This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
An alleged conspiracy among foreign producers of potash — a naturally occurring mineral used in agricultural fertilizers and other products — to fix prices charged to U.S. purchasers was not outside the scope of the Sherman Act, the U.S. Court of Appeals in Chicago, sitting en banc, ruled earlier this week.
The purchasers satisfied the requirements of the Foreign Trade Antitrust Improvements Act 1982 (FTAIA) with respect to challenged transactions that were not straightforward import transactions subject to the more general antitrust rules for effects on commerce.
The FTAIA makes clear that “the Sherman Act does not apply to every arrangement that literally can be said to involve trade or commerce with foreign nations.” The FTAIA excludes foreign activities, other than import trade or commerce, from the scope of the Sherman Act, unless the conduct has a “direct, substantial, and reasonably foreseeable effect” on domestic or import commerce.
The complaint alleged an international cartel in a commodity, and it asserted that the cartel succeeded in raising prices for direct U.S. purchasers of potash. The FTAIA’s requirements of substantiality and foreseeability were easily met. The complaint alleged that 5.3 million tons of potash were imported into the United States in one year alone and the vast majority of these imports came from the defendants. Over a five-year period, the price of potash allegedly increased by over 600 percent. Moreover, the effects alleged were a rationally expected outcome of the challenged conduct. It was objectively foreseeable that an international cartel with a grip on 71 percent of the world’s supply of a homogeneous commodity would charge supracompetitive prices, and in the absence of any evidence showing that arbitrage was impossible, those prices (net of shipping costs) would be uniform throughout the world.
Further, the effects were “direct” and not too remote, the court ruled. This was not a case where an action was undertaken in a foreign country and filtered through many layers, finally causing a few ripples in the United States. The court followed the Department of Justice approach with respect to the meaning of "direct" in the statute.
The Justice Department had suggested in a friend-of-the-court brief that the direct effects exception should not be limited to effects that follow as an immediate consequence of the challenged conduct. "Direct" is best defined as "reasonably proximate," according to the government brief.
Thus, the allegations stated a claim, as required by Federal Rule of Civil Procedure 8, and were enough to withstand a motion to dismiss under Rule 12(b)(6).
The case was before the appellate court because a district court decision (2010-2 Trade Cases ¶77,112), denying the defendants’ motion to dismiss, was certified for interlocutory appeal. An earlier decision of a three-judge panel, which reversed the lower court’s ruling after concluding that the complaint failed to meet the requirements of the FTAIA (2011-2 Trade Cases ¶77,611), was vacated in December 2011. The panel had suggested that the issue of whether the FTAIA was an element of a Sherman Act claim or jurisdictional in nature was ripe for reconsideration.
FTAIA as Element of Sherman Act Claim
Before taking on the particular issues in this case, the full appellate court considered whether the FTAIA was an element of a Sherman Act claim or was jurisdictional in nature. The court overruled a 2003 en banc decision of the Seventh Circuit, (United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 2003-1 Trade Cases ¶73,971) and held that the FTAIA was an element of the Sherman Act. The FTAIA did not use the word “jurisdiction” or any commonly accepted synonym, it was noted. Instead, it spoke of the “conduct” to which the Sherman Act (or the Federal Trade Commission Act) applied.
Thus, a party contesting the propriety of an antitrust claim implicating foreign activities was required, at the outset, to use Federal Rule of Civil Procedure 12(b)(6), not Rule 12(b)(1). Because foreign connections were unlikely to be difficult to detect, parties who wanted to argue that a particular claim failed the requirements of the FTAIA would be able to do so within these generous time limits, the court reasoned.
The June 27, 2012, decision in Minn-Chem, Inc. v. Agrium Inc., No. 10-1712, will appear at 2012-1 Trade Cases ¶77,943.
Friday, June 29, 2012
Thursday, June 28, 2012
Cleary Gottlieb Ranked First in List of Top Antitrust Law Firms
This posting was written by John W. Arden.
For the second consecutive year, New York City-based Cleary Gottlieb Steen & Hamilton has been ranked as having the best antitrust practice by Vault.com, a source of ratings, rankings, and insight for law students and lawyers.
The rankings were based on a poll of 17,000 associates, who were asked to vote for up to three firms they consider strongest in their own practice area. Associates were not permitted to vote for their own firms.
Cleary Gottlieb was mentioned by nearly 46% of the respondents. The firm was described as “international,” “diverse,” “quirky,” and “bookish.” A firm-wide commitment to international legal work was noted.
Arnold & Porter, which was tied with Cleary Gottlieb at the top in last year’s list, dropped to number two. The firm was mentioned by 40% of the respondents.
The Top 15 Antitrust Law Firms Are:
For the second consecutive year, New York City-based Cleary Gottlieb Steen & Hamilton has been ranked as having the best antitrust practice by Vault.com, a source of ratings, rankings, and insight for law students and lawyers.
The rankings were based on a poll of 17,000 associates, who were asked to vote for up to three firms they consider strongest in their own practice area. Associates were not permitted to vote for their own firms.
Cleary Gottlieb was mentioned by nearly 46% of the respondents. The firm was described as “international,” “diverse,” “quirky,” and “bookish.” A firm-wide commitment to international legal work was noted.
Arnold & Porter, which was tied with Cleary Gottlieb at the top in last year’s list, dropped to number two. The firm was mentioned by 40% of the respondents.
The Top 15 Antitrust Law Firms Are:
1. Cleary Gottlieb Steen & Hamilton LLP (New York, NY)Further details regarding the antitrust rankings are available here.
2. Arnold & Porter LLP (Washington, DC)
3. Freshfields Bruckhaus Deringer LLP (Chicago, IL)
4. Jones Day (Washington, D.C.)
5. Skadden, Arps, Slate, Meagher & Flom LLP (San Francisco, CA)
6. Gibson Dunn & Crutcher LLP (Los Angeles, CA)
7. Covington & Burling LLP (Washington, DC)
8. Latham & Watkins LLP (Palo Alto, CA)
9. Hogan Lovells US LLP (Washington, DC)
10. Kirkland & Ellis, LLP (New York, NY)
11. Boies, Schiller & Flexner LLP (New York, NY)
12. O’Melveny & Myers LLP (Los Angeles, CA)
13. Axinn, Veltrop & Harkrider LLP (New York, NY)
14. Wilson Sonsini Goodrich & Rosati (Palo Alto, CA)
15. WilmerHale (Washington, DC).
Wednesday, June 27, 2012
Rebates to Large Utility Customers May Have Violated Federal, Ohio RICO Laws
This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.
An individual and three Ohio businesses could proceed with federal RICO and Ohio Corrupt Practices Act claims against an electric utility and its subsidiary (Duke Energy Corp. and Duke Energy International, Inc.), the U.S. Court of Appeals in Cincinnati has ruled.
The utilities allegedly made “side agreements” to pay substantial and unlawful rebates to large customers, including General Motors, in exchange for withdrawing their objections to a rate-stabilization plan that the utilities had proposed as part of a move to market-based rates. The plaintiffs sufficiently alleged: (1) money laundering and mail fraud; (2) proximate cause; and (3) obstruction of justice.
Money Laundering
According to the court, the alleged transfer of money—from large customers to the utility, from the utility to one of its affiliates, and from the affiliate back to the large customers—tainted the money, which became the proceeds of mail fraud. The plaintiffs thus alleged a cognizable claim of money laundering based on mail fraud.
Mail Fraud
The defendants argued that they were not required to disclose any rebates because differential pricing was not, by itself, a fraudulent practice. The plaintiffs, however, alleged that the utilities had engaged in mail fraud by using the mails to inform their customers that everyone had to pay “mandatory and unavoidable” electricity charges.
Because these mailings implied that all customers paid the same rate, the plaintiffs adequately alleged that the utilities had engaged fraud by failing to disclose their side agreement with large customers.
Proximate Cause
The utilities argued that: (1) the plaintiffs’ theory of liability rested on the independent actions of the Public Utilities Commission of Ohio (PUCO) and (2) the remedy sought by the plaintiffs would require the PUCO to enforce the law. The argument was flawed because the utilities confused the relationship between an allegedly wrongful act and a proximately caused injury with the relationship between an allegedly wrongful act and a remedy for a proximately-caused injury.
The PUCO did not the cause the plaintiffs’ alleged injury; the defendants did, through an allegedly fraudulent scheme. The fact that the plaintiffs had to bring their case before the PUCO or the court did not mean that a third party had disrupted the chain of causation. The defendants’ argument that a finding of proximate cause would be speculative—because the PUCO might not have found the rebates to be unlawful—was also unavailing.
Obstruction of Justice
The plaintiffs sufficiently alleged obstruction of justice as a predicate act for their Ohio Corrupt Practices Act claim against the utilities. The plaintiffs alleged that the utilities’ legal counsel “consciously and deceptively denied,” in on-the-record proceedings before the Ohio Supreme Court, the existence of side agreements between the utilities and some of their customers.
Obstruction of justice under Ohio law involved the communication of false information to any person for the purpose of hindering the discovery of a crime. The selective payment of rebates, the court noted, was a felony in Ohio. Therefore, the communication of false information to any person—for the purpose of hindering the discovery of the selective payment of rebates—constituted obstruction of justice.
The defendants argued that the alleged communication of false information had occurred in civil proceedings, but that fact was irrelevant. Ohio’s obstruction of justice law contained no requirement that a false statement had to be made in a criminal proceeding. The defendants’ contention that the alleged obstruction was made in defense of the corporation did not shield the defendants’ counsel from liability.
Even if corporations were not considered “persons,” corporate counsel was not permitted to freely make false statements before a court and evade liability for obstruction of justice.
The decision is Williams v. Duke Energy International, Inc., CCH RICO Business Disputes Guide ¶12,222.
An individual and three Ohio businesses could proceed with federal RICO and Ohio Corrupt Practices Act claims against an electric utility and its subsidiary (Duke Energy Corp. and Duke Energy International, Inc.), the U.S. Court of Appeals in Cincinnati has ruled.
The utilities allegedly made “side agreements” to pay substantial and unlawful rebates to large customers, including General Motors, in exchange for withdrawing their objections to a rate-stabilization plan that the utilities had proposed as part of a move to market-based rates. The plaintiffs sufficiently alleged: (1) money laundering and mail fraud; (2) proximate cause; and (3) obstruction of justice.
Money Laundering
According to the court, the alleged transfer of money—from large customers to the utility, from the utility to one of its affiliates, and from the affiliate back to the large customers—tainted the money, which became the proceeds of mail fraud. The plaintiffs thus alleged a cognizable claim of money laundering based on mail fraud.
Mail Fraud
The defendants argued that they were not required to disclose any rebates because differential pricing was not, by itself, a fraudulent practice. The plaintiffs, however, alleged that the utilities had engaged in mail fraud by using the mails to inform their customers that everyone had to pay “mandatory and unavoidable” electricity charges.
Because these mailings implied that all customers paid the same rate, the plaintiffs adequately alleged that the utilities had engaged fraud by failing to disclose their side agreement with large customers.
Proximate Cause
The utilities argued that: (1) the plaintiffs’ theory of liability rested on the independent actions of the Public Utilities Commission of Ohio (PUCO) and (2) the remedy sought by the plaintiffs would require the PUCO to enforce the law. The argument was flawed because the utilities confused the relationship between an allegedly wrongful act and a proximately caused injury with the relationship between an allegedly wrongful act and a remedy for a proximately-caused injury.
The PUCO did not the cause the plaintiffs’ alleged injury; the defendants did, through an allegedly fraudulent scheme. The fact that the plaintiffs had to bring their case before the PUCO or the court did not mean that a third party had disrupted the chain of causation. The defendants’ argument that a finding of proximate cause would be speculative—because the PUCO might not have found the rebates to be unlawful—was also unavailing.
Obstruction of Justice
The plaintiffs sufficiently alleged obstruction of justice as a predicate act for their Ohio Corrupt Practices Act claim against the utilities. The plaintiffs alleged that the utilities’ legal counsel “consciously and deceptively denied,” in on-the-record proceedings before the Ohio Supreme Court, the existence of side agreements between the utilities and some of their customers.
Obstruction of justice under Ohio law involved the communication of false information to any person for the purpose of hindering the discovery of a crime. The selective payment of rebates, the court noted, was a felony in Ohio. Therefore, the communication of false information to any person—for the purpose of hindering the discovery of the selective payment of rebates—constituted obstruction of justice.
The defendants argued that the alleged communication of false information had occurred in civil proceedings, but that fact was irrelevant. Ohio’s obstruction of justice law contained no requirement that a false statement had to be made in a criminal proceeding. The defendants’ contention that the alleged obstruction was made in defense of the corporation did not shield the defendants’ counsel from liability.
Even if corporations were not considered “persons,” corporate counsel was not permitted to freely make false statements before a court and evade liability for obstruction of justice.
The decision is Williams v. Duke Energy International, Inc., CCH RICO Business Disputes Guide ¶12,222.
Tuesday, June 26, 2012
NCAA Football Scholarship Limits Not Alleged to Harm Commercial Market
This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.
Claims by former recipients of collegiate football scholarships that the National Collegiate Athletic Association (NCAA) violated federal antitrust law by entering into an agreement with member schools to restrict the number of football scholarships awarded by each school to a prescribed number and by prohibiting multi-year scholarships did not sufficiently plead a valid relevant market, the U.S. Court of Appeals in Chicago has ruled. Dismissal of the suit was therefore affirmed.
The complaining student-athletes, alleging that the bylaws prevented them from obtaining scholarships that covered the entire cost of their college educations, failed to allege that the NCAA’s actions had an anticompetitive effect in a relevant commercial market, the court stated.
The transactions that NCAA member schools made with premier athletes—full scholarships in exchange for athletic services—were not noncommercial, since schools could make millions of dollars as a result of those transactions. Thus, they were, to some degree, commercial in nature, and therefore took place in a relevant market with respect to the Sherman Act, the court remarked. Moreover, because the bylaws were not inherently or obviously necessary for the preservation of amateurism, the student-athlete, or the general product of college football, they could not be presumptively procompetitive.
However, the plaintiffs’ complaint did not adequately identify either of the markets upon which they claimed the bylaws had an anticompetitive effect—the market for bachelor’s degrees and the market for student-athlete labor.
It was not apparent whether the plaintiffs believed that the bylaws affected an overall market for bachelor’s degrees, which would impact scholarship athletes and non-athletes alike, or some subsidiary market that only concerned athletes attempting to obtain educational degrees in exchange for athletic services.
Even if adequately alleged, such a relevant market would have been problematic in that (1) given the small proportion of bachelor’s degree candidates who were scholarship athletes who scholarships had not been renewed, the anticompetitive impact would have been very minimal; and (2) bachelor’s degrees were not automatically received or guaranteed upon payment of tuition. The difference between a market for educational services and a market for bachelor’s degrees was "of vital importance," the appellate court noted.
While a labor market for student-athletes would have described a cognizable market under the Sherman Act, nothing resembling a discussion of a relevant market for student-athlete labor could be found in the plaintiffs’ amended complaint, the court observed.
The June 18 decision is Agnew v. National Collegiate Athletic Association, 2012-1 Trade Cases ¶77,939.
Claims by former recipients of collegiate football scholarships that the National Collegiate Athletic Association (NCAA) violated federal antitrust law by entering into an agreement with member schools to restrict the number of football scholarships awarded by each school to a prescribed number and by prohibiting multi-year scholarships did not sufficiently plead a valid relevant market, the U.S. Court of Appeals in Chicago has ruled. Dismissal of the suit was therefore affirmed.
The complaining student-athletes, alleging that the bylaws prevented them from obtaining scholarships that covered the entire cost of their college educations, failed to allege that the NCAA’s actions had an anticompetitive effect in a relevant commercial market, the court stated.
The transactions that NCAA member schools made with premier athletes—full scholarships in exchange for athletic services—were not noncommercial, since schools could make millions of dollars as a result of those transactions. Thus, they were, to some degree, commercial in nature, and therefore took place in a relevant market with respect to the Sherman Act, the court remarked. Moreover, because the bylaws were not inherently or obviously necessary for the preservation of amateurism, the student-athlete, or the general product of college football, they could not be presumptively procompetitive.
However, the plaintiffs’ complaint did not adequately identify either of the markets upon which they claimed the bylaws had an anticompetitive effect—the market for bachelor’s degrees and the market for student-athlete labor.
It was not apparent whether the plaintiffs believed that the bylaws affected an overall market for bachelor’s degrees, which would impact scholarship athletes and non-athletes alike, or some subsidiary market that only concerned athletes attempting to obtain educational degrees in exchange for athletic services.
Even if adequately alleged, such a relevant market would have been problematic in that (1) given the small proportion of bachelor’s degree candidates who were scholarship athletes who scholarships had not been renewed, the anticompetitive impact would have been very minimal; and (2) bachelor’s degrees were not automatically received or guaranteed upon payment of tuition. The difference between a market for educational services and a market for bachelor’s degrees was "of vital importance," the appellate court noted.
While a labor market for student-athletes would have described a cognizable market under the Sherman Act, nothing resembling a discussion of a relevant market for student-athlete labor could be found in the plaintiffs’ amended complaint, the court observed.
The June 18 decision is Agnew v. National Collegiate Athletic Association, 2012-1 Trade Cases ¶77,939.
Monday, June 25, 2012
Supreme Court to Consider State Action, Class Certification Next Term
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
On the last day of the October 2011 term, the U.S. Supreme Court granted petitions for certiorari in two closely-watched antitrust cases: (1) a Federal Trade Commission (FTC) action challenging a Georgia hospital combination, and (2) a consumer class action against cable provider Comcast Corporation.
State Action Doctrine
In the FTC action, the Court will consider the scope of the state action doctrine. At the request of the FTC, the U.S. Solicitor General in March petitioned the Court to review a decision of the U.S. Court of Appeals in Atlanta (2011-2 Trade Cases ¶77,722, 663 F.3d 1369), holding that the proposed combination of the only two hospitals in Albany, Georgia, was immune from antitrust attack under doctrine. The appellate court had upheld dismissal (2011-1 Trade Cases ¶77,508, 793 F. Supp. 2d 1356) of the Commission’s complaint for injunctive relief pending the completion of an administrative proceeding.
In April 2011, the FTC issued an administrative complaint challenging the transaction (CCH Trade Regulation Reporter ¶16,588). The FTC alleged that a local hospital authority’s purchase of Palmyra Park Hospital’s assets from HCA, Inc. and subsequent lease to Phoebe Putney Health System, Inc. (PPHS)—the operator of Phoebe Putney Memorial Hospital—would substantially lessen competition or tend to create a monopoly in the inpatient general acute-care hospital services market in Georgia’s Dougherty County and surrounding areas. The agency also sought injunctive relief to prevent the consummation of the plan prior to the completion of the administrative proceeding. Pending conclusion of the court action, the FTC stayed its administrative proceedings (CCH Trade Regulation Reporter ¶16,620).
In its petition for certiorari, the government asked the Court to consider:
The petition for review, FTC v. Phoebe Putney Health System, Inc., Dkt. 11-1160, was granted on June 25, 2012.
Class Action Certification
The Court has also decided to consider a decision of the U.S. Court of Appeals in Philadelphia (2011-2 Trade Cases ¶77,575, 655 F.3d 182), upholding the certification of a class of approximately two million cable television customers in the Philadelphia area. The customers allege that Comcast engaged in monopolization, attempted monopolization, and market or customer allocation through a series of acquisitions and cable system swap arrangements.
The appellate court ruled that the lower court satisfied the “rigorous analysis” standard established in In re Hydrogen Peroxide Antitrust Litigation (2008-2 Trade Cases ¶76,453, 552 F.3d 305) in determining that questions of fact or law common to class members predominated over individual issues, for purposes of meeting the certification requirements of Federal Rule of Civil Procedure 23(b)(3).
The High Court may see things differently.
Comcast petitioned the Court for review in January. Comcast argued that the “Third Circuit’s view that ‘merits arguments’ are ‘not properly before [the court]’ at the class certification stage . . . cannot be reconciled with this Court’s decision in [Walmart Stores, Inc. v. ] Dukes and breaks sharply with the Eighth and Ninth Circuits, which have correctly recognized that such limitations on review of ‘merits’ issues at the certification stage are no longer supportable after Dukes.”
In its petition, Comcast asked: whether a district court may certify a class action without resolving “merits arguments” that bear on prerequisites for certification under Federal Rule of Civil Procedure 23, including whether purportedly common issues predominate over individual ones under Rule 23(b)(3).
In granting certiorari, the Court limited its review to the question: “whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.”
The petition for review, Comcast Corp. v. Behrend, Dkt. 11-864, was granted on June 25, 2012.
On the last day of the October 2011 term, the U.S. Supreme Court granted petitions for certiorari in two closely-watched antitrust cases: (1) a Federal Trade Commission (FTC) action challenging a Georgia hospital combination, and (2) a consumer class action against cable provider Comcast Corporation.
State Action Doctrine
In the FTC action, the Court will consider the scope of the state action doctrine. At the request of the FTC, the U.S. Solicitor General in March petitioned the Court to review a decision of the U.S. Court of Appeals in Atlanta (2011-2 Trade Cases ¶77,722, 663 F.3d 1369), holding that the proposed combination of the only two hospitals in Albany, Georgia, was immune from antitrust attack under doctrine. The appellate court had upheld dismissal (2011-1 Trade Cases ¶77,508, 793 F. Supp. 2d 1356) of the Commission’s complaint for injunctive relief pending the completion of an administrative proceeding.
In April 2011, the FTC issued an administrative complaint challenging the transaction (CCH Trade Regulation Reporter ¶16,588). The FTC alleged that a local hospital authority’s purchase of Palmyra Park Hospital’s assets from HCA, Inc. and subsequent lease to Phoebe Putney Health System, Inc. (PPHS)—the operator of Phoebe Putney Memorial Hospital—would substantially lessen competition or tend to create a monopoly in the inpatient general acute-care hospital services market in Georgia’s Dougherty County and surrounding areas. The agency also sought injunctive relief to prevent the consummation of the plan prior to the completion of the administrative proceeding. Pending conclusion of the court action, the FTC stayed its administrative proceedings (CCH Trade Regulation Reporter ¶16,620).
In its petition for certiorari, the government asked the Court to consider:
(1) whether the Georgia legislature, by vesting the local government entity with general corporate powers to acquire and lease out hospitals and other property, has “clearly articulated and affirmatively expressed” a “state policy to displace competition” in the market for hospital services; andAccording to the petition, the case presents the question of whether a hospital’s acquisition of its only rival, effectuated by using a substate governmental entity’s general corporate powers, is exempt from antitrust scrutiny under the “state action doctrine.” The appellate court decision conflicts with decisions of the Fifth, Sixth, Ninth, and Tenth Circuits, the agency contends.
(2) whether such a state policy, even if clearly articulated, would be sufficient to validate the alleged anticompetitive conduct, given that the local government entity neither actively participated in negotiating the terms of the hospital sale nor had any practical means of overseeing the hospital’s operation.
The petition for review, FTC v. Phoebe Putney Health System, Inc., Dkt. 11-1160, was granted on June 25, 2012.
Class Action Certification
The Court has also decided to consider a decision of the U.S. Court of Appeals in Philadelphia (2011-2 Trade Cases ¶77,575, 655 F.3d 182), upholding the certification of a class of approximately two million cable television customers in the Philadelphia area. The customers allege that Comcast engaged in monopolization, attempted monopolization, and market or customer allocation through a series of acquisitions and cable system swap arrangements.
The appellate court ruled that the lower court satisfied the “rigorous analysis” standard established in In re Hydrogen Peroxide Antitrust Litigation (2008-2 Trade Cases ¶76,453, 552 F.3d 305) in determining that questions of fact or law common to class members predominated over individual issues, for purposes of meeting the certification requirements of Federal Rule of Civil Procedure 23(b)(3).
The High Court may see things differently.
Comcast petitioned the Court for review in January. Comcast argued that the “Third Circuit’s view that ‘merits arguments’ are ‘not properly before [the court]’ at the class certification stage . . . cannot be reconciled with this Court’s decision in [Walmart Stores, Inc. v. ] Dukes and breaks sharply with the Eighth and Ninth Circuits, which have correctly recognized that such limitations on review of ‘merits’ issues at the certification stage are no longer supportable after Dukes.”
In its petition, Comcast asked: whether a district court may certify a class action without resolving “merits arguments” that bear on prerequisites for certification under Federal Rule of Civil Procedure 23, including whether purportedly common issues predominate over individual ones under Rule 23(b)(3).
In granting certiorari, the Court limited its review to the question: “whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.”
The petition for review, Comcast Corp. v. Behrend, Dkt. 11-864, was granted on June 25, 2012.
Thursday, June 21, 2012
Michigan Equipment Dealer Act Did Not Require Election of Remedies
This posting was written by Peter Reap, Editor of CCH Business Franchise Guide.
The Michigan Farm and Utility Equipment Act did not require two dealers to make an election of remedies between their breach of contract and dealer law claims against equipment manufacturer Deere & Company, the U.S. Court of Appeals in Cincinnati has ruled.
The district court did not err in refusing to reduce a jury’s award of more than $5.4 million in damages against Deere in a lawsuit brought by the two dealers against Deere for termination of their dealership agreements in violation of the Michigan statute, among other claims.
Election of Remedies
Deere argued that the clear and unambiguous language of the dealer law required the dealerships to elect to recover either on their breach of contract claim or their statutory claim, but not both. No case has analyzed this provision, and Deere does not explain which words in this provision create the obligation it asserts, the court noted.
Subsection 1 of Section 5 of the Act provided that the dealer may elect to pursue either a contract remedy or the remedy provided in the Act, the court observed. Subsection 2 did not generally require a dealer to choose between its statutory claim and its breach of contract claim. Rather, it provided that a dealer’s pursuit of a contract remedy did not bar its right to pursue a statutory remedy as to inventory not affected by the contract remedy.
To the extent Section 5 required an election of remedies, its purpose was to protect against double recovery. Once the dealers opted not to seek the remedy of inventory buy-back under the statute, and instead sought the statutory remedy of recovery of the loss of asset value, no further election was required, the court determined.
Reduction of Damages
Michigan’s comparative-fault scheme did not require a reduction in the jury’s award of damages, based on the jury’s finding of 65% of the fault allocated to Deere and 35% of the fault allocated to a dealer.
The jury found Deere liable to the dealers on three separate grounds. The district court had instructed the jury that, in the event it found Deere liable on any of those grounds, the damages should amount to the loss of net asset value for the dealerships.
One of the theories of liability was subject to Michigan’s comparative fault statute. If Deere had been found liable only on that claim, the damages would have been reduced in proportion to the jury’s fault allocation, according to the court. But the award of damages for loss of net asset value was also supported by two additional theories of liability—a breach of contract claim and the violation of the Farm and Utility Equipment Act—either of which was adequate grounds to support the plaintiffs’ recovery of the full amount of damages assessed without any reduction of fault to one of the dealers, the court decided.
The June 13, 2012 decision is Laethem Equipment Co. v. Deere & Co., CCH Business Franchise Guide ¶14,846.
The Michigan Farm and Utility Equipment Act did not require two dealers to make an election of remedies between their breach of contract and dealer law claims against equipment manufacturer Deere & Company, the U.S. Court of Appeals in Cincinnati has ruled.
The district court did not err in refusing to reduce a jury’s award of more than $5.4 million in damages against Deere in a lawsuit brought by the two dealers against Deere for termination of their dealership agreements in violation of the Michigan statute, among other claims.
Election of Remedies
Deere argued that the clear and unambiguous language of the dealer law required the dealerships to elect to recover either on their breach of contract claim or their statutory claim, but not both. No case has analyzed this provision, and Deere does not explain which words in this provision create the obligation it asserts, the court noted.
Subsection 1 of Section 5 of the Act provided that the dealer may elect to pursue either a contract remedy or the remedy provided in the Act, the court observed. Subsection 2 did not generally require a dealer to choose between its statutory claim and its breach of contract claim. Rather, it provided that a dealer’s pursuit of a contract remedy did not bar its right to pursue a statutory remedy as to inventory not affected by the contract remedy.
To the extent Section 5 required an election of remedies, its purpose was to protect against double recovery. Once the dealers opted not to seek the remedy of inventory buy-back under the statute, and instead sought the statutory remedy of recovery of the loss of asset value, no further election was required, the court determined.
Reduction of Damages
Michigan’s comparative-fault scheme did not require a reduction in the jury’s award of damages, based on the jury’s finding of 65% of the fault allocated to Deere and 35% of the fault allocated to a dealer.
The jury found Deere liable to the dealers on three separate grounds. The district court had instructed the jury that, in the event it found Deere liable on any of those grounds, the damages should amount to the loss of net asset value for the dealerships.
One of the theories of liability was subject to Michigan’s comparative fault statute. If Deere had been found liable only on that claim, the damages would have been reduced in proportion to the jury’s fault allocation, according to the court. But the award of damages for loss of net asset value was also supported by two additional theories of liability—a breach of contract claim and the violation of the Farm and Utility Equipment Act—either of which was adequate grounds to support the plaintiffs’ recovery of the full amount of damages assessed without any reduction of fault to one of the dealers, the court decided.
The June 13, 2012 decision is Laethem Equipment Co. v. Deere & Co., CCH Business Franchise Guide ¶14,846.
Tuesday, June 19, 2012
Former Players’ Antitrust Claims over NFL’s Use of Their Images Dismissed
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
Former professional football players failed to plausibly allege that the National Football League (NFL) and its member teams restrained trade in the market for the players’ images and likenesses by not allowing them the rights to films and images from the games in which they played, the federal district court in St. Paul, Minnesota, has ruled. The players failed to establish any concerted action that was illegal under the Sherman Act.
The players relied “heavily, almost exclusively,” on the Supreme Court's 2010 decision in American Needle, Inc. v. NFL, 2010-1 Trade Cases ¶77,019, 130 S. Ct. 2201, the court explained. However, the decision did not support their claims. In American Needle, the Supreme Court held that the NFL and its member teams were capable of conspiring to restrain trade for NFL-related merchandise that each team owned separately from the NFL.
The historical game footage at issue in the current matter was owned by the NFL either alone or in conjunction with the teams involved in the game being filmed. These entities had to cooperate to produce and sell these images; no one entity could do it alone, according to the court. The NFL and its teams were capable of conspiring to market each team’s individually-owned property, but not property the teams and the NFL could only collectively own.
Moreover, the former players did not explain what market might exist in game footage that featured only that footage to which any player can claim to be individually entitled—a single player’s image without any NFL logos or marks. Thus, even if there was concerted action to restrain trade in the former players' images, that agreement was "necessary to market the product" and was therefore not illegal.
If the NFL refused to pay the former players for the use of their images in its copyrighted material, then the former players might have a claim for a violation of their right of publicity. However, this was a royalties issue, not an antitrust issue. Therefore, the former players’ complaint was dismissed with prejudice.
The June 13 decision is Washington v. National Football League, 2012-1 Trade Cases ¶77,926.
Former professional football players failed to plausibly allege that the National Football League (NFL) and its member teams restrained trade in the market for the players’ images and likenesses by not allowing them the rights to films and images from the games in which they played, the federal district court in St. Paul, Minnesota, has ruled. The players failed to establish any concerted action that was illegal under the Sherman Act.
The players relied “heavily, almost exclusively,” on the Supreme Court's 2010 decision in American Needle, Inc. v. NFL, 2010-1 Trade Cases ¶77,019, 130 S. Ct. 2201, the court explained. However, the decision did not support their claims. In American Needle, the Supreme Court held that the NFL and its member teams were capable of conspiring to restrain trade for NFL-related merchandise that each team owned separately from the NFL.
The historical game footage at issue in the current matter was owned by the NFL either alone or in conjunction with the teams involved in the game being filmed. These entities had to cooperate to produce and sell these images; no one entity could do it alone, according to the court. The NFL and its teams were capable of conspiring to market each team’s individually-owned property, but not property the teams and the NFL could only collectively own.
Moreover, the former players did not explain what market might exist in game footage that featured only that footage to which any player can claim to be individually entitled—a single player’s image without any NFL logos or marks. Thus, even if there was concerted action to restrain trade in the former players' images, that agreement was "necessary to market the product" and was therefore not illegal.
If the NFL refused to pay the former players for the use of their images in its copyrighted material, then the former players might have a claim for a violation of their right of publicity. However, this was a royalties issue, not an antitrust issue. Therefore, the former players’ complaint was dismissed with prejudice.
The June 13 decision is Washington v. National Football League, 2012-1 Trade Cases ¶77,926.
Monday, June 18, 2012
Price Fixing Claims Against Title Insurers Were Barred by Filed Rate Doctrine
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
Title insurance purchasers’ price fixing actions against Delaware and New Jersey title insurance companies were properly dismissed, the U.S. Court of Appeals in Philadelphia ruled June 14 in two separate opinions.
Claims for damages were barred by the filed rate doctrine, which precludes antitrust suits challenging rates filed with federal or state agencies. The appellate court also ruled that the purchasers lacked standing to seeking injunctive relief.
The New Jersey purchasers alleged that the title insurance companies fixed rates through a voluntary trade association, the New Jersey Land Title Insurance Rating Bureau. The Delaware purchasers similarly alleged that the title insurance companies utilized the Delaware Title Insurance Rating Bureau, which compiles and analyzes statistical data from its members relating to their title insurance premiums, losses and expenses, as a vehicle for setting uniform rates. In both states, the rates were approved by the appropriate regulators.
The appellate court rejected the purchasers’ arguments that the filed rate doctrine did not preclude their antitrust claims because their claims did not implicate the doctrine’s underlying policies. The court refused to “disregard a decision of the United States Supreme Court and the numerous cases that have relied on it.”
According to the appellate court, nonjusticiability and nondiscrimination policies support the doctrine. The nonjusticiability policy recognizes that federal courts are ill-equipped to engage in the rate making process. The filed-rate doctrine applies whenever rates are properly filed with a regulating agency. The doctrine also is intended to prevent carriers from engaging in price discrimination as between ratepayers.
The court rejected the purchasers’ assertion that the nonjusticiability strand was only implicated where agencies had meaningfully reviewed the challenged rate. The doctrine did not require “meaningful” agency review.
Because nonjusticiability policy alone warranted application of the filed rate doctrine to dismiss the damages claims, it was not necessary to consider the nondiscrimination policy supporting the doctrine. The filed rate doctrine applied whenever either the nondiscrimination or the nonjusticiability policy was implicated, the court explained.
The appellate court also declined to accept the purchasers arguments that the filed rate doctrine did not apply because the doctrine was limited to comprehensive regulatory regimes, such as the Interstate Commerce Act or because there was no clear repugnancy between the antitrust laws and state title insurance regulations.
Injunctive Relief
Although the filed rate doctrine is limited to damages claims and does not bar injunctive relief claims against future rates, the appellate court ruled that the purchasers lacked Article III standing to seek injunctive relief. The purchasers did not have standing because they failed to allege any impending injury. They did not allege an injury-in-fact.
The decisions are In re: New Jersey Title Insurance Litigation, 2012-1 Trade Cases ¶77,921 and McCray v. Fidelity National Title Insurance Co., 2012-1 Trade Cases ¶77,922.
Title insurance purchasers’ price fixing actions against Delaware and New Jersey title insurance companies were properly dismissed, the U.S. Court of Appeals in Philadelphia ruled June 14 in two separate opinions.
Claims for damages were barred by the filed rate doctrine, which precludes antitrust suits challenging rates filed with federal or state agencies. The appellate court also ruled that the purchasers lacked standing to seeking injunctive relief.
The New Jersey purchasers alleged that the title insurance companies fixed rates through a voluntary trade association, the New Jersey Land Title Insurance Rating Bureau. The Delaware purchasers similarly alleged that the title insurance companies utilized the Delaware Title Insurance Rating Bureau, which compiles and analyzes statistical data from its members relating to their title insurance premiums, losses and expenses, as a vehicle for setting uniform rates. In both states, the rates were approved by the appropriate regulators.
The appellate court rejected the purchasers’ arguments that the filed rate doctrine did not preclude their antitrust claims because their claims did not implicate the doctrine’s underlying policies. The court refused to “disregard a decision of the United States Supreme Court and the numerous cases that have relied on it.”
According to the appellate court, nonjusticiability and nondiscrimination policies support the doctrine. The nonjusticiability policy recognizes that federal courts are ill-equipped to engage in the rate making process. The filed-rate doctrine applies whenever rates are properly filed with a regulating agency. The doctrine also is intended to prevent carriers from engaging in price discrimination as between ratepayers.
The court rejected the purchasers’ assertion that the nonjusticiability strand was only implicated where agencies had meaningfully reviewed the challenged rate. The doctrine did not require “meaningful” agency review.
Because nonjusticiability policy alone warranted application of the filed rate doctrine to dismiss the damages claims, it was not necessary to consider the nondiscrimination policy supporting the doctrine. The filed rate doctrine applied whenever either the nondiscrimination or the nonjusticiability policy was implicated, the court explained.
The appellate court also declined to accept the purchasers arguments that the filed rate doctrine did not apply because the doctrine was limited to comprehensive regulatory regimes, such as the Interstate Commerce Act or because there was no clear repugnancy between the antitrust laws and state title insurance regulations.
Injunctive Relief
Although the filed rate doctrine is limited to damages claims and does not bar injunctive relief claims against future rates, the appellate court ruled that the purchasers lacked Article III standing to seek injunctive relief. The purchasers did not have standing because they failed to allege any impending injury. They did not allege an injury-in-fact.
The decisions are In re: New Jersey Title Insurance Litigation, 2012-1 Trade Cases ¶77,921 and McCray v. Fidelity National Title Insurance Co., 2012-1 Trade Cases ¶77,922.
Friday, June 15, 2012
EU Competition Official Addresses Standard-Essential Patent Abuse in Bar Association Speech
This posting was written by Cheryl Beise, contributor to IP Law Daily.
Speaking today at the International Bar Association Antitrust Conference in Madrid, JoaquÃn Almunia, European Commission Vice President responsible for Competition Policy, emphasized the need for reform of the standard-setting process. In his address titled “Higher Duty for Competition Enforcers,” Alumnia added his voice to the growing international concern over the abuse of standard-essential patents to block competition.
Alumnia acknowledged the importance of standard-setting organizations in integrating markets, making products and services available, and ensuring the technical interoperability of devices, but said more needs to be done to ensure that the standard-setting process is “competitive, open, and transparent.”
Standards should be set and adopted in an open and transparent manner to prevent established market leaders from sidelining innovative technologies, Alumnia said. “I think that we need to have a constructive conversation with stakeholders and with regulators on the best way to achieve this goal.”
Standard-essential patent owners also must provide access to their technologies on fair, reasonable, and nondiscriminatory (FRAND) terms. The problem of standard-essential “patent ambush” requires clarification in the implications of FRAND and how FRAND negotiations should be conducted, according to Alumnia.
In particular, Alumnia expressed concern about the use of court injunctions to circumvent the effective access inherent to FRAND patents. “We need to find good answers soon, because consumers cannot be held hostage to litigation. Both competition authorities and the courts should intervene to ensure that standard-essential patents are not used to block competition,” Alumnia said.
Industry also has a role to play in guaranteeing the proper functioning of the standardization system, Alumnia added. “I would therefore strongly encourage industry players to come together in the relevant standard-setting organisations and elaborate clear rules on the basis of these guiding principles to prevent the misuse of standard-essential patents.”
Further information regarding Wolters Kluwer IP Law Daily appears here.
Speaking today at the International Bar Association Antitrust Conference in Madrid, JoaquÃn Almunia, European Commission Vice President responsible for Competition Policy, emphasized the need for reform of the standard-setting process. In his address titled “Higher Duty for Competition Enforcers,” Alumnia added his voice to the growing international concern over the abuse of standard-essential patents to block competition.
Alumnia acknowledged the importance of standard-setting organizations in integrating markets, making products and services available, and ensuring the technical interoperability of devices, but said more needs to be done to ensure that the standard-setting process is “competitive, open, and transparent.”
Standards should be set and adopted in an open and transparent manner to prevent established market leaders from sidelining innovative technologies, Alumnia said. “I think that we need to have a constructive conversation with stakeholders and with regulators on the best way to achieve this goal.”
Standard-essential patent owners also must provide access to their technologies on fair, reasonable, and nondiscriminatory (FRAND) terms. The problem of standard-essential “patent ambush” requires clarification in the implications of FRAND and how FRAND negotiations should be conducted, according to Alumnia.
In particular, Alumnia expressed concern about the use of court injunctions to circumvent the effective access inherent to FRAND patents. “We need to find good answers soon, because consumers cannot be held hostage to litigation. Both competition authorities and the courts should intervene to ensure that standard-essential patents are not used to block competition,” Alumnia said.
Industry also has a role to play in guaranteeing the proper functioning of the standardization system, Alumnia added. “I would therefore strongly encourage industry players to come together in the relevant standard-setting organisations and elaborate clear rules on the basis of these guiding principles to prevent the misuse of standard-essential patents.”
Further information regarding Wolters Kluwer IP Law Daily appears here.
Thursday, June 14, 2012
Court Requests Limited Discovery in Amazon Online Tracking Case
This posting was written by William Zale, Editor of CCH Advertising Law Guide.
Although it was very likely that Amazon’s “Conditions of Use and Privacy Notice” disclosed sufficient information to negate computer users’ Washington Consumer Protection Act (CPA) claims, limited discovery would be appropriate on the issue of whether Amazon accessed the users’ computers without authorization, the federal district court in Seattle has ruled. The computer users’ Computer Fraud and Abuse Act (CFAA) claim was dismissed with prejudice.
The computer users challenged Amazon.com’s alleged use of standard browser cookies and Adobe Flash cookies to gather personally identifiable information about the users’ Internet habits and browsing history. To support a CPA claim, injury need not be great, or even quantifiable, but it must be an injury to “business or property.”
Computer Access Authorization
The users would satisfy the injury element only if they could demonstrate that Amazon accessed their computers or their information without authorization, the court observed. The issue of authorization was “quite complicated.” Amazon’s Conditions of Use and Privacy Notice appeared to notify visitors that it would take the very actions complained of: place browser and Flash cookies on their computers and use those cookies to monitor and collect information about their navigation and shopping habits.
Amazon’s motion to dismiss, to the extent that it relied on exhibits including Amazon’s Conditions of Use and Privacy Notice, was construed as a motion for summary judgment, and the computer users would be provided a reasonable opportunity to present all pertinent material. Limited discovery concerning Amazon’s conditions and notice, their location on the website, and each plaintiff’s use of the site would likely be both beneficial and appropriate, according to the court.
Computer Fraud and Abuse Act
The users failed to plausibly allege a loss during a one-year period aggregating at least $5,000 in value under the CFAA from Amazon.com’s alleged gathering of personally identifiable information about the users’ Internet habits and browsing history, the court determined. The CFAA defined “loss” as “any reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service.”
Non-monetary detriments could not constitute loss, contrary to the computer users’ contention, and they alleged nothing from which a calculable loss could be inferred, the court concluded.
The June 1 opinion in Del Vecchio v. Amazon.com, Inc. will be reported at CCH Advertising Law Guide ¶64,728.
Although it was very likely that Amazon’s “Conditions of Use and Privacy Notice” disclosed sufficient information to negate computer users’ Washington Consumer Protection Act (CPA) claims, limited discovery would be appropriate on the issue of whether Amazon accessed the users’ computers without authorization, the federal district court in Seattle has ruled. The computer users’ Computer Fraud and Abuse Act (CFAA) claim was dismissed with prejudice.
The computer users challenged Amazon.com’s alleged use of standard browser cookies and Adobe Flash cookies to gather personally identifiable information about the users’ Internet habits and browsing history. To support a CPA claim, injury need not be great, or even quantifiable, but it must be an injury to “business or property.”
Computer Access Authorization
The users would satisfy the injury element only if they could demonstrate that Amazon accessed their computers or their information without authorization, the court observed. The issue of authorization was “quite complicated.” Amazon’s Conditions of Use and Privacy Notice appeared to notify visitors that it would take the very actions complained of: place browser and Flash cookies on their computers and use those cookies to monitor and collect information about their navigation and shopping habits.
Amazon’s motion to dismiss, to the extent that it relied on exhibits including Amazon’s Conditions of Use and Privacy Notice, was construed as a motion for summary judgment, and the computer users would be provided a reasonable opportunity to present all pertinent material. Limited discovery concerning Amazon’s conditions and notice, their location on the website, and each plaintiff’s use of the site would likely be both beneficial and appropriate, according to the court.
Computer Fraud and Abuse Act
The users failed to plausibly allege a loss during a one-year period aggregating at least $5,000 in value under the CFAA from Amazon.com’s alleged gathering of personally identifiable information about the users’ Internet habits and browsing history, the court determined. The CFAA defined “loss” as “any reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service.”
Non-monetary detriments could not constitute loss, contrary to the computer users’ contention, and they alleged nothing from which a calculable loss could be inferred, the court concluded.
The June 1 opinion in Del Vecchio v. Amazon.com, Inc. will be reported at CCH Advertising Law Guide ¶64,728.
Wednesday, June 13, 2012
FTC Raises Monetary Thresholds for Three Exemptions to Franchise Disclosure Rule
This posting was written by John W. Arden.
The Federal Trade Commission is amending its franchise disclosure rule to raise the monetary thresholds used to determine whether a franchise sale is exempt from the rule, which requires presale disclosure information to prospective franchise purchasers.
The 2007 amendments to the franchise rule provide three exemptions based on a monetary threshold in 16 CFR Part 436 .8 (CCH Business Franchise Guide ¶6018).
These exemptions are for:
The Commission voted 5-0 to approve the Federal Register Notice on the adjustments. Further information on the franchise rule amendments appear here on the FTC website.
The Federal Trade Commission is amending its franchise disclosure rule to raise the monetary thresholds used to determine whether a franchise sale is exempt from the rule, which requires presale disclosure information to prospective franchise purchasers.
The 2007 amendments to the franchise rule provide three exemptions based on a monetary threshold in 16 CFR Part 436 .8 (CCH Business Franchise Guide ¶6018).
These exemptions are for:
(1) Franchise sales in which the purchaser must make required initial payments of less than $540 (currently $500), §436.8(a) (1);The franchise rule requires the FTC to adjust the monetary thresholds every four years, based on the Consumer Price Index. The adjustments will take effect on July 1, 2012.
(2) Franchise sales in which the initial investment is at least $1,084,900 (currently, $1 million), excluding the cost of unimproved land and financing received from the franchisor or an affiliate, §436.8(a) (5) (i); and
(3) Franchise sales to large entities that have been in business for at least five years and have a net worth of at least $5,424,500 (currently $5 million), §436.8(a)(5)(ii).
The Commission voted 5-0 to approve the Federal Register Notice on the adjustments. Further information on the franchise rule amendments appear here on the FTC website.
Tuesday, June 12, 2012
Johnson & Johnson Agrees to Spin Off Bone Fracture System to Complete Takeover of Synthes, Inc.
This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.
The FTC will require Johnson & Johnson to sell its system for surgically treating serious wrist fractures, under the terms of a proposed consent order resolving charges that Johnson & Johnson’s proposed $21.3 billion acquisition of Synthes, Inc. would illegally reduce competition for these systems.
Johnson & Johnson has announced its intention to sell the system, along with the rest of its product line for treating traumatic injuries, to Biomet, Inc.
If the deal were allowed to proceed as originally proposed, the Commission stated, Johnson & Johnson and Synthes together would have more than 70 percent of the U.S. market for the wrist fracture treatment systems.
"J&J and Synthes are direct competitors for these important systems used in the surgical treatment of traumatic wrist fractures," said Richard Feinstein, Director of the FTC's Bureau of Competition. "This order will ensure that the hospitals and surgeons that use these systems to care for consumers will not face higher prices or reduced innovation in the future."
According to the FTC's June 11 complaint, Johnson & Johnson’s proposed acquisition of Synthes would harm competition in the U.S. market for volar distal radius plating systems, internal devices that are surgically implanted on the underside of the wrist to achieve proper alignment of the radius bone following a fracture.
Distal radius fractures, in which a portion of the radius closest to the wrist is broken, typically happen when someone braces for a fall, and are among the most common types of fractures. Such fractures most often occur when an older person falls or when people are playing sports. While many people with distal radial fractures can be treated with conventional casts, if the radius bone is displaced, surgery almost always is required. Volar distal radius plating systems are the primary option for surgeons because they are easy to implant, reduce recovery times, and enable patients to move more freely than casts.
The complaint alleges that the U.S. market for volar distal radius plating systems is highly concentrated. Synthes is the leading maker of volar distal radius plating systems in the United States, accounted for 42 percent of all U.S. sales in 2010, and has a strong clinical reputation in the trauma field.
Johnson & Johnson acquired its system—known as DVR—from Hand Innovations in 2006, and it was among the first anatomically contoured volar distal radius plating system. Many surgeons still consider the DVR system to be the best volar distal radius plating system available, and it accounted for 29 percent of all system sales in 2010.
The proposed order settling the FTC's charges preserves competition in the U.S. market for volar distal radius plating systems by requiring Johnson & Johnson to sell its U.S. DVR assets to a qualified buyer within 10 days of when the deal is consummated.
While the Commission's competitive concern with this transaction is limited to volar distal radius plating systems, Johnson & Johnson has opted to sell its entire trauma portfolio, which includes the DVR assets, to Biomet, a successful orthopedics company with a recognized brand name, an extensive nationwide sales force, and existing relationships with surgeons and hospitals.
Biomet's current volar distal radius plating system is not competitively significant, and the FTC believes that Biomet, once it acquires the DVR assets, will be able to replicate the competition in the U.S. market for such systems that existed before Johnson & Johnson's acquisition of Synthes.
The proposed order will allow the FTC to appoint an interim monitor to oversee the sale of the DVR assets to Biomet, and to appoint a trustee to sell the assets if they are not successfully divested by J&J within the time required.
Details of the FTC's complaint and proposed consent order—In the Matter of Johnson & Johnson, FTC Dkt. No. C-4363—appears here on the FTC website.
The FTC will require Johnson & Johnson to sell its system for surgically treating serious wrist fractures, under the terms of a proposed consent order resolving charges that Johnson & Johnson’s proposed $21.3 billion acquisition of Synthes, Inc. would illegally reduce competition for these systems.
Johnson & Johnson has announced its intention to sell the system, along with the rest of its product line for treating traumatic injuries, to Biomet, Inc.
If the deal were allowed to proceed as originally proposed, the Commission stated, Johnson & Johnson and Synthes together would have more than 70 percent of the U.S. market for the wrist fracture treatment systems.
"J&J and Synthes are direct competitors for these important systems used in the surgical treatment of traumatic wrist fractures," said Richard Feinstein, Director of the FTC's Bureau of Competition. "This order will ensure that the hospitals and surgeons that use these systems to care for consumers will not face higher prices or reduced innovation in the future."
According to the FTC's June 11 complaint, Johnson & Johnson’s proposed acquisition of Synthes would harm competition in the U.S. market for volar distal radius plating systems, internal devices that are surgically implanted on the underside of the wrist to achieve proper alignment of the radius bone following a fracture.
Distal radius fractures, in which a portion of the radius closest to the wrist is broken, typically happen when someone braces for a fall, and are among the most common types of fractures. Such fractures most often occur when an older person falls or when people are playing sports. While many people with distal radial fractures can be treated with conventional casts, if the radius bone is displaced, surgery almost always is required. Volar distal radius plating systems are the primary option for surgeons because they are easy to implant, reduce recovery times, and enable patients to move more freely than casts.
The complaint alleges that the U.S. market for volar distal radius plating systems is highly concentrated. Synthes is the leading maker of volar distal radius plating systems in the United States, accounted for 42 percent of all U.S. sales in 2010, and has a strong clinical reputation in the trauma field.
Johnson & Johnson acquired its system—known as DVR—from Hand Innovations in 2006, and it was among the first anatomically contoured volar distal radius plating system. Many surgeons still consider the DVR system to be the best volar distal radius plating system available, and it accounted for 29 percent of all system sales in 2010.
The proposed order settling the FTC's charges preserves competition in the U.S. market for volar distal radius plating systems by requiring Johnson & Johnson to sell its U.S. DVR assets to a qualified buyer within 10 days of when the deal is consummated.
While the Commission's competitive concern with this transaction is limited to volar distal radius plating systems, Johnson & Johnson has opted to sell its entire trauma portfolio, which includes the DVR assets, to Biomet, a successful orthopedics company with a recognized brand name, an extensive nationwide sales force, and existing relationships with surgeons and hospitals.
Biomet's current volar distal radius plating system is not competitively significant, and the FTC believes that Biomet, once it acquires the DVR assets, will be able to replicate the competition in the U.S. market for such systems that existed before Johnson & Johnson's acquisition of Synthes.
The proposed order will allow the FTC to appoint an interim monitor to oversee the sale of the DVR assets to Biomet, and to appoint a trustee to sell the assets if they are not successfully divested by J&J within the time required.
Details of the FTC's complaint and proposed consent order—In the Matter of Johnson & Johnson, FTC Dkt. No. C-4363—appears here on the FTC website.
Monday, June 11, 2012
Price Discrimination Claims Against Electricity Service Provider Revived
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
The U.S. Court of Appeals in Cincinnati has ruled that Robinson-Patman Act claims should not have been dismissed against retail electricity service provider Duke Energy Corporation for discriminating in price between different purchasers through Duke subsidiaries and an affiliated company.
Dismissal of the action (2009-1 Trade Cases ¶76,595) brought by individuals and businesses based in Ohio was reversed, and the case was remanded. The antitrust claims were not barred by the filed-rate doctrine and were adequately stated.
The complaining customers adequately alleged injury and competitive disadvantage sufficient to survive a Rule 12(b)(6) motion to dismiss, the court ruled. The complaining customers alleged that they suffered competitive disadvantage compared to certain favored companies as a result of alleged “indirect rebates to General Motors Corporation and other large consumers in exchange for their withdrawal of objections to a rate-stabilization plan under review by the Public Utilities Commission of Ohio (PUCO). The complaining customers would have had to pay substantially more for electricity than their competitors due to the rebates.
The court also rejected Duke’s argument that electricity was not a commodity within the scope of the Robinson-Patman Act. The defendants suggested that electricity was not a commodity because the Act used terms such as “goods, wares, or merchandise to refer to commodities, and these terms were not commonly applied to electricity. Moreover, the complaining customers were not required to purchase for resale in order to pursue a Robinson-Patman Act claim, the court held. The defendants’ contention that the Robinson-Patman Act applied only to the resale of a purchased product was not consistent with case law.
Filed-Rate Doctrine
The complaining customers’ federal claims against Duke were not barred by the filed-rate doctrine, the court ruled. The filed-rate doctrine barred challenges to the reasonableness of a filed rate. The complaining customers’ claims did not concern the particular rate set by the PUCO, but rather payments made outside of the rate scheme. The complaining customers argued that the side agreements were not filed with any agency, including the PUCO, and are unlawful. The allegation that certain large consumers, by receiving a rebate, effectively paid a lower rate than the complaining customers did not transform the action into an attack on filed rates.
The June 4 decision is Willams v. Duke Energy International, Inc., 2012-1 Trade Cases ¶77,913.
The U.S. Court of Appeals in Cincinnati has ruled that Robinson-Patman Act claims should not have been dismissed against retail electricity service provider Duke Energy Corporation for discriminating in price between different purchasers through Duke subsidiaries and an affiliated company.
Dismissal of the action (2009-1 Trade Cases ¶76,595) brought by individuals and businesses based in Ohio was reversed, and the case was remanded. The antitrust claims were not barred by the filed-rate doctrine and were adequately stated.
The complaining customers adequately alleged injury and competitive disadvantage sufficient to survive a Rule 12(b)(6) motion to dismiss, the court ruled. The complaining customers alleged that they suffered competitive disadvantage compared to certain favored companies as a result of alleged “indirect rebates to General Motors Corporation and other large consumers in exchange for their withdrawal of objections to a rate-stabilization plan under review by the Public Utilities Commission of Ohio (PUCO). The complaining customers would have had to pay substantially more for electricity than their competitors due to the rebates.
The court also rejected Duke’s argument that electricity was not a commodity within the scope of the Robinson-Patman Act. The defendants suggested that electricity was not a commodity because the Act used terms such as “goods, wares, or merchandise to refer to commodities, and these terms were not commonly applied to electricity. Moreover, the complaining customers were not required to purchase for resale in order to pursue a Robinson-Patman Act claim, the court held. The defendants’ contention that the Robinson-Patman Act applied only to the resale of a purchased product was not consistent with case law.
Filed-Rate Doctrine
The complaining customers’ federal claims against Duke were not barred by the filed-rate doctrine, the court ruled. The filed-rate doctrine barred challenges to the reasonableness of a filed rate. The complaining customers’ claims did not concern the particular rate set by the PUCO, but rather payments made outside of the rate scheme. The complaining customers argued that the side agreements were not filed with any agency, including the PUCO, and are unlawful. The allegation that certain large consumers, by receiving a rebate, effectively paid a lower rate than the complaining customers did not transform the action into an attack on filed rates.
The June 4 decision is Willams v. Duke Energy International, Inc., 2012-1 Trade Cases ¶77,913.
Friday, June 08, 2012
Vermont Adds Data Security Breach Notification Requirements to Personal Information Law
This posting was written by Thomas A. Long, Editor of CCH Privacy Law in Marketing.
Vermont has amended its Protection of Personal Information law (Vermont Statutes, Title 9, Sec. 2430 through 2445) to add a requirement that data collectors and other entities subject to the law must report data security breaches to the state attorney general within 14 days of discovering the breach, or when the data collector provides notice to consumers, whichever is sooner.
The notification must include the date of the security breach and the date the breach was discovered. The notification also must provide a preliminary description of the breach. If the date of the breach is unknown at the time notice is sent to the attorney general, the data collector must send the attorney general the date of the breach as soon as the date is known.
The law also was changed to provide for a 45-day deadline for data collectors to notify consumers of security breaches affecting their personally identifiable information.
The definition of “security breach” was widened to include a “reasonable belief” that an unauthorized party has acquired electronic data that compromises the security, confidentiality, or integrity of a consumer’s personally identifiable information maintained by the data collector.
In determining whether personally identifiable information has been acquired or is reasonably believed to have been acquired, a data collector may take into consideration four factors listed by the amended statute:
The law (H.B. 254, Act No. 2012-109) was approved May 22, 2012 and will be effective August 1, 2012. The amended statute will appear in CCH Privacy Law in Marketing.
Vermont has amended its Protection of Personal Information law (Vermont Statutes, Title 9, Sec. 2430 through 2445) to add a requirement that data collectors and other entities subject to the law must report data security breaches to the state attorney general within 14 days of discovering the breach, or when the data collector provides notice to consumers, whichever is sooner.
The notification must include the date of the security breach and the date the breach was discovered. The notification also must provide a preliminary description of the breach. If the date of the breach is unknown at the time notice is sent to the attorney general, the data collector must send the attorney general the date of the breach as soon as the date is known.
The law also was changed to provide for a 45-day deadline for data collectors to notify consumers of security breaches affecting their personally identifiable information.
The definition of “security breach” was widened to include a “reasonable belief” that an unauthorized party has acquired electronic data that compromises the security, confidentiality, or integrity of a consumer’s personally identifiable information maintained by the data collector.
In determining whether personally identifiable information has been acquired or is reasonably believed to have been acquired, a data collector may take into consideration four factors listed by the amended statute:
(1) Indications that the information in the physical possession and control of a person without valid authorization, such as a lost or stolen computer or other device containing information;
(2) Indications that the information has been downloaded or copied;
(3) Indications that the information was used by an unauthorized person, such as fraudulent accounts opened or instances of identity theft reported; or
(4) Indications that the information has been made public.
The law (H.B. 254, Act No. 2012-109) was approved May 22, 2012 and will be effective August 1, 2012. The amended statute will appear in CCH Privacy Law in Marketing.
Thursday, June 07, 2012
Is a Franchisee an Employee or an Independent Contractor?
This posting was written by Bruce S. Schaeffer of Franchise Valuations, Ltd., co-author of CCH Franchise Regulation and Damages.
The Awuah saga continues. Most recently, District Court Judge William G. Young, in Awuah v. Coverall North America, Inc. (D. Mass, No. 1:07-cv-10287-WGY, March 15, 2012), ruled that Massachusetts Coverall franchisees were employees for labor law purposes and imposed treble damages going back six years, holding “the contractual limitation period, two years, does not govern the Wage Act claims.” Coverall’s motion for leave to take discovery and file an expert report was denied.
As we have previously noted, this issue as to the status of franchisees also resonates with disputes over vicarious liability.
In one case sounding in vicarious liability, a Mississippi federal district court held that there was a genuine issue of material fact under Mississippi law as to whether the relationship between a janitorial business franchisee and a franchisor was an employer-employee relationship or whether the franchisee was an independent contractor because conflicting factors in the agreement between the parties supported the existence of both arrangements. Thus, the question was one for a jury to decide, and the franchisor’s motion for summary judgment on the issue was denied. (Hayes v. Enmon Enterprises, LLC, CCH Business Franchise Guide ¶14,647, S.D. Miss. June 22, 2011)
More recently, an interlocutory appeal to the Ninth Circuit was certified by the federal district court in San Francisco to determine whether the issue of a “right to control” was the same for employment classification claims as it was in the franchise context. (Juarez v. Jani-King of California, Inc., CCH Business Franchise Guide ¶14,787, N.D. Cal. February 16, 2012)
The case of Days Inn Worldwide, Inc. v. Investment Properties of Brooklyn Center, LLC (CCH Business Franchise Guide ¶14,756, D. Minn., August 26, 2011) has again raised the issue of hotel franchisors’ rights to lost future royalties—in this case in the context of a default judgment. In Days Inn, the franchisee defaulted three years into a 15-year term by selling the property after failing quality inspections and not paying royalties for the last several months of his hotel operation.
The franchisor sued, won a default judgment, and then claimed the remaining 12 years of royalties, discounted to present value, as damages. The judge disagreed, specifically referencing other case law holding that hotel franchisors were allowed to collect an amount—actually more akin to liquidated damages—equal to only the royalties forsaken during the period it would take them to re-franchise the area. These cases, with showings by the franchisor of how long it took them to re-franchise, generally provided franchisors with damages equal to two years of royalties.
The denial of certiorari in KFC Corp. v. Iowa Department of Revenue (U.S. Supreme Court Dkt. No. 10-1340, cert. denied, October 3, 2011) has spawned a new round of legal articles claiming that the issue of economic nexus for income taxes is new. (See, e.g., Gary R. Batenhorst & Adam W. Barney, “The Quagmire of the State Income Tax Nexus in the Wake of KFC v. Iowa Dept of Revenue,” Franchise Law Journal, Vol. 31, Number 3 (Winter 2012); and Scott M. Susko and Meghan J. Schbmehl, “Dealing with a Changing State Tax Landscape,” Franchising World, March 2012.)
Let us remember the late Lew Rudnick’s article about the 1993 Geoffrey case, establishing economic nexus, which he described as jeopardizing the license revenues of Walt Disney, Mickey Mouse, and Michael Jordan. (See Minear and Rudnick, “South Carolina Extends the Reach of State Income Taxes to Franchisors,” Franchise Legal Digest, Fall 1993.)
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Additional information on the issues discussed above is available in CCH Franchise Regulation and Damages by Byron E. Fox and Bruce S. Schaeffer.
The Awuah saga continues. Most recently, District Court Judge William G. Young, in Awuah v. Coverall North America, Inc. (D. Mass, No. 1:07-cv-10287-WGY, March 15, 2012), ruled that Massachusetts Coverall franchisees were employees for labor law purposes and imposed treble damages going back six years, holding “the contractual limitation period, two years, does not govern the Wage Act claims.” Coverall’s motion for leave to take discovery and file an expert report was denied.
As we have previously noted, this issue as to the status of franchisees also resonates with disputes over vicarious liability.
In one case sounding in vicarious liability, a Mississippi federal district court held that there was a genuine issue of material fact under Mississippi law as to whether the relationship between a janitorial business franchisee and a franchisor was an employer-employee relationship or whether the franchisee was an independent contractor because conflicting factors in the agreement between the parties supported the existence of both arrangements. Thus, the question was one for a jury to decide, and the franchisor’s motion for summary judgment on the issue was denied. (Hayes v. Enmon Enterprises, LLC, CCH Business Franchise Guide ¶14,647, S.D. Miss. June 22, 2011)
More recently, an interlocutory appeal to the Ninth Circuit was certified by the federal district court in San Francisco to determine whether the issue of a “right to control” was the same for employment classification claims as it was in the franchise context. (Juarez v. Jani-King of California, Inc., CCH Business Franchise Guide ¶14,787, N.D. Cal. February 16, 2012)
Terminated Hotel Franchises: Liquidated Damages or Lost Future Royalties?
The case of Days Inn Worldwide, Inc. v. Investment Properties of Brooklyn Center, LLC (CCH Business Franchise Guide ¶14,756, D. Minn., August 26, 2011) has again raised the issue of hotel franchisors’ rights to lost future royalties—in this case in the context of a default judgment. In Days Inn, the franchisee defaulted three years into a 15-year term by selling the property after failing quality inspections and not paying royalties for the last several months of his hotel operation.
The franchisor sued, won a default judgment, and then claimed the remaining 12 years of royalties, discounted to present value, as damages. The judge disagreed, specifically referencing other case law holding that hotel franchisors were allowed to collect an amount—actually more akin to liquidated damages—equal to only the royalties forsaken during the period it would take them to re-franchise the area. These cases, with showings by the franchisor of how long it took them to re-franchise, generally provided franchisors with damages equal to two years of royalties.
Legal Journals Give New Attention to Income Tax Nexus
The denial of certiorari in KFC Corp. v. Iowa Department of Revenue (U.S. Supreme Court Dkt. No. 10-1340, cert. denied, October 3, 2011) has spawned a new round of legal articles claiming that the issue of economic nexus for income taxes is new. (See, e.g., Gary R. Batenhorst & Adam W. Barney, “The Quagmire of the State Income Tax Nexus in the Wake of KFC v. Iowa Dept of Revenue,” Franchise Law Journal, Vol. 31, Number 3 (Winter 2012); and Scott M. Susko and Meghan J. Schbmehl, “Dealing with a Changing State Tax Landscape,” Franchising World, March 2012.)
Let us remember the late Lew Rudnick’s article about the 1993 Geoffrey case, establishing economic nexus, which he described as jeopardizing the license revenues of Walt Disney, Mickey Mouse, and Michael Jordan. (See Minear and Rudnick, “South Carolina Extends the Reach of State Income Taxes to Franchisors,” Franchise Legal Digest, Fall 1993.)
-----------------------
Additional information on the issues discussed above is available in CCH Franchise Regulation and Damages by Byron E. Fox and Bruce S. Schaeffer.
Tuesday, June 05, 2012
Decision Invalidating Class Action Waiver in AmEx Agreements Will Not Be Reviewed
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
The full U.S. Court of Appeals in New York City will not review a panel’s decision holding that a class action waiver provision contained in commercial contracts between merchants and charge card issuer/servicer American Express Company was unenforceable. A request from American Express for an en banc rehearing of the decision denying enforcement of the class action waiver provision (2011-1 Trade Cases ¶77,366) was denied.
In March 2011, the panel decided that the class action waiver was void because it precluded the complaining merchants from enforcing their statutory rights under the antitrust laws. The record demonstrated that the size of any potential recovery by an individual plaintiff would be too small to justify the expense of bringing an individual action. The court noted that there was no rule that class action waivers in arbitration agreements were per se unenforceable or per se unenforceable in the context of antitrust actions. The enforceability of a class action waiver in an arbitration agreement had to be considered on its own merits, in the court’s view.
It was the second time that the court had considered the issue. An earlier decision (2009-1 Trade Cases ¶76,478), also rejecting the class action waiver provision, was vacated (2010-1 Trade Cases ¶76,994) in light of the U.S. Supreme Court’s 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 2010-1 Trade Cases ¶76,982. In Stolt-Nielsen, the Supreme Court held that under the Federal Arbitration Act (FAA) the agreement of the parties was the basis for determining whether to subject claims to class arbitration.
Shortly, after the panel’s March 2011 decision was published, the Supreme Court decided AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740. In that decision, the High Court held that state law may not be used to invalidate a class action waiver in an arbitration agreement on the ground that the only economical way to litigate the claim was through a class action.
Dissent
A strong dissent from the denial of rehearing en banc was written by Chief Judge Dennis Jacobs. The dissent contended that the holding could not be squared with the FAA, employed a dubious ground of distinction to overcome the U.S. Supreme Court’s 2011 holding in Concepcion, and precariously relied on dicta that large “arbitration costs” cannot be allowed to prevent a plaintiff from “effectively vindicating” a statutory right.
A separate dissent suggested that “[t]his is one of those unusual cases where one can infer that the denial of in banc review can only be explained as a signal that the matter can and should be resolved by the Supreme Court.”
The May 29 decision is In re: American Express Merchants’ Litigation, 2012-1 Trade Cases ¶77,910.
The full U.S. Court of Appeals in New York City will not review a panel’s decision holding that a class action waiver provision contained in commercial contracts between merchants and charge card issuer/servicer American Express Company was unenforceable. A request from American Express for an en banc rehearing of the decision denying enforcement of the class action waiver provision (2011-1 Trade Cases ¶77,366) was denied.
In March 2011, the panel decided that the class action waiver was void because it precluded the complaining merchants from enforcing their statutory rights under the antitrust laws. The record demonstrated that the size of any potential recovery by an individual plaintiff would be too small to justify the expense of bringing an individual action. The court noted that there was no rule that class action waivers in arbitration agreements were per se unenforceable or per se unenforceable in the context of antitrust actions. The enforceability of a class action waiver in an arbitration agreement had to be considered on its own merits, in the court’s view.
It was the second time that the court had considered the issue. An earlier decision (2009-1 Trade Cases ¶76,478), also rejecting the class action waiver provision, was vacated (2010-1 Trade Cases ¶76,994) in light of the U.S. Supreme Court’s 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 2010-1 Trade Cases ¶76,982. In Stolt-Nielsen, the Supreme Court held that under the Federal Arbitration Act (FAA) the agreement of the parties was the basis for determining whether to subject claims to class arbitration.
Shortly, after the panel’s March 2011 decision was published, the Supreme Court decided AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740. In that decision, the High Court held that state law may not be used to invalidate a class action waiver in an arbitration agreement on the ground that the only economical way to litigate the claim was through a class action.
Dissent
A strong dissent from the denial of rehearing en banc was written by Chief Judge Dennis Jacobs. The dissent contended that the holding could not be squared with the FAA, employed a dubious ground of distinction to overcome the U.S. Supreme Court’s 2011 holding in Concepcion, and precariously relied on dicta that large “arbitration costs” cannot be allowed to prevent a plaintiff from “effectively vindicating” a statutory right.
A separate dissent suggested that “[t]his is one of those unusual cases where one can infer that the denial of in banc review can only be explained as a signal that the matter can and should be resolved by the Supreme Court.”
The May 29 decision is In re: American Express Merchants’ Litigation, 2012-1 Trade Cases ¶77,910.
Monday, June 04, 2012
CSX Transportation Can Pursue RICO Claims Alleging Phony Asbestosis Suits
This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.
A provider of rail-based transportation services (CSX Transportation, Inc.) sufficiently alleged RICO violations by three lawyers and a doctor, all of whom allegedly orchestrated a scheme to inundate CSX with thousands of asbestos-related occupational illness claims throughout the state of West Virginia, the federal district court in Wheeling, West Virginia, has ruled.
The complaint asserted more than abuse of process or malicious prosecution because the pleadings described a complex scheme involving activities that went beyond the filing of eleven fraudulent claims.
Mail and Wire Fraud
The predicate acts alleged by CSX involved mail and wire fraud, including the filing and service of mass lawsuits and all of the actions taken by the lawyer defendants to generate medical evidence in support of their fraudulent asbestosis claims. The lawyer defendants’ characterization of these filings and mailings as “routine litigation activity” was contrary to CSX’s allegations.
CSX alleged that the three lawyers: (1) gained access to potential clients through unlawful means; (2) retained clients and procured medical diagnoses for them through intentionally unreliable mass screenings; (3) prosecuted clients’ claims using dishonest, fraudulent, and deceptive tactics; and (4) fabricated and prosecuted asbestosis claims with no basis in fact, and did so using mass lawsuits in overburdened courts in an effort to deprive CSX of access to meaningful discovery, which in turn concealed the fraudulent claims and leveraged higher settlements based on the threat of mass trials.
The court concluded that these allegations were sufficient to support the inference that each of the lawyer defendants knew that the mails were being used to further their scheme.
Heightened Pleading Standard for Fraud
The predicate acts of mail and wire fraud were alleged with sufficient particularity under Rule 9(b) of the Federal Rules of Civil Procedure, which required fraud plaintiffs to identify the time, place, and contents of false representations, as well as the identity of the persons who made the misrepresentations and what they obtained thereby.
According to the court, CSX adequately identified: (1) the date when each fraudulent claim was filed and the court in which it was filed; (2) the person who signed each complaint and caused it to be filed; (3) the circumstances surrounding the service of each complaint on CSX; and (4) the relevant portions of each complaint that was fraudulently filed.
Injury
CSX sufficiently pled an injury to its business or property by reason of the defendants’ alleged racketeering activities, the court determined. The company alleged that it was forced to expend substantial sums of money and resources in order to process, defend, and settle “deliberately fabricated claims” that never should have been filed. Its complaint described a direct relationship between the lawyer defendants’ fraudulent claims and CSX’s need to “expend resources” to respond to those claims.
Accordingly, CSX properly alleged an injury as the direct result of the defendants’ fraudulent claims.
Pattern of Racketeering: Relatedness
For predicate acts to be related, they must have the same or similar purposes, results, participants, victims, or methods of commission, or must otherwise be interrelated by distinguishing characteristics. In this case, the predicate acts of mail and wire fraud involved the same participants (the lawyer and doctor defendants); the same victim (CSX); the same alleged purpose (to defraud CSX through the manufacturing, filing, and prosecution of fraudulent asbestosis claims); and similar methods of commission (the addition of fraudulent claims to mass lawsuits that were filed in the same overburdened court system and filed motions to compel the mandatory mass mediation of those claims).
The relatedness analysis in this case depended on whether the predicate acts were defined as the eleven fraudulent asbestosis claims that the lawyer defendants filed, or whether the mass suits themselves were considered predicate acts. Eleven fraudulent claims was a small percentage of the total number of claims that composed the mass lawsuits alleged in CSX’s complaint. The lawyer defendants argued that this isolated conduct—a mere 0.2% of the asbestosis claims filed by their law firm against CSX—did not create a pattern of racketeering activity.
The predicate acts alleged in CSX’s complaint, however, arguably encompassed more than just the eleven fraudulent claims. CSX asserted that the lawyer defendants “deliberately filed … mass lawsuits in overburdened courts to deprive CSX[] of access to meaningful discovery, which in turn concealed fraudulent claims and leveraged higher settlements based on the threat of mass trials.” The fact that only some of the lawsuits filed against CSX were fraudulent did not negate the argument that the mass lawsuits were filed as part of a larger plan to conceal the fraudulent claims, the court explained.
Pattern of Racketeering: Continuity
CSX alleged that “the predicate acts were continuous in that they occurred on a regular basis.” It also alleged facts indicating that the lawyer defendants continued to prosecute their fraudulent claims even after CSX had filed its original amended complaint in this case. The calculated and deliberate strategy of the lawyer defendants to participate in and conduct the affairs of the lawyers’ firm through a pattern and practice of unlawful conduct, as described in the complaint, indicated that the filing of fraudulent lawsuits was a part of the firm’s regular business practice, according to the court. Taken together, these facts, if proven, established a threat of continuing racketeering activity, and therefore open-ended continuity.
The decision is CSX Transportation, Inc. v. Gilkison, CCH RICO Business Disputes Guide ¶12,207.
Further information regarding CCH RICO Business Disputes Guide appears here
A provider of rail-based transportation services (CSX Transportation, Inc.) sufficiently alleged RICO violations by three lawyers and a doctor, all of whom allegedly orchestrated a scheme to inundate CSX with thousands of asbestos-related occupational illness claims throughout the state of West Virginia, the federal district court in Wheeling, West Virginia, has ruled.
The complaint asserted more than abuse of process or malicious prosecution because the pleadings described a complex scheme involving activities that went beyond the filing of eleven fraudulent claims.
Mail and Wire Fraud
The predicate acts alleged by CSX involved mail and wire fraud, including the filing and service of mass lawsuits and all of the actions taken by the lawyer defendants to generate medical evidence in support of their fraudulent asbestosis claims. The lawyer defendants’ characterization of these filings and mailings as “routine litigation activity” was contrary to CSX’s allegations.
CSX alleged that the three lawyers: (1) gained access to potential clients through unlawful means; (2) retained clients and procured medical diagnoses for them through intentionally unreliable mass screenings; (3) prosecuted clients’ claims using dishonest, fraudulent, and deceptive tactics; and (4) fabricated and prosecuted asbestosis claims with no basis in fact, and did so using mass lawsuits in overburdened courts in an effort to deprive CSX of access to meaningful discovery, which in turn concealed the fraudulent claims and leveraged higher settlements based on the threat of mass trials.
The court concluded that these allegations were sufficient to support the inference that each of the lawyer defendants knew that the mails were being used to further their scheme.
Heightened Pleading Standard for Fraud
The predicate acts of mail and wire fraud were alleged with sufficient particularity under Rule 9(b) of the Federal Rules of Civil Procedure, which required fraud plaintiffs to identify the time, place, and contents of false representations, as well as the identity of the persons who made the misrepresentations and what they obtained thereby.
According to the court, CSX adequately identified: (1) the date when each fraudulent claim was filed and the court in which it was filed; (2) the person who signed each complaint and caused it to be filed; (3) the circumstances surrounding the service of each complaint on CSX; and (4) the relevant portions of each complaint that was fraudulently filed.
Injury
CSX sufficiently pled an injury to its business or property by reason of the defendants’ alleged racketeering activities, the court determined. The company alleged that it was forced to expend substantial sums of money and resources in order to process, defend, and settle “deliberately fabricated claims” that never should have been filed. Its complaint described a direct relationship between the lawyer defendants’ fraudulent claims and CSX’s need to “expend resources” to respond to those claims.
Accordingly, CSX properly alleged an injury as the direct result of the defendants’ fraudulent claims.
Pattern of Racketeering: Relatedness
For predicate acts to be related, they must have the same or similar purposes, results, participants, victims, or methods of commission, or must otherwise be interrelated by distinguishing characteristics. In this case, the predicate acts of mail and wire fraud involved the same participants (the lawyer and doctor defendants); the same victim (CSX); the same alleged purpose (to defraud CSX through the manufacturing, filing, and prosecution of fraudulent asbestosis claims); and similar methods of commission (the addition of fraudulent claims to mass lawsuits that were filed in the same overburdened court system and filed motions to compel the mandatory mass mediation of those claims).
The relatedness analysis in this case depended on whether the predicate acts were defined as the eleven fraudulent asbestosis claims that the lawyer defendants filed, or whether the mass suits themselves were considered predicate acts. Eleven fraudulent claims was a small percentage of the total number of claims that composed the mass lawsuits alleged in CSX’s complaint. The lawyer defendants argued that this isolated conduct—a mere 0.2% of the asbestosis claims filed by their law firm against CSX—did not create a pattern of racketeering activity.
The predicate acts alleged in CSX’s complaint, however, arguably encompassed more than just the eleven fraudulent claims. CSX asserted that the lawyer defendants “deliberately filed … mass lawsuits in overburdened courts to deprive CSX[] of access to meaningful discovery, which in turn concealed fraudulent claims and leveraged higher settlements based on the threat of mass trials.” The fact that only some of the lawsuits filed against CSX were fraudulent did not negate the argument that the mass lawsuits were filed as part of a larger plan to conceal the fraudulent claims, the court explained.
Pattern of Racketeering: Continuity
CSX alleged that “the predicate acts were continuous in that they occurred on a regular basis.” It also alleged facts indicating that the lawyer defendants continued to prosecute their fraudulent claims even after CSX had filed its original amended complaint in this case. The calculated and deliberate strategy of the lawyer defendants to participate in and conduct the affairs of the lawyers’ firm through a pattern and practice of unlawful conduct, as described in the complaint, indicated that the filing of fraudulent lawsuits was a part of the firm’s regular business practice, according to the court. Taken together, these facts, if proven, established a threat of continuing racketeering activity, and therefore open-ended continuity.
The decision is CSX Transportation, Inc. v. Gilkison, CCH RICO Business Disputes Guide ¶12,207.
Further information regarding CCH RICO Business Disputes Guide appears here
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