Business Litigation Reporter - March 2014

by Goodwin

Goodwin Procter’s Business Litigation Reporter provides timely summaries of key cases and other developments within dedicated Business Litigation sessions and related courts throughout the country – courts within which Goodwin Procter’s Business Litigation attorneys are continually litigating. In addition, each issue of the Business Litigation Reporter provides a more thorough discussion of one topic of particular importance to the business community. In this issue, we discuss forum selection clauses and explain the benefits to choosing the forum for litigating any future dispute and the key considerations that go into crafting such a clause. We hope that you find the Reporter useful and welcome your questions.


Trade Secrets Act Does Not Bar Common Law Conspiracy Claim.  In Farmers Ins. Exch. v. Steele Ins. Agency, Inc., 2014 WL 466274 (E.D. Cal. Feb. 5, 2014), Chief Judge England held that California’s Uniform Trade Secrets Act (“CUTSA”) does not preempt common law civil conspiracy claims in a trade secrets misappropriation case.  The defendant moved to dismiss the claim alleging that it had engaged in a conspiracy to misappropriate the customer information for solicitation purposes, arguing that CUTSA preempted the common law claim.  The court held, however, that CUTSA preempts common law claims only if they rely on the same operative facts, and that because the plaintiff’s civil conspiracy claim alleged facts beyond those alleged for the CUTSA claim, the claim was not preempted even though it involved the same alleged harm.

Monetary Claims Dismissed in Food Labeling Case.  In Ogden v. Bumble Bee Foods, LLC, 2014 WL 27537 (N.D. Cal. Jan. 2, 2014), Judge Koh ruled that the named plaintiff in a putative class action cannot withstand a motion for summary judgment merely by relying on an expert’s promise, made during class certification proceedings, that it will be able to calculate damages for all class members.  Defendant Bumble Bee moved for summary judgment on the named plaintiff’s claim for monetary relief on the ground that she had failed to adduce evidence establishing the amount of restitution.  The plaintiff’s opposition relied on her class certification expert’s promise that he could develop a formula that would calculate restitution for all class members, but Judge Koh held that a promise to prove damages in the future is insufficient to defeat summary judgment.  Following the order, the plaintiff withdrew her motion for class certification and agreed to proceed solely on her individual claims for injunctive relief.  (Disclosure:  Goodwin Procter LLP represents Bumble Bee in this case.)

Broad Reading of Consent Under the Telephone Consumer Protection Act.  In Baird v. Sabre Inc., 2014 WL 320205 (C.D. Cal. Jan. 28, 2014), Judge Wilson held that a consumer who provides her telephone number to a company when making a purchase will be deemed to have provided “prior express consent” to communications from the company via an automated dialing machine.  In so ruling, Judge Wilson deferred to a broad interpretation of such consent that was contained in a 1992 order of the Federal Communications Commission and rejected the plaintiff’s arguments to repudiate that broad interpretation.  Because of his ruling that the plaintiff had consented, Judge Wilson did not reach the separate question of whether the communication at issue in the case – technology that transmitted a text message – constituted an automated dialing system covered by the TCPA, an issue on which the FCC has recently solicited public comment. 


Shareholder Inspection Rights Bounded. In Cook v. Hewlett-Packard Co., 2014 WL 311111 (Del. Ch. Jan. 30, 2014), the Court of Chancery rejected an HP shareholder’s request that HP produce not only documents concerning HP’s decision to acquire another company (Autonomy), but also documents concerning alleged wrongdoing at Autonomy prior to the acquisition.  Vice Chancellor Glasscock held a shareholder’s inspection request must relate to the conduct of the company itself.  As such, he held that the shareholder’s request for documents relating to Autonomy’s conduct prior to the acquisition amounted to an improper “fishing expedition” that could not uncover evidence of wrongdoing by the HP board.

Limits on Court of Chancery Jurisdiction in Cases Seeking Monetary Relief.  In MAG IAS Holdings, LLC v. Fives Machining Systems, Inc., No. 9057-VCN (Del. Ch. Feb. 6, 2014), Vice Chancellor Noble dismissed a post-closing dispute for lack of subject matter jurisdiction.  The plaintiff argued that the Court of Chancery had jurisdiction because the complaint both asserted “equitable” claims and included a demand for specific performance based on the parties’ contract.  In its bench ruling, however, the court held that because the complaint sought money damages and such damages would constitute an adequate remedy (even assuming that any remedy were warranted), the Court of Chancery lacked jurisdiction over the lawsuit.  The court also held that the limitations on the court’s jurisdiction could not be modified by the terms of the parties’ contract.  (Disclosure:  Goodwin Procter LLP represented Fives Machining Systems, Inc. in this case.) 


Passive Website Does Not Create Personal Jurisdiction.  In Skyworks Solutions, Inc. v. Kinetic Tech., Inc., No. 13-10655-GAO (D. Mass. Dec. 23, 2013), Judge O’Toole rejected the plaintiff’s argument that the fact that an out-of-state company’s website was accessible by Massachusetts residents was enough to give Massachusetts courts personal jurisdiction over that company.  Agreeing with prior Massachusetts state and federal court rulings, the court emphasized that the website in question was a “passive” one – that is, it provided information but did not allow the visitor to make a purchase or take any other action – and held that the company therefore could not be said to be “transacting business” within Massachusetts.

Narrow Reading of the Revival Exception to the Deadline for Removing Cases.  In GeoVantage, Inc. v. SimWright, Inc., No. 13-12178-RWZ (D. Mass. Jan. 16, 2014), Judge Zobel narrowly construed the judicially created “revival exception” that allows a defendant to remove a case from state to federal court, after the normal 30-day time limit for removal has expired, where an amended complaint changes the nature of the case.  The plaintiff, a developer of digital imaging technology, sued the defendant for breach of contract but later amended its complaint to add claims for misappropriation of confidential information and trade secrets.  Finding that the new claims and allegations merely built upon the facts alleged in the initial complaint, Judge Zobel held that the “essential identity” of the case remained unchanged and hence the revival exception to the 30-day removal deadline did not apply.

New York

Indemnification for Attorneys’ Fees Must Be Unmistakably Clear.  In Wells Fargo Bank National Assoc., et al. v. Webster Business Credit Corp., Index. No. 601680/09 (1st Dep’t Jan. 23, 2014), the Appellate Division, First Department, held that unless a contractual indemnification provision evinces an “unmistakably clear” intent that one party will indemnify the other not just for its losses but also for its attorneys’ fees in any litigation between them, the American Rule that each party will bear its own attorneys’ fees will not be disturbed.  The court held that this standard was not met because the indemnity clause in the parties’ contract could be read to apply to claims by a third party, rather than claims against each other.

E-Discovery Cost Shifting Principles Clarified.  In Brandofinio Communications, Inc. v. Augme Technologies, Inc., No. 652639/11 (N.Y. Sup. Ct. Jan. 24, 2014), Justice Oing held that the party producing documents must bear the costs of production, including costs arising from the specific production format specified in the discovery request.  The defendants argued that they should not have to bear the additional costs involved in producing the documents in the format requested by the plaintiff (as text searchable TIFF files with metadata preserved, formatted for use in Concordance), rather than as a PDF file.  Applying the seven-point cost-shifting analysis adopted by the Appellate Division in 150 Nassau Associates LLC v. RC Dolner LLC, 96 AD3d 676 (1st Dept 2012), Justice Oing held that because of the greater usefulness of text searchable TIFFs with metadata as compared to a mere PDF, the plaintiff’s format specification was not merely for its convenience and hence the defendants had to bear the costs of production. 

Recent Rules and Judiciary Developments.

Commercial Division Monetary Threshold Increased.  Effective February 17, 2014, the monetary threshold for a case to qualify for the Commercial Division of the New York County Court was increased from $150,000 to $500,000. 

Justice Barbara Kapnick Elevated.  Effective February 3, 2014, Justice Kapnick was elevated to the Appellate Division, First Department.  Justice Saliann Scarpulla will take over Justice Kapnick’s place in the Commercial Division.  Justice Scarpulla was an associate at Proskauer Rose Goetz & Mendelsohn, Senior Vice President and Bank Counsel at Hudson United Bank, and Justice Eileen Bransten's Court Attorney before becoming a Judge in the Civil Court of the City of New York in 2002.  Justice Scarpulla had served as an acting Justice of the Supreme Court, New York County, since 2009.

Expedited Procedures Proposed. The Commercial Division is considering a proposal (proposed Rule 9) under which parties may agree at the beginning of a case, or by contract, to utilize the Commercial Division’s accelerated adjudication process under which all pre-trial proceedings will be completed within nine months of filing the Request for Judicial Intervention.  The proposed rule responds to concerns that litigation in the Commercial Division has become more cumbersome and costly as dockets have increased.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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