracewell & Giuliani LLP about the issue of whether an unsecured creditor can recover post-petition legal fees under the Bankruptcy Code:

Bankruptcy courts have long debated the issue of whether an unsecured creditor can recover post-petition legal fees under the Bankruptcy Code. In the recent decision of In re Seda France, Inc. (located here(opens in a new window)), Justice Craig A. Gargotta of the United States Bankruptcy Court for the Western District of Texas denied an unsecured creditor’s claim for post-petition fees. In doing so, the Court has once again left the unsecured creditor with a bad taste in its mouth by declaring that an unsecured creditor seeking post-petition fees is asking permission to have its cake (a claim for principal, interest and pre-petition legal fees under applicable loan documents) and eat it too (a claim for post-petition legal fees).

Proponents of the view that an unsecured creditor cannot recover post-petition legal fees point to section 506(b) of the Bankruptcy Code, which allows as part of a creditor’s secured claim the reasonable attorneys’ fees and costs incurred during the post-petition period, and note the Bankruptcy Code is silent on anunsecured creditor’s right to post-petition legal fees. Essentially, the argument is since Congress provided for post-petition fees for secured creditors, it could have explicitly provided for post-petition fees for unsecured creditors but chose not to. Proponents of the alternative view cite the Second Circuit decision United Merchants and its progeny, where those courts refused to read the plain language of section 506(b) as a limitation on an unsecured creditor’s claim for recovery of post-petition legal expenses. The theory is that while the Bankruptcy Code does not expressly permit the recovery of an unsecured creditor’s claim for post-petition attorneys’ fees, it does not expressly exclude them either. The basic tenant is that if Congress intended to disallow an unsecured creditor’s claim for post-petition legal fees it could have done so explicitly.

In Seda, Aegis Texas Venture Fund II, LP (“Aegis”) timely filed a proof of claim in Seda’s Chapter 11 bankruptcy case claiming its entitlement to principal, interest and pre-petition attorneys’ fees under its loan documents with Seda as well as post-petition attorneys’ fees for the duration of the case. Aegis made various arguments in support of the allowance of its post-petition legal expenses including: (1) the explicit award of post-petition fees to secured creditors under section 506(b) does not mean that such a provision should not be implicitly read into section 502(b) (i.e., unim est exclusion alterius (“the express mention of one thing excludes all others”) does not apply), (2) the United States Supreme Court decision in Timbers does not control as Timbers denied claims of anundersecured creditor for unmatured interest caused by a delay in foreclosing on its collateral, (3) the right to payment of attorneys’ fees and costs exists pre-petition and it should be irrelevant to the analysis that such fees are technically incurred post-petition, (4) because the Bankruptcy Code is silent on the disallowance of an unsecured creditor’s post-petition attorneys’ fees, these claims should remain intact, and (5) recovery of post-petition attorneys’ fees and costs is particularly appropriate where, as in Seda, the debtor’s estate is solvent and all unsecured creditors are to be paid in full as part of a confirmed Chapter 11 plan.

The Seda Court rejected Aegis’ arguments and held that an unsecured creditor is not entitled to post-petition attorneys’ fees even where there is an underlying contractual right to such fees and unsecured creditors are being paid in full. With respect to Aegis’ argument on the proper interpretation of sections 506(b) and 502(b), the Court cited the many instances in the Bankruptcy Code where Congress expressed its desire to award post-petition attorneys’ fees (e.g., section 506(b)), and found that Congress could have easily provided for the recovery of attorneys’ fees for unsecured creditors had that been its intent. Regarding Aegis’ argument that Timbers does not control, the Court held that in reaching its decision on the disallowance of a claim for unmatured interest the Timbers Court found support in the notion that section 506(b) of the Bankruptcy Code does not expressly permit post-petition interest to be paid to unsecured creditors. The SedaCourt held this ruling should apply equally to attorneys’ fees to prohibit recovery of post-petition fees and expenses by unsecured creditors. The Court further held that section 502(b) of the Bankruptcy Code provides that a court should determine claim amounts “as of the date of the filing of the petition,” and therefore attorneys’ fees incurred after the petition date would not be recoverable by an unsecured creditor. In response to Aegis’ argument that non-bankruptcy rights, including the right to recover post-petition attorneys’ fees should be protected, the Seda Court noted that the central purpose of the bankruptcy system is “to secure equality among creditors of a bankrupt” and that an unsecured creditor’s recovery of post-petition legal fees, even based on a contractual right, would prejudice other unsecured creditors. The Court held this is true even in the case where the debtor was solvent and paying all unsecured creditors in full. The Court noted that a debtor’s right to seek protection under the Bankruptcy Code is not premised on the solvency or insolvency of the debtor and, therefore, the solvency of the debtor has no bearing on the allowance of unsecured creditors’ post-petition legal fees.

Seda is the latest installment in the continued debate among the courts whether to allow an unsecured creditor’s post-petition attorneys’ fees. The Seda Court is of the view that an unsecured creditor cannot recover post-petition legal fees for the foregoing reasons, most notably that the Bankruptcy Code is silent on their provision and public policy disfavors the recovery of one unsecured creditor’s legal expenses incurred during the post-petition period to the prejudice of other unsecured creditors. Depending on the venue of the case, there will undoubtedly be many more instances of unsecured creditors seeking recovery of their post-petition attorneys’ fees in a bankruptcy case until the Supreme Court definitively rules on the issue. Until then, keep asking for that cake . . . .

© 2011 Bracewell & Giuliani LLP

Entrepreneur’s Guide to Litigation – Blog Series: Discovery

Recently posted in the National Law Review an article by  Joseph D. Brydges of Michael Best & Friedrich LLP regarding the Discovery is a pre-trial phase of litigation.

 

Discovery is a pre-trial phase of litigation during which a party to a lawsuit seeks to “discover” information from the opposing party. Discovery is meant to facilitate the truth-finding function of the courts and, as such, parties to a lawsuit have an automatic right to discovery. From a strategic standpoint, discovery is used to gather and preserve evidence in support or defense of the claims made in the complaint. Further, discovery often helps parties narrow the focus of the litigation in preparation for trial and, in some cases, may lead to a pre-trial settlement. Discovery is an extremely important phase of litigation because the evidence gathered during discovery will serve as the foundation of a motion for summary judgment and/or strategy at trial.

Discovery proceedings are typically governed by state statutes in state court and by the federal rules of civil procedure in federal court. Generally, the scope of discovery permitted under these rules is very broad. Discoverable information may include any material which is reasonably calculated to produce evidence that may later be admitted at trial. However, certain information, including information protected by the attorney-client privilege and the work product of an opposing party, is generally protected from discovery. During the discovery period, parties may serve discovery requests upon one another. These discovery requests are made through one of several available discovery mechanisms including interrogatories, requests for admission, document requests and depositions.

Interrogatories are written discovery requests often utilized to obtain basic information such as names and dates. Any party served with written interrogatories must answer the questions contained therein in writing and under oath. Similarly, requests for admission consist of written statements directed towards an opposing party for the purpose of having the opposing party “admit” or “deny” the statements. Often, these statements seek to establish undisputed facts, authenticate documents and pin an opposing party to a particular position. Document requests are an important component of discovery in which a party may be required to make any relevant and nonprivileged documents available for inspection by the opposing party. Document production will be covered in greater detail in the following section entitled “Document Production.”

The lynchpin of discovery proceedings is the deposition. Depositions are used to obtain the out-of-court testimony of a witness with knowledge relevant to the litigation. They allow a party to discover any relevant information known to a witness and are often the only method of discovery available with regard to obtaining information from witnesses that are not a party to the litigation. During a deposition, the witness is questioned under oath and must answer the questions asked truthfully to the extent that the answer would not lead to the disclosure of privileged information. The rules governing depositions also allow for the deposition of an organization or corporation where a party is unable to identify the particular witness within the organization that may have knowledge of the information sought. In that instance, a party may identify the information sought and the organization will be required to designate a representative to testify on its behalf.

A party served with a discovery request must respond to the request within the specified time period or object to the requested discovery and state reasons for its objection. If, for some reason, a party refuses to respond to a discovery request, the party serving the request may move the court to compel a response. It is within the court’s power to compel a response to a discovery request and impose penalties on a party refusing to comply with a discovery request.

Click Below for previous posts from the Entrepreneur’s Guide to Litigation Blog Series:

© MICHAEL BEST & FRIEDRICH LLP