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Jenner & Block is excited to introduce “The Spotlight,” an electronic monthly newsletter from the Litigation Department Chair, Craig C. Martin, designed to highlight recent cases and legislative developments from across the United States. Additionally, The Spotlight recaps the high impact Litigation Department news, upcoming events and publications of interest.
If you would like to be added to the mailing list for The Spotlight, please send an email to Justin L. Portaz at email@example.com.
By: Michael T. Brody
Supreme Court: Parties Cannot Dismiss Case to Appeal Class Certification Denial.
In Microsoft Corp. v. Baker, 137 S. Ct. 1702 (U.S. 2017) (No. 15-457), the US Supreme Court held that appellate review does not exist for a voluntary dismissal with prejudice of individual plaintiffs’ claims which purports to reserve the right to revive the dismissed claims should the court of appeals reverse the denial of class certification. The district court denied class certification, and plaintiffs unsuccessfully sought Rule 23(f) permission to appeal. Rather than pursue their individual claims to judgment, plaintiffs stipulated to a voluntary dismissal of all claims with prejudice, but reserved the right to revive their claims should the court of appeals reverse the denial of certification. The US Supreme Court held that the voluntary dismissal did not qualify as a final appealable order under Section 1291. In reaching this conclusion, the Court observed that the denial of class certification was not appealable as a collateral order, even where it provided a “death knell” to the litigation. The Court also noted that Rule 23(f) permitted discretionary appeals of class certification denials. With that background in mind, the Court concluded that only final orders resolving the entire controversy are appealable under Section 1291. Plaintiffs’ “voluntary-dismissal tactic” violated these principles and invited protracted litigation and piecemeal appeals, the vices addressed in the final judgment rule. Three justices concurred in the result, but opined that the Court’s conclusion was better grounded on Article III of the Constitution. In particular, the concurrence posits that there must be an actual controversy at all stages of review, and reversal of the class certification denial would not rightly revive any claims on the merits.
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Target Data Breach Settlement Class Recertified.
Earlier this year, the Eighth Circuit issued a decision in the Target data breach litigation, in which it found that the district court, in approving the settlement class, had not engaged in a proper rigorous analysis. In particular, the court failed to address whether a potential intra-class conflict existed that might render the class representatives inadequate. On remand, plaintiffs renewed their motion for certification of the settlement class. Addressing the intra-class conflict, plaintiffs identified class representatives able to represent class members with actual money damages and class members who might have future injury. See In re Target Corp. Customer Data Sec. Breach Litig., MDL No. 14-2522 (D. Minn. May 17, 2017). The district court found the class representatives were adequate and certified the class. The court held that there was no conflict of interest because the class was structured to remedy present and future injuries, and there were class representatives in each group.
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Ninth Circuit Rejects Post-Removal Amendment to Defeat Jurisdiction.
In Broadway Grill, Inc. v. Visa Inc., 856 F.3d 1274 (9th Cir. 2017) (No. 17-15499), defendant successfully removed a class action to federal court, defeating plaintiffs’ motion to remand. Plaintiffs then sought leave to amend the complaint to destroy diversity jurisdiction by limiting the class to the citizens of a single state. The district court granted leave to amend and remanded the case. The Ninth Circuit reversed. While the Ninth Circuit established in Benko v. Quality Loan Service Corp., 789 F.3d 1111 (9th Cir. 2015), that plaintiffs may amend their complaint upon removal to clarify the nature of their claims for purposes of determining jurisdiction, the court clarified in Broadway Grill that plaintiffs may not do so to eliminate minimal diversity and divest the federal courts of jurisdiction. The Ninth Circuit noted that its Benko decision led to uncertainty in the district courts as to when post-removal amendment was proper. It attempted to resolve that uncertainty by holding that whether remand is proper must be determined based on the pleadings at the time of removal. Thus, although Benko allows amendments to “clarify jurisdiction,” attempts to amend a complaint after removal to eliminate jurisdiction “are doomed to failure.” The court explained its holding was in accord with CAFA’s purpose of expanding federal jurisdiction in class actions. One member of the panel dissented, concluding that the amendment fit within the parameters previously articulated in Benko.
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Supreme Court: General Personal Jurisdiction Test Applies to All Actions.
In BNSF Railway Co. v. Tyrrell, 137 S. Ct. 1549 (U.S. 2017) (No. 16-405), plaintiff employees sued the defendant railroad under the Federal Employers’ Liability Act (FELA) in Montana state court. The defendant was neither headquartered nor incorporated in Montana, but it did operate more than 2,000 miles of railroad track and employ more than 2,000 workers in Montana. The Montana Supreme Court held that Montana courts could exercise general personal jurisdiction over defendant, ruling that jurisdiction was conferred under either FELA (which authorized suit to be brought in a federal court in the district where “the defendant shall be doing business”), or alternatively, under Montana law, which provides for the exercise of personal jurisdiction over “all persons found within” the State. The US Supreme Court reversed. The Court ruled that the provisions of FELA relied upon by plaintiffs merely established venue for a federal-court action; they did not confer personal jurisdiction on any court. The Court further determined that the Montana courts’ exercise of personal jurisdiction under Montana law violated the Due Process Clause of the Fourteenth Amendment. Citing to its earlier ruling in Daimler AG v. Bauman, 134 S. Ct. 746 (U.S. 2014), the Court reiterated that a court may assert general jurisdiction over a foreign corporation only when its affiliations with the State are so continuous and systematic as to render them essentially at home in the forum State; and other than in “exceptional case[s],” that is generally limited to its place of incorporation and its principal place of business. The Court rejected the argument that this jurisdictional test should not apply to a FELA claim or a railroad defendant, and clarified that this rule applies to all state-court assertions of general jurisdiction over nonresident defendants, and does not vary with the type of claim asserted or business enterprise sued.
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Supreme Court: Hague Convention Does Not Prohibit Service by Mail.
In Water Splash, Inc. v. Menon, 137 S. Ct. 1504 (U.S. 2017) (No. 16-254), plaintiff sued one of its former employees in Texas state court, alleging that she had begun working for a competitor while still employed by plaintiff. The defendant resided in Canada, and plaintiff served her by mail. Defendant declined to answer or otherwise appear, and the trial court issued a default judgment. On appeal, defendant argued that service by mail does not comport with the requirements of the Hague Service Convention, and the Texas Court of Appeals agreed, holding that service by mail was improper. The US Supreme Court reversed, holding that the Convention does not prohibit service by mail. Articles 10(b) and (c) of the Convention authorize service by certain methods, but do not mention mail; and Article 10(a) provides that the Convention shall not interfere with “the freedom to send judicial documents, by postal channels,” but does not expressly refer to “service.” Despite this textual difference, the Court determined that Article 10(a) should be interpreted broadly, finding that there was no apparent reason why it would exclude the sending of documents for any particular purpose, namely service. The Court further reasoned that the scope of the entire Convention is limited to service of documents, and that it would be “quite strange” if Article 10(a) – apparently alone among the Convention’s other provisions – concerned something other than service of documents. The Court rejected the argument that Article 10(a) does not apply to service of process but instead applies only to the sending of post-answer judicial documents that have to be served later in the litigation, concluding that there was no textual footing for making that distinction.
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Chancery Court Concludes That Creditor Lacks Standing To Pursue Derivative Claim.
By: David P. Saunders
In Trusa v. Nepo,No. 12071-VCMR (Del. Ch. Apr. 13, 2017), the Delaware Chancery Court dismissed plaintiff’s derivative claims in full after concluding that he lacked standing. In Trusa, plaintiff loaned $200,000 to the defendant directors’ limited liability company. Ultimately, defendants defaulted on the loan. The creditor plaintiff then filed suit asserting, among other claims, derivative claims for breach of fiduciary duty and for statutory dissolution of defendants’ company. The Trusa plaintiff argued that the director defendants fraudulently induced him into making his loan, and that he had standing to pursue his claim as a creditor and under a power of attorney he obtained as part of the loan facility. The court rejected both of these arguments. Applying the “plain language” of Delaware’s Limited Liability Company Act, the court concluded that “only members and assignees may assert derivative claims on behalf of the Company.” In rejecting plaintiff’s power of attorney argument, the court concluded that although the power of attorney permitted plaintiff to act in the company’s name, that grant of authority was limited, and did not include pursuing derivative claims. Similarly, the Court concluded that plaintiff did not have standing to pursue statutory dissolution of the company because he was “neither a member nor a manager."
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By: Daniel J. Weiss
Court Grants Costs for Motion to Compel After Parties Cannot Agree on Search Terms.
In Ball v. Manalto, Inc., No. C16-1523 RSM (W.D. Wash. May 5, 2017), a state-law employment contract dispute, the parties could not agree to appropriate search terms for defendant’s ESI, which contained plaintiff’s email while previously employed by defendant and materials related to plaintiff’s termination for purported poor performance. Despite several search term proposals from both parties, defendant refused to produce responsive ESI that would take “approximately 340-380 attorney hours” and “$100,000-$120,000 in attorneys’ fees to review” as too burdensome under Federal Rule of Civil Procedure 26(b). Plaintiff brought a motion to compel, contending that “all emails he sent or received” were relevant to his claims or defendant’s defense, and that defendant’s “claimed ‘burden’ on this issue [was] . . . the ‘burden’ of analyzing the information for [defendant’s] own case and defenses” – not an appropriate consideration under Rule 26. Defendant countered that it had already produced all of plaintiff’s emails and that email from other custodians was overly burdensome and not proportional to the needs of the case. Plaintiff replied that he recalled sending “hundreds” of emails, compared to the 20 emails defendant actually produced, and that defendant’s failure to produce more indicated either “a failure to adequately search or spoliation.”
The court granted the motion to compel, crediting plaintiff’s recollection of sending “hundreds” of emails and finding that defendant “failed to present any evidence that they have produced all of [plaintiff’s] emails” where the sole evidence offered was a declaration from an attorney who did “not appear to [have] personal knowledge.” Though the court did not find the circumstances “enough to conclude that [defendant] failed to preserve or destroyed evidence,” the court nevertheless ordered defendant to provide a declaration explaining how ESI had been stored or searched. The court further found that emails from custodians other than the plaintiff were relevant and proportional, as defendant was “lowballing the potential value of this case.” Finally, the court awarded plaintiff his attorney’s fees and expenses in bringing the motion to compel.
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Hospital Defendant Permitted to Produce Randomly Selected Sample of Patient Records.
In Duffy v. Lawrence Memorial Hospital, No. 2:14-cv-2256 (D. Kan. Mar. 31, 2017), a qui tam action plaintiff brought under the False Claims Act against her former employer, the defendant hospital was ordered to produce documents responsive to certain requests. Nevertheless, the hospital withheld over 15,000 patient records that were responsive to the requests after determining that each record would take 30 minutes to process and review, for a total of 7,787 worker hours over 97 days at a cost of $196,933.23, and redaction of patients’ personal confidential information would take an additional fourteen days at a cost of $37,259.50. In light of total costs over $230,000, the hospital requested that the court modify its order by limiting the required production to a random sampling of patient records using a statistical tool known as “RAT-STATS.” The plaintiff opposed modification on the grounds that the hospital had not attempted to meet and confer before requesting the modification; redaction was unnecessary because a protective order was already in place in the case; and the court had already rejected the hospital’s contention of undue burden when the hospital had raised it in an attempt to avoid the production in the first instance.
The district court granted the hospital’s request relief, finding that, if presented with the evidence of the cost of the production, “the [c]ourt may have found the requests at issue unduly burdensome and disproportional to the needs of the case” in the first instance. Furthermore, the hospital had not “waive[d] its right to seek protection once the enormity of the task became apparent.” The court also found that the hospital did not need to attempt to meet and confer, as the parties had already conferred following the hospital’s objections to the plaintiff’s requests, and the hospital was now “seeking relief from [the court’s] order rather than from a party’s discovery request.” Accordingly, the court held that “a random sampling” of the patient records “is justified by the time and expense of a full production.” The court further opined that there was “merit in the method” of random sampling because “the myth that exhaustive manual review is the most effective – and therefore, the most defensible – approach to document review is strongly refuted.” The court therefore ordered the hospital to produce randomly selected patient records using the RAT-STATS statistical tool, to which the plaintiff had raised no specific criticism or objection. The court left open the possibility for the plaintiff to address any further issues following the hospital’s production. Finally, the court permitted the hospital to redact the patient records, notwithstanding the protective order, because “the data at issue relates to patients who are not parties to this action and whose personal confidential information [the hospital] has a legal duty to safeguard.”
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Keyword Searches Should Not Be Used to Cull ESI Before Technology-Assisted Review.
In FCA US LLC v. Cummins, Inc., No. 16-12883 (E.D. Mich. Mar. 28, 2017), the parties could not agree whether “the universe of electronic material subject to [technology-assisted review, or “TAR”] should first be culled by the use of search terms, or whether TAR should be applied before employing search terms.” The court decided the discovery dispute “reluctantly” because, “[g]iven the magnitude of the dispute and the substantial matters upon which they agree, the parties should have been able to resolve the discovery issue without the [c]ourt as decision maker.” Citing the Sedona Conference TAR Case Law Primer, the court held that “[a]pplying TAR to the universe of electronic material before any keyword search reduces the universe of electronic material is the preferred method,” and that keyword searches or other methods could be used to cull the results afterward.
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By: Steven M. Siros
US EPA’s Efforts to Delay Implementation of Obama Environmental Regulations May Have Hit a Speed Bump in the D.C. Circuit.
Along with Congress’ efforts to roll-back Obama-administration environmental rules and regulations through use of the Congressional Review Act, US EPA also has begun to issue stays seeking to delay the effective dates of other Obama-administration environmental regulations. For example, on June 9, 2017, US EPA stayed the effective date of Clean Air Act (“CAA”) regulations that imposed substantive new requirements on facilities subject to US EPA’s Risk Management Program. Similarly, on June 16, 2017, US EPA stayed the effective date of regulations that imposed new requirements on emissions from regulated sources in the oil and natural gas sector. Various environmental groups filed lawsuits challenging US EPA’s decision to stay both sets of regulations, arguing that the requirements necessary to stay the stay the regulations pursuant to Section 307(d)(7)(B) of the CAA were not met.
On July 3, 2017, the US Court of Appeals for the D.C. Circuit agreed with the challenges, noting that U.S. EPA could only stay a regulation pursuant to CAA Section 307(d)(7)(B) if the following specific requirements of the rule are met: (1) it was impracticable to raise the objections now being raised during the notice and comment period and (2) the objection is of central relevance to the outcome of the rule. See Clean Air Act Council v. Pruitt, 862 F.3d 1 (D.C. Cir. 2017) (No. 17-1145). In the case of US EPA’s stay of the regulations affecting the oil and gas sector, the Court found that both requirements were not met, noting that the “administrative record thus makes clear that the industry groups had ample opportunity to comment on all four issues for which EPA granted reconsideration, and indeed, that in several instances the agency incorporated those comments directly into the final rule.”
Although the Court has to yet to issue a ruling in the ongoing challenge to US EPA’s decision to stay the effective date of the revised Risk Management Program regulations, the rationale applied by the Court in the Clean Air Act Council decision is likely to apply with equal force to that challenge. DOJ has sought to distinguish its stay of the Risk Management Program rules by arguing that US EPA’s decision to issue the stay went through notice and comment after being published in the Federal Register but it is not clear whether that distinction will have any effect on the Court’s ultimate decision.The important takeaway from these cases is that any effort by the current administration to roll back or relax environmental regulations is going to be challenged in court and the regulated community needs to be prepared to comply with these environmental rules or regulations even if US EPA has stayed the effective date of these regulations.
English Court Orders Production of Interview Notes from Internal Investigation.
By: Robert R. Stauffer and Ana R. Bugan
It is easy for US lawyers to forget that the attorney-client privilege and work product protection may be applied much more narrowly in other countries, leaving unprotected materials that attorneys here may have assumed would be protected. A recent reminder of this comes by way of Serious Fraud Office v. Eurasian Natural Resources Corp. LTD,  EWHC 1017 (QB) (May 8, 2017). The matter arises from a criminal investigation by the Serious Fraud Office (SFO) into corruption allegations involving Eurasian Natural Resources Corporation Ltd. (ENRC). ENRC engaged outside counsel who interviewed numerous employees and reported to ENRC and its board. The SFO later applied for a declaration that certain documents created by the lawyers, including memoranda of the employee interviews, were not privileged and were thus subject to disclosure. Relying on other recent precedents, the High Court generally agreed. The High Court found that the legal advice privilege (comparable to the attorney-client privilege) did not apply because the interviews were not shown to be of employees who were acting as the client’s agent for purpose of obtaining legal advice. It found – unlike most jurisdictions in the United States – that the privilege does not apply to interviews conducted solely to apprise the lawyers of the facts as a predicate for the lawyers’ formulation of legal advice. The High Court further found that the materials were not protected as lawyer working papers because, being simply factual descriptions of the interviews, the memoranda did not reflect the legal advice that was provided.
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DOJ Gets New Fraud Section Head.
By: Erin R. Schrantz
The Department of Justice has a new head of the Fraud Section, the entity primarily responsible for investigating and prosecuting FCPA violations. Outgoing Fraud Section Chief Andrew Weissmann assumed the rolein January 2015 after serving as general counsel to the FBI under Robert Mueller. Now almost two and a half years later, Weissmann is stepping down from his position at DOJ to again join Director Mueller, who is leading the investigation into possible collusion between Russia and the Trump campaign.
In Weissmann’s absence from the lead role at DOJ’s Fraud Section, his deputy Sandra Moser has ascended to the position of Acting Chief. Moser, an 11-year veteran of the Justice Department, began her career practicing law at Drinker Biddle & Reath in Philadelphia and completing two federal clerkships. Moser then worked as an Assistant U.S. Attorney in New Jersey before moving to DOJ, where she worked on fraud matters – with an emphasis on FCPA – up until her recent promotion upon Weissmann’s departure. During her time in the Fraud Division, Moser received commendations for her roles in investigating the manipulation of the LIBORand a large antitrust conspiracy affecting the U.S. Dollar-to-Euro exchange rate.
With an Acting Chief, the Fraud Section now mirrors the DOJ Civil Rights Division in that it lacks a permanent head. And although the executive branch has been slow to fill empty positions within DOJ as elsewhere in the federal government, the White House announcedon June 5, 2017, that the President would nominate Brian Benczkowski to become the new head of DOJ’s Criminal Division. Given the recent announcement, it’s unclear how long Acting Chief Moser could remain in the Fraud Section’s top spot.
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Communications with Public Relations Consultant Not Privileged.
In Behunin v. Superior Court of Los Angeles County, 9 Cal. App. 5th 833 (Cal. Ct. App. 2017), the court of appeal, as a matter of first impression in California, held that counsel’s communications with a public relations consultant hired by counsel at the client’s direction were not privileged. In this matter, Behunin sued Charles Schwab and his son over an unsuccessful real estate investment deal. Behunin’s lawyer engaged a public relations consultant to create a website containing information linking the Schwabs and their investments in Indonesia to the family of former Indonesian dictator Suharto. The Schwabs brought an action for defamation and sought discovery of communications among Behunin, his lawyers, and the consultant; Behunin objected based on the attorney-client privilege. The trial court overruled the objection, and Behunin filed a petition for a writ of mandate with the appellate court. The appellate court held, as a matter of first impression in the California courts, that although in some circumstances the attorney-client privilege may extend to communications with a public relations consultant, it did not do so in this case because Behunin failed to prove the disclosure of the communications to the consultant “was reasonably necessary for [counsel’s] representation” of Behunin in his lawsuit against the Schwabs. The court found that Behunin had not established that the involvement of the public relations consultant was necessary to facilitate the communications between plaintiff and his counsel, as in the case of a translator or an accountant clarifying communications between an and attorney and client, nor had the consultant improved the comprehension of communications between attorney and client.
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Statements Drafted by Lawyer and Signed by Witness Are Not Protected Work Product.
In In the Matter of the Complaint of American River Transportation Co., No. 4:11-cv-00523-JAR (E.D. Mo. Apr. 20, 2017), the district court held that witness statements drafted by counsel and signed by the witnesses were not protected work product. In this matter, four barges separated from a ship owned by ARTCO and damaged a lock and dam. The United States brought an action against ARTCO, seeking $10 million in damages. Shortly after the barge event, ARTCO’s lawyers investigated the incident and interviewed crewmembers. The lawyers then reduced the interviews to written statements, which the crewmembers reviewed and signed. The government sought discovery of the witness statements, and ARTCO asserted that the statements were protected work product. The court ordered ARTCO to produce the statements. Although notes and memoranda an attorney prepares from a witness interview are protected work product, because they tend to reveal the attorney’s legal conclusions, the court found that the statements in this case were recitations of facts surrounding the barge event that had been adopted by the crewmembers as their own statements when they reviewed and signed them. The court cited case law indicating that a majority of district courts have concluded that signed witness statements and affidavits obtained in anticipation of litigation must be disclosed in discovery.
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Parties’ Initial Meetings with Counsel Are Privileged.
In Lucas v. Gold Standard Baking, Inc., No. 13 CV 1524 (N.D. Ill. Apr. 24, 2017), a Title VII civil rights case brought against an employer for alleged refusal to hire African American job applicants, the district court held that plaintiffs’ initial meetings with counsel were privileged even though no formal engagement had been established at the time of the meetings. Attorney Williams presented “Know Your Rights” seminars. Both plaintiffs separately attended one of Williams’s seminars and approached Williams afterward. In each of these separate one-on-one meetings with Williams, plaintiffs sought legal advice regarding some of the issues raised by Williams during the seminar, and Williams told plaintiffs that their conversations would be confidential. Defendant sought discovery regarding the initial meetings, arguing that they were not privileged communications because no attorney-client relationship existed at the time of these first meetings. The court held that the initial communications were protected by the attorney-client privilege. The court explained that, under federal common law, the privilege may attach even if there is no “formal” or “express” attorney-client relationship. The fiduciary relationship between counsel and client extends to preliminary consultation by a prospective client with a view to retention of the lawyer even if counsel is not engaged thereafter. Whether the privilege attaches hinges on the client’s belief that they are consulting a lawyer in that capacity and the client’s manifested intention to seek professional legal advice. Here, the initial meetings were privileged because plaintiffs sought advice from Williams in his capacity as a lawyer, and the plaintiffs and Williams intended their conversations to be confidential.
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Disclosure of Report Citing Counsel’s Interviews Resulted in Subject Matter Waiver.
In Banneker Ventures, LLC v. Graham, No. 13-391 (RMC) (D.D.C. May 16, 2017), the district court held that a company’s disclosure of a privileged investigation report and use of the report in litigation resulted in subject matter waiver with respect to the underlying, undisclosed interview memoranda. In this case, defendant WMATA engaged outside counsel to undertake an investigation regarding the actions of WMATA’s Board in connection with a real estate development project that fell apart two years earlier, with a partner on the transaction suggesting it may seek legal remedies. Over the course of five months, outside counsel interviewed 34 individuals, 19 of whom were current or former WMATA employees or Board members, resulting in 51 interview memoranda. Counsel released an investigative report to WMATA, which referenced and cited to at least 23 witness interviews. WMATA adopted a Board Resolution that recommended the public release of the report. In this subsequent litigation, plaintiff sought discovery from both WMATA and its counsel of all of counsel’s interview memoranda. The court rejected both the work product protection and the attorney-client privilege as bases for WMATA to withhold the interview memoranda. As to work product, the court found that the two year gap between the threat of potential litigation and the investigation indicated that the investigation was not conducted because of anticipated litigation, but instead to conduct a business review of the Board’s conduct and determine whether WMATA’s policies and procedures should be changed. The court then found that WMATA’s public disclosure of the report and WMATA’s affirmative use of the report in this subsequent litigation waived privilege not just with respect to the report itself, but with respect to the entire subject matter of the report, including each of the 51 interview memoranda. The court applied the fairness review set forth in Federal Rule of Evidence 502, which limits subject matter waiver to those rare and unusual circumstances where fairness requires consideration of undisclosed privileged information with the disclosed privileged information. The court found that WMATA had selectively used the report and facts disclosed in the report to gain a tactical advantage in the litigation. Therefore, plaintiff was entitled to the remaining facts and information contained in the interview memoranda. The court directed production of the memoranda, but also provided that counsel would be allowed to redact information that addressed subjects not covered by the report.
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Verdict for Former General Counsel Whistleblower Stands.
We have previously reported on the Dodd-Frank whistleblower action brought by Bio-Rad’s former General Counsel, Sanford Wadler, who alleged he was fired for exposing FCPA violations regarding the company’s operations in China. That suit went to trial in January 2017 and, after only three hours of deliberation, a jury awarded Wadler $2.96 million in back wages and $5 million in punitive damages. Wadler had sought $8 million in lost wages, and $27 million in punitive damages (1% of the company’s net worth). Among other things, the jury found that (1) Wadler reasonably thought the company’s Chinese team had violated the FCPA, and (2) the Bio-Rad CEO would not have terminated Wadler for legitimate reasons if Wadler had not reported his FCPA beliefs to the company’s audit committee. Before trial, the court ruled Wadler was allowed to use evidence and information that would otherwise be privileged, on the basis that (1) federal common law permits the use of otherwise privileged information, and (2) Sarbanes-Oxley preempts California’s attorney-client privilege rules.
Prior to trial, defendants Bio-Rad and its CEO filed a motion for judgment as a matter of law, which the Court denied. Following the jury verdict, the defendants renewed their motion for judgment as a matter of law and filed, in the alternative, a motion for a new trial on the grounds that the verdict was against the weight of the evidence. On May 10, 2017, the Magistrate Judge denied defendants’ motions. Order Denying Defendants’ Motions, Wadler v. Bio-Rad Labs., Inc., No. 15-cv-02356-JCS (N.D. Cal. May 10, 2017), appeal docketed, No. 17-16193 (9th Cir. June 8, 2017). The chief magistrate judge held that the jury’s findings were supported by substantial evidence, punitive damages were available even though punitive damages are not provided for in Dodd-Frank, and Dodd-Frank protected Wadler’s activity even though he did not report his information to the SEC (which is currently the subject of a circuit split before the Supreme Court).
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Supreme Court Accepts Case Regarding Protections for Tips to Non-SEC Regulators.
In April 2017, a defendant company, Digital Realty Trust, asked the Supreme Court in Digital Realty Trust, Inc. v. Somers, to review a March decision by the Ninth Circuit holding that Dodd-Frank’s anti-retaliation employment protections apply to whistleblowers who report alleged wrongdoing to agencies or persons other than the SEC. See Petition for Writ of Certiorari, Digital Realty Trust, Inc. v. Somers, No. 16-1276 (Apr. 25, 2017). That decision widened a circuit split on that question: the Fifth Circuit held in 2013 that whistleblowers must report to the SEC for the anti-retaliation provisions to apply, while the Second Circuit held in 2015 that because the anti-retaliation provisions are ambiguous, courts must defer to the SEC’s guidance as to how widely they apply.
In Somers, the Ninth Circuit held that the district court correctly denied Digital Realty’s motion to dismiss a lawsuit by one of its former Vice Presidents, who alleges he was fired in retaliation for complaining to senior management that his supervisor eliminated internal controls required by Sarbanes-Oxley. In May 2017, the plaintiff, former VP Paul Somers, filed a brief arguing that Supreme Court review of the circuit split is not appropriate at this time because the lower courts need more time to develop a broader record on the issue, and the Fifth Circuit may choose to reconsider its decision in light of more recent precedent on the other side. Brief for Respondent, Digital Realty Trust, Inc. v. Somers, No. 16-1276 (U.S. May 30, 2017), cert. granted, 85 U.S.L.W. 3594 (U.S. June 26, 2017). Somers did, however, admit that the issue was important and recurring. On the merits, Somers said that Digital Realty Trust’s interpretation would upset the proper operation of Dodd-Frank and Sarbanes-Oxley by discouraging internal reporting. Four amicus briefs were filed in support of Digital Realty including from the US Chamber of Commerce. On June 26, 2017, the Supreme Court granted the defendant’s petition for writ of certiorari.
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CFTC Makes Rule Changes to Whistleblower Program.
In late-May 2017, the Commodity Futures Trading Commission announced that it was implementing several changes to its whistleblower program. See CFTC, Office of Public Affairs, Strengthening Anti-Retaliation Protections for Whistleblowers and Enhancing the Award Claims Review Process (May 22, 2017). The changes (1) allow whistleblowers to notify other agencies before the CFTC and still qualify for an award, (2) allow whistleblowers to recover based on actions brought by other law enforcement agencies, if the information came from the CFTC, (3) strengthen existing anti-retaliation provisions, including allowing suit even if a whistleblower’s information doesn’t lead to an award, (4) clarify that confidentiality and arbitration agreements cannot be used to prohibit communication, and (5) make the award review process consistent with the SEC’s process.
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Firm Wins Victory for Schneider Electric when Judge Invalidates Competitor’s Patents.
Jenner & Block won a victory for Schneider Electric in a patent infringement and antitrust case brought against it by a competitor. In Power Analytics Corp. v. Operation Technology Inc. et al, Power Analytics claimed that Schneider Electric and Operation Technology Inc. infringed four patents covering software for monitoring electrical systems. Schneider Electric and Operation Technology filed a motion asking that the judge find the asserted claims invalid. Using a two-part test outlined in the US Supreme Court’s 2014 Alice decision, US District Judge John A. Kronstadt granted the motion. In his decision on July 13, Judge Kronstadt said that each of the patents’ claims at issue cover only an abstract idea and cannot be patented under Section 101 of the Patent Act. “None of the claim elements identified by plaintiff exceeds the abstract idea of evaluating and reacting to prediction deviations,” the judge said. “Therefore, the asserted patents are ineligible under Section 101.” The team representing Schneider was led by Partner Reginald J. Hill and included Partners Benjamin J. Bradford, Michael McNamara, Joshua M. Segal and Kirsten Hicks Spira; Litigation Counsel Lisa Marie Schoedel; and Associate Kendall Turner.
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