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May 16, 2012

Fifth Circuit Looks at Claims Handling vs. Procurement

In Grissom v. Liberty Mutual, No. 11-60260 (April 23, 2012), Grissom claimed that his insurer, Liberty Mutual, failed to inform him that he was eligible for a richer insurance policy and that the failure constituted “claims handling” and was therefore preempted under the National Flood Insurance Act. Both parties relied on the 2009 decision, Campo v. Allstate Ins. Co., 562 F.3d 751, 754 (5th Cir. 2009), which stands for the proposition that if the interaction between the insured and the insurer is characterized as “claims handling” and not “insurance procurement,” then the insured’s claim is subject to federal preemption pursuant to the National Flood Insurance Act.

After reviewing the district court’s legal findings de novo, the Fifth Circuit Court of Appeals found that Grissom retained his insurance coverage during the time period when he was renewing his policy with Liberty Mutual. Thus, the interaction between Grissom and Liberty Mutual was considered “claims handling” and not “insurance procurement” because there was no lapse of time when Grissom did not have insurance coverage, thereby prompting him to procure new insurance. Therefore, the Fifth Circuit concluded that Campo did not control in this case and that Grissom’s state action was preempted by the National Flood Insurance Act. As a result, the Fifth Circuit reversed the district court’s rulings and dismissed Grissom’s claim.

Keywords: litigation, business torts, insurance, National Flood Insurance Act, Fifth Circuit

—Amy M. Stewart, Cox Smith, Dallas, Texas

May 2, 2012

Quilloin May Limit Companies' Risk of Class Actions

The U.S. Court of Appeals for the Third Circuit continues to follow the Supreme Court’s “bold and clear” lead in favoring arbitration clauses over state laws prohibiting class-action waivers. In T Mobility v. Concepcion, the Supreme Court held that the Federal Arbitration Act’s (FAA) broad mandate favoring arbitration agreements, which are typically construed to not permit class actions, trumped a California state law that prohibited class-action waivers in consumer agreements. In 2011, the Third Circuit followed Concepcion and struck down a similar New Jersey prohibition on class-action waivers in Litman v. Cellco P’ship. On March 14, 2012, the Third Circuit struck down another, similar law, this time in Pennsylvania, in Quilloin v. Tenet HealthSystem Philadelphia, Inc. [PDF], Case No. 11-1393 (3d Cir., Mar. 14, 2012). This trend proves valuable to companies seeking to avoid the expense of class-action litigation and adds a premium to arbitration clauses.

Keywords: litigation, business torts, class actions, class-action waivers, arbitration

—Brian A. Berkley, Benjamin J. Eichel, Matthew H. Adler, Kali T. Wellington-James, and Tracey E. Diamond, Pepper Hamilton, LLP

March 30, 2012

Appeals Court Sides with Plaintiff in Settlement Dispute

In Greenleaf Arms Realty Trust I, LLC v. New Boston Fund, Inc., No. 10-P-2192, 81 Mass. App. Ct. 282, 2012 WL 472919 (Mass. App. Ct. Feb. 16, 2012), the appeals court reversed the superior court’s dismissal of the plaintiff’s claims against a real estate investment fund, finding that the plaintiffs had adequately pleaded fraud and breach of fiduciary duty.

Keywords: litigation, business torts, fiduciary duty, fraud

—Jonah M. Fecteau, Nutter McClennen & Fish LLP, Boston, Massachusetts

February 24, 2012

Golf Course Visitors Considered Interstate Commerce

With a panel composed of Circuit Judges Jacques L. Weiner, Jr., Edith Brown Clement, and Jennifer Elrod, the Fifth Circuit Court of Appeals considered an appeal concerning the interstate commerce element of a valid claim under the Sherman Act. Gulf Coast Hotel-Motel Assoc. v. Mississippi Gulf Coast Golf Course, No. 10-60844, 2011 WL 4446002 (5th Cir. (Miss.) Sept. 27, 2011).

Ultimately, the Fifth Circuit Court of Appeals concluded that the plaintiff’s complaint sufficiently stated a claim under the Sherman Act to confer federal subject-matter jurisdiction and that the alleged misconduct by the defendants could not be said to have an insignificant impact on interstate commerce. Therefore, the Fifth Circuit found the district court erred in dismissing the case and reversed and remanded for further proceedings.

Keywords: litigation, business torts, Fifth Circuit, subject-matter jurisdiction, interstate commerce

—Sofia Adrogué, P.C., Looper, Reed & McGraw, P.C., Houston, Texas

February 24, 2012

Appeal of Denial of Motion to Compel Isn't an Automatic Stay

With a panel composed of Circuit Judges W. Eugene Davis, Jerry E. Smith, and Edward C. Prado, the Fifth Circuit Court of Appeals considered the district court’s denial of a motion to compel arbitration and held that appeal does not result in an automatic stay. Weingarten Realty Investors v. Miller, No. 11-20676, 2011 WL 5142183 (5th Cir. (Tex.) Nov. 1, 2011). The plaintiff realty firm and the defendant’s company created a joint venture in which the plaintiff loaned the joint venture money under a loan agreement between the plaintiff and the joint venture. The loan agreement contained an arbitration clause. The defendant did not sign the loan agreement individually, but did sign the third-party guarantee in which he and his company guaranteed half of the loan. There was no arbitration clause in the guarantee.

Keywords: litigation, business torts, Fifth Circuit, arbitration

—Sofia Adrogué, P.C., Looper, Reed & McGraw, P.C., Houston, Texas

February 24, 2012

Fifth Circuit Hears Purchase-and-Sale Agreement Case

With a panel composed of Circuit Judges W. Eugene Davis, Edward C. Prado, and Priscilla Owen, the Fifth Circuit Court of Appeals heard an appeal concerning a purchase-and-sale agreement and asserted claims for breach of contract, promissory estoppel, and negligent and fraudulent misrepresentation. LHC Nashua Partnership, Ltd. v. PDNED Sagamore Nashua, LLC et al., No. 10-20331, 2011 WL 4471133 (5th Cir. (Tex.) Sept. 28, 2011) The litigation arose out of a contract between the parties in which the defendant agreed to transfer its rights to buy a shopping mall property from a third party to the plaintiff. The plaintiff alleged that, based on representations made by the defendant, the plaintiff expected to be able to lease the property to a specific home-improvement store. The store then refused to enter into a lease, and instead purchased the property from the defendant.

Keywords: litigation, business torts, purchase-and-sale agreements, Fifth Circuit

—Sofia Adrogué, P.C., Looper, Reed & McGraw, P.C., Houston, Texas

February 24, 2012

Nonsignatory Officers Not Bound by Arbitration Agreement

With a panel composed of Chief Judge Edith Jones and Circuit Judges James L. Dennis and Edith Brown Clement, the Fifth Circuit Court of Appeals reversed a district court decision holding the nonsignatory officers of a company were bound by an arbitration agreement in a contract between a company and the defendant. Covington v. Alban Offshore Ltd., 650 F.3d 566 (5th Cir. (Tex.) 2011). The plaintiffs were the president and vice president of a company that agreed to perform a service for the defendant company. The plaintiff vice president executed the contract, which contained an arbitration clause, on behalf of the company. A dispute arose and the defendant initiated arbitration proceedings against the company, but also against the plaintiffs in their individual capacities.

Keywords: litigation, business torts, arbitration agreement, Fifth Circuit

—Sofia Adrogué, P.C., Looper, Reed & McGraw, P.C., Houston, Texas

February 13, 2012

Copying Text in Patent Application Led to Rejection

In Cold Spring Harbor Laboratory v. Ropes & Gray, LLP [PDF], No. 11-101128-RGS, 2012 WL 112642 (D. Mass. Jan. 13, 2012), the district court denied the defendants’ motions to dismiss the plaintiff’s claims of malpractice, breach of fiduciary duty, fraud, and negligence arising from the defendants’ representation of the plaintiff in certain patent-prosecution matters. In particular, the district court found that the plaintiff had adequately pled a causal link between the defendants’ alleged malpractice in copying portions of text from a prior patent application and the ensuing rejection of the plaintiff’s patent claims.

Keywords: litigation, business torts, fiduciary duty, malpractice, negligence

—Dawn Curry and Jonah Fecteau at Nutter McClennen & Fish LLP

January 20, 2012

Court Can Preserve Status Quo in Arbitration Dispute

With a panel composed of Circuit Judges Carl E. Stewart, Edward C. Prado, and Jennifer Elrod, the Fifth Circuit Court of Appeals considered whether a district court, in an arbitration dispute, may preserve the status quo by issuing a preliminary injunction pending its resolution of the motion to compel arbitration, not pending the arbitration itself. Janvey v. Alguire, et al., No. 10-10617, 2011 WL 2937949 (5th Cir. (Tex.) July 22, 2011).

Keywords: litigation, business torts, Ponzi schemes, Fifth Circuit, arbitration

—Sofia Adrogué, P.C., Looper, Reed & McGraw, P.C., Houston, Texas

January 20, 2012

"Best-Efforts" Provision Without a Goal Is Unenforceable

With a panel composed of Circuit Judges E. Grady Jolly and Catharina Haynes and District Judge Xavier Rodriguez, the Fifth Circuit Court of Appeals analyzed the term “best efforts” in a contract under Texas law. Kevin M. Ehrlinger Entrprs., Inc. v. McData Srvcs. Corp., 646 F.3d 321 (5th Cir. (Tex.) 2011).

The Fifth Circuit reviewed the best-efforts provision and determined that it did not provide a goal or guideline and, thus, was not enforceable under Texas law. Thus, the fraudulent-inducement claim could not rest on an alleged breach of this clause, and, accordingly, the issue should not have been submitted to the jury. Therefore, the Fifth Circuit Court of Appeals reversed and remanded to the district court to render judgment in favor of the defendant.

Keywords: litigation, business torts, Fifth Circuit, contracts

—Sofia Adrogué, P.C., Looper, Reed & McGraw, P.C., Houston, Texas

January 17, 2012

Supreme Court Resolves Circuit Split on Loss Causation

In Erica P. John Fund, Inc. v. Halliburton Co., et al., 131 S. Ct. 2179 (2011), in an opinion authored by Chief Justice Roberts, the U.S. Supreme Court addressed whether securities-fraud plaintiffs need to prove loss causation to obtain class certification. The petitioner was lead plaintiff in a putative-securities-fraud class action. The petitioner alleged that the defendant made several misrepresentations designed to deflate its stock price. The petitioner sought to have its class certified pursuant to Federal Rule of Civil Procedure 23. The parties agreed that the petitioner satisfied the requirements set out in Rule 23(a). However, the district court found a problem under Rule 23(b)—circuit precedent required securities-fraud plaintiffs to prove loss causation to obtain class certification. After reviewing the pleadings, the district court concluded it could not certify the class because the petitioner failed to establish loss causation. The appellate court affirmed the denial of the class certification, also concluding proof of loss causation was required at the class-certification stage. The U.S. Supreme Court granted certiorari to “resolve a conflict among the Circuits as to whether securities fraud plaintiffs must prove loss causation in order to obtain class certification.”

Keywords: litigation, business torts, securities fraud, Supreme Court, loss causation, class actions, class certification

—Sofia Adrogué, P.C., Looper, Reed & McGraw, P.C., Houston, Texas

January 13, 2012

Fifth Circuit Looks at Arbitration Agreement Case

In DK Joint Venture v. Weyland, No. 09-11000, 2011 WL 3342370 (5th Cir. (Tex.) Aug. 4, 2011), with a panel composed of Circuit Judges W. Eugene Davis, Jacques L. Wiener Jr., and James L. Dennis, the Fifth Circuit Court of Appeals heard an appeal from the confirmation of an arbitration award. The plaintiffs were business entities that filed arbitration demands with the American Arbitration Association. The defendants were two individuals and the companies that they controlled. The plaintiffs alleged the defendants committed fraud, breach of contract and fiduciary duty, and “other wrongs” to induce the plaintiffs to invest in a purported oil and gas venture. The individual defendants were the only defendants party to the instant appeal. In seeking arbitration, the plaintiffs relied on a provision contained in the contracts between the plaintiffs and some of the defendant corporations.

Keywords: litigation, business torts, Fifth Circuit, arbitration, non-signatories

—Sofia Adrogué, P.C., Looper, Reed & McGraw, P.C., Houston, Texas

January 9, 2011

First Circuit Dismisses Most Claims in Security Breach Case

In Anderson v. Hannaford Bros. Co. [PDF], 659 F.3d 151 (1st Cir. 2011), the First Circuit affirmed the District Court for the District of Maine’s dismissal of certain of the plaintiffs’ claims arising under Maine law from unauthorized use of their credit- and debit-card data following a hackers’ security breach of the grocery store chain’s electronic payment processing system.

Among other things, the court of appeals agreed with the district court’s finding that the plaintiffs failed to adequately plead a confidential relationship that gave rise to a breach of fiduciary duty by the grocery chain or a claim under Maine’s unfair trade practices act. On the other hand, the court of appeals reversed the district court’s dismissal of the plaintiffs’ negligence and breach-of-implied-contract claims, finding that the plaintiffs adequately alleged recoverable damages arising from the data breach, including reasonable mitigation costs, such as card replacement and credit insurance, but not including unforeseeable damages arising from loss of credit-card reward points or points-earning opportunities resulting from card cancellation.

Keywords: litigation, business torts, unfair trade practices, security breach, First Circuit

—Dawn M. Curry, Nutter, McClennen & Fish, LLP, Boston, Massachusetts

January 9, 2011

Claim that FDIC Acted in Bad Faith Proceeds

In Pearson v. United States [PDF], Civ. A. No. 10-11410-EFH, 2011 WL 6426161 (D. Mass. Dec. 22, 2011), the district court granted in part and denied in part the United States’ motion to dismiss the claims of a plaintiff real-estate developer under the Federal Tort Claims Act. While most of the plaintiff’s claims were dismissed, the court allowed a sole surviving claim of breach of fiduciary duty to survive dismissal. The plaintiff argued that the Federal Deposit Insurance Corporation (FDIC), as a lender, had breached a fiduciary duty to the plaintiff, as a borrower, by acting in bad faith. The United States argued that the plaintiff merely alleged negligent breach of a duty to the plaintiff and failed to allege the existence of a fiduciary duty.

Citing decisions of the District of Massachusetts and the Massachusetts Supreme Judicial Court, the court held that negligence claims encompass claims for breach of fiduciary duty, even where no fiduciary duty is specifically set forth. The court further stated that while a lender does not generally owe a fiduciary duty to a borrower, a fiduciary duty may arise where the borrower reposes its trust and confidence in the lender and the lender knows of and accepts the borrower’s trust, such as in the case of a foreclosure sale, where a lender owes the borrower a fiduciary duty to refrain from committing fraud, committing bad faith, or failing to use reasonable diligence. The court found that the plaintiff adequately alleged bad faith by an agent of the FDIC during a foreclosure, and the claim was allowed to proceed.

Keywords: litigation, business torts, Federal Tort Claims Act, FDIC, fiduciary duty, bad faith

—Dawn M. Curry and Jonah M. Fecteau, Nutter, McClennen & Fish, LLP, Boston, Massachusetts

January 9, 2011

Finding of Liability Upheld Despite No Misappropriation

Despite a jury’s contrary finding of no misappropriation on the plaintiff’s common-law misappropriation claim, the appeals court upheld the trial court’s finding of liability under Mass. Gen. Laws Chapter 93A for trade secret misappropriation in Specialized Tech. Resources, Inc. v. JPS Elastomerics Corp., No. 11-P-776, 2011 WL 5843018 (Mass. App. Ct. Nov. 23, 2011).

Among other things, the defendant argued that the jury’s finding that no misappropriation had occurred precluded the trial judge’s finding that misappropriation had occurred for purposes of Chapter 93A liability. However, the appeals court rejected the defendant’s argument by citing to extensive Massachusetts precedent that a jury’s finding on common-law claims does not bind a trial court’s determination of Chapter 93A liability and that the trial court is authorized to make independent findings of fact under the statute. The appeals court also upheld injunctive relief preventing the defendant from using the particular misappropriated manufacturing process for a period of five years, reasoning that evidence supported a finding that the process was not susceptible to reverse engineering and that such a method would not be independently developed.

Keywords: litigation, business torts, misappropriation, injunctive relief

—Dawn M. Curry and Jonah M. Fecteau, Nutter, McClennen & Fish, LLP, Boston, Massachusetts

December 20, 2011

Defendant Pays Legal Fees, Sanctions for Not Saving ESI

The Western District of Tennessee has issued an order sanctioning a defendant for failing to preserve electronically stored information (ESI). The court also ordered the defendant to pay the plaintiff’s legal fees associated with filing the motion for sanctions. For more information regarding the discovery violations and associated sanctions, check out Nacco Materials Handling Group, Inc., D/B/A Yale Materials Handling Corp.v. The Lilly Company, ___ F.R.D. ___, 2011 WL 5986649 (W.D. Tenn.).

Keywords: litigation, business torts, Western District of Tennessee, sanctions, legal fees

—Daniel Kaufmann, partner, Bradley, Arant, Boult, Cummings

November 23, 2011

Eighth Circuit Clarifies "Literal Falsity"

In Buetow v. ALS Enterprises, Inc., No. 10-2415, ___ F.3d ___, 2011 WL 3611488 (8th Cir. August 18, 2011), the U.S. Court of Appeals for the Eighth Circuit vacated an injunction, holding that it had been issued based on errors of law that included misinterpreting the Lanham Act, 15 U.S.C. § 1125(a)(1)(B).

The Eighth Circuit found that the district court erred in its “literal falsity” determinations. The district court did not sufficiently consider the context of the advertisement in finding that the term “odor eliminating” was only subject to one interpretation—that there would be complete elimination of odors. The Eighth Circuit doubted that many consumers would be misled and actually believe that any product could eliminate every molecule of human odor. Thus, the proper test for literal falsity under the Lanham Act was whether the ad was “unambiguously false and misleading.”

Keywords: litigation, business torts, Lanham Act, injunctions

—Erwin O. Switzer and Elizabeth T. Nguyen, Greensfelder, Hemker & Gale, PC, Saint Louis, Missouri

November 17, 2011

National Law Firms Invade Texas

Mark Curriden, senior legal affairs writer for the new website serving Texas business lawyers, www.texaslawbook.net, published an interesting piece regarding the recent invasion of the Texas legal market by out-of-state firms. A reason for this influx of prominent national law firms is that Texas-based corporations continue to spend large amounts on mergers, acquisitions, joint ventures, and complex commercial litigation, resulting in more billable hours for high-priced business lawyers. Further, thanks in part to large, Texas-based firms significantly increasing their hourly rates over the past decade, national law firms have become more competitive in regard to the billable rate.

Keywords: litigation, business torts, Texas, attorney fees

—Amy M. Stewart, Cox, Smith, Matthews, Dallas, Texas

November 16, 2011

Architects' Contractual Duty Doesn't Extend to Third Parties

In Black + Vernooy Architects v. Smith, 346 S.W.3d 877 (Tex. App.—Austin, 2011, pet. filed) [PDF], the Austin, Texas, court of appeals held that the contractual duty arising between an architect and his homeowner client to identify and guard against construction defects did not extend to third parties who sustained injuries from a balcony collapse at the residence. Additionally, the court was unwilling to impose a new common-law duty of care on architects because, under the facts in this case, the architect did not have the power to control the actual construction work that was performed.

The court reversed the judgment in the district court and rendered a take nothing judgment against the architects. The guests have filed their petition for review, so the Supreme Court of Texas will have an opportunity to weigh in on whether architects working in Texas should be held to a higher standard of care that extends to third parties.

Keywords: litigation, business torts, contractual duty, Texas

—Amy M. Stewart, Cox, Smith, Matthews, Dallas, Texas

November 8, 2011

Contracts: Are You Smarter Than a First-Year Law Student?

Even veteran lawyers can forget to apply the basic elements of contract law, including the importance of offer and acceptance.

In Baseball at Trotwood, LLC, et al. v. Dayton Pro’f Baseball, et al., 2003 U.S. Dist. LEXIS 27460, at *150 (S.D. Ohio September 2, 2003), a lawsuit followed a failed effort to bring a minor-league baseball team to Dayton, Ohio. Baseball at Trotwood (BAT); Rock Newman, Inc. (RNI); and Sports Spectrum, Inc. (SSI) sued various parties, claiming that their efforts to establish the team were hindered by the actions of the defendants. Id. at *5. The litigation was complex to say the least. The district court itself noted that the case was “a distressing window” into the business of minor-league baseball “far removed from the field of dreams, where the cackling of children in oversized ball caps munching on Cracker Jack, while their parents sway to the tune of Take Me Out to the Ball Game, is all but forgotten.”

Among the claims asserted in the case, SSI sued the Cincinnati Reds for breach of contract, arguing that the Reds offered to waive its protective territory rights to the Dayton area, but then pulled back its offer. Id. at *150. The district court disagreed, granting the Reds’ motion for summary judgment on the grounds that SSI’s breach-of-contract claim failed because SSI did not establish that the parties actually entered into an enforceable agreement. On examination of the facts, the district court found that the Reds never offered to contract with SSI. Instead, the discussions between the two parties were “merely an invitation to future dickering” and that “it should also be obvious to a first year law student that an offer to discuss terms of a potential agreement is not an offer to contract itself.”

In today’s contract issue-laden world (for example, see the NBA lockout, the Simpsons voice actors’ demands, Kim Kardashian’s prenup, etc.), if the topic is contracts, how would you fare? Are you smarter than a first-year law student?

 

Answers:

 

Keywords: litigation, business torts, contracts, young lawyers

—Aubrey Colvard at Cox Smith in Dallas, Texas

November 3, 2011

Accusation of Stolen Trade Secrets Is Defamatory Per Se

Practitioners should advise their clients to think long and hard before making what may later prove to be unsubstantiated accusations of wrongdoing by his or her former employees that could potentially affect the possibility of those former employees gaining or retaining future employment opportunities. In Downing v. Burns, 2011 Tex. App. LEXIS 5752 (Tex. App.—Houston 2011), docket number 14-09-00718-CV (July 28, 2011), a former employee, Downing, brought an action against her former employer, Burns, for tortious interference of contract and defamation. Downing asserted that after she resigned from Burns’ realty company, Burns made threatening statements to Downing’s two new employers. Specifically, Burns threatened that if Downing did not return pages from a policy manual she stole from him, he would sue any employer that hired her. Afraid that Burns would file a lawsuit, the two employers terminated Downing’s employment.

Downing sued Burns for tortious interference with a contract and defamation. Burns filed a counterclaim of theft of trade secrets, which served more as an affirmative defense because Burns said he made those statements because Downing stole his company’s proprietary information. After a trial, the jury unanimously found in favor of Downing on all three claims. Burns filed a motion for judgment notwithstanding verdict (JNOV) on the defamation claim alleging the evidence was legally sufficient to support the jury’s finding. The trial court entered judgment in Downing’s favor only on the tortious-interference and theft claims and granted Burns’ motion for JNOV.

Both parties appealed. After review, the court of appeals held that the trial court erred in granting Burns’ motion for JNOV on the defamation claim and that the record did not support the full amount of the damages the jury awarded on Downing’s tortious-interference claim. Thus, the tortious-interference claim was remanded. However, the court of appeals held that it was necessary to remand the entire case for new trial because the evidence to support and/or refute the parties’ claims and defenses were so interwoven that to try one claim without the others would be unfair to the parties.

Keywords: litigation, business torts, defamation per se, tortious interference with contract, trade secrets

—Amy M. Stewart, Cox, Smith, Matthews, Dallas, Texas

October 25, 2011

Standard Merger Clause Does Not Preclude Misrepresentation

Lawyers relying on standard merger clauses to protect their clients from later claims of fraudulent and negligent misrepresentation under Texas law should be aware of the rapid evolution of the law in this area in the wake of the Texas Supreme Court’s decision in Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am. and the Fifth Circuit decision in LHC Nashua Partnership, Ltd. v. PDNED Sagamore Nashua, No. 10-20331, 2011 WL 4471133, 2011 U.S. App. LEXIS 19759 (5th Cir. (Tex.) 2011).

Relying on the recent Texas Supreme Court case of Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 334 (Tex. 2011), the Fifth Circuit concluded that PDNED failed to demonstrate that the merger clause barred LHC’s misrepresentation claims. Under Italian Cowboy, standard merger clauses that do not express an unequivocal intent to disclaim reliance or waive claims for fraudulent inducement do not preclude misrepresentation claims. Because the Fifth Circuit found the P&S agreement’s merger clause was a standard merger clause, the court affirmed judgment on the fraudulent misrepresentation claim. Moreover, because PDNED failed to cite to authorities establishing that a standard merger clause bars negligent misrepresentation claims, the Fifth Circuit affirmed the judgment on the negligent misrepresentation claim.

It will be interesting to see if this case, in conjunction with the holding in Italian Cowboy, leads to the insertion of more “disclaimer-of-reliance” merger clauses into commercial contracts. Accordingly, litigators should keep an eye out for which type of merger clause is included in contracts construed under Texas law to determine what effect, if any, the merger clause will have on any misrepresentation claims also alleged in the lawsuit.

Keywords: litigation, business torts, merger clauses, Fifth Circuit, fraudulent misrepresentation, negligent misrepresentation

—Amy M. Stewart, Cox, Smith, Matthews, Dallas, Texas

October 19, 2011

Blog Discusses Recent Fifth Circuit Decisions

Aptly named after the street address of the John Minor Wisdom federal courthouse in New Orleans and the home of the U.S. Court of Appeals for the Fifth Circuit, 600camp.com provides updates and discussion about recent Fifth Circuit opinions in the general area of commercial litigation.

Keywords: litigation, business torts, Fifth Circuit, opinions

—Amy M. Stewart, Cox Smith Matthews, Inc., Dallas, Texas

October 5, 2011

First Circuit: Noncompetition Period Begins with Merger

So far in 2011, the business community has witnessed a flurry of mergers and acquisitions—arguably the most in more than a decade. One issue related to this activity is what an acquiring company must do to ensure that the noncompetition agreements the employees of the acquired company entered into can be enforced by the acquiring company when those employees’ services are terminated. The First Circuit recently faced this issue in OfficeMax, Inc. v. Levesque, No. 10-2423, 2011 WL 4015654 (1st Cir. 2011), and reached a decision that some may find surprising.

The First Circuit vacated a preliminary injunction granted in favor of OfficeMax to enforce noncompetition agreements involving sales employees who OfficeMax acquired as a result of a corporate merger. The appellants were sales employees of Loring, Short, and Harmon (LS&H), and they all signed noncompetition agreements when they were employed there. The noncompetition agreements stated that a one-year, noncompetition period would commence on the termination of employment with LS&H. Further, in the preamble of the noncompetition agreements, the parties acknowledged the impending sale of LS&H to Boise Cascade Office Products Corporation (BCOP). BCOP subsequently merged with OfficeMax, and the salesmen began selling products for OfficeMax. Due to reorganization, the salesmen left their employment at OfficeMax and began working for a direct competitor. As a result, OfficeMax moved for a preliminary injunction to enforce the terms of the noncompetition agreements that the salesmen signed when they were employed with LS&H, the predecessor in interest. The district court granted OfficeMax’s request for a preliminary injunction.

On appeal, the key issue was whether the salesmen’s termination of employment at OfficeMax in 2009 and 2010 triggered the running of the one-year, noncompetition period or whether the period was triggered earlier in 1996 when BCOP purchased LS&H. On appeal, OfficeMax argued that the triggering event for the one-year, noncompetition agreement was when the salesmen left their positions at OfficeMax because BCOP assigned the agreements to OfficeMax pursuant to the corporate merger. In contrast, the salesmen argued that the running of the one year, noncompetition period began when the salesmen’s employment at LS&H was terminated when BCOP’s purchased LS&H. The First Circuit rejected OfficeMax’s argument, instead siding with the salesmen by stating that “the language of the agreements, read as a whole, unambiguously compels the appellants’ interpretation.”

This is an interesting decision because the First Circuit held that the noncompete period began to run simply by virtue of an acquisition that occurred at the corporate level, rather than when the employee actually left the successor company to go work for a competitor. Further, the successor company, here OfficeMax, did not get the benefit of the noncompete agreements, even though, under the facts in this case, both BCOP and OfficeMax intended to transfer that benefit to OfficeMax.

Thus, the court focused on a strict, literal reading of the covenant rather than on the obvious intent of the parties. Even though the preamble clearly mentioned the imminence of the share sale to BCOP, the First Circuit held that BCOP’s purchase of LS&H was the triggering event for the running of the noncompetition agreements. This result could have been avoided if the language of the agreement referred instead to termination of employment with the company or any of its successors or assigns as the triggering event for the running of the noncompetition period.

Keywords: litigation, business torts, First Circuit, noncompetition agreements

—Dawn M. Curry, Nutter, McClennen & Fish, LLP, Boston, Massachusetts

September 21, 2011

With Expired Period of Restraint, Relief Is Inappropriate

In EMC Corp. v. Arturi [PDF], docket number 11-001 (Aug. 26, 2011 Souter, J.), the First Circuit affirmed the decision of the district court to decline granting EMC a preliminary injunction preventing a former employee from competing with EMC or soliciting its customers and remaining employees on the ground that the contractual restrictions on these activities limited the employee’s efforts for one year only. This period had passed before any injunction could be issued. The court indicated that EMC could have contracted for tolling the term of the restriction during litigation or for a period of restriction to commence upon preliminary finding of breach, but it did not.

Keywords: litigation, business torts, First Circuit, preliminary injunctions

—Dawn M. Curry, Nutter, McClennen & Fish, LLP, Boston, Massachusetts

September 8, 2011

A Shift in Jurisdiction Based on Internet Presence?

A federal court decision in Massachusetts may signal a change in personal jurisdiction analysis based on Internet contacts. Since 1997, courts have analyzed this issue using a test developed in Zippo Manuf. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997), which held that the likelihood of personal jurisdiction is “directly proportionate” to the level of interactivity of the defendant’s website—the more interactive the site, the more likely a party will be considered to be doing business in the jurisdiction. Under a Zippo analysis, a site that allowed emails to the site’s owner was held sufficient to establish personal jurisdiction. See, e.g., Hasbro, Inc. v. Clue Computing, Inc., 994 F. Supp. 34, 35 (D. Mass. 1997).

Recognizing technological advances since Zippo, the District Court of Massachusetts recently found the “interactivity” test obsolete. In Sportschannel New England LP d/b/a/ Comcast SportsNet New England v. Fancaster, Inc., 2010 U.S. Dist. LEXIS 106272 (D. Mass. October 1, 2010), Judge Nancy Gertner refused to accept that personal jurisdiction arises simply because a website allows emails to the site’s owner. Instead, the court held that “[s]omething more is required.” While not defining “something more,” the court provided some guidance, suggesting that directing sales toward forum residents may be enough.

However, 12 days after the Sportschannel decision, Federal Magistrate Judge Judith Dein relied on the Zippo test to find a defendant subject to jurisdiction in Massachusetts based, at least in part, on its nationwide “Contact Us” feature on its website. See Edvisors Network, Inc. v. Educational Advisors, Inc., 755 F. Supp. 3d 272 (D. Mass. October 12, 2010).

Keywords: litigation, business torts, personal jurisdiction, Internet, Massachusetts

—Rory Pheiffer, Nutter McClennen & Fish, LLP, Boston, Massachusetts

August 18, 2011

Ninth Circuit Expands Use of "Agency Theory"

On May 18, 2011, the Ninth Circuit issued its decision in Bauman v. DaimlerChrysler Corp., ___F.3d ___, No. 07-15386, D.C. No. CV-04-00194-RMW (9th Cir. May 18, 2011), a potentially transformative case that expands the use of “agency theory” to impose general jurisdiction over foreign corporations that do business in the United States solely through their U.S. subsidiaries.

The Ninth Circuit held that personal jurisdiction existed over DaimlerChrysler Aktiengellschaft (DCAG), a German company, because DCAG maintained the right to control its wholly owned U.S. subsidiary, Mercedes-Benz USA, LLC (MBUSA). This meant that DCAG could be haled into court in California due to MBUSA’s contacts with that state. Notably, the Bauman decision subjected DCAG to California’s jurisdiction despite the fact that the events giving rise to the lawsuit did not take place in the United States or involve the contacts relied on by the court in exercising general jurisdiction over DCAG in the first place.

Keywords: litigation, business torts, agency theory, jurisdiction, civil procedure, Ninth Circuit

— Mildred Segura and Nabil Bisharat, Reed Smith, LLP, Los Angeles

August 9, 2011

Information in Patent Applications Can Be a Trade Secret

With a panel composed of Circuit Judges Rhesa H. Barksdale, Edith Brown Clement, and Edward C. Prado, the Fifth Circuit Court of Appeals was asked to determine whether a patent application prevented the information in the application from being a trade secret in Tewari De-Ox Systems, Inc. v. Mountain States/Rosen, LLC [PDF], No. 10-50137, (5th Cir. (Tex) Apr. 5, 2011). The plaintiff allegedly owned trade secrets related to a meat-packing method. After attempting to sell its services to the defendant, the plaintiff came to believe that the defendant misappropriated its trade secrets and filed suit alleging breach of contract, misappropriation of trade secrets, violation of the Texas Theft Liability Act, breach of fiduciary duty, and fraud and fraudulent inducement.

The Fifth Circuit has held that “a trade secret can exist in a combination of characteristics and components each of which, by itself, is in the public domain, but the unified process, design and operation of which in unique combination, affords a competitive advantage and is a protectable secret.” The Fifth Circuit found that the plaintiff had raised a genuine issue of material fact regarding some of the combined information disclosed to the defendant and, thus, held that the district court’s holding to the contrary was an error.

Keywords: litigation, business torts, Fifth Circuit, trade secret, patent application

— Sofia Adrogué, P.C., Looper Reed & McGraw, P.C., Houston, Texas

August 9, 2011

Fifth Circuit Denies Homeowners Special Damages

With a panel composed of Circuit Judges Carl E. Stewart, Edward C. Prado, and Jenifer Walker Elrod, the Fifth Circuit Court of Appeals considered the district court’s exclusion of expert testimony and denial of special damages in French v. Allstate Indemnity Co., No. 09-30209, (5th Cir. (La.) Apr. 4, 2011), an insurance case stemming from the damage caused by Hurricane Katrina. The plaintiffs were homeowners whose homes were damaged by the hurricane. They sued the defendant, the insurance company that provided their homeowners’ policies, to recover additional payments for the damages to their homes. The plaintiffs also sought statutory penalties and costs under Louisiana law. After a bench trial, the district court awarded the plaintiffs additional payments and some statutory penalties. The plaintiffs appealed, contending, inter alia, that the lower court improperly excluded expert testimony.

The circuit court noted that under Louisiana law, where an insured shows that the insurer breached its duty of good faith, the insured is entitled to general or special damages. To justify such an award, the insured must produce sufficient proof, including causation, of the alleged damages. Therefore, although damages for mental anguish may be allowed by a statute, a plaintiff is not entitled to those damages absent a showing of sufficient proof of mental anguish.

Keywords: litigation, business torts, Fifth Circuit, expert testimony, special damages

— Sofia Adrogué, P.C., Looper Reed & McGraw, P.C., Houston, Texas

August 9, 2011

Fifth Circuit Considers Damages in Hacked Software Case

With a panel composed of Circuit Judges Rhesa H. Barksdale, Emilio M. Garza and Edward C. Prado, the Fifth Circuit Court of Appeals heard an appeal regarding calculation of damages. In MGE UPS Systems, Inc. v. GE Consumer & Industrial, Inc., 622 F.3d 361 (5th Cir. (Tex.) 2010), the plaintiff manufactured electrical generator machines, some of which required the use of its own copyrighted software during servicing. Hackers published information on how to service the machines without the plaintiff’s software. The defendant serviced such machines, including those manufactured by the plaintiff. A group of the defendant’s employees obtained a copy of the plaintiff’s security software from an unknown source. The plaintiff filed suit, alleging, inter alia, copyright infringement, misappropriation of trade secrets, unfair competition, and violation of digital copyright laws.

Keywords: litigation, business torts, Fifth Circuit, calculation of damages, copyright infringement, trade secrets

— Sofia Adrogué, P.C., Looper Reed & McGraw, P.C., Houston, Texas

July 8, 2011

General Employees May Owe Employer More than Loyalty

In Western Blue Print Co. v. Roberts, the plaintiff was a document management company that had employed the defendant to run a branch office. During the defendant’s employment, the defendant and her husband created a document services company that competed against the plaintiff for a contract with a university. The plaintiff brought suit against the defendant, alleging breach of fiduciary duty, tortious interference, and computer tampering. The jury’s verdict was in favor of the plaintiff on all of the claims asserted.

Keywords: litigation, business torts, fiduciary duty, employees

— Dawn M. Johnson and Elizabeth T. Nguyen, Greensfelder, Hemker & Gale, P.C., Saint Louis, Missouri

June 27, 2011

No Shield-Law Protection for Self-Described Web Journalist

In Too Much Media, LLC v, Hale, (A-7-10)(066074), 2011 WL 2305620 (N.J. June 7, 2010), the New Jersey Supreme Court held that the statutory privilege provided by New Jersey’s shield law does not protect the author of posts on an Internet message board, even though the author in this case considered herself to be a journalist who was posting the results of an investigation for purposes of exposing wrongdoing to the public at large.

After some discussion of Internet blogging and message boards, the court found that these things did not constitute news media as defined by the shield law. The court noted that to hold otherwise would be to automatically extend the broad protection of the shield-law privilege to “millions of bloggers who have no connection to traditional media . . . as well as anyone with a Facebook Account.”

Keywords: litigation, business torts, defamation, shield law, blogger, Internet

— Peter J. Boyer, Hyland Levin, LLP, Marlton, New Jersey

June 14, 2011

Defendants Bind Themselves to Venue Provisions

In Fi-Med Management Inc. v. Clemco Medical Inc. et al., Docket Number 11-CV-00155 (May 27, 2011, Clevert, J.), a recent decision on the individual defendants’ motion to dismiss for lack of personal jurisdiction, the court held that by agreeing to be bound by the noncompete provisions of an asset-purchase agreement, the individual defendants bound themselves to a venue provision contained elsewhere in the agreement, thereby consenting to personal jurisdiction.

The court denied the individual defendants’ motion to dismiss, holding that the individual defendants consented to suit in Wisconsin. While acknowledging that the individual defendants did not sign the agreement with respect to the venue provision, the court held that viewing the noncompete and nonsolicitation agreements in isolation would render them “devoid” of “substantive meaning.” The court pointed out, for instance, that the noncompetes used terms defined elsewhere in the asset-purchase agreement. If the court were not permitted to read those definitions into the noncompetes, “[t]here could be no meeting of the minds with respect to how those terms are used, and what effect should be given to such terms throughout the Agreement.” In addition, the court held that the “tunneled analysis” proposed by defendants would violate the principle that the meaning of particular provisions in a contract are to be determined with reference to the contract as a whole. Accordingly, the court held that the individual defendants were bound by the venue provision of the agreement. Because parties who agree to a clear, unambiguous, mandatory venue provision consent to the exercise of personal jurisdiction by the court in question, the individual defendants consented to suit in Wisconsin.

Keywords: litigation, business torts, asset-purchase agreement, noncompete agreement

— Ryan M. Billings, Weiss Berzowski Brady, LLP, Milwaukee, Wisconsin

April 6, 2011

Defamation Case Dismissed for Scientist Who Challenged Findings

In Chandok v. Klessig, an opinion delivered by Circuit Judge Kearse, the Second Circuit held that the common-law privilege from defamation claims for communications on which a party has a duty to speak applied to a scientist’s public challenge and criticism of a fellow scientist’s alleged findings that were unable to be replicated by the scientist and his staff.

As for Klessig’s anti-SLAPP counterclaim, the court noted that it was “aware of no case that has held the New York anti-SLAPP statute applicable to a person who is entitled to engage in her proposed course of conduct without government permission or to a person who merely sought government funding for a project that could be privately financed.” Because Chandok’s research did not require government permission, the court affirmed the district court’s dismissal of the anti-SLAPP counterclaim.

Keywords: litigation, business torts, defamation, anti-SLAPP

— Zachary G. Newman and Anthony P. Ellis, Hahn & Hessen, LLP, New York, New York

April 6, 2011

Tax-Prep Companies May Fall under Credit Service Regulations

Tax-preparation companies may now face lawsuits in Missouri for violations alleged under the statutes that regulate credit service organizations. In Fugate v. Jackson Hewitt, Inc., the Missouri Court of Appeals (Western District) held that credit service regulatory statutes (Mo. Rev. Stat. §§ 407.635, et seq.) would apply to tax-preparation companies engaging in the conduct described in the plaintiffs’ petition.

The dissenting judge noted that the majority’s interpretation of the term “credit services organizations” would include a class of persons broader than a class of persons subject to the restrictions set forth in the prohibited activities section of the statutes applicable to credit services organizations.

Keywords: litigation, business torts, unfair trade practices, tax preparation, credit services

— Erwin O. Switzer and Elizabeth T. Nguyen, Greensfelder, Hemker & Gale, P.C., Saint Louis, Missouri.

March 31, 2011

FCRA Ruling Upheld in Favor of Mortgage Company

In Anderson v. EMC Mortgage Corp., the U.S. Court of Appeals for the Eighth Circuit affirmed a grant of summary judgment to a furnisher of adverse credit information that the court held satisfied its duties under the Fair Credit Reporting Act (FCRA).

The Eighth Circuit held that the mortgage company did not violate the FCRA when it did not investigate and correct a discrepancy as to which months in the plaintiff’s account were 30 days past due, which the court held was immaterial. The court noted that under § 1681s-2(b), a furnisher’s obligation to conduct a reasonable investigation is triggered when it receives notice of a dispute from a credit-reporting agency, not from the consumer. The mortgage company met the reasonable investigation standard when it investigated only what it learned about the nature of the dispute from the credit-reporting agency’s notice.

Keywords: litigation, business torts, unfair trade practices, FCRA

— Erwin O. Switzer and Elizabeth T. Nguyen, Greensfelder, Hemker & Gale, P.C., Saint Louis, Missouri.

March 14, 2011

Fifth Circuit Considers Appeal on Personal Jurisdiction

With a panel composed of Circuit Judges W. Eugene Davis, Jerry E. Smith, and Catharina Haynes, the Fifth Circuit Court of Appeals considered Choice HealthCare, Inc. v. Kaiser Foundation Health Plan of Colorado, an appeal regarding personal jurisdiction. The plaintiffs argued that under the Fifth Circuit’s stream-of-commerce jurisprudence, the defendants should be subject to jurisdiction in a Louisiana court because it issued a policy that triggered its obligation to pay policy benefits to the plaintiffs in Louisiana on behalf of its insureds.

The Fifth Circuit explained that the facts of the instant case “simply do not fit the stream of commerce model described by Justice Brennan.” The court noted that independent action of the insureds in traveling to the forum state seeking treatment outside their coverage area is “arguable analogous” to the driver in World-Wide Volkswagen. This independent action is inconsistent with the notion that the defendants made purposeful commercial contact with Louisiana. Therefore, the Fifth Circuit Court of Appeals concluded that the stream-of-commerce theory did not apply, and, thus, the plaintiffs failed to establish personal jurisdiction over the defendants.

Keywords: litigation, business torts, Fifth Circuit, personal jurisdiction, stream of commerce

— Sofia Adrogué, P.C., Looper Reed & McGraw, P.C., Houston, Texas

March 14, 2011

Fifth Circuit Hears Second Appeal on Price Restraints

With a panel composed of Circuit Judges Jerry E. Smith, Emilio M. Garza, and Edith Brown Clement, the Fifth Circuit Court of Appeals heard PSKS, Inc. v. Leegin Creative Leather Products, Inc., which considered for the second time an appeal concerning alleged violations of section 1 of the Sherman Act.

The court of appeals noted that to state an antitrust claim for anticompetitive RPMs, a complaint must “plausibly define the relevant product and geographical markets.” “A proposed product market must include all ‘commodities reasonably interchangeable by customers for the same purposes.’” The plaintiff in the instant case alleged two alternative markets, neither of which, the Fifth Circuit opined, included the available interchangeable substitute products. The court of appeals held that the district court had properly rejected both of the proposed markets.

Further, the circuit court held that the trial court correctly rejected the plaintiff’s claim that the products at issue constituted their own market. Although the plaintiff’s claim failed for lack of market definition, the circuit court analyzed the alleged anticompetitive harm and found that even if the plaintiff’s factual allegations were accepted as true, nothing in the complaint plausibly alleged harm to competition.

Finally, the plaintiff argued that the lower court erred in holding that its horizontal-restraint claims were barred by the mandate rule. The plaintiff in the present case first attempted to plead horizontal-restraint claims in its second amended complaint after its original claims were rejected by the Supreme Court. The Fifth Circuit Court of Appeals affirmed the district court’s dismissal of the plaintiff’s claims on remand.

Keywords: litigation, business torts, Fifth Circuit, Sherman Act

— Sofia Adrogué, P.C., Looper Reed & McGraw, P.C., Houston, Texas

March 14, 2011

Fifth Circuit Hears Case on Arbitration

A panel composed of Chief Judge Edith H. Jones and Circuit Judges Jerry E. Smith and Jennifer W. Elrod, the Fifth Circuit Court of Appeals heard MC Asset Recovery, LLC v. Castex Energy, Inc. (In re Mirant), an appeal regarding the alleged breach of a purchase and sale agreement.

The Fifth Circuit first assessed whether the defendant substantially invoked the judicial process. The defendant in the instant case argued that it did not attempt to obtain a decision on the merits because it only filed what it referred to as “perfunctory motions to dismiss.” The Fifth Circuit disagreed, explaining that the defendant based its second motion to dismiss on the affirmative defenses of waiver and release. The court of appeals noted that by seeking to prove its own allegations, the defendant did more than merely file a motion to dismiss.

Additionally, the Fifth Circuit noted that the defendant moved to compel arbitration only after its third motion to dismiss had been partially denied. The court of appeals was not convinced that the defendant, knowing that the district court was not receptive to its arguments, “‘should be allowed a second bite at the apple through arbitration.’” Thus, the Fifth Circuit agreed that the defendant substantially invoked the judicial process.

The Fifth Circuit then explained that the party opposed to arbitration must show prejudice. Prejudice in this context refers to “delay, expense, and damage to a party’s legal position.” The circuit court disagreed with the defendant’s argument that it made a timely demand for arbitration by asserting the right to compel arbitration as an affirmative defense in its answer, as well as reserving that right in footnotes in its motions to dismiss.

Keywords: litigation, business torts, Fifth Circuit, purchase and sale agreement, arbitration

— Sofia Adrogué, P.C., Looper Reed & McGraw, P.C., Houston, Texas

March 7, 2011

Violation of Federal Law Can Give Rise to State Claim

In Lefaivre v. KV Pharmaceutical Co., the U.S. Court of Appeals for the Eighth Circuit held that a claim brought under a state consumer-protection law based on a violation of federal law was not preempted by federal law.

The court of appeals reversed the district court’s ruling, holding that there was no preemption because “the federal statutory or regulatory scheme in the present case is not so pervasive in scope that it occupies the field.” The state law supplemented the Food and Drug Administration’s current good manufacturing practice requirements by offering another layer of consumer protection.

Keywords: litigation, business torts, unfair trade practices

— Erwin O. Switzer and Elizabeth T. Nguyen, Greensfelder, Hemker & Gale, P.C., Saint Louis, Missouri.

February 3, 2011

North Dakota Allows Third-Party, Handwritten Note as Hearsay Exception

The North Dakota Supreme Court recently held that a district court did not abuse its discretion when it admitted into evidence a bill of lading with a handwritten notation from a third party as an exception to the hearsay rule. In Pizza Corner, Inc. v. C.F.L. Transport, Inc., a pizza producer asserted claims against a shipping company alleging that frozen pizzas shipped by the producer were improperly stored and damaged by the shipping company. The court stated that the handwritten notation on the bill of lading was hearsay because it was offered to show that the pizzas were damaged by the shipping company. There is a hearsay exception for records of regularly conducted business activity in North Dakota Rule of Evidence (N.D. R. Evid.) 803(6), which is based on Federal Rule of Evidence 803(6). The handwritten notation met the initial requirements of N.D. R. Evid. 803(6) because it was timely created in the regular course of business by a person with knowledge for the purpose of maintaining the accuracy of information on the bill of lading.

Keywords: litigation, business torts, North Dakota, hearsay rule

— Erwin O. Switzer and Elizabeth T. Nguyen, Greensfelder, Hemker & Gale, P.C.

January 24, 2011

Court Enters Default Judgment for Spoliation of ESI

In Victor Stanley, Inc. v. Creative Pipe, Inc. et al., District of Maryland, Civil No. MJG-06-2662 (Sept. 9, 2010), the court entered a default judgment against the defendants, held the defendants in contempt for spoliation and ordered the defendant president to serve up to two years in jail unless and until he paid all of the attorney fees and costs incurred by the plaintiff as a result of his spoliation.

In all, the court found that the plaintiff “proved grave misconduct that was undertaken for the purpose of thwarting Plaintiff's ability to prove its case and for the express purpose of hamstringing this Court's ability to effect a just, speedy, and inexpensive resolution of a serious commercial tort.”

As a result of the defendants’ extreme discovery violations, the court ordered that the defendant Mark Pappas’s acts of spoliation be treated as contempt, that he be imprisoned for up to two years, unless and until he pays the plaintiff its attorney fees and costs. Moreover, the court entered a default judgment against Creative Pipe, Inc., and Mark Pappas on the plaintiff’s primary copyright infringement claim.

— Jonathan M. Shapiro, Shapiro Law Offices, LLC, Middletown, Connecticut

January 24, 2011

Washington Supreme Court Abandons Economic Loss Rule

Like appellate courts in many jurisdictions, the Washington Supreme Court has struggled to consistently apply the Economic Loss Rule. Having confounded both practitioners and trial courts with its extremely broad 2007 interpretation of the rule in Alejandre v. Bull, 159 Wn.2d 674, 153 P.3d 864, which held that the rule barred tort claims between contracting parties because they did or could have allocated risks in their agreement, the Washington court has now abandoned the doctrine entirely. The opinion can be summarized by the holding that a breach of lease can simultaneously be a breach of a tort duty that arises independently of the lease’s terms because an independent tort duty can overlap with a contractual obligation.

Although the court’s lead opinion in Eastwood declines to acknowledge the death of the Economic Loss Rule in Washington, asserting that only the name has been relegated to the dustbin, its holding that tort claims between contracting parties must be evaluated only under the “independent duty doctrine” of traditional tort law effectively ends application of the rule in Washington.

— Mark S. Davidson and Michael I. White, Williams Kastner, Seattle, Washington

November 29, 2010

Fifth Circuit Affirms Denial of Class Certification in Fiduciary Duty Case

In Casa Orlando Apartments, Ltd. v. Federal National Mortgage Ass’n, the Fifth Circuit affirmed the denial of class certification in a multi-state class action alleging that Fannie Mae had breached fiduciary duties to low-income class member mortgagors. The plaintiff mortgagors had been required by a federally mandated regulatory agreement to make deposits into certain funds allegedly held by Fannie Mae in trust for the mortgagors. The mortgagors alleged that Fannie Mae was in a fiduciary relationship with the mortgagors and had breached its fiduciary duty by engaging in self-dealing with the mortgagors’ uninvested funds.

— David Dodds, Haynes and Boone, LLP, Dallas, Texas

November 29, 2010

Federal Courts Can Adjudicate the Ownership of a Trademark in Infringement Claims

In Federal Treasury Enterprise Sojuzplodoimport v. Spirits International N.V., an opinion delivered by Circuit Judge Barrington D. Parker, the Second Circuit held that an alleged assignee of trademark rights seeking to dismiss claims brought against it under the Lanham Act on the grounds that the trademark is incontestable under 15 U.S.C. § 1065 must establish as a matter of law both that the trademark satisfies the criteria for incontestability set forth in the statute and the alleged assignment was valid as a matter of law. The court further held that federal courts have subject matter to adjudicate the ownership of a trademark as part of a trademark infringement claim because a necessary element of establishing a trademark infringement claim is proving ownership of the trademark at issue.

— Zachary G. Newman, Anthony P. Ellis, Hahn & Hessen, LLP, New York, New York

Fifth Circuit Hears Case on Jurisdiction in Mexico

In Saqui v. Pride Central America, LLC, the Fifth Circuit Court of Appeals heard an appeal involving the death of a Mexican citizen. A Mexican oil company leased a vessel owned by the appellee, an American company. The appellant, a representative of the decedent’s estate, filed suit in federal district court in Texas, alleging the appellee failed to provide a safe workplace. The appellee filed a motion to dismiss on forum non conveniens grounds. The appellee stated in its motion that it would agree to submit to jurisdiction in Mexico and make available there any witnesses under its control. The appellant filed a response, arguing that Mexico did not provide an available forum.

The district court denied the appellee’s motion to dismiss, and the appellee filed a renewed motion to dismiss on forum non conveniens grounds, asserting that the appellant’s incorporated expert was accused of committing fraud in the case on which his opinion relied. The district court in the instant case referred the renewed motion to dismiss to a magistrate judge. The magistrate determined that Fifth Circuit law consistently held that when a defendant submits to jurisdiction in an alternate forum, it renders the forum available for purposes of forum non conveniens analysis. The magistrate recommended that the district court grant the renewed motion to dismiss if the appellee submitted to jurisdiction in Mexico. The district court accepted the recommendation in its entirety, and this appeal ensued.

—Sofia Adrogué, P.C., Looper Reed & McGraw, Houston, Texas

File-Sharing Defendant Argues She Was an "Innocent Infringer"

In Maverick Recording Co. et al v. Harper, the Fifth Circuit Court of Appeals heard a case regarding the online file sharing of music. The plaintiffs were record companies and owners of copyrighted music. The defendant was an individual who was identified as sharing hundreds of digital audio files, including the plaintiffs' copyrighted material, with others over the Internet. The plaintiffs filed suit, claiming copyright infringement.

The district court granted the plaintiffs' motion for summary judgment on the copyright claims and denied the plaintiffs' request for statutory damages. The plaintiffs requested damages of $750 per song as provided by 17 U.S.C. § 504(c)(1). The defendant argued that she was an "innocent infringer" under § 504(c)(2), which provides that the court may reduce the damages to $200. The defendant asserted that she thought "her actions were the equivalent of listening to an Internet radio station." The district court concluded that the innocent infringer issue was a question of material fact.

—Sofia Adrogué, P.C., Looper Reed & McGraw, Houston, Texas

Fifth Circuit Addresses Shareholder's Breach of Fiduciary Duty Suit

In D&J Tire Inc. v. Hercules Tire & Rubber Co., the Fifth Circuit Court of Appeals reviewed a grant of summary judgment on a fiduciary duty claim. The appellant was a retailer for the appellee's goods and a stockholder. The appellee conducted a business valuation, found that there were several interested buyers, and reported the valuation results. Simultaneously, the appellant made a request to redeem its stock and apply the proceeds to an outstanding debt it owed the appellee. The appellee's CFO said that to complete the request, the appellant needed to execute a stock power of attorney to him and reported that the appellee would honor redemption at 80 percent of the book value because the appellant's redemption was a "hardship withdrawal."

In the interim, the board of directors voted to move forward with the sale of the company. The merger was approved by shareholder vote and the shareholders received more than $60,000 per share-significantly more than the redemption amount the appellant received. The appellant accused the appellee's CFO of securities violations, fraud, and breach of fiduciary duty by failing to inform him of the possible upcoming merger.

—Sofia Adrogué, P.C., Looper Reed & McGraw, Houston, Texas

Supreme Court Rejects Immediate Appeal under Collateral-Order Doctrine

In Mohawk Indus., Inc. v. Carpenter, the Supreme Court, in the first opinion by Justice Sotomayor, rejected immediate appeal under the collateral-order doctrine of disclosure orders requiring production of information allegedly protected from disclosure by the attorney-client privilege.

Plaintiff Norman Carpenter brought an unlawful-termination claim against Mohawk Industries, Inc. alleging that Mohawk fired him in retaliation for his refusal to ignore evidence he uncovered that Mohawk was knowingly hiring undocumented workers and to recant his statements concerning those practices. At the time of Carpenter's alleged discovery, Mohawk had been named as a defendant in a suit alleging that Mohawk knowingly hired undocumented workers to drive down the wages of lawful employees. Carpenter claimed that Mohawk instructed him to meet with the company's counsel in that litigation and that during this meeting counsel pressured Carpenter to recant his prior statements concerning Mohawk's employment practices.

In discovery, Carpenter sought all documents concerning his alleged meeting with company counsel, and Mohawk refused to produce the documents on the grounds that the information was protected by the attorney-client privilege. Carpenter filed a motion to compel production. The district court agreed the information was privileged, but required Mohawk to produce the material on the grounds that it had implicitly waived the privilege in its disclosures in the other litigation.

Mohawk sought certification for an interlocutory appeal from the district court, which was denied, and Mohawk appealed to the Eleventh Circuit. The Eleventh Circuit dismissed the appeal on the grounds that the appellate court did not have jurisdiction, holding that the district court's decision was not a final order under 28 U.S.C. § 1291 and did not qualify as immediately appealable under the collateral-order exception set forth in Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541 (1949).

The Supreme Court granted certiorari to resolve a circuit split over whether discovery orders concerning the attorney-client privilege were immediately appealable under the collateral-order doctrine.

In finding that such orders did not qualify as final orders and were not immediately appealable, the Supreme Court held that the class of collaterally appealable orders must remain "narrow and selective" and limited to only those decisions "that are . . . effectively unreviewable on appeal from the final judgment in the underlying action." The Supreme Court held that with respect to discovery orders there were means available to review the order other than an immediate appeal, including post-judgment review of the decision, vacatur of any judgment entered in error, and remand for a new trial. Such practices, the Supreme Court noted, have been sufficient for other discovery errors. Moreover, the Supreme Court stated that other options existed for a litigant facing an order to produce purportedly privileged documents, including, for example, being able to seek certification for review from the district court and, in extraordinary circumstances, to petition the court of appeals for a writ of mandamus.

— Zachary G. Newman and Anthony P. Ellis, Hahn & Hessen, LLP, New York, New York