Business Litigation Reporter April 07, 2017

Regional Case Summaries

California

Class Action Need Not Show Feasible Way to Identify Absent Class Members: In Briseno v. ConAgra Foods, Inc., No. 2:11-cv-05379 (9th Cir. Jan. 3, 2017), the Ninth Circuit joined the Sixth, Seventh and Eighth Circuits in holding, contrary to the Third Circuit, that Federal Rule of Civil Procedure 23 does not require class representatives to demonstrate an administratively feasible means of identifying class members. The defendant had challenged certification of a class of persons who purchased cooking oil, arguing that there was no administratively feasible way to identify the class members. The Ninth Circuit held that the superiority requirement of Rule 23 already includes a general manageability criterion, that Rule 23 does not require actual notice to each individual class member, that the risk of fraudulent or illegitimate claims is low, and the defendant will have the right to challenge claims submitted by absent class members.

Court Finds Potential Consumer Reliance and Injury Even Where Allegedly False Advertisement is Corrected Prior to Purchase:  In Veera v. Banana Republic, LLC, 6 Cal. App. 5th 907 (2d Dist. 2016), the plaintiffs filed a putative class action alleging they were lured into the defendant’s stores by advertisements for a “40 percent off” discount and, after being told that their desired items were not on sale, proceeded to purchase the items at full price based on “embarrassment” and having otherwise wasted time and energy shopping.  The court held that these supposed facts, if proven, could establish that the plaintiffs had relied on the allegedly false advertisements and had been injured when they purchased at full price rather than the allegedly advertised discounted price.

U.S. Supreme Court Grants Review of  Sweeping California Supreme Court Personal Jurisdiction Ruling:  As described in our last issue, the California Supreme Court held in Bristol Myers Squibb Co. v. Superior Court of San Francisco County, S221038 (Cal. Aug. 29, 2016), that 592 non-resident plaintiffs could join a California court lawsuit filed by California residents against an out-of-state defendant because all the plaintiffs alleged the same kind of tort claim, even though the non-residents did not allege any product exposure in California. On January 19, 2017, the United States Supreme Court granted the defendant’s petition to review that decision, which could result in a vast expansion of personal jurisdiction if left uncorrected.

Delaware

Directors’ Outside Relationships May Excuse Shareholder’s Failure to Make Demand.  In Sandys v. Pincus, 2016 WL 7094027 (Del. Dec. 5, 2016), the Supreme Court of Delaware held that certain directors’ alleged outside relationships with interested persons were sufficient to establish that a majority of directors lacked independence and thus to permit a shareholder derivative action to be filed without making a demand on the board. One director co-owned an airplane with the company’s former CEO and controlling shareholder, while two other directors were partners at a venture capital firm that controlled almost 10% of the company’s stock. The court held that, at the pleading stage, these facts created a reasonable doubt as to the directors’ independence, and thus excused the need for the plaintiff to have made a demand on the board. Sandys continues the Delaware Supreme Court’s trend toward closely scrutinizing the personal relationships between directors and interested persons in assessing director independence.

Chancery Court Warns Against Generic Discovery Objections. In In re Oxbow Carbon LLC Unitholder Litigation, C.A. No. 12447-VCL (Ct. Ch. Mar. 13, 2016), Vice Chancellor Laster issued a strong reminder that parties may not assert generic, boilerplate objections when responding to discovery. He explained that a formulaic objection is “no objection at all.”  Instead, “the objection must be specific” and “the party making it must explain why it applies on the facts of the case to the request being made.” He added that where documents are withheld on the basis of privilege, the withholding party must provide “facts” showing the basis for the privilege, work product objections must “identify the litigation that was being contemplated,”  and privilege logs likewise may not use brief, generic descriptions.

Massachusetts

Chapter 93A Claim Not Barred by Contractual Liability Limitation Clause:  In ABCD Holdings, LLC v. Hannon, No. 15-1367-BLS2 (Mass. Super. Ct. Jan. 17, 2017), the defendant, guarantor of a $219,759 loan to two companies, argued that a provision in the guaranty limiting his liability to “no more than $109,879” barred the plaintiff’s chapter 93A claim. The Business Litigation Session denied the defendant’s motion to, holding that a contractual limit on liability does not bar recovery under chapter 93A where the claim “is more tortious in nature” and does not depend wholly on a breach of contract claim. The court further held that the allegations that the defendant had made it impossible for the debtor companies to repay the loan sounded in tort, meaning that the chapter 93A claim was not subject to the contractual limitation of liability.

Employer Owed Duty of Care to Third Party Whose Personal Information was Misused by Employee:  In Adams v. Congress Auto Ins. Agency, Inc., 90 Mass. App. Ct. 761, 65 N.E.3d 1229 (2016), the plaintiff’s car was struck by a vehicle owned by one of the defendant’s employees. The employee subsequently accessed confidential data that the plaintiff had provided to the employer and passed that information to her boyfriend, who made a threatening call to the plaintiff. The plaintiff then sued the employer for its alleged negligent failure to protect his personal information. The court observed that, under Massachusetts law, an employer may owe a duty of care where an employee’s job enables the employee to harm third parties. In this case, the court held that the employer owed the plaintiff a duty to prevent the employee’s foreseeable misuse of the confidential information that he had provided in connection with his insurance claim and that a jury could find that the employer had breached that duty.

Employer’s Alleged Contract Breach Not a Defense to Enforcing Non-Competition and Non-Solicitation Covenants Against Former Employee:  In United Salvage Corp. of America v. Kradin, No.16-03131-BLS2, 2016 WL 7735765 (Mass. Super. Ct. Nov. 8, 2016), an employer sought a preliminary injunction enforcing non-competition and non-solicitation covenants against a former employee whom it had fired. The employee argued that the employer had fired him without cause and otherwise breached its obligations to him. But the Business Litigation Section enforced the covenants against the employee, holding that the covenants were independent obligations and that any claim against the employer was not a defense to their enforcement.

New York

Court Expands Factors Used to Analyze Non-Monetary Settlements. In Gordon v. Verizon Commc’n, Inc., 2017 WL 442871, 2017 N.Y. slip op. 00742 (1st Dep’t, Feb. 2, 2017), holders of Verizon stock alleged that the board had breached its fiduciary duties by overpaying to acquire another entity and by failing to disclose material information. Following negotiations, the parties proposed a non-monetary settlement under which Verizon would (1) make additional disclosures, (2) obtain an independent fairness opinion for certain transactions, and (3) agree not to oppose a fee and expense application from plaintiffs’ counsel up to exceeding $2 million. On appeal from an order rejecting the settlement, the First Department revised the long-standing five-factor test for analyzing non-monetary settlements by adding two new factors: whether the relief is in the best interest of the members of the putative class, and whether the settlement is in the best interest of the corporation. Based on the totality of the now-seven factors, the court held that the settlement should be approved.

Use of New York Correspondent Bank Accounts Held to Create Personal Jurisdiction. In Rushaid v. Pictet & Cie, 28 N.Y.3d 316, 2016 N.Y. slip op. 07834 (2016), a Saudi company sued a Swiss bank and its partners in New York for allegedly laundering kickbacks obtained by certain of the plaintiff’s employees, and the defendants moved to dismiss for lack of personal jurisdiction. The Court of Appeals noted that personal jurisdiction exists if the plaintiff’s claim arises from the defendant’s “purposeful activities” in New York. Applying that test, the court held that the defendants’ use of a New York correspondent bank account was purposeful rather than passive, since the defendants had repeatedly approved deposits and the movement of funds through the account, even though a third party had made the deposits themselves and given the bank instructions to transfer the funds.

Editor-in-Chief, Richard M. Wyner

Contributing Editors, Yvonne W. Chan, Adam M. Chud, Joseph P. Rockers, Jordan D. Weiss