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March 6, 2012

Second Circuit Affirms Limits on Extraterritorial RICO Jurisdiction

On January 25, 2012, the U.S. Court of Appeals for the Second Circuit affirmed a district court decision dismissing a Venezuelan man’s RICO suit against several Venezuelan government officials. Cedeño v. Castillo, No. 10-3861-CV, 2012 U.S. App. LEXIS 1469 (2d Cir. Jan. 25, 2012). Cedeño, a Venezuelan exile, brought suit in the United States against several Venezuelan officials and their political allies, alleging that they had engaged in an extortion and money laundering scheme. Specifically, Cedeño alleged that the officials pegged Venezuela’s currency to the U.S. dollar and manipulated the exchange rate by trading government bonds and U.S. treasury bills as part of a racketeering scheme. Cedeño tried to use the officials’ reliance on New York banks as a predicate for finding RICO jurisdiction, but both the Southern District of New York and the Second Circuit disagreed.

The district court dismissed the case on the defendants’ motion to dismiss. Cedeño v. Castillo, 733 F. Supp.2d 471 (S.D.N.Y. 2010). Cedeño argued that the court had jurisdiction because: RICO provides for extraterritorial jurisdiction; or even if RICO does not provide for extraterritorial jurisdiction, the alleged acts fall under RICO’s domestic application. As to extraterritorial jurisdiction, the district court relied on the Supreme Court’s decision in Morrison v. National Australia Bank Ltd., to hold that as the RICO statute does not expressly provide for extraterritorial jurisdiction, such jurisdiction does not exist. 130 S.Ct. 2869, 2884; 2010 U.S. LEXIS 5257 at *33 (June 24, 2010). The district court also rejected Cedeño’s domestic jurisdiction argument. It reasoned that the RICO statute is concerned primarily with domestic enterprises, and while the alleged course of conduct did touch the United States, “RICO does not apply where, as here, the alleged enterprise and the impact of the predicate activity upon it are entirely foreign.”

The Second Circuit wholly affirmed. It refused to credit Cedeño’s argument that RICO applies extraterritorially because the predicate offenses upon which he based his complaint apply extraterritorially. The court again relied on Morrison and Norex Petroleum Ltd. v. Access Indus., Inc. to hold that courts may not apply RICO extraterritorially even though some statutes outlawing its predicate offenses may apply abroad. Norex,631 F.3d 29, 33 (2d Cir. 2010). Additionally, Cedeño contended that the district court’s domestic application analysis was erroneous because it focused on domestic enterprises rather than on a “pattern of racketeering” in the United States. The Second Circuit decided that even if the district court should have focused on a pattern of racketeering, Cedeño still failed to allege that the defendants’ acts in the United States proximately caused his injuries. Thus, the Second Circuit, in an important statement, continued to erect barriers between foreign plaintiffs and the U.S judicial system.

Keywords: Extraterritorial RICO Jurisdiction, foreign plaintiffs, U.S. Court of Appeals for the Second Circuit, Venezuela, Cedeño v. Castillo, Morrison v. National Australia Bank Ltd.

—Robert Carlton, Haynes and Boone, LLP.

February 13, 2012

DOJ Urges Fourth Circuit to Reject Reporters' Privilege in All Criminal Investigations and Cases

In a case that the media law bar is monitoring closely, the Department of Justice recently filed its opening brief in its appeal of a district court’s order quashing the department’s subpoena to reporter James Risen. The government is urging the Fourth Circuit to draw a distinction between civil cases (where the Fourth Circuit has previously recognized the existence of a First Amendment reporters’ privilege) and criminal investigations and cases (where, according to the government, the privilege is inapplicable).

Judge Brinkema of the Eastern District of Virginia has quashed two subpoenas to author and New York Times reporter James Risen, both of which were issued in the course of the government’s investigation and prosecution of former CIA agent Jeffrey Sterling. At first, Judge Brinkema quashed a grand jury subpoena to Risen—but the grand jury indicted Sterling nevertheless. Then the government issued a trial subpoena to Risen—and again, the subpoena was quashed on the grounds that (i) a qualified First Amendment reporters’ privilege existed, even in the context of a criminal case, and (ii) the government had failed to overcome the privilege because it could not establish that the testimony was necessary or that there was a compelling interest in the testimony.

The government took an interlocutory appeal from Judge Brinkema’s decision granting the motion to quash the trial subpoena—but not right away. In fact, the government did not take its appeal until just days before trial was set to start, right after the court struck two of the government’s “key witnesses” as a (unrelated) discovery sanction. According to the government, this sanctions ruling was severe enough to “effectively terminate[] the prosecution.” The government is currently appealing the discovery sanction as well.

Whatever the government’s primary reasons for taking this appeal, the reporters’ privilege issue is now front-and-center. In its opening brief, the government claims that it is “not aware of any case in which a court has excluded the testimony of a reporter who personally witnessed a crime”—and Risen, by hearing Sterling disclose secret CIA information, was a witness to a crime, so the argument goes. Focusing on the Supreme Court’s decision in Branzburg v. Hayes, 408 U.S. 665 (1972), the government is urging the Fourth Circuit to adopt a position that hues close to the D.C. Circuit’s 2005 decision in In re Grand Jury Subpoena (Judith Miller), 438 F. 3d 1141, 1148 (D.C. Cir. 2006): Specifically, that Branzburg foreclosed any argument concerning a First Amendment reporters’ privilege in the criminal context. (The Judith Miller case arose in the context of a grand jury subpoena, not a trial subpoena.) Although the government acknowledges that the Fourth Circuit has recognized a qualified reporters’ privilege in the civil context, see Ashcraft v. Conoco, Inc., 218 F.3d 282, 287 (4th Cir. 2000), the government is arguing that the privilege must be limited in criminal matters (to the point of non-existence, it seems), because “our historical commitment to the rule of law is nowhere more profoundly manifest than in our view that the twofold aim of criminal justice is that guilt shall not escape or innocence suffer.”

At the district court, Risen also argued that he was protected by a reporters’ privilege that is, or should be, recognized as a matter of federal common law. On this appeal, the government claims that the district court “rejected” this argument (the district court stated that it will “limit its analysis to the reporter’s privilege under the First Amendment”), and implies that Risen cannot maintain this argument on appeal because he has not cross-appealed that earlier decision. The government argues in the alternative that, if a reporters’ privilege does exist, it has been overcome on these facts. Risen and Sterling’s briefs are due on February 14.

Keywords: Fourth Circuit, reporters privilege, Jeffrey Sterling, First Amendment.

—Nathaniel S. Boyer, Hogan Lovells US LLP, New York City.

November 28, 2011

ABA Files Amicus Brief in Lawyer Immunity Appeal

On Monday, November 21, 2011, the American Bar Association waded into the Supreme Court fight over whether a private lawyer retained to work with government employees is entitled to qualified immunity. In Filarski v. Delia (Case No. 10-1018), the appellant, a firefighter in Rialto, California, sued the city, its fire department, and fire officials under 42 U.S.C. § 1983 regarding an internal affairs investigation conducted when fire officials suspected that Delia was improperly using sick days to perform work on his home. Also named in the suit was Steve Filarksi, the private attorney hired by the city to assist with the investigation.

The California trial judge dismissed the case, finding that all of the defendants were entitled immunity. In September of 2010, however, the Ninth Circuit reversed and ruled that Filarksi was not entitled to qualified immunity because he was not an "employee" of the city. The Supreme Court granted certiorari to review the Ninth Circuit opinion on September 27, 2011, and is set to resolve the circuit split created by the opinion. Specifically, the Ninth Circuit refused to follow the Sixth Circuit ruling in Cullinan v. Abramson, 128 F.3d 301 (6th Cir. 1997) (citing Richardson v. McKnight, 521 U.S. 399 (1997)), which accorded immunity to private lawyers working for a municipality.

Siding with Filarksi, the ABA contends that "qualified immunity from Section 1983 suits is essential for private attorney's representing government clients." The ABA notes that the private bar provides government entities with an array of legal services that are essential to the performance of government functions. As such, the failure to extend immunity to private lawyers will substantially deter the involvement of outside counsel and negatively impact the government's ability to resolve conflicts. Citing to increased insurance costs and exposure to punitive damages, the ABA argues that "ensuring qualified immunity would promote the strong public interest in the continuing representation of public entities by private counsel." The Supreme Court's ruling on this issue will have far-reaching implications for all lawyers in this country who provide legal services for government entities. Oral argument is scheduled for January 17, 2012.

Keywords: Filarski v. Delia, amicus brief, lawyer immunity

—Robert E. Sumner, IV, Esq., Moore & Van Allen, PLLC

November 28, 2011

Lawsuit Challenges Constitutionality of California Pro Hac Admission Rules

Across the United States, the trend is to reduce barriers to multi-jurisdictional client legal service in a global economy. In September of this year, the American Bar Association's Commission on Ethics 20/20 announced proposed changes to the Model Rules of Professional Conduct that would reduce barriers to the multi-jurisdictional practice of law. Comments to those proposed changes are due on November 30, 2011.

A recent lawsuit filed in the United States District Court, Northern District of California, San Francisco division, captioned National Association for the Advancement of Multijurisdictional Practice et al. v. United States et al., challenges the constitutionality of the local rules for admission pro hac vice in the California district courts and alleges that the restrictions on out-of-state admission are unconstitutional.

By way of example, the lawsuit claims that Northern District of California, Local Rule 11.3(b), which disqualifies from pro hac vice appearance lawyers who reside in California, regularly engage in the practice of law in California, or have registered to take the California Bar exam or are awaiting bar exam results. The suit complains that this rule and others like it violate federal equal rights, privileges, and immunities and "constitute a wall of financial protection and provide California licensed attorneys with a monopoly."

The proposed amendment to Rule 5.5 of the ABA Model Rules of Professional Conduct, however, would still prohibit a lawyer to be admitted to practice by motion where the lawyer has "systematic and continuous presence" in that jurisdiction.

As the cross-border practice of law continues to increase to serve the needs of clients in a global economy, there is bound to be more debate and litigation over the constitutionality of the rules that govern admission of out-of-state attorneys by motion.

Keywords: ABA Commission on Ethics, Rule 5.5, Rule 11.3(b), proposed amendment

—Peter S. French, Benesch Friedlander Coplan & Aronoff, Indianapolis, IN

October 31, 2011

Can a Court Preside over Private Arbitration? One Group Says "No"

Contracting parties waive their right to a trial by jury and elect to arbitrate their disputes every day in the United States. Public policy strongly favors such alternative dispute resolution. In April 2009, the State of Delaware jumped on the alternative dispute resolution bandwagon when the state legislature adopted 10 Del. C. §349, which empowers the Delaware Court of Chancery to arbitrate business disputes upon the request of the parties where the amount in controversy exceeds $1 Million.

On October 25, 2011, Delaware Coalition for Open Government, Inc. (a not-for-profit corporation) filed suit against the Delaware Court of Chancery, five of its justices, and the State of Delaware, claiming that the Delaware Court violates the First Amendment to the United States Constitution by holding private arbitration proceedings. The main objection by the Delaware Coalition for Open Government is that such proceedings are confidential, and, this denies the public access to both the record of proceedings and hearings.

Like its counterpart in the United States Constitution, Section 9 of the Delaware Constitution provides that "[a]ll courts shall be open." The plaintiffs admit in their complaint that the right to public access is "presumptive," perhaps implicitly acknowledging that in some instances it is permissible for courts to hold closed proceedings. Courts have closed proceedings in cases involving state's secrets and in some intellectual property cases. Only time will tell whether public courts can preside over confidential arbitration proceedings.

Keywords: Delaware Chancery Court, First Amendment, arbitration

—Peter S. French, Benesch Friedlander Coplan & Aronoff, Indianapolis, IN

October 13, 2011

Jury Selection Begins in Trial of New Jersey Criminal Defense Attorney

It is not unusual for New Jersey criminal defense attorney Paul Bergrin to defend a high-stakes criminal trial. After all, the prominent trial lawyer has handled numerous high-profile criminal cases for clients ranging from drug dealers to rap superstars like Queen Latifah and Lil' Kim. But what is most unusual about this particular case is Bergrin's client: himself.

On Tuesday, jury selection began in the Newark federal courthouse where Bergrin is representing himself as lead trial counsel against two charges accusing him of orchestrating the street murder of an FBI informant in 2004. Bergrin has been charged with a total of 33 counts in a 139-page indictment by the same U.S. Attorney's Office where Bergrin himself was a federal prosecutor in the 1980s. In addition to murder, Bergrin has been accused of various crimes, including fraud and cocaine trafficking. In 2009, Bergrin pled guilty to charges relating to his involvement in a high-end Manhattan prostitution service that Bergrin took over from one of his clients after the client was sentenced to 18 months in prison.

For now, however, Bergrin will only be tried on charges relating to his involvement in arranging the FBI informant's murder after U.S. District Court Judge William Martini severed the other charges in the indictment. Bergrin, who was reportedly fond of the expression "no witness, no case," allegedly passed the informant's name to a Newark drug dealer who Bergrin was representing. The informant was subsequently gunned down in broad daylight.

Due to safety concerns, Bergrin’s courtroom movements during the trial will be restricted. He will be required to stand behind a podium during witness examinations and must pass trial exhibits to witnesses through a proxy. It is not clear if Bergrin will be allowed to participate in sidebar conferences, which, if allowed, will happen only with a U.S. Marshal present. Bergrin has requested that prosecutors be similarly restricted, but it is not clear what restrictions on prosecutors will be imposed.

Opening statements are scheduled to begin next week. For more information on the case, see the New Jersey Star-Ledger's archives.

Keywords: Paul Bergrin, witness murder, FBI informant

—John Gekas, Gekas Law LLP, Chicago, IL

October 3, 2011

Fifth Circuit Finds District Court Misapplied Cy Pres Doctrine in Class Action

The Fifth Circuit reversed a district court's order distributing unused medical monitoring funds from a class action settlement to third-party charities and ordered that the funds be distributed to a subclass that contained the most seriously injured class members. Klier v. Elf Atochem North America, Inc., ___ F.3d ___, 2011 WL 4436528 (5th Cir. 2001).  

In 1992, several plaintiffs filed a class action lawsuit against Arkema. Plaintiffs alleged that they were exposed to arsenic and other toxic chemicals from Arkema’s plant in Bryant, Texas. The parties eventually reached a $41.4 million settlement.

The settlement agreement created three subclasses. Subclass A was made up of class members who contracted cancer or birth defects. Subclass B was made up of class members who lived near the plant and met specified exposure standards, but its members were not required to demonstrate physical injury. Subclass C was established to compensate class members for property damages and diminution in property value.

Approximately $830,000 went unused during the administration of the medical monitoring program created for the benefit of Subclass B, because the initial participation rate was low and no significant health problems were found during the medical monitoring program.

The settlement administrator filed a status report, which explained that the medical monitoring program had ended and that approximately $830,000 was unused and needed to be distributed by the district court. The parties agreed that it was not economically feasible to distribute the unused funds to the members of Subclass B. The district court asked the parties for proposals for distribution of the unused funds.

Class counsel did not respond to the district court's request. Arkema proposed a cy pres distribution to seven charitable entities. Ralph Klier, a member of Subclass A, opposed Arkema's proposal and requested that the unused funds be distributed pro rata to the members of Subclass A. The district court ordered that the unused funds be distributed in equal shares to three of the charities proposed by Arkema and a charity selected by the court.

On appeal, the Firth Circuit explained that in the class action context, a cy pres distribution is a way for the court to put unclaimed settlement funds to their next best use for the benefit for the class. A cy pres distribution of unclaimed settle funds to a third-party is permissible only when it is not feasible to make further distributions to class members, except where an additional distribution would provide a windfall to class members whose claims were 100 percent satisfied by the initial distribution. "Cy pres comes on stage only to rescue the objectives of the settlement when the agreement fails to do so."

With these principles in mind, the Fifth Circuit reversed the district court, because the cy pres distribution was contrary to the terms of the two settlement documents, i.e., the Class Action Settlement Agreement and the Protocol for Distribution of Settlement Fund (the protocol).  

The Fifth Circuit concluded that no provisions in the settlement documents authorized a cy pres distribution. Moreover, the protocol required the district court to distribute the medical monitoring funds that were unused by members of Subclass B to other subclasses, as long as such distributions were feasible and equitable. The Fifth Circuit found that distribution of the unused medical monitoring funds to Subclass A was feasible and equitable because the members of Subclass B suffered no injuries, whereas the members of Subclass A suffered the most serious personal injuries.

—Jim Shelson, Phelps Dunbar, LLP, Jackson, MI

September 27, 2011

Judicial Conference of the United States Met in September

The Judicial Conference of the United States met in New York City on September 13, 2011. The Judicial Conference is the governing body that sets policy for the federal judiciary. Headed by the chief justice of the United States Supreme Court, the Judicial Conference is comprised of the chief judges for the 13 federal appeals courts, a district judge for each of the 12 circuits, and the chief judge of the Court of International Trade. In September 2010, the Judicial Conference was responsible for introducing cameras into certain federal courtrooms as part of a three-year pilot program.

 

In light of budget pressures this year, the Judicial Conference increased various fees in federal courts beginning in November 2011. The increased fees are expected to generate $10.5 million in revenue for the federal judiciary. The Judicial Conference also increased public access fees for those using the Public Access to Court Electronic Records (PACER) from eight cents to ten cents per page. Local, state, and federal agencies will be exempt from the increase for three years. To minimize the impact of the fee increases, the billing process for PACER will be adjusted to require quarterly billing only to users who accrued more than $15 in fees.

 

The Judicial Conference also addressed the procedure for filing cases under seal. Specifically, the Judicial Conference states that cases should be filed under seal only when required by law or when "justified by a showing of extraordinary circumstances and the absence of narrower feasible and effective alternatives such as sealing discrete documents or redacting information." In 2006, 576 cases of the more than 245,000 total civil cases were filed under seal. Approximately one-third of those cases under seal were qui tam actions. The Judicial Conference also modified the judicial system's electronic case file system to include annual reminders to judges to review those cases filed under seal.

—Robert E. Sumner IV, Moore & VanAllen, Charleston, SC

September 27, 2011

Second Circuit Vacates Preliminary Injunction Prohibiting Actions to Enforce Ecuadorian Judgment Against Chevron

On September 19, 2011, the Second Circuit Court of Appeals issued an order denying a Mandamus Petition seeking to compel district court Judge Lewis A. Kaplan to recuse himself from the Chevron lawsuit against several individuals accused of violating United States racketeering laws as a part of a scheme to obtain an $18 billion judgment against Chevron in Ecuador. The court also vacated a preliminary injunction issued by Judge Kaplan that prohibits efforts to enforce the $18 billion judgment pending appeal in Ecuador and stayed Chevron's claim for a judicial declaration that the Ecuadorian judgment is unenforceable in the United States. Notably, Chevron's racketeering claims are permitted to move forward on the merits.

According to a press release issued the same day by Chevron, the Second Circuit decision to vacate the injunction was handed down after representatives of the judgment holders promised to refrain from enforcement efforts pending the Ecuadorian appeal.

It is anyone's guess when the dispute between Chevron and Ecuador will be finally adjudicated or resolved. Chevron's appeal in Ecuador could be handed down any time between now and next year. No trial date has been set on Chevron's racketeering claim in the United States District Court.

Keywords: Chevron, Lago Agio, Ecuador

—Peter S. French, Benesch Friedlander Coplan & Aronoff, Indianapolis, IN

September 14, 2011

ABA Proposes to Streamline Ethics Rules, Reduce Barriers to Cross-Border Practice of Law

In a development important to trial lawyers that practice in multiple jurisdictions, the American Bar Association’s Commission on Ethics 20/20 announced proposed changes to the Model Rules of Professional Conduct. These proposed changes represent the ABA's effort to implement meaningful ethical rules that recognize advances in technology and the desire for reduced barriers to multi-jurisdictional client service in a global economy. The draft rule changes published for comment by the Commission would make the following changes:

The proposed rules can be found on the ABA Journal’s website. The Ethics 20/20 Commission is seeking comments on its draft proposal no later than November 30, 2011.

—Peter S. French, Benesch Friedlander Coplan & Aronoff, Indianapolis, IN

September 6, 2011

Federal Judge Upholds Reporter's Privilege in Criminal Trial

In November 2010, Judge Brinkema of the Eastern District of Virginia quashed a subpoena issued to journalist James Risen in the course of a federal grand jury investigation. The following month, the grand jury indicted former CIA case officer Jeffrey Sterling—without Risen's testimony. Then, in May of this year, the government issued another subpoena to Risen, this time seeking testimony about his confidential sources at Sterling's criminal trial. Risen agreed to authenticate the book and newspaper articles at issue, but moved to quash the remainder of the subpoena. On July 29, Judge Brinkema once again quashed the subpoena for Risen's testimony. See United States v. Sterling, No. 1:10cr485 (LMB) (E.D. Va. July 29, 2011).

The government's failure to overcome the reporter's privilege may come as a surprise to those following the case. In her opinion addressing Risen's grand jury subpoena, Judge Brinkema made clear that the government may overcome the reporter's privilege at trial, where it would face a much higher burden of proof—guilt beyond a reasonable doubt. Yet, in quashing the trial subpoena, Judge Brinkema found that the government completely failed to establish two elements necessary to overcome the reporter's privilege in the Fourth Circuit: a lack of alternative means for obtaining the evidence and a compelling interest in the testimony.

Explaining that "circumstantial evidence is no less probative than direct evidence," Judge Brinkema held that the government had several alternative means for establishing that Sterling was Risen's source, including telephone records, emails, computer files, and the testimony of another intelligence official. Sterling at 23, 28. Judge Brinkema also rejected the government’s argument that Risen's testimony would make the trial more efficient. To establish a compelling interest, she held that the government must show that Risen’s testimony was "necessary or critical to proving Sterling's guilt beyond a reasonable doubt." Id. at 30. Judge Brinkema found that the government failed to meet either of these standards and quashed the subpoena for Risen's testimony. Id. at 31.

See also Federal Judge Upholds Reporter's Privilege in Grand Jury Investigation (Aug. 3, 2011).

—Sarah J. Gregory, Hogan Lovells, New York, NY

August 30, 2011

Can a Media Frenzy in the Court of Public Opinion Undermine Due Process?

The recent Casey Anthony case in Florida pitted fair trial advocates against proponents of free press and transparency in government. It is not surprising that Florida, which has the most liberal sunshine laws in the country, would (not for the first time) be at the center of this decades-old debate. In an impassioned editorial, Miami criminal attorney Terrence Lenamon, who participated in Anthony’s early defense negotiations, accuses the press of violating the constitutional right to due process and endangering us all. See the Orlando Sentinel. But a study by researchers William E. Loges, of Oregon State University, and Jon Bruschke, of California State University at Fullerton, published in their book, Free Press vs. Fair Trials: Examining Publicity's Role in Trial Outcomes, by Lawrence Erlbaum Associates in 2005, suggests that media coverage has no effect on trial outcomes.  See About.com.  Still others question the Antony’s “victory” in the judicial system. See CBSnews.com. Is that victory actually outweighed by Anthony’s apparent conviction in the so-called “social media courts"? Are there other basic freedoms and essential rights at risk here, even after the “fair trial” ends in acquittal?

—Alicia Santana Torres, Rivero Mestre LLP, Miami, FL

August 23, 2011

Judge Denies Stay of Discovery in Chevron Challenge to Enforceability of Ecuadorian Judgment

On February 14, 2011, in a case commonly known as the "Lago Agrio Litigation," Maria Aguinda et al. v. Chevron-Texaco, an Ecuadorian Court entered a whopping $18 billion judgment against Chevron for alleged private injuries from environmental contamination that occurred in Ecuador's Oriente region. The alleged contamination occurred between the 1960s and 1990 during a joint venture oil operation between Texaco Petroleum Company and Ecuadorian owned Petro Ecuador. In 1992, total responsibility for operations was handed over to the Ecuadorian venture partner as Texaco wound down its operations. Chevron is the named defendant as it acquired Texaco stock at the end of 2001.

Chevron is appealing the judgment in the Ecuadorian court system and claims that it was entered only because of an illegal conspiracy between plaintiffs' lawyers and the Ecuadorian government to manufacture the evidence presented. Interestingly, Texaco's joint venture partner, Petro Ecuador, was shielded from liability as the result of an agreement with the plaintiffs' lawyers and others.

In addition to appealing the Ecuadorian judgment, Chevron is also taking the offensive, having initiated claims in the United States District Court for the Southern District of New York, in which it alleges that numerous lawyers (including the plaintiffs' lawyers), environmental consultants, and Ecuadorian officials participated in a racketeering scheme that led to the multi-billion dollar judgment (US RICO Lawsuit). Chevron has also filed a claim seeking a judicial declaration that the $18 billion Ecuadorian judgment is unenforceable in the United States or anywhere else.

The plaintiffs' lawyers have announced their intention to enforce the $18 billion judgment in multiple jurisdictions around the world and have sought multiple stays of the US RICO Lawsuit in order to proceed with attachment of Chevron assets.

On May 31, 2011, the New York Federal Court granted the request of Steve Donziger, one plaintiff lawyer named as a defendant in the US RICO Lawsuit, to sever the claim for declaratory relief from the rest of the RICO action. Thereafter, Donziger sought to intervene as a party with respect to the severed claim, which only seeks relief against his clients, the holders of the Ecuadorian judgment.

The court declined Donziger's invitation to intervene, in essence, because his interests were purely derivative of his clients. Donziger is appealing the denial of his motion to intervene and has sought to stay discovery in the severed declaratory judgment action while that appeal is pending.

On June 14, 2011, the Honorable Lewis Kaplan, United States District Judge, denied Donziger’s motion to stay finding that while "[b]oth Donziger and the LAP Representatives are trying to prevent any discovery in this action whatsoever," Donziger failed to show any threat of irreparable injury in the event that a stay is denied and that Chevron would be prejudiced by a stay of proceedings pending appeal.

The US RICO Lawsuit and the severed declaratory judgment claim are presently moving forward on discovery and no trials are scheduled yet.

Keywords: Chevron, Lago Agio, Ecuador

—Peter S. French, Benesch Friedlander Coplan & Aronoff, Indianapolis, IN

August 15, 2011

Hero of Atlanta Olympics Unsuccessful With Libel Claims

On July 27th, 1996, at the Olympic Games in Atlanta, Georgia, a security guard named Richard Jewell spotted an unattended backpack tucked underneath a bench. Quickly realizing the pack could contain a bomb, Jewell notified the authorities and helped clear the area. Due to his "remarkable astuteness," only two people were killed when the explosion occurred, and Jewell was hailed as a national hero. Bryant v. Cox Enter., Inc., No. A11A0510, 2011 WL 2697045, at *1 (Ga. Ct. App. July 13, 2011).

But the situation quickly soured for Jewell. A 911 call warning about the bomb was made approximately 13 minutes after the backpack was found, and the payphone where the call originated was only a few blocks from the park. This led to the suspicion that Jewell could actually be involved in the bombing, perhaps "finding" the backpack and then leaving to make the call to divert attention from himself. Law enforcement officials conducted an extensive investigation, but eventually cleared Jewell of any wrongdoing.

In response to a number of articles published about the investigation, Jewell filed a libel action in 1997 against The Atlanta Journal Constitution (AJC) and other news defendants. Jewell alleged that three sets of statements were libelous: (1) statements that investigators believed Jewell was responsible for the bomb; (2) statements that investigators believed Jewell made the anonymous call to the police; and (3) statements comparing Jewell to a serial killer from the same area. In Georgia, to succeed with a libel claim, Jewell needed to show that AJC was responsible for publishing defamatory statements about him that were false and caused actual injury. Id. at *3. And because Jewell was a limited-purpose public figure, he was also required to show that the statements were made with "actual malice"—that the reporters at AJC had "actual knowledge" of, or acted with "reckless disregard" as to, the falsity of the statements. Id. at *4.

To overcome this burden, Jewell sought the identities of the sources for AJC's articles. But before compelling this information, the Georgia Court of Appeals instructed the trial court to assess the "potential viability of Jewell's libel claims." Id.at *3. On remand, the trial court found that "the challenged statements were either substantially true and/or the identities of the confidential sources were unnecessary to establish whether the statements were defamatory" and granted summary judgment to AJC. Id.

In July 2011, the Georgia Court of Appeals affirmed. The court simply could not conclude that, at the time the articles were published, and in light of the well-publicized search of Jewell's house, law enforcement officials did not actually believe Jewell may have planted the bomb. The court also noted that the articles included substantial mitigating evidence along with the allegedly libelous statements, such as the fact that Jewell had not been charged with a crime and that, at one point, investigators were "moving away" from Jewell as the lead suspect. Id.at *9. With respect to the 911 call, the very fact that the FBI collected voice samples from Jewell tended to prove that investigators suspected he had made the call. The article also mentioned that Jewell's voice objectively bore no resemblance to the anonymous one on the payphone. As such, a "reasonable reader would have understood the information to be preliminary in nature and published during the early stages of an ongoing investigation." Id. at *5. Since the overall characterization of the investigators' suspicions was not false, these libel claims failed.

Finally, as to the statements comparing Jewell to a serial killer, the court dismissed this claim as well on the grounds that a libel action must be based on a statement of "objective fact." Id. at *7. This means that "[n]on-literal commentary that cannot be reasonably interpreted as stating actual facts about an individual is not actionable." The article at issue did also note the dearth of evidence against Jewell and simply used "loose, figurative language that no reasonable person would believe presented facts." Id.

Perhaps the most notable aspect of this case is how extraordinarily contentious it was, lasting almost 15 years and consuming large amounts of time and money. Meanwhile, both Richard Jewell and one of the reporters involved passed away. AJC ultimately won the case, but the manner in which the litigation played out may have a significant impact on how cautious reporters are when characterizing investigations of private citizens.

—Jason Porta, Hogan Lovells, New York, NY

August 12, 2011

Hearsay Evidence Excluded in Peterson Trial Based on Failure to Timely Challenge Ruling

An Illinois appeals court has upheld the exclusion of eight hearsay statements from the murder trial of former Bolingbrook, Illinois, police officer Drew Peterson on the grounds that there was no jurisdiction to consider the appeal because prosecutors missed the 30-day deadline for challenging the trial court's evidentiary ruling.

Peterson is charged with two counts of first degree murder in connection with the death of his third wife, Kathleen Savio, which was originally ruled an accidental drowning after her body was found in a dry bathtub in 2004. But the investigation was reopened after Peterson's fourth wife, Stacy Peterson, disappeared in 2007. The high-profile case has garnered national media attention, and actor Rob Lowe is reported to have been selected to play Peterson in a television movie project for the Lifetime Network.

In advance of trial, prosecutors sought permission to introduce 14 hearsay statements against Peterson, which prosecutors claim would allow Kathleen and Stacy to "speak from the grave." But following an evidentiary hearing before trial, the trial court ruled that eight of those statements were inadmissible hearsay.

Although the Illinois Supreme Court rules allow prosecutors to appeal certain types of interlocutory orders in criminal matters, a strict 30-day deadline applies. Because the 30-day time limit is jurisdictional—meaning the failure to challenge the ruling within 30 days deprives the appellate court of jurisdiction to hear the appeal—the prosecution's appeal was denied and the evidence will not be admitted at Peterson's trial.

The ruling represents a significant victory for the defense. It is not clear what, if any, physical evidence prosecutors have tying Peterson to the alleged murder of Savio, and prosecutors have previously described the now inadmissible evidence as crucial to their case against Peterson.

Keywords: Drew Peterson, hearsay, appeal

—John Gekas, Gekas Law LLP, Chicago, IL

August 8, 2011

$115 Million Verdict Against Verizon in Patent Infringement Case

A federal jury recently handed down the single largest verdict ever in a patent infringement case in the Eastern District of Virginia of $115 million. On August 5, 2011, following a three-week trial, the jury found that Verizon Communications Inc. infringed on four ActiveVideo Networks Inc. patents that cover streaming video technology used in set-top boxes. ActiveVideo, a cloud-based TV infrastructure vendor, said it will move for an injunction as soon as possible to stop Verizon from using its video-on-demand technology but hopes a deal could be worked out before an injunction fight became necessary.

ActiveVideo filed suit against Verizon in May 2010, alleging that the Verizon FiOS television system infringed on four patents for technology created, owned, and used by ActiveVideo. At trial, District Judge Raymond A. Jackson declined to revisit earlier rulings and denied a motion to defer the judgment for 30 days. Judge Jackson also entered orders denying three of Verizon's motions for judgment as a matter of law on laches (concluding no undue delay by ActiveVideo or prejudice to Verizon), direct infringement (concluding that the battle of experts over an interface should go to the jury), and willfulness (again concluding that ActiveVideo had presented enough to get to the jury). The jury, however, did not find willfulness.

 

The jury also ruled on two counterclaims by Verizon that ActiveVideo indirectly infringed two Verizon patents, but only awarded Verizon $16,000. Verizon spokesperson Robert Varettoni said via email that “Verizon disagrees with the verdict and is confident that the court of appeals will agree. The company will not be paying damages while the appeal is underway.”

 

One has to wonder what helped this jury decide to award such a large verdict. Lawyers shouldn’t underestimate the importance of a clear, concise verdict form. Often, verdict forms are afterthoughts, one of myriad other trial documents drafted during the hectic period leading up to trial. While a convoluted verdict form or set of jury instructions can lead to jury confusion and even the death of a case, a straightforward form such as the one used in this case can pave the way for a jury to easily render its verdict and decide the proper award of damages. ActiveVideo Networks Inc. v. Verizon Communications Inc. et al., case number 2:10-cv-00248, in the U.S. District Court for the Eastern District of Virginia.

—Robert E. Sumner, IV, Esq. and Amy Jowers, Esq., Moore & Van Allen, PLLC

August 3, 2011

Federal Judge Upholds Reporter's Privilege in Grand Jury Investigation

The circuit court split over whether a reporter has a privilege protecting against compelled disclosure of confidential sources was just widened. Last month, the U.S. District Court for the Eastern District of Virginia released an opinion that had been held under seal since November 2010. The opinion, penned by Judge Leonie Brinkema, addresses the constitutionality of a subpoena issued to New York Times journalist James Risen in the course of a federal grand jury investigation. See In re Grand Jury Subpoena to James Risen, No. 1:10-cr-00485-LMB (E.D. Va. June 28, 2011) (Risen). 

The government convened the grand jury to investigate former CIA case officer Jeffrey Sterling, who, according to the government, leaked highly classified information about a covert CIA operation to Risen. That information allegedly formed the basis of Chapter 9 of Risen’s book, State of War: The Secret History of the CIA and the Bush Administration, which describes a failed CIA attempt to provide Iran with flawed nuclear weapons plans. Risen refused to say whether Sterling disclosed the information in the book, maintaining that he promised confidentiality to his source.

Risen was not specifically asked to identify his source, but the subpoena issued by the grand jury in April 2010 did require Risen to testify and produce a range of documents, including Risen’s rolodex, contact information for Sterling, and all notes related to Chapter 9. In October, Judge Brinkema granted Risen’s motion to quash the subpoena for the documents. In the recently released opinion, the court once again granted Risen’s motion to quash, this time recognizing a privilege against testifying.

Arguing that the First Amendment simply does not protect journalists from the disclosure of confidential sources, the government relied primarily on Branzburg v. Hayes, 408 U.S. 665 (1972). There, the Supreme Court stated that the "only testimonial privilege for unofficial witnesses" derives from the Fifth Amendment—and explicitly declined to "create another by interpreting the First Amendment to grant newsmen a testimonial privilege that other citizens do not enjoy." Id. at 690.

Yet in granting Risen’s motion to quash, Judge Brinkema located a "clear legal rule": evidence of a confidentiality agreement between a reporter and a source triggers a qualified privilege against testifying in a criminal proceeding. Risen, at 19. To reach that conclusion, Judge Brinkema relied on Justice Powell’s concurrence in Branzburg, which she said "emphasize[d] the limited nature of the majority’s opinion" by creating room for a reporter's privilege where the freedom of the press outweighs the citizens’ obligation to testify. Id. at 15.  

Thus, Justice Powell's Branzburg concurrence, along with ambiguities in the Branzburg majority opinion, have led to a circuit split on the viability of a reporter's privilege. The Fourth Circuit adopted Justice Powell’s balancing test in cases involving confidential sources or government harassment—cases that Judge Brinkema relied on in quashing the Risen subpoena. In those cases, the privilege can only be overcome by a showing of relevance, a lack of alternative sources, and a compelling interest in the information. Id. at 17. But, as Judge Brinkema cautioned, the privilege may be overcome where the government needs the testimony to meet the heightened burden of proving criminal guilt. Id. at 34–35. 

In sharp contrast, the D.C. Court of Appeals rejected the reporter's privilege in the much-publicized Judith Miller subpoena case. 438 F.3d 1141 (D.C. Cir. 2006).  While other circuits have recognized the privilege, many disagree on its scope and the test for applying it. Compare Shoen v. Shoen, 48 F.3d 412 (9th Cir. 1995) with Gonzales v. Nat'l Broad. Co., Inc., 194 F.3d 29 (2d Cir. 1999). Until the Supreme Court resolves this issue or the Congress passes a federal reporter's shield law, the viability and scope of a reporter's privilege under the First Amendment has yet to be clearly defined.

—Sarah Gregory, Hogan Lovells, New York, NY

July 27, 2011

Tenth Circuit Affirms Dismissal for Discovery Violations with a "Three Strikes Out" Approach

The Tenth Circuit recently affirmed a district court's dismissal of a case due to a party's blatant disregard for not one, but two, orders to produce documents in discovery, which were all along in the party's custody and control, and a false declaration stating all relevant materials had been produced. Lee v. Max International, LLC, 638 F.3d 1318 (10th Cir. 2011).

The facts of this case tell a strong cautionary tale for litigators and litigants alike that a party's unwillingness to comply with discovery and court orders may lead to serious legal consequences. The plaintiff, Markly Lee, and his company, PTK, (PTK) sued Max International (Max) alleging breach of contract. Discovery followed, as did a motion to compel, which was granted in Max's favor. In response, PTK failed to produce documents, leading to a motion for sanctions seeking dismissal. The magistrate judge gave PTK one last chance to comply while warning that further noncompliance would lead to the "harshest of sanctions." Instead of complying, PTK filed a declaration with the district court stating all documents had been produced to Max. When Max sought documents that were still missing, PTK ignored the request, forcing Max to renew its motion for sanctions. Subsequently, PTK produced additional responsive documents that should have been produced months prior. PTK's actions were not well received by the magistrate judge, and after a hearing on the renewed motion for sanctions, the magistrate judge issued a report and recommendation that the district court grant the motion for sanctions and dismiss the case due to PTK's misconduct. The district court did just that.

While recognizing that our legal system prefers to decide cases on the merits, the Tenth Circuit concluded that the district court was well within its broad discretion to determine that the circumstances here warranted the harsh sanction of dismissal pursuant to Rule 37(b). Using well-known rules of baseball, the court stated that "three strikes are more than enough to allow the district court to call a litigant out." Here, the three strikes were PTK's failure to respond to the initial discovery requests, PTK's violation of the order compelling production, and PTK's disregard for the second order requiring production and warning of harsh sanctions for non-compliance.

In discussing the issues, the Tenth Circuit stressed that the district court is in the best position to determine what sanction most appropriately fits a discovery violation, both from the standpoint of justice in a particular case, as well as to deter similar conduct. In this case, PTK's repeated failures to produce documents within its control showed that its actions evidenced willfulness and bad faith. The court suggested that the consequences of PTK's actions needlessly increased the cost of the litigation and delayed the progress of the case on the merits, both of which are contrary to the purpose of the Federal Rules of Civil Procedure in ensuring prompt resolution of pending actions. Further, the Court stated that "discovery karma" may catch up with a party, and Rule 37 is designed to ensure appropriate remedies are applied when discovery misconduct becomes sanction worthy, as here.

Finally, the Tenth Circuit dispelled PTK's arguments that the district court failed to adequately state its reasons for dismissing the case under the court's precedent in Ehrenhaus v. Reynolds, 965 F.2d 916 (10th Cir. 1992). The court clarified that the Ehrenhaus factors are helpful "criteria" or "guide posts" that a district court may wish to consider in exercising its discretion to dismiss a case, rather than amounting to a "rigid test." Because the record reflecting PTK's inappropriate actions strongly supported the district court's dismissal order, the Tenth Circuit held that the district court did not abuse its discretion by not including or discussing the Ehrenhaus factors in its dismissal order. In concurrence, Judge Murphy stated that the district court's explanation of the dismissal was inadequate, but noted that the "conduct was sufficiently egregious that I see no point in remanding to the district court to recite the obvious."

—Sandra B. Wick Mulvany, McKenna Long & Aldridge LLP, Denver, CO

July 15, 2011

In Streamlined Retrial, Illinois Governor Rod Blagojevich Is Convicted of 17 of 20 Charges

Last summer, a Chicago jury was unable to reach a verdict on 22 of 23 corruption charges against former Illinois Governor Rod Blagojevich after a three-month trial and 14 days of deliberations, convicting him of only a single count of lying to the FBI. Following that first trial, the government was criticized for an overly dense presentation, which jurors complained was confusing.

The government apparently got the message. In a substantially shortened retrial featuring a streamlined government case, a jury convicted Blagojevich on 17 of 20 charges. The retrial lasted only three weeks, and the jury deliberated over parts of 10 days. In addition to guilty verdicts on 17 counts, the jury acquitted Blagojevich on one count of soliciting a bribe and did not reach a verdict on two counts of attempted extortion.

In the retrial, the government streamlined its presentation of evidence and focused on the marquee corruption charges against Blagojevich—primarily his much-publicized attempt to sell President Barack Obama's vacated U.S. Senate seat in 2008. The government dropped complicated racketeering charges against Blagojevich as well as the charges against his brother, Robert Blagojevich, who was a codefendant in the first trial. The government also omitted its prior presentation of evidence on ancillary topics, such as Blagojevich's penchant for expensive clothing, including made-to-measure suits from renowned Chicago haberdashery Oxxford Clothes.

The other standout difference in the retrial was a decision made by the defense: allowing Blagojevich to take the witness stand and testify in his own defense. In the first trial, the defense rested without presenting a single witness despite telling the jury in opening statements that Blagojevich would testify. But Blagojevich's lead trial counsel in the first trial switched tactics midway, choosing to focus their arguments on the government’s failure to prove its case.

Blagojevich's testimony in the retrial provided several interesting moments. The former governor repeatedly denied any wrongdoing from the witness stand and even apologized to the jury for his notoriously foul language, ironically calling himself an "effin' jerk."

But it was the cross-examination of Blagojevich that provided the key dramatic moment of the trial. In reference to the conviction for lying to the FBI after the first trial, the very first question of Blagojevich’s cross-examination was "You are a convicted liar, correct?" Despite multiple objections, Blagojevich answered yes. After the trial, one juror said that the exchange "scared us all to death. It did not get dramatic until he came out and did that and were all just like, 'Oh my god.'"

Other notable moments of Blagojevich's cross-examination included him blurting out his own objections in response to questions. Blagojevich, a former practicing attorney, responded "I object to that!" to one question, and sarcastically added “asked and answered” after another. Blagojevich also repeatedly talked over his own lawyers' objections, prompting Judge James Zagel to warn Blagojevich that "when witnesses argue with lawyers, they generally lose." But the problem continued, and Judge Zagel eventually felt compelled to threaten sanctions if Blagojevich failed to stop. Blagojevich ended his contentious cross-examination by attempting to shake hands with lead prosecutor Reid Schar upon stepping down from the witness stand, but Schar turned away. Judge James Zagel then explained to the jury that attorneys are forbidden from interacting with witnesses.

Although Blagojevich theoretically could be sentenced to as much as 30 years in prison, most predictions estimate he is facing approximately a 10-year sentence.

—John Gekas, Gekas Law LLP, Chicago, Illinois

Keywords: Blagojevich, retrial, verdict

July 15, 2011

Post-Trial Challenges for Conflict of Interest: What is Fair Game?

What about a trial judge's personal background can constitute a conflict of interest? The question was raised recently in two unrelated cases. First, in the California litigation over same-sex marriage, the defenders of Proposition 8 (banning gay marriage) leveled the charge of conflict of interest because trial judge Vaughn Walker disclosed, after the trial and after he had retired from the bench, that he had been in a long-term relationship with another man. According to the proponents of Proposition 8, Judge Walker should have removed himself from the case, or at least disclosed his personal relationship, because he stood to benefit from the decision.

In a decision issued June 13, 2011, Chief U.S. District Court Judge James Ware for the Northern District of California rejected that charge out of hand and ruled that gay judges, like female or minority judges, can be impartial even in cases that might affect them. "We all have an equal stake in a case that challenges the constitutionality of a restriction on a fundamental right," Chief Judge Ware wrote. "The single characteristic that Judge Walker shares with the plaintiffs, albeit one that might not have been shared with the majority of Californians, gave him no greater interest in a proper decision on the merits than would exist for any other judge or citizen."

"The presumption that Judge Walker, by virtue of being in a same-sex relationship, had a desire to be married that rendered him incapable of making an impartial decision, is as warrantless as the presumption that a female judge is incapable of being impartial in a case in which women seek legal relief," he wrote. Finding that Walker could not be presumed to have a personal stake in the case just because he has a same-sex partner, Ware wrote that the judge had no obligation to divulge whether he wanted to marry before he struck down the ban represented by Proposition 8.

Now, in an unrelated case, a large asbestos verdict may be in jeopardy as a result of similar arguments raised by the losing party at trial. On July 13, 2011, the Mississippi Supreme Court issued a stay of trial court proceedings based on a defendant's allegations that the trial judge's "blatant conflict of interest" influenced the outcome of the trial, which resulted in a $322 million verdict against it.

Defendant Union Carbide claimed in a July 15, 2011, motion for an emergency hearing that the jury verdict against it should be set aside, saying the judge should have recused himself from the case because of a family connection with asbestos and asbestos litigation. The May 4, 2011, jury verdict called for Union Carbide and a codefendant to pay $300 million in punitive damages and $22 million in compensatory damages to 48-year-old plaintiff. Union Carbide then accused state court Judge Eddie H. Bowen of keeping under wraps his parents' own asbestos lawsuits against the company, including one that is still pending, despite the fact that he had disqualified potential jurors with similar ties to asbestos litigation, finding they could be biased.

The Mississippi Supreme Court, in an order that may be found here, asked for further filings from Union Carbide, the plaintiff and Judge Bowen before it makes a decision about whether the judge should have recused himself from the case. "After due consideration, the panel finds that the motion should be granted and that all trial court proceedings . . . should be stayed pending this court's resolution of the petition for disqualification of trial judge," Chief Justice William L. Waller Jr. wrote for the court.

The state Supreme Court gave Union Carbide until July 22 to submit any supplemental filing in the case, Brown until August 1 to file a reply and Judge Bowen until August 11. Id.

In both these cases, the losing party at trial has sought to undo the result not because the trial judge has a direct financial stake in the dispute, but because of an alleged sympathy for a party or its position. Such claims are based upon the proposition that a judge may have such a strong affinity for a party or position based on his or her personal background that he or she cannot abide by the oath to follow the law and rule dispassionately. Yet, on the other hand, a diversity of viewpoint and background has been touted as a benefit in recent federal judicial nominations. How far can a losing party go in questioning the independence and fairness of the trial court? To continue the conversation, join us on LinkedIn. 

—Nash E. Long, Winston & Strawn LLP, Charlotte, NC

June 27, 2011

Supreme Court Denies Class Certification in Wal-Mart Employment Discrimination Case

In a 5–4 decision, the United States Supreme Court ruled that the certification of a nationwide class of female employees and former employees of Wal-Mart was inconsistent with the commonality requirement of Fed.R.Civ.P. 23(a)(2), because the plaintiff failed to show that the class members suffered the same harm. 

The named plaintiffs represented 1.5 million current and former female employees of Wal-Mart who alleged gender discrimination based on promotion and pay decisions in violation of Title VII of the Civil Rights Act of 1964. They alleged that the corporate culture of Wal-Mart pushed local managers, who possessed discretion to approve pay raises and promotions, to favor men. 

The named plaintiffs sought class certification under Federal Rule of Civil Procedure 23. Rule 23(a)(2) requires that there be questions of law and fact common to the class. To prove this commonality, the plaintiffs relied on statistical evidence purportedly demonstrating disparities between the number of men and women promoted into management positions and anecdotal reports of bias and discrimination.

The Court ruled, however, that such evidence did not meet Rule 23(a)(2)'s threshold requirement for class certification. The court emphasized that the Rule requires proof that all class members suffered the same injury, not that they all merely suffered a violation of the same provision of law.

Because Wal-Mart had no uniform policy for promotions of pay decisions but instead gave local managers discretion in making such decisions, the Court found that the claims of the class members and the reasons each class member was denied a promotion or pay increase were unique and not the proper subject of a class action.

The Court also held, unanimously, that the plaintiffs' claims for back pay as a remedy for discrimination were not permitted under Rule 23(b)(2).

—Michael E. Lockamy, Bedell, Dittmar, DeVault, Pillans & Coxe, Jacksonville, FL

June 27, 2011

Products Liability Plaintiff Loses Bid for Remand to State Court

Bayer A.G. and related companies are getting sued in Southern Illinois over a contraceptive called Yazmin. In fact, Bayer is getting sued a lot.

Cathy Walton also became a plaintiff. In state court, Walton sued a number of Bayer affiliates, all citizens of states other than Illinois, plus Niemann Foods, Inc., an Illinois citizen. The suit claimed the defendants failed to warn of the side effects of Yazmin. Even though there was not complete diversity of citizenship, the Bayer defendants removed the case to federal district court, asserting that Niemann had been improperly joined to eliminate complete diversity.

Watson sought a remand to state court, but the district court refused. The court dismissed Niemann as a defendant, restoring complete diversity. On appeal, Walton sought reversal of the judge's order.

Watson made three arguments, asserting that there was no federal jurisdiction. The first was that she had not alleged that her damages exceeded $75,000.

According to the court of appeals, the "litany of injuries" Walton claimed made clear that she was seeking damages in excess of $75,000. A plaintiff can defeat removal of a diversity case by irrevocably committing (before the case is removed) to accepting no more than $75,000 in damages. Not surprisingly, Walton made no such commitment, because "that would make her suit not worth the expense of litigating it."

Walton's second argument was that the defendants failed to include in their removal papers the summons that Walton served on them in the state court.

Defendants, however, filed the summons a few days after the deadline. There was no suggestion that Walton was harmed by the delay, and the 30-day deadline is not jurisdictional. Finally, Walton argued for remand because of absence of complete diversity of citizenship, submitting that Neimann should not have been dismissed as a defendant.

The appeals court observed that a pharmacy may know—but the manufacturer will normally not know (and even a treating physician may not know)—that a particular customer has an unusual susceptibility to the side effects of a drug that it sells the customer.

If Niemann knew that Walton was abnormally susceptible to a particular side effect of Yazmin, it had a duty to warn her or her physician. But Walton did not claim Neimann knew anything about her alleged susceptibility, so Neimann had the full protection of the learned-intermediary doctrine. The district court correctly invoked the doctrine of fraudulent joinder as a ground for dismissing Niemann from the case leaving only diverse defendants.

—Michael R. Lied, Howard & Howard Attorneys PLLC, Peoria, IL

June 20, 2011

Federal Courts Prohibited from Issuing Injunctions to Prevent Class Action Certification

In a unanimous decision on June 16, 2011, the U.S. Supreme Court ruled in Smith v. Bayer Corp., U.S., No. 09-1205, that the Anti-Injunction Act prohibits federal courts from issuing injunctions to prevent state courts from considering certification of class action litigation previously rejected by the federal courts. For a copy of the opinion, click here.

This case may provide plaintiffs' counsel with an additional incentive to pursue class actions simultaneously in different fora, to maximize their odds of prevailing on class certification. The decision may also increase the stakes for successfully removing class action litigation to federal courts and consolidating related actions in MDL proceedings. To continue the discussion on this topic, join the committee blog on LinkedIn. 

—Nash E. Long, Winston & Strawn LLP, Charlotte, NC

April 5, 2011

Iqbal and Rule 11 Provide Caution to Plaintiffs and a New Tool for Defendants

The United States Supreme Court's recently heightened pleading standard cautions plaintiffs' attorneys against filing a civil action before fully investigating their case. Recent cases considering the interplay between this new pleading standard and Rule 11 provide another tool for defense counsel facing a frivolous complaint: sanctions.

Federal Rule of Civil Procedure 11 requires that attorneys conduct a reasonable inquiry into the factual and legal bases of all claims before filing any document with the court. Business Guides, Inc. v. Chromatic Commc’ns Enters., Inc.¸ 498 U.S. 533, 551 (1991). While this Rule is normally used to sanction frivolous motions and appeals, it has only recently become applicable to baseless complaints.

The U.S. Supreme Courtrecently ruled thatplaintiffs in federal court are required to make sufficient factual pleadings in their complaint such that each claim asserted is "plausible on its face." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). In other words, plaintiffs must now plead sufficient factual content to allow a court to draw the reasonable inference that the defendant is liable for the misconduct alleged. This newly heightened pleading standard means that "threadbare recitals of the elements of a cause of action supported by mere conclusory statements" do not suffice. Id

Taking Iqbal and Rule 11 together, a plaintiff is no longer permitted to "shoot first and ask questions later" by prematurely filing a complaint based in the hopes that later discovery will support its claims. Instead, plaintiffs must now conduct enough investigation before filing a complaint that they can make the factual allegations required by Iqbal, lest the complaint run afoul of Rule 11's reasonably inquiry requirement. Factually deficient complaints are now not only subject to dismissal, but may also subject a party to sanctions.

A recent Seventh Circuit decision speaks directly to this matter. In Kaye v. D’Amato, the court interpreted Iqbal and Rule 11 and found that where a plaintiff had failed to plead a sufficient factual basis for its claims of racketeering, and where the basis for such claims was so lacking as to be clear to any "reasonable attorney" after "minimal research," Rule 11 sanctions were appropriate. 357 Fed. Appx. 706, 717 (7th Cir. 2009). The court found that sanctions were particularly appropriate given the fact that the plaintiff had ignored multiple opportunities provided by the court to correct its pleading. Id.

The New Jersey Federal district court recently held similarly when awarding over $30,000 in attorney fees to defendants that were forced to address a frivolous due process action arising from a change in condominium management. In Bloomfield Condominium Associations. v. Drasco, the District Court of New Jersey found that where a complaint violates Iqbal by "provid[ing] no plausible basis, other than bald assertions" for the causes of action alleged, the very act of filing the complaint is a violation of Rule 11. 2010 WL 2652465, *4 (D.N.J. June 25, 2010). The court explained that "Rule 11 imposes on counsel a duty to look before leaping" and a "careless filing without reasonable factual or legal grounds warrants sanctions." Id. (internal quotations and references omitted). Other federal courts have imposed similar sanctions on parties who file complaints before investigating the factual circumstances of their case. See e.g.,Timmons v. Linvatec Corp., 263 F.R.D. 582, *10(C.D. Cal. 2010) ("[A]llowing plaintiffs to file first and investigate later would be contrary to Rule 11(b), which mandates an 'inquiry reasonable under the circumstances' into the evidentiary support for all factual contentions prior to filing a pleading.") (citing Fed. R. Civ. P. 11(b)(3)).

Although courts have only recently begun to consider the interplay between Iqbal and Rule 11, many have found that a violation of the United States Supreme Court's new pleading standard can simultaneously constitute a violation of Rule 11 and open a plaintiff to not only dismissal, but sanctions as well. As precedent on this topic develops, plaintiffs should be cautioned against filing complaints until sufficient investigation has taken place, lest they be subjected to sanctions, and defense counsel should be aware of this new tool for fighting baseless actions.

—Brad Stoll, Schottenstein Zox & Dunn, Columbus, OH

February 1, 2011

Personal Jurisdiction in the Internet Age: uBID versus GoDaddy

Two recent decisions of the Seventh Circuit Court of Appeals clarify what acts may subject a defendant to personal jurisdiction. The first decision, uBID, Inc. v. GoDaddy, is discussed below. The second decision, Mobile Anesthesiologists Chicago, LLC v. Anesthesia Associates of Houston Metroplex, is covered in a separate overview.

In the first case, uBID, Inc. sued The GoDaddy Group, Inc., claiming GoDaddy violated the Anti-Cybersquatting Consumer Protection Act by registering domain names confusingly similar to uBID's trademarks and domain names. uBID asserted GoDaddy tried to profit from uBID's marks and took advantage of web surfers by selling advertising for confusingly similar websites.

uBID trademarks include UBID and UBID.COM. The complaint identified several domain names registered with GoDaddy that are similar, such as ubid4homes.com, ubidr.com, and ubidauctionsale.com.

The district court dismissed the complaint for lack of personal jurisdiction. uBID appealed, and the Seventh Circuit Court of Appeals analyzed whether the district court had personal jurisdiction over GoDaddy.

GoDaddy is incorporated and headquartered in Arizona. GoDaddy's computer servers and most of its offices and employees are located in Arizona. Nevertheless, GoDaddy has deliberately established a national presence. For example, GoDaddy has bought considerable television advertising time throughout the country, including the last six Super Bowl programs. Additionally, the company sponsors professional athletes. GoDaddy also has a presence in Illinois and has purchased advertising space in sports venues throughout Chicago.

GoDaddy's advertising has been successful. In 2008, GoDaddy had hundreds of thousands of customers in Illinois; those customers provided GoDaddy several millions of dollars of revenue.

According to the court of appeals, personal jurisdiction can be either general or specific, depending on the extent of the defendant's contacts with the forum state. If the defendant's contacts are so extensive that it is subject to general personal jurisdiction, then it can be sued in the forum state for any cause of action arising in any place. More limited contacts may subject the defendant only to specific personal jurisdiction, in which case the plaintiff must show that its claims against the defendant arise out of the defendant’s constitutionally sufficient contacts with the state.

The court of appeals agreed GoDaddy was not subject to general jurisdiction in Illinois. However, it found GoDaddy was still subject to being sued in Illinois. GoDaddy deliberately and successfully exploited the Illinois market. As mentioned above, instead of operating only in Arizona, GoDaddy conducted extensive national advertising and made significant national sales. GoDaddy aired many television advertisements on national networks. This marketing successfully reached Illinois consumers, who spent millions of dollars with GoDaddy each year. This was enough to establish GoDaddy's minimum contacts with Illinois for claims related to those contacts.

The court of appeals next considered if uBID's claim against GoDaddy arose out of or were related to those contacts. GoDaddy argued that its contacts with Illinois were irrelevant because they were unrelated to uBID's lawsuit. However, according to the court of appeals, GoDaddy's advertising discredited that argument.

In pertinent part, uBID's complaint alleged that GoDaddy "used and trafficked in" the parked pages with a bad-faith intent to profit from uBID's marks. The court of appeals found that GoDaddy could not reasonably have been surprised to find itself sued in Illinois.

The court realized that the concept of a geographical nexus is harder to apply where the alleged wrong can fairly be characterized as occurring anywhere the Internet is accessible. The court of appeals also recognized that the mere fact that the defendant caused harm by conducting business or advertising over the Internet is not sufficient by itself to establish jurisdiction in the court in which plaintiff chose to sue.

GoDaddy argued that the injury to uBID did not occur until GoDaddy connected the newly registered domain name to the parked page service—in its Arizona servers. When a plaintiff alleges that some of the defendant's contacts occurred through a website, the interactivity of that website is relevant to, but not dispositive of, the sufficiency of those contacts. The court of appeals noted that using a separate test for Internet-based contacts would be inappropriate when the traditional analysis of the nature, quality, and quantity of the contacts, as well as their relation to the forum state, remains up to this more modern task.

Where GoDaddy chose to locate the servers that completed the task in geographic terms was irrelevant. uBID's claim arose directly out of GoDaddy's registration of the infringing domain names purchased by customers it solicited in Illinois and many other states. The claim had a sufficient relationship to GoDaddy's business activities in Illinois so that GoDaddy could expect to defend itself in Illinois. uBID, Inc. v. The GoDaddy Group, Inc., et al., 623 F.3d 421 (7th Cir. 2010).

— Michael R. Lied, Howard & Howard Attorneys, Peoria, IL

February 1, 2011

Personal Jurisdiction in the Internet Age: Mobile/Chicago versus Mobile/Houston

Two recent decisions of the Seventh Circuit Court of Appeals clarify what acts may subject a defendant to personal jurisdiction. In this second example, Mobile Anesthesiologists Chicago, LLC (Mobile/Chicago) brought suit against Anesthesia Associates of Houston Metroplex, P.A. (Mobile/Houston) in federal court in Illinois, claiming that Mobile/Houston violated the federal anti-cybersquatting statute.

Mobile/Chicago operates in the Chicago area and has affiliated offices in other cities. Mobile/Chicago registered the website www.mobileanesthesiologists.com, and also owns a federally registered trademark in the words MOBILE ANESTHESIOLOGISTS. In turn, Mobile/Houston was established by Dr. Eric Chan. Dr. Chan registered the website www.mobileanesthesia.com.

Dr. Chan's professional activities are limited to the state of Texas. Dr. Chan is licensed as an anesthesiologist only in Texas. He never advertised his services anywhere other than the website, which advertises anesthesia services "in the greater Houston area" and provides a Houston area phone number, and a printed advertisement published in Texas. Dr. Chan has visited Illinois just once, on vacation.

The district court dismissed Mobile/Chicago's suit for lack of personal jurisdiction. The court pointed out that Mobile/Houston lacked any meaningful contacts with Illinois and that its website, though bearing a name similar to Mobile/Chicago's, was not directed at Illinois in any way. Mobile/Chicago took an appeal.

As mentioned in uBid's case, personal jurisdiction can be general or specific. Mobile/Chicago did not claim—and the evidence did not support—that the district court had general jurisdiction over Mobile/Houston in Illinois.

Specific personal jurisdiction is appropriate when the defendant purposefully directs its activities, i.e., expressly "aims," at the forum state and the alleged injury arises out of those activities.

Mobile/Chicago argued the court should infer express aiming at Illinois from the fact that Mobile/Houston operated a website whose domain name is similar to Mobile/Chicago's trademark. The appeals court disagreed. A plaintiff cannot satisfy the specific personal jurisdiction standard simply by showing that the defendant maintained a website accessible to residents of the forum state and alleging that the defendant caused harm through that website.

Mobile/Houston's website did not create constitutionally sufficient contacts with Illinois in the absence of express aiming. The court of appeals emphasized that Dr. Chan is not licensed outside of Texas. The Mobile/Houston website contains a Houston-area phone number, an email address, and an invitation to doctors in the "greater Houston area" to contract for his services.

Mobile/Chicago argued that its trademark registration gave Mobile/Houston "constructive notice" that it was infringing Mobile/Chicago's trademark and therefore could expect to be sued in Illinois. One reason this argument failed is that the federal trademark statute does not authorize nationwide service of process.

Mobile/Chicago also asserted Mobile/Houston had actual notice of Mobile/Chicago's trademark from the moment it received Mobile/Chicago's cease-and-desist letter.  The court of appeals rejected this argument. To find express aiming based solely on the defendant's receipt of such a letter would make any defendant accused of an intentional tort subject to personal jurisdiction in the plaintiff's home state as soon as the defendant learned what that state was. Mobile Anesthesiologists Chicago, LLC v. Anesthesia Associates of Houston Metroplex, P.A., 623 F.3d 440 (7th Cir. 2010).

— Michael R. Lied, Howard & Howard Attorneys, Peoria, IL

Plaintiffs Strike Out in Bids for Remand in Class Action Fairness Act Cases

Cunningham Charter Corporation sued Learjet, Inc., in an Illinois state court for breach of warranty and products liability on behalf of itself and other buyers of Learjets who had received the same warranty. Learjet removed the case to federal district court under the Class Action Fairness Act, 28 U.S.C. § 1332(d). Cunningham Charter moved to certify two classes, but the district court denied the motion and ruled that the denial of class certification eliminated subject-matter jurisdiction under the Act. The district court remanded the case to the state court. Learjet appealed the remand order.

The Act creates federal diversity jurisdiction over certain class actions in which at least one member of the class is a citizen of a different state from any defendant. 28 U.S.C. § 1332(d)(2). The Act applies to any class action within the Act’s scope before or after the entry of a class certification order.

According to the Seventh Circuit Court of Appeals, federal jurisdiction under the Act does not depend on actual certification of a class. The court noted the general principle that jurisdiction, once properly invoked, is not lost by later developments in the suit. This jurisdictional principle is backed by a goal to minimize expense and delay. A case should stay in the system that first acquired jurisdiction rather than be bounced between court systems.

The Seventh Circuit also believed that the policy behind the Act would be ignored if a suit within the scope of the Act ended up being litigated as a class action in state court after a remand. The judgment of the district court was reversed and the case remanded. Cunningham Charter Corporation v. Learjet, Inc., 592 F.3d 805 (7th Cir. 2010).

Certain Wisconsin residents claiming to be representatives of a class filed a complaint in Wisconsin state court against Burlington Northern Santa Fe Railway Company, Burlington Northern Santa Fe Corporation, and some of its employees. They alleged that BNSF’s failure to inspect and maintain a railroad trestle caused the town to flood, damaging their property.

BNSF removed the case to federal court, asserting that there was jurisdiction under the Act. The plaintiffs moved to remand the case to state court. The district court denied that motion. The plaintiffs then sought to amend their complaint to omit the class allegations. The district court allowed the amendment and treated the motion as an implied motion to remand the case. BNSF asked the district court to reconsider its remand order.

The district court recognized that there are exceptions to the general rule that removal jurisdiction is determined at the time of removal, but nevertheless concluded that it properly remanded the case. On appeal, the Seventh Circuit Court of Appeals repeated the general rule that jurisdiction is determined at the time of removal, and that nothing filed after removal affects jurisdiction.

The appellate court observed that in Cunningham Charter Corp. it had determined that federal jurisdiction survives even if the district court ultimately denies class certification.

This time, the question was whether jurisdiction under the Act continues when the post-removal change is the plaintiffs’ decision not to pursue class certification. The appellate court believed there were compelling reasons to conclude that such a post-removal amendment did not destroy jurisdiction. In particular, the court pointed to considerations of expense and delay and noted that allowing plaintiffs to amend away jurisdiction after removal would pose a risk of forum manipulation. In re Burlington Northern Santa Fe Railway Co., ___ F.3d ___, 2010 WL 1980172 (7th Cir. 2010).

— Michael R. Lied, Howard & Howard Attorneys, Peoria, IL

Eleventh Circuit Orders Habeas Petition Be Granted under Confrontation Clause

When the Sixth Amendment Confrontation Clause is involved, all the state’s dirty laundry from its prior dealings with its “star witness” must be aired for the jury to see, says the U.S. Court of Appeals for the Eleventh Circuit in Childers v. Floyd, No. 08-15590, 2010 WL 2274481 (11th Cir. June 8, 2010). In one of the court’s few decisions this year to grant a defendant’s petition for writ of habeas corpus, the Eleventh Circuit held that the defendant’s Sixth Amendment Confrontation Clause right was violated when a Florida trial court curtailed his cross-examination of the State’s star witness by refusing to permit inquiry into the state attorney’s previous attempt to revoke the witness’s plea agreement.

The star witness, Willie Junior, struck a deal with prosecutors whereby the state would seek an 18-month sentence on charges of bribery, extortion, racketeering, and grand theft arising from Escambia County’s purchase of the Pensacola Soccer Complex. In exchange for the slap-on-the wrist sentence and a grant of full immunity, Junior agreed to fully cooperate with the state and testify at the separate trials of two codefendants in the alleged bribery and kickback scheme: Joe Elliott and Wyon Childers (petitioner). According to the prosecution’s theory, Childers (a county commissioner) made several payments to Junior (another county commissioner) to gain Junior’s vote in favor of the County’s purchase of the soccer complex from Elliott. To express his gratitude for their votes, Elliott sent monetary kickbacks to Childers and Junior.

Junior first testified at Elliott’s trial, where he was the prosecution’s star witness. During his testimony, Junior explained how Childers met with him several times to bribe him for his vote in favor of purchasing the soccer complex. Despite Junior’s testimony, Elliott was acquitted of all charges. About a month after Elliott’s acquittal—but before Childers’s trial—Junior’s memory was suddenly revived, and he met with state investigators to provide additional facts about Childers’s alleged bribery. These additional details elevated Childers’s role in the bribery/kickback scheme and—more importantly—were inconsistent with Junior’s earlier testimony at the Elliott trial.

— Marlysha Myrthil, Holland & Knight LLP, Jacksonville, FL

Second Circuit Reaffirms "Serious Questions" Standard in Preliminary Injunction Analysis

On March 10, 2010, the Second Circuit reaffirmed the “serious questions” standard of its preliminary injunction test despite arguments that recent Supreme Court decisions abrogated that standard. See Citigroup Global Mkts., Inc. v. VCG Special Opportunities Master Fund Ltd., 2010 WL 786584 (2d Cir. Mar. 10, 2010). Under the Second Circuit’s long-standing preliminary injunction test, a party must demonstrate “irreparable harm absent injunctive relief and either a likelihood of success on the merits, or a serious question going to the merits to make them a fair ground for trial, with a balance of hardships tipping decidedly in the plaintiff’s favor.” In upholding the district court’s application of the test granting a preliminary injunction, the Second Circuit, despite the “either . . . or” language of its test, characterized its serious questions standard as essentially another way to analyze a likelihood of success on the merits. It therefore concluded that recent Supreme Court decisions had no effect on the test. At least two other circuits, however, have retreated from the more flexible approach in analyzing preliminary injunctions advocated by the Second Circuit following recent Supreme Court decisions, raising questions about whether the latest Supreme Court jurisprudence requires an across-the-board shift in the test for preliminary injunctions.

In this case, VCG Special Opportunities Master Fund Ltd. (VCG) initiated arbitration proceedings before the Financial Industry Regulatory Authority (FINRA) against Citigroup Global Markets, Inc. (CGMI), alleging that CGMI brokered transactions resulting in a credit default swap agreement between VCG and Citibank. In response, CGMI filed suit in federal district court seeking to enjoin the arbitration, alleging that it did not have to arbitrate the dispute because CGMI did not broker the Citibank credit default swap and, therefore, was under no obligation to arbitrate VCG’s claims under FINRA. The district court granted CGMI’s request for a preliminary injunction. In doing so, the district court held that CGMI demonstrated likely irreparable harm. It further found that, although CGMI did not demonstrate likely success on the merits, CGMI established that a serious question existed whether VCG was a “customer” of CGMI and that the balance of hardships tipped in CGMI’s favor.

— Sandra B. Wick Mulvany and Charles Swanson, McKenna Long & Aldridge LLP, Denver, CO

First Conviction of Conspiring to Violate the Foreign Corrupt Practices Act

On July 10, 2009, handbag magnate Frederic Bourke became the first person to be convicted of conspiring to violate the Foreign Corrupt Practices Act. A jury in the U.S. District Court for the Southern District of New York found Mr. Bourke guilty of bribing officials in Azerbaijan in exchange for allowing Mr. Bourke and his associates to participate in the privatization of Azerbaijan’s state-run oil company.

The plot lines and characters involved in this closely watched and highly celebrated foreign corruption case read like a novel. Playing the lead role was Viktor Kozeny, the extradition-fighting fugitive currently living in the Bahamas who Forbes Magazine once dubbed one of the “Pirates of Prague.” There was also testimony recounting suitcases stuffed with millions of dollars and Chechen muscle men who intimidated government officials and protected Kozeny’s Azeri operations. Making a cameo appearance and testifying for more than four hours in defense of his friend Mr. Bourke was George Mitchell, the former Democratic Senate Majority Leader.

But none of these more sensational features of the case resonate as prominently as Judge Scheindlin’s decision to allow the government to introduce background evidence relating to reputations: Azerbaijan’s for corruption, Kozeny’s for bribery, and privatizations in the former Soviet states for being marred by corruption. Judge Scheindlin ruled that background evidence of corruption was relevant because “a person of Bourke’s means, who was considering making a large investment in a venture in Azerbaijan, would have at least been aware of the high probability that bribes were being paid.” The jury agreed, and in concluding that Mr. Bourke knew that Mr. Kozeny was paying bribes, the jury foreman echoed Judge Scheindlin’s logic: “It was Kozeny, it was Azerbaijan, it was a foreign country. We thought Bourke knew about the bribery and definitely could have known. He’s an investor. It’s his job to know.”

Mr. Bourke was thus convicted as much for what he should have known and failed to discover as for what he suspected was true and elected to ignore. In her jury charge, Judge Scheindlin explained that “knowledge [of a fact] may be established if a person is aware of a high probability of its existence and consciously and intentionally avoided confirming that fact. Knowledge may be proven in this manner if, but only if, the person suspects the fact, realized its high probability, but refrained from obtaining final confirmation because he wanted to be able to deny knowledge.”

Was Mr. Bourke convicted because he affirmatively “stuck his head in the sand” and ignored the likelihood that Mr. Kozeny was paying bribes or because, as an investor, it was “his job to know” precisely the details and information Judge Scheindlin allowed into evidence? Was Mr. Bourke guilty of inadequate due diligence? The jury foreman’s post-trial comments reveal such shortcomings may have been partly responsible for Mr. Bourke’s conviction. Whatever the case, well-heeled and high-profile investors are well advised to conduct an amount of due diligence commensurate with the red flags attendant to their deals lest they suffer a similar fate.

Mr. Bourke’s sentencing is scheduled for November 10, 2009.

— Daniel Dominguez, Latham & Watkins LLP, Washington, D.C.

Supreme Court Considers Federal Preemption in Pharmaceutical Cases

On March 4, 2009, the Supreme Court issued its decision in Wyeth v. Levine, the first Supreme Court case to consider whether preemption applies in pharmaceutical cases.

In a 6 to 3 decision, the Supreme Court upheld the lower courts’ decisions, concluding that Wyeth could have complied with differing state and federal law obligations. In rejecting the preemption argument, the majority opinion relied upon the Changes Being Effected (CBE) provision, which permits brand name drug manufacturers to unilaterally add or strengthen warnings and contraindications on a drug label without prior FDA approval. The Court reasoned that the CBE provision allowed manufacturers to comply with heightened state standards imposed by juries in product liability lawsuits.

The majority opinion put the onus for changing the label firmly on drug manufacturers, holding that the existence of the CBE provision “[made] it clear that manufacturers remain responsible for updating their labels.” Similarly, in language sure to be repeated in front of juries for years, the Court stated that “it has remained a central premise of federal drug regulation that the manufacturer bears responsibility for the content of its label at all times.”

Wyeth involved the brand name drug Phenergan, a drug designed to treat severe nausea associated with migraine headaches. Phenergan can be taken orally, or intravenously when faster relief is necessary. Intravenous delivery is available either through IV-push or IV-drip. Phenergan is corrosive and can cause irreversible gangrene if it enters a patient’s artery. The labeling for Phenergan included multiple warnings of this risk.

Despite these warnings, a physician’s assistant delivered a double-dose of the drug via IV-push to Diana Levine and ignored her complaints of pain while the drug was injected. During the entire three or four minutes of this process, the Phenergan was being injected into an artery in Levein’s arm. As a result, her forearm had to be amputated, ending her career as a professional musician.

After settling with her healthcare providers, Levine sued Wyeth, the manufacturer of Phernergan. The trial court rejected Wyeth’s preemption arguments, and a Vermont state court jury found in Levine’s favor. The Vermont Supreme Court upheld the trial court’s decision rejecting Wyeth’s preemption argument, and the Supreme Court granted certiorari to consider the case.

In its amicus brief and at oral argument, the FDA explained that the CBE provision should only be used to change a label to “reflect newly acquired information.” A final rule recently issued by the FDA further clarified and emphasized this position. Nonetheless, Wyeth destroys any utility in this limitation, finding that newly acquired information is “not limited to new data, but also encompasses analyses of previously submitted data.” In other words, a drug manufacturer’s label will always be vulnerable to hindsight.

In addition to finding that FDA approval does not, by itself, preempt state law claims, the majority opinion also considered whether Wyeth had specifically addressed the risks of the IV-push method with the FDA in drafting the labeling for Phenergan. The majority found that the facts did not support Wyeth’s argument that it had adequately addressed the risks specific to IV-push in its labeling, but rather concluded that Wyeth had not adequately explored these risks with the FDA. This was apparently made clear by the fact that Wyeth’s labeling did not distinguish between the IV-drip and IV-push methods, although the IV-drip method had virtually no risk of arterial exposure. “The CBE regulation permitted Wyeth to unilaterally strengthen its warning, and the mere fact that the FDA approved Phenergan’s label does not establish that it would have prohibited such a change.”

The Wyeth decision left the door open on preemption in pharmaceutical cases involving warning issues, but only slightly open. The majority opinion recognized that the FDA has final authority over all labeling decisions, but stated that “absent clear evidence that the FDA would not have approved a change to Phenergan’s label, we will not conclude that it was impossible for Wyeth to comply with both federal and state requirements.” In other words, if the FDA has rejected the same kind of additional warning or contraindication that a plaintiff’s product liability claim would impose, preemption could apply. The Court emphasized, however, that “[i]mpossibility preemption is a demanding defense.”

While Wyeth leaves open the possibility for preemption where the FDA has flatly rejected a stronger warning or contraindication, it also may apply only to branded drugs and not generics. Generic drugs are required to have labeling and active ingredients that are identical to what the FDA has approved for its branded counterpart. As a result, Wyeth does not appear to overrule the growing body of case law holding that it is impossible for generic drug manufacturers to comply with state requirements that are inconsistent in any way with federal laws and regulations.

Wyeth only gave hints at the extent to which preemption could apply in pharmaceutical cases. In the coming months, it will fall upon trial courts to determine whether and when preemption applies.

— Richard G. Morgan and Shane V. Bohnen, Bowman and Brooke LLP, Minneapolis, MN

Court Adopts Test Interpreting False Claim Act’s First-to-File Rule

The Fifth Circuit overturned a decision by Judge Peter Beer dismissing several insurance companies and adjusting firms from an action accusing them of overbilling the federal government for flood-damage claims resulting from Hurricane Katrina. The qui tamaction, entitled U.S. ex rel. Branch Consultants v. Allstate Insurance Company, accused eight insurers and six adjusting firms of inflating flood-damage estimates so that the federal government would cover a greater share of the payout on claims based on damage to Gulf Coast homes.

In reinstating the action against several of the insurance defendants, the Court of Appeals joined other circuits in interpreting the federal False Claims Act’s “first-to-file” rule to require dismissal where a later-filed action alleges the same material or essential elements of fraud as a previously filed action. The court also held, as a matter of first impression for any circuit court, that allegations in a first-filed action cannot bar related actions against wholly unrelated defendants brought in a subsequent action.

The allegations of fraud underlying the Eastern District of Louisiana action, which had been filed in August 2006, paralleled similar claims that were simultaneously pending in a separate action in the Southern District of Mississippi, United States ex rel. Rigsby v. State Farm Ins. Co., No 1:06-CV-433 (S.D. Miss. filed Apr. 26, 2006). The Mississippi action, which involved some, but not all of the same insurer defendants, was filed in April 2006 by sisters Cori and Kerri Rigsby, former State Farm adjusters who claimed that State Farm pressured engineers to change damage reports.

Judge Beer dismissed the claims in the Louisiana action against all of the insurers and adjusting firms named as defendants after concluding that the False Claim Act’s “first-to-file” provision deprived him of jurisdiction over the Louisiana matter because it was based on the same “general conduct and theory of fraud” as the Mississippi case, despite the fact that the Mississippi action focused on different details, geographic locations, and other insurer defendants. Under the Civil Actions for False Claims Statute’s first-to-file bar, U.S.C. § 3730(b)(5), when a person brings an action under the FCA, no person other than the government may bring a second action based on the same facts as the first action.

On appeal, a three-judge panel for the Fifth Circuit found that Judge Beer’s decision was correct as to two of the insurance companies—Allstate Insurance Co. and State Farm Fire and Casualty Co.—because they were already named as defendants in the Mississippi action. For the rest of the insurance and adjusting firms, however, including Liberty Mutual Insurance Co., Fidelity National Insurance Co., American National Property & Casualty Co., American Reliable Insurance Co., and Standard Fire Insurance Co., the Appeals Court reversed because those companies had not yet been named as defendants in the first-filed action.

In so doing, the Fifth Circuit for the first time adopted a test for determining whether the False Claim Act’s first-to-file provision applies, choosing to follow the lead established by the Sixth, Tenth, and D.C. Circuits in adopting the Third Circuit’s LaCorte rule, which rejects the argument that the first-to-file provision blocks only those subsequent claims that arise from facts identical to those in the first-filed action. The court found that the rule effectively balanced the dual legislative purposes of the False Claims Act, which are both to encourage whistleblowers “with genuinely valuable information” to bring suits “for the common good,” and “to discourage opportunistic plaintiffs from filing parasitic lawsuits that merely feed off previous disclosures of fraud.”    

In applying the rule, the court agreed that merely adding factual details or different geographic locations to a fraud claim was not enough to avoid the first-to-file rule, and so upheld the district court’s dismissal of claims against insurance companies also named in the Mississippi action. The court, however, disagreed with the district court regarding the other insurance defendants and found that the generic naming of two other insurers was insufficient to trigger the first-to-file bar as to insurance defendants that the Mississippi action did not name. Writing for the court, Judge Haynes concluded that on the basis of the FCA, “we cannot hold that ‘suit as to one is suit as to all,’” finding that “nothing in the [Mississippi] complaint provided the government with facts from which it could discern a widespread fraud involving all [insurers] or the identities of other specific fraudfeasors.”

— Theresa M. House, Hogan & Harston LLP, New York, NY

Court of Appeals Rules That an Attorney's Attempt to Deceive a Court Will Result in Treble Damages

In Amalfitano v. Rosenberg, No. 01069, slip op. (N.Y. Feb. 12, 2009), the New York Court of Appeals held that an attorney who attempts to deceive the court is subject to treble damages, despite the fact that the deceit is unsuccessful. The decision was made in response to two certified questions presented to the court by the U.S. Court of Appeals for the Second Circuit. The certification sought the correct interpretation of Section 487 of the Judiciary Law of New York (Section 487). Section 487 states that an attorney who deceives the court is guilty of a misdemeanor and subject to treble damages:

An attorney or counselor who . . . is guilty of any deceit or collusion, or consents to any deceit or collusion, with the intent to deceive the court or any party . . . [i]s guilty of a misdemeanor, and in addition to the punishment prescribed therefore by the penal law, he forfeits to the party injured treble damages, to be recovered in a civil action. (N.Y. JUD § 487 (2009)).

The Second Circuit posed two questions: (1) whether Section 487 applies when an attorney tries to deceive a court but fails; and (2) whether “the costs of defending litigation instituted by a complaint containing a material misrepresentation of fact [should] be treated as the proximate result of the misrepresentation” even if the court was not deceived. Amalfitano v. Rosenberg, 533 F.3d 117, 126 (2nd Cir. 2008).

The defendant, Armand Rosenberg, brought an action on behalf of Peter Costalas against his niece, Vivia Amalfitano, and her husband, Gerard Amalfitano, in the Supreme Court, New York County. Amalfitano v. Rosenberg, 428 F.Supp.2d 196, 201 (S.D.N.Y. 2006); see Costalas v. Amalfitano, 305 A.D.2d 202 (1st Dep’t 2003).The lawsuit alleged that the Amalfitanos fraudulently purchased the Costalas’s family business, 27 Whitehall Street Group. Id. Rosenberg represented to the trial court that Costalas was a partner in the family business, which was not true. Id. The Amalfitanos made the court aware of this misrepresentation in a motion to dismiss. Thus, the trial court did not, in fact, rely on the misrepresentation and was not deceived by it. The trial court judge subsequently entered a default judgment against Costalas for Rosenberg’s failure to appear. Id.at 202. On appeal, the Supreme Court Appellate Division reversed the trial court’s decision and remanded the case for trial. Id. At trial, the Supreme Court, New York County again dismissed Costalas’s lawsuit for failure of proof, and the Appellate Division affirmed. Id. at 206.

The Amalfitanos subsequently initiated a diversity action against Rosenberg in the U.S. District Court for the Southern District of New York, alleging that he engaged in conduct throughout the Costalas litigation in violation of Section 487. Id. The district court agreed with the Amalfitanos and granted treble damages in the amount of $268,245.54, which included the plaintiffs’ legal expenses from inception of the Costalas litigation to the judgment. Id. at 212. Rosenberg appealed the decision to the U.S. Court of Appeals for the Second Circuit. The panel of judges hearing the appeal requested guidance from the New York Court of Appeals to interpret Section 487 correctly. Amalfitano v. Rosenberg, 533 F.3d at 126.

The court first addressed whether Section 487 applies when an attorney attempts to deceive a court but fails. Regarding this question, the defendant argued that Section 487 is equivalent to the common law tort claim for fraud. Id. at 3. The court noted that under New York common law, to succeed on the tort claim for fraud, the plaintiff must actually be deceived and damaged by the fraud. Id. (citing Channel Master Corp. v. Aluminum Ltd. Sales, 4 N.Y.2d 403, 406–407 (1958)). Applying the logic in Channel Master Corp., the defendant suggested that Section 487 only applies when the court is successfully deceived. Id. Because the court was not fooled by the misrepresentation regarding Costalas’s relationship with the family business, the defendant argued that he could not be held liable under Section 487. Id.

The court rejected the defendant’s argument that Section 487 is comparable to the common law tort claim for fraud. Id. Instead, the court traced the history of the law to the first Statute of Westminster, which was adopted by the English Parliament in 1275. Id. The Statute of Westminster stated that if a Pleader were to deceive the King’s Court, he would be imprisoned for a year and a day and barred from pleading in that court again. Id. Similar laws were adopted by the New York legislature beginning in 1787 and culminating in Section 70 of the Code of Civil Procedure, which awarded treble damages to a party injured by an attorney’s deceit of the court. Id. at 4–5. Under Section 70, “deceit” was defined by Looff v. Lawton, 14 Hun. 588 (2d Dept 1878) mod. 97 NY 478 (1884). Id.at 5. Looff held that the legislature intended an expansive reading of “deceit” rather than “confining the term to common law or statutory cheats.” Looff, 14. Hun. at 589. Looff concluded that because there was already a common law tort for fraud, no additional action for “deceit” was needed unless the legislature wished to limit the action to a specific class of individuals, such as lawyers, due to the trust placed in them by their relationship with the court. Amalfitano, No. 01069, slip op. at 6. Eventually, the law was transferred to the Judiciary Law as Section 487. Id.  The court cited this extensive history to find that Section 487 is not based on the common law tort claim for fraud, but instead has a lengthy heritage of holding attorneys responsible for deceiving the court and awarding treble damages for the deceit. Id.

The court held that Section 487 focuses on the attorney’s intent to deceive, using language such as “guilty of any deceit,” and does not focus on whether or not the court is fooled by the attorney’s deceit. Id. The court also noted that Section 487 is similar to criminal law— having been included in the state’s Penal Code for many years—where attempts are prosecuted as significantly as successful crimes. Id. The court concluded that “to limit forfeiture under section 487 to successful deceits would run counter to the statute’s evident intent to enforce an attorney’s special obligation to protect the integrity of the courts and foster their truth seeking function.” Id. at 6–7.

The court briefly addressed the second question posed by the Second Circuit: whether the costs of defending the lawsuit are the proximate results of the material misrepresentation of fact, even though the misrepresentation failed to deceive the court. The court declared that the answer to this question is irrelevant to recovering treble damages, but because “the lawsuit could not have gone forward in the absence of the material misrepresentation, that party’s legal expenses in defending the lawsuit may be treated as the proximate result of the misrepresentation.” Id. The district court and the Second Circuit appeared to consider all legal expenses associated with defending the litigation, although the court does not clarify this point. The court answered the certified questions in accordance with their opinion and returned the case to the Second Circuit to be decided.

The court’s decision regarding the two questions posed by the Second Circuit raises additional questions that were not addressed. The court makes an analogy to criminal law in its decision, recognizing that for many years, Section 487 was part of New York’s Penal Code. Id. at 6. If Section 487 is comparable to criminal law, then what standard of proof must a court use to determine if there was a violation of the law? The district court did not mention the standard of proof that it was applying. Instead, it appears that the district court’s decision turned on whether or not the defendant had the intent to deceive the court. Amalfitano, 428 F.Supp.2d at 209–210.

In criminal law, intent can be inferred from circumstantial evidence. The district court found that the defendant made a false representation in his complaint and repeated it on appeal. Id. Because the representation made by Rosenberg directly contradicted tax returns he had previously produced, the district court held that “the conclusion is inescapable that Rosenberg’s actions demonstrated a knowing intent on his part to deceive both the Supreme Court and the Appellate Division.” Id. This conclusion more closely resembles a beyond a reasonable doubt standard of proof or a clear and convincing standard than a preponderance of the evidence standard. Neither the district court nor the New York Court of Appeals elaborated on the type of evidence necessary to find intent.

An important question raised by this decision concerns vicarious liability. While the court in Amalfitano focused solely on the defendant, the court did not limit its finding of liability just to the attorney who makes the misrepresentation. If an attorney works for a law firm and attempts to deceive the court, could the attorney’s colleagues face vicarious liability for his actions? Section 487 applies only to attorneys, but it does not limit liability to the actual attorney that makes the misrepresentation. Without limiting its holding to the specific attorney that makes a false misrepresentation, the court leaves the door open for more expansive lawsuits that endorse a greater span of liability.

— Melissa A. Patterson, Hunton & Williams, Charlotte, NC

Trademark Protection for Color Schemes

In Bd. of Supervisors for La. State Univ. v. Smack Apparel Co., 550 F.3d 465 (5th Cir. 2008), the Fifth Circuit upheld a district court’s finding that a t-shirt maker that used school color schemes in combination with specific facts and indicia about the school infringed on the schools’ trademark rights in those color schemes, even if neither the school logo or other mark appeared on the t-shirt. The case is a huge victory for universities and their respective trademarks. More importantly, however, the case marks the first time a court has analyzed the trademark rights of a color scheme separate and apart from an accompanying word mark or logo.

Louisiana State University, the University of Oklahoma, Ohio State University, the University of Southern California, and the schools’ licensing agent brought this trademark infringement action against Smack Apparel Company, alleging that Smack’s t-shirts create a likelihood of confusion among consumers. Smack produces t-shirts bearing the distinctive color schemes of various universities and professional sports teams, along with sarcasm or puns relating to some fact or indicia about the school or team, such as events, game scores, and taunts at major rivals. The university-based items tend to relate to the school’s sports teams.

Smack’s products are unlicensed. In news interviews, the company claims to be “licensed only by the First Amendment.” Smack also paid no royalties to the schools.

The plaintiff universities alleged that Smack’s products were identical to and competed directly with the universities’ own officially licensed products. The Eastern District of Louisiana agreed with the universities, finding that Smack’s use of the color schemes and other indicia constituted trademark infringement, granting summary judgment to plaintiffs and holding a jury trial as to damages. Smack appealed.

The court noted that in order for an unregistered mark to obtain protectibility, “[t]he key is whether the mark is ‘capable of distinguishing the applicant’s goods from those of others.’” Bd. of Supervisors for La. State Univ. v. Smack Apparel Co., 550 F.3d 465, 475 (5th Cir. 2008) (citing Two Pesos Inc. v. Taco Cabana Inc., 505 U.S. 763, 768 (1992). The Fifth Circuit agreed with the parties that a color scheme can be protected as an unregistered trademark when, as here, it has acquired secondary meaning and is non-functional. Id. at 475–476. Notably, the schools claimed a mark not in the color scheme alone, but in the combination of color scheme and school indicia on Smack’s products.

The court applied the multi-factor test for determining secondary meaning set forth in Pebble Beach Co. v. Tour 18 I Ltd., 115 F.3d 525, 541 (5th Cir. 1998), which included: (1) length and manner of use of the mark or trade dress; (2) volume of sales; (3) amount and manner of advertising; (4) nature of use of the mark or trade dress in newspapers and magazines; (5) consumer-survey evidence; (6) direct consumer testimony; and (7) the defendant’s intent in copying the trade dress. Board of Supervisors for La. State Univ., at 476.

The plaintiff schools had been using their respective color schemes for more than 100 years; the colors were immediately identifiable with the school by those familiar with the school. The schools sell over $10 million in color scheme-marked merchandise every year, and the color schemes are included in all promotional material. The color schemes had been referenced multiple times in the media, and the schools often refer to themselves using their colors. Indeed, Smack intentionally incorporated the colors in their products in the belief that the colors had developed a secondary meaning. Because so many of the factors were met in this case, the court determined that the color schemes had developed a secondary meaning. Id. at 476–477.

Once a plaintiff shows ownership in a protectable mark, he must show that defendant’s use of the mark “creates a likelihood of confusion in the minds of potential customers as to the ‘source, affiliation, or sponsorship’ of the product at issue.” Id. at 478. In order the determine likelihood of confusion, the court assesses eight factors: (1) the type of mark allegedly infringed; (2) the similarity between the two marks; (3) the similarity of the products or services; (4) the identity of the retail outlets and purchasers; (5) the identity of the advertising media used; (6) the defendant’s intent; (7) any evidence of actual confusion; and (8) the degree of care exercised by potential purchasers. Id.

Analyzing the facts under these factors, the court found that plaintiffs adequately demonstrated a likelihood of confusion. The court found that the marks were strong despite some evidence of third-party use of the colors. Id. at 479. Even though Smack asserted that its designs were not identical to any university-licensed shirts, the court found, after comparing the shirts, a “striking similarity.” Id. Both parties used similar media, advertising, and retail outlets to sell products. Id. at 481. As to intent, Smack’s owner testified that it was “no coincidence” that his shirts incorporate the university color schemes and the he designed the shirts to make people think of the particular targeted school. Id. at 481–482.

In all, the court found a likelihood of confusion, stating “Smack’s use of the universities’ colors and indicia is designed to create the illusion of affiliation with the universities and essentially obtain a ‘free ride’ by profiting from confusion among the fans of the universities’ football teams who desire to show support for and affiliation with those teams. Boston Athletic Ass’n v. Sullivan, 867 F.2d 22, 33 (1st Cir. 1989). This creation of a link in the consumer’s mind between the t-shirts and the universities and the intent to directly profit therefrom results in “an unmistakable aura of deception” and likelihood of confusion. Id. at 35.” Board of Supervisors for La. State Univ., at 483–484.

The Fifth Circuit’s decision serves as a partial guide for companies seeking to use unregistered color schemes in connection with unlicensed products or services. Clearly, the use of those color schemes in combination with indicia of the trademark owner’s entity constitutes infringement. However, the court does not go so far as to state whether the color schemes alone, without the other collegiate indicia, would similarly have constituted protectable trademarks. This issue remains to be decided. Schools and companies can protect themselves against infringement by registering their color marks, which would create a presumption that the color scheme is a valid trademark.

— Jeffrey J. Zuber and D. Dennis La, Zuber & Taillieu LLP, Los Angeles, CA

Court Rules on Waiver of Remand in MDL Proceedings

Under 28 U.S.C. § 1407, the Judicial Panel on Multidistrict Litigation (the Panel) may transfer lawsuits involving common parties from their various original jurisdictions to one district for consolidated pretrial proceedings. At the conclusion of the pretrial proceedings, the cases must be remanded back to their original jurisdictions for trial. Armstrong v. LaSalle Bank National Association, No. 07-2280, 2009 WL 66584 (7th Cir. Jan. 13, 2009) addresses the appropriate standard for waiver of the right to remand individual cases consolidated under 28 U.S.C. § 1407 at the conclusion of pretrial proceedings.

In Armstrong, the Panel determined that multiple lawsuits against common defendants—Amsted Industries, Inc., its Employee Stock Ownership Plan (ESOP), and Amsted officers—by participants in Amsted’s ESOP, should be transferred to the Northern District of Illinois for consolidated pretrial proceedings. Id. at *1. The lawsuits charged the defendants with violations of ERISA along with breaches of fiduciary duty, breach of contract and conversion. Id. The cases were originally initiated in Alabama, Illinois, and Florida. Id. The district court ordered the parties to consolidate the cases into two categories of plaintiffs: (1) retired Amsted employees, and (2) non-retired Amsted employees. Id. The non-retirees’ consolidated complaint joined a new defendant, LaSalle Bank, to the lawsuit. After several proceedings, the only claims remaining were those against LaSalle. Id.

At the close of pretrial proceedings, the plaintiffs moved to remand their claims pursuant to § 1407. Id. LaSalle argued that the plaintiffs, through their conduct, had implicitly waived the right to remand and had consented to venue in the Northern District of Illinois. Id. LaSalle’s argument rested on the plaintiffs’ statement in the consolidated complaint that “venue is proper in this court,” and the fact that, throughout the pretrial proceedings, the plaintiffs consented to the district court’s development of a schedule for discovery and trial. Id. The district court granted the remand request despite LaSalle’s objections. Id.

On appeal, the Seventh Circuit Court of Appeals discussed what standard must be used to determine when a § 1407 right to remand is waived. The plain language of § 1407 instructs that “[e]ach action so transferred shall be remanded . . . at or before the conclusion of such pretrial proceedings. . . .” Id. at *2. Based on this language, the court started with the presumption that all cases will be remanded at the close of pretrial proceedings. Id. The Seventh Circuit recognized, however, that plaintiffs may waive that right. Id. The issue of waiver of the § 1407 right to remand was apparently an issue of first impression in the Seventh Circuit, leaving the court to examine a comparable issue: waiver of the right to arbitration. Id. In determining whether a party has waived such a right, the court must “determine whether based on all circumstances, the party against whom the waiver is to be enforced has acted inconsistently with the right to arbitrate.” Id. at *3 (internal quotations omitted). Simply demonstrating inconsistent conduct is not enough. Moreover, because section 1407 is a statutory right, an even stronger showing of waiver is required than for waiver of the right to arbitration. Id. The court did not address this more restrictive standard, holding that LaSalle failed to demonstrate waiver even under the less restrictive arbitration standard. Id.

To determine whether the plaintiffs “evidenced an intent contrary to that statutory mandate” of section 1407, the court looked to the plaintiffs’ actions. Id. The plaintiffs filed a consolidated complaint in the district court at that court’s request. Id. at *4. While the plaintiffs admitted that venue was proper in the district court, such an admission is not equivalent to admitting that venue was only proper in that court. The Seventh Circuit recognized that “venue may be proper in more than one court.” Id. The plaintiffs also submitted a proposed order for case management, which stated that the parties may request remand of any case. Id. The district court granted that motion but without the plaintiffs’ proposed language. Id. Still, the plaintiffs’ intent was evident from that language. The Seventh Circuit distinguished this case from others where the plaintiffs waited until the day of trial to move for remand or cases where the parties consented to trial in the transferee court. Id. at *5. In Armstrong, there was “no ongoing effort to pursue a trial in the transferee court beyond the pretrial proceedings.” Id.

The Seventh Circuit affirmed the district court’s decision to grant the plaintiffs’ request for remand. In doing so, the Seventh Circuit established that for waiver of the right to remand to occur, there must be clear, unequivocal evidence that the parties intentionally waived that right. The court did not, however, outline a more restrictive waiver requirement for section 1407 compared to the less stringent waiver requirements for arbitration. While a party may only waive the right to remand by intentional conduct, it is unclear what conduct qualifies to meet the high threshold for waiver. Parties wishing to preserve the right to remand their case at the conclusion of pretrial proceedings lack a clear set of guidelines for preservation, though parties clearly cannot wait until the day of trial or explicitly consent to venue in the transferee court. Moreover, any conduct inconsistent with the right to remand must cease at the conclusion of pretrial proceedings. The Seventh Circuit did not delineate other conduct that may result in waiver of the right to remand. It appears that such a determination must be made on a case-by-case basis. At the very least, parties should follow the standards already set by courts to preserve the right to arbitration.

— Melissa A. Patterson, Hunton & Williams, Charlotte, NC