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Jenner & Block is excited to introduce “The Spotlight,” an electronic monthly newsletter from the Litigation Department Co-Chairs, Craig C. Martin and David J. Bradford, 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 Matthew F. Bradley at email@example.com.
Lack Of Notice Renders Arbitration Clause Unenforceable.
By: Howard S. Suskin
Disclosure Of Legal Memo To Third Party Pension Managers Did Not Waive Privilege.
Class Action Settlement Bars Government Restitution Claim, But Not Action For Penalties.
By: Michael T. Brody
Plaintiffs alleged the manufacturer of a gender prediction test engaged in deceptive practices, and sought relief under California law. The district court certified a nationwide class and the case settled. Under the settlement, class members were entitled to claim a cash refund, and defendants made a cy pres payment. California v. IntelliGender, LLC, 771 F.3d 1169 (9th Cir. 2014) (No. 13-56806). The State of California later filed an enforcement action against the same defendant complaining of misleading advertising and sought penalties, restitution, and other remedies. The Ninth Circuit concluded that the prior class action settlement barred the State’s claims for restitution on behalf of its citizens, who were included in the prior settling class. The court reasoned that when the government sues for the same relief the plaintiff already has pursued, it has privity of interest with the class, and its claim is resolved by the prior judgment. The claim for penalties, however, stood on a different footing. In pursuing penalties, the state seeks to vindicate public as well as private interests entirely different from the restitution claim resolved in the class action. As a result, only the restitution claim was barred by the prior settlement.
Seventh Circuit Rejects Another Claims Made Settlement.
By: Michael T. Brody
In Pearson v. NBTY, Inc., Nos. 14-1198, 14-1227, 14-1245, 14-1389 (7th Cir. Nov. 19, 2014), the parties reached a settlement that included nearly $1.5 million in notice and administration cost, a $1.1 million payment to a charitable organization, and permitted fees up to $4.5 million, while class members could submit a claim entitling them to be paid a cash benefit of approximately $3. In addition, defendant agreed to a 2 year injunction against the challenged practices. Class members ultimately claimed $865,000 in benefits. The district court approved the settlement and awarded $1.93 million in fees, reasoning that if every class member claimed the refund, the maximum class benefit was more than $20 million. The Seventh Circuit reversed. Reiterating its holding in Redman, the court stated the ratio that is relevant for valuing attorneys’ fees is the ratio between the fee and the total of the fee plus what class members received. Using this ratio gives class counsel an incentive to design a claims process that will maximize the benefits actually received by the class. The court recognized the Supreme Court held in Boeing Co. v. Van Gemert, 444 U.S. 472 (1980), that creating an option to file a claim creates a prospective value. It distinguished Boeing, however, stating that in that case class counsel had created an actual judgment fund. In this case, there was no fund, no litigated judgment, and there no reasonable expectation that a substantial number of class members would submit claims. Thus, even as reduced, the fee was too high. The court stated that where the percentage of class members who file claims is low, the presumption is that fees to class counsel should not exceed a third or at most a half of the total amount going to the class members and their counsel. The court also addressed other problems with the deal: the notice, claim form, and modest average monetary award were bound to discourage claims; the cy pres relief was of no benefit to the class; and the temporary injunction was meaningless. The court also disapproved the provision that any amounts not awarded as fees would revert to the defendant, rather than the class, concluding this was “a gimmick for defeating objectors” and there should be a “presumption of invalidity for such clauses.”
U.S. Supreme Court Clarifies that a Defendant’s Notice of Removal Does Not Require Evidentiary Submission in Support of Amount in Controversy.
On December 15, the Supreme Court held that a defendant’s notice of removal under 28 U.S.C. § 1446(a) needs only a “plausible allegation that the amount in controversy exceeds the jurisdictional threshold.” Dart Cherokee Basin Operating Co. v. Owens, No. 13-719, slip op. at 7 (U.S. Dec. 15, 2014). Any civil action in a state court may be removed from state court to the federal district court, under 28 U.S.C. § 1446, if the action satisfies the requirements for federal jurisdiction. When removal is sought based on the diversity of citizenship of the parties, as in Dart, the notice of removal must also show that the amount in controversy exceeds the jurisdictional threshold ($75,000). In Dart, the Supreme Court considered the narrow issue of whether a defendant’s notice of removal must incorporate evidence supporting the alleged amount in controversy. After Dart removed the putative class action from a Kansas state court, the district court remanded the action to state court based on Tenth Circuit precedent which requires proof of the amount in controversy in the notice of removal itself. Id. at 3. Dart petitioned the Tenth Circuit Court of Appeals to review the remand decision, under 28 U.S.C. § 1453(c)(1) (governing the removal of class actions), which a divided panel denied. The Supreme Court vacated and remanded the decision, noting that the Tenth Circuit’s decision to deny review § 1453(c)(1) was an abuse of discretion, which “relied on the legally erroneous premise that the District Court’s decision was correct.” Id. at 9. Ultimately, both the district court’s remand and th Tenth Circuit’s denial of review turned on the question of what the notice of removal required for the amount in controversy. The Supreme Court emphasized that removal under § 1446(a) follows the “short and plain statement” standard, which Congress intended to simply pleading requirements for removal. Id. at 4-5. Furthermore, the Supreme Court clarified that § 1446(c)(2)(B), which references an evidentiary finding that the jurisdictional threshold is met, applies only in cases where the defendant’s asserted amount in controversy is challenged. As a result, federal-court jurisdiction may be invoked by a good faith amount-in-controversy allegation.
Interlocutory Appeal to Review Dismissal Standard Applicable to Independent Directors.
Minority shareholders filed suit in connection with the acquisition of a minority interest of Cornerstone by its controlling stockholder. In re Cornerstone Therapeutics Inc. Stockholder Litig., No. 8922-VCG (Del. Ch. Sept. 10, 2014). The minority holders alleged that the acquisition was not fair, and that the directors that approved the transaction breached their fiduciary duties to the minority holders by doing so. The independent directors of Cornerstone filed a motion to dismiss, arguing that the minority holders had not specifically pled any non-exculpated breaches of fiduciary duty against them. While acknowledging that there was a “lack of congruity” in Delaware case law as to the pleading requirements, the court nonetheless denied the directors’ motion to dismiss, holding that because the “transaction is subject ab initio to entire fairness review,” the independent directors “must await a determination of entire fairness at trial before [the court] consider[s] whether they are exculpated from liability.” Less than three weeks later, however, the same court granted the independent directors’ motion for interlocutory appeal of the motion to dismiss order, once again recognizing that “decisions of [the Chancery Court] are conflicting” on the applicable pleading standard. In re Cornerstone, 2014 WL 4784250 (Del. Ch. Sept. 26, 2014.) The Delaware Supreme Court now must decide whether it should resolve this unsettled issue of Delaware law on an interlocutory appeal.
Twombly Governs Sufficiency Of Factual Allegations, Not Legal Theories.
In Johnson v. City of Shelby, 135 S. Ct. 346 (U.S. 2014) (No. 13-1318), former city employees brought suit against the City, alleging they were terminated in violation of due process. The district court granted summary judgment in favor of the City, and the Fifth Circuit affirmed, ruling that plaintiffs’ complaint was insufficient to state a claim because it failed to invoke 42 U.S.C. § 1983, the statute under which they sought damages. The U.S. Supreme Court granted plaintiffs’ petition for a writ of certiorari and, in a per curium opinion, summarily reversed. The Court held that the federal pleading rules require only a short and plain statement of the claim showing that the pleader is entitled to relief; “they do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted.” The Court reasoned that its decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009), were not on point because “they concern the factual allegations a complaint must contain to survive a motion to dismiss.” Having adequately informed the City of the factual basis for their complaint, plaintiffs were required to do no more to stave off threshold dismissal for failure to state a claim.
9th Cir. Clarifies Pleading Requirements For FLSA Overtime Pay Cases.
In Landers v. Quality Communications, Inc., 771 F.3d 638 (9th Cir. 2014) (No. 12-15890), a former employee brought an action against his former employer, alleging a failure to pay minimum and overtime wages in violation of the Fair Labor Standards Act (FLSA). The district court dismissed the complaint, ruling that it failed to plead sufficient facts to meet the plausibility requirement of Twombly and Iqbal, and the Ninth Circuit affirmed. The court noted that this case presented an issue of first impression in the circuit, the district courts that have considered the question are split, and there is no consensus among the other circuit courts as to what facts must be affirmatively pled to state a viable FLSA claim post-Twombly and Iqbal. Joining the First, Second and Third Circuits, the court held that in order to survive a motion to dismiss, a plaintiff asserting a claim to overtime payments must allege that he or she worked more than forty hours in a given workweek without being compensated for the overtime hours worked during that specific workweek. A plaintiff need not, however, allege the number of hours worked without compensation. Applying this standard to the present case, the court found that plaintiff’s complaint was deficient because it included only generalized allegations of violations of the minimum wage and overtime provisions of FLSA, and failed to assert a specific workweek during which plaintiff worked in excess of forty hours and was not paid overtime.
Florida Supreme Court Sets Harmless Error Test For Civil Cases.
In Special v. West Boca Medical Center, No. SC11-2511 (Fla. Nov. 13, 2014), plaintiff brought a medical malpractice action and, following a trial, the jury found in favor of defendants. The appellate court affirmed, ruling that any error during the trial was harmless because it was more likely than not that the alleged errors did not contribute to the verdict. The Florida Supreme Court reversed and, in so doing, articulated for the first time the proper test for harmless error in Florida civil appeals. The court stated that it is insufficient merely to show that it was “more likely than not” that the error did not contribute to the judgment; rather, the beneficiary of the error must prove that there is “no reasonable possibility” that the error complained of contributed to the verdict. In order to determine whether the beneficiary of the error has satisfied this burden, the appellate court should focus on the effect of the error on the trier-of-fact, and avoid engaging in an analysis that looks only to the result in a given case.
11th Cir. Limits EEOC’s Subpoena Power.
In EEOC v. Royal Caribbean Cruises, Ltd., 771 F.3d 757 (11th Cir. 2014) (No. 13-13519), an employee of Royal Caribbean cruise line filed a charge of discrimination with the Equal Employment Opportunity Commission (EEOC), alleging that Royal Caribbean violated the Americans with Disabilities Act (ADA) by refusing to renew his employment agreement after he was diagnosed with a medical condition. Royal Caribbean did not dispute that it refused to renew the employee’s contract because of his medical condition, but instead asserted that the ADA did not apply because the employee was a foreign national working on a foreign ship. The EEOC issued an administrative subpoena to Royal Caribbean, requesting information relating to other employees whose contracts were not renewed due to a medical reason. After Royal Caribbean refused to comply fully with the subpoena, the EEOC filed a motion to compel, which the district court denied. The Eleventh Circuit affirmed. The court of appeals noted that courts addressing the permissible scope of EEOC subpoenas generally have construed the term “relevant” liberally and afforded the EEOC access to virtually anything that might cast light on the allegations against the employer; however, the court also cautioned that courts should not construe the EEOC’s investigative authority so broadly that the relevancy requirement is rendered a nullity. Thus, the court rejected the EEOC’s argument that it was entitled to discovery of any information that might uncover other potential violations and victims of discrimination on the basis of disability. Rather, the court held that the standard by which the EEOC’s subpoena power should be governed is “relevant to the charge under investigation,” and not relevance to issues that may be contested if and when future charges are brought against others. Because there was no dispute that Royal Caribbean refused to renew the complaining employee’s contract for medical reasons, the issue of whether Royal Caribbean refused to renew other employees’ contracts for the same reason was irrelevant to the individual charge at hand.
Court Rejects “Fairness” Argument As To Unequal E-Discovery Burdens.
By: Daniel J. Weiss
In Finjan, Inc. v. Blue Coat Systems, Inc., No. 13-cv-03999 (N.D. Cal. Oct. 17, 2014), the parties agreed to a seemingly symmetrical e-discovery plan, with each party agreeing to search email for the same number of custodians and with the same number of search terms. It later emerged, however, that the defendant was searching both active and archival email systems, while the plaintiff was only searching active systems and did not maintain archival system that could be searched. The court agreed that “[r]educed to its essence, Rule 26(b)(2)(iii) requires this court to decide: have [a party’s] discovery responses been fair?” The court rejected the idea that fairness excuses a party from searching available sources where the party’s opponent cannot search similar sources. “[Defendant] may largely be in the right that it should not have to dig through legacy systems when [plaintiff] is unable to [do] the same for its custodians. But one party’s discovery shortcoming are rarely enough to justify another’s.”
Prevailing Party May Recover Costs For TIFF And OCR Document Formatting.
By: Daniel J. Weiss
In Kuznyetsov v. West Penn Allegheny Health System Inc., No. 10-948 (W.D. Pa. Oct. 23, 2014), the plaintiffs sought review of a clerk’s order requiring them to pay the prevailing defendant over $60,000 in costs under Rule 54(d)(1). With respect to e-discovery costs, the plaintiffs first argued that the costs associated with Optical Character Recognition (OCR) were unnecessary and not appropriately taxed. The district court rejected this argument because the plaintiffs requested that information be produced in OCR format and “[t]he scanning and conversion of native files to the agreed-upon format for production of ESI constitutes ‘making copies of materials’” under the bill of costs statute, 28 U.S.C. § 1920(4). Plaintiffs next argued that the costs associated with scanning documents and converting them into Tagged Image File Format (TIFF) were unreasonably high. The court held that 5 cents per page for TIFF conversion and 24 cents per page to scan paper documents were reasonable rates. The court also rejected plaintiffs’ argument that the assessment of costs in this employment-related case was inequitable: “Every litigant is presumed to have considered and weighed the risks [of litigation], including the payment of costs if the litigant does not prevail.”
Rule 502(d) Order Does Not Preclude The Opportunity For Manual Privilege Review.
By: Daniel J. Weiss
In Good v. American Water Works Co., No. 14-01374 (S.D. W. Va. Oct. 29, 2014), the parties were unable to reach an agreement concerning a document production protocol and asked the court to intervene. Plaintiffs took the position that they would agree to the entry of a “claw-back” order for privileged documents under Fed. R. Evid. 502(d) only if defendants agreed to forego a manual review for privileged documents. Plaintiffs argued that a computer/mechanical review for privileged documents would be faster and sufficient inasmuch as defendants would remain protected by the ability to claw-back any inadvertently produced documents. Defendants argued that they should be permitted to manually review potentially privileged documents notwithstanding the protection of a Rule 502(d) order. The court entered a Rule 502(d) order reflecting defendants’ approach, holding that “defendants have chosen a course that would allow them the opportunity to conduct some level of human due diligence prior to disclosing vast amounts of information, some portion of which might be privileged.” The court further held that “the parties need not agree” in order for the court to enter a Rule 502(d) order, and entered the order over plaintiffs’ objection.
Federal Court Find Coverage for Settlements Where Insured Did Not Obtain Excess Insurer’s Consent.
A federal court in Michigan recently found coverage under an excess insurance policy for settlements that the insured had entered into without obtaining the insurer’s consent. Stryker Corp. v. XL Ins. Co., No. 05-CV-51 (W.D. Mich. Oct. 30, 2014). Stryker had received a number of direct product liability claims regarding defective Uni-Knees. It’s primary insurer, XL, denied coverage under a CGL policy for these direct claims, and Stryker proceeded to settle such claims on its own in the amount of $7.6 million. In a separate coverage action, the court determined XL was liable for the direct settlements. However, Stryker also had been sued by Pfizer for indemnification for Uni-Knee claims and ultimately was found liable to indemnify Pfizer. XL ended up paying it full policy limits to Pfizer to resolve those indemnity claims. Given exhaustion of the XL policy, Stryker sought coverage for the $7.6 million in direct settlements from its excess insurers, TIG. There was no dispute as to the reasonableness of the settlements; however, TIG refused to pay on the grounds that Stryker did not obtain its consent before entering into the settlements. The excess policy’s definition of “Ultimate Net Loss” included settlements made with the insurer’s written consent. On cross motions for summary judgment, the court, applying Michigan law, ruled in favor of coverage for Stryker. The court reasoned that there was a latent ambiguity in the policy language as to whether the consent provision applied to all settlements or only to those settlements within TIG’s policy layer. Here, the direct settlements had been entered into before the primary layer of coverage had been exhausted, and the primary layer was later exhausted by other claims. The court construed the ambiguity in these circumstances against excess insurer and in favor of coverage. The court also reasoned that requiring Stryker to obtain TIG’s consent before the XL policy was exhausted would have been a meaningless act, would not have met the purpose of the consent provision, would have granted a windfall to TIG, and in any case TIG had no good faith basis for withholding consent.
Eighth Circuit Clarifies Level Of Public Health Risk Required To Trigger Coverage For Voluntary Food Product Recalls And Affirms Lost Gross Profits Damages.
In a recent decision regarding insurance coverage for lost gross profit from the voluntary recall of mislabeled Sausage Breakfast Sandwiches, which inadvertently contained the flavor enhancer monosodium glutamate (“MSG”), the Eighth Circuit clarified the standard for triggering coverage and the evidence sufficient to support a damages award pursuant to an Accidental Product Contamination policy. Hot Stuff Foods, LLC v. Houston Cas. Co., 771 F.3d 1071 (8th Cir. 2014) (Nos. 14-1192, 14-1194). The court interpreted the policy terms “may likely result” to cover the insured’s recall of the mislabeled sandwiches, which had not caused any reported illnesses, only if there was more than a possibility, but less than a probability, that the mislabeled product would cause physical symptoms of bodily injury, sickness, disease or death, comparing the standard to “reasonably likely to result.” In doing so, the court rejected the district court’s “possibility or a slight chance” test, which the district court found was satisfied by a showing that the recalled sandwiches could cause sickness in at least one person. The court further held that there was a jury question as to whether consumption of the mislabeled sandwiches met the “more than a possibility, but less than a probability” standard, in light of the conflicting expert and inconclusive government reports and scientific studies. However, the court held damages need not be retried and affirmed the district court’s denial of the insurer’s motion for judgment as a matter of law as to the amount of the jury’s award of lost gross profit. The insured had presented testimony of two regional sales managers that all employees needed to assist with the recall, preventing the company from adequately marketing at important trade shows, which led to reduced sales. The court held that the jury had sufficient evidence to find direct causation between the recall and the lost gross profit on new products.
Pennsylvania’s Product Liability Law Revamped.
By: Barry Levenstam
In Tincher v. Omega Flex, Inc., No. 17 MAP 2013 (Pa. Nov. 19, 2014), the Pennsylvania Supreme Court substantially changed products liability law in that state. First, the Pennsylvania Supreme Court overturned a 35-year-old Pennsylvania Supreme Court decision that had separated the concepts of strict liability and negligence in a manner that made defending product liability design defect claims difficult for manufacturers. That overruled decision had limited or excluded state of the art and industry standards defenses, and had required that juries be instructed that a manufacturer is a “guarantor” of its products. That pro-manufacturer change was, however, off-set by the court rejecting the adoption of the Third Restatement of Torts in favor of selecting Section 402(a) of the Second Restatement of Torts as the rule of law in Pennsylvania. The Restatement Third has been criticized by plaintiffs as being too manufacturer-friendly in such specifics as requiring a plaintiff to show the existence of a reasonable alternative design, while Section 402(a) of the Second Restatement permits the plaintiff to prove a product defective either through the consumer expectation test or the risk/utility test.
Disclosing Whistleblower’s Identity To Colleagues Constitutes Retaliation Under SOX.
The Fifth Circuit affirmed the U.S. Department of Labor Administrative Review Board’s decision that Halliburton’s disclosure of a whistleblower’s identity to colleagues constituted an “adverse action,” i.e., an action harmful enough that it might dissuade others from engaging in statutorily protected whistleblowing, for which whistleblower’s protected conduct was a contributing factor. Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254 (5th Cir. 2014) (No. 13-60323). As a result, this disclosure amounted to illegal retaliation under the Sarbanes-Oxley Act. After the whistleblower internally reported what he believed were questionable accounting practices, the whistleblower lodged with the SEC a complaint against Halliburton. After his boss identified him as the SEC whistleblower, his colleagues began treating him differently, including refusing to work with him. The court emphasized that Halliburton’s identification of the whistleblower was a “targeted creation of an environment in which the whistleblower is ostracized” and a “potential deprivation of opportunities for future advancement.” Thus, the court affirmed an award to the whistleblower for noneconomic compensatory damages—namely, for emotional distress and reputational harm.
SEC Provides More Transparency On Dodd-Frank Whistleblower Program.
The SEC recently issued its 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program, providing detail on the historic year. SEC, Office of the Whistleblower, 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program (Nov. 24, 2014). Of the 14 total awards authorized by the SEC since the start of the whistleblower program, nine of these were issued in 2014. Id. at 1. Included in these nine was an award of over $30 million—more than double the amount of the previous highest award under the program—to a whistleblower who helped the SEC discover an ongoing fraud that was otherwise difficult to detect. Forty percent of the whistleblower award recipients were current or former company employees, and 20% were contractors, consultants, or solicited to act as consultants for the company committing the reported securities violation.
FCPA Charges Resolved By Payment Of Significant Criminal Penalty And Disgorgement.
By: Jessie K. Liu
California-based medical diagnostics and life sciences company Bio-Rad Laboratories Inc. entered into a non-prosecution agreement with the Department of Justice, Bio-Rad Labs., Inc. Non-Prosecution Agreement Letter from William J. Stellmach, U.S. Dep’t of Justice, to Douglas N. Greenburg, Latham & Watkins LLP (Nov. 3, 2014), and also consented to the entry of an SEC administrative order related to violations of the FCPA. Bio-Rad Labs., Inc., Exchange Act Release No. 73496 (Nov. 3, 2014). Bio-Rad agreed to pay a $14.35 million criminal penalty and $40.7 million in disgorgement and prejudgment interest. According to the statement of facts attached to Bio-Rad’s non-prosecution agreement with DOJ, a French subsidiary of Bio-Rad retained and paid intermediary companies “commissions” of 15% to 30%, purportedly for various services in connection with governmental sales in Russia that were never performed. These payments were inaccurately recorded in Bio-Rad’s books. Bio-Rad also failed to implement internal controls with respect to its Russian operations such that it failed to stop the payments. The SEC’s order made similar allegations and, in addition, asserted that foreign Bio-Rad subsidiaries used local intermediaries in Vietnam and Thailand to funnel bribes to officials in those countries in exchange for business, which subsequently were inaccurately recorded and consolidated into Bio-Rad’s financial statements. The SEC stated that Bio-Rad failed to prevent or detect approximately $7.5 million in bribes over a five-year period and that these bribes enabled Bio-Rad to earn about $35 million in illicit profits.
DOJ Seeks Forfeiture Of Amounts In Bank With Interbank Accounts In US.
By: Jessie K. Liu
The federal district court in the District of Columbia unsealed a civil forfeiture complaint filed by the Department of Justice, in which the Department sought the forfeiture of approximately $1.5 million in funds allegedly traceable to bribes made by a Canadian energy company to Chad’s ambassador to the United States and Canada. See Complaint, United States v. All Funds Up To and Including $1,474,517 in Interbank Accounts, No. 14-cv-01178 (D.D.C. July 8, 2014) (ECF No. 3). According to the complaint, in 2011, Griffiths Energy International (“Griffiths”) transferred approximately $2 million to an account controlled by the ambassador’s wife in exchange for the ambassador exercising his influence over certain oil development rights in Chad. Subsequently, that money was commingled with other funds and laundered through a variety of financial transactions, with about $1.5 million ultimately being wired to the ambassador’s account at a South African bank with interbank accounts in the United States. Griffiths pleaded guilty to violating the Canadian Corruption of Foreign Public Officials Act in 2013 but has not been charged with a violation of the FCPA.
SEC Imposes First FCPA-Related Administrative Sanctions Of Individuals Since 2012.
By: Jessie K. Liu
The SEC reached an administrative settlement with two former employees of Oregon-based FLIR Systems, for their role in sending officials from the Saudi Arabian Ministry of Interior (“MOI”) on a trip to inspect products at FLIR’s Boston facility, which included stops in Casablanca, Paris, Dubai, Beirut and New York City, and for buying and giving five luxury watches totaling $7,000 to Saudi MOI officials, some of whom were also included in the trip. Timms, Exchange Act Release No. 73616 (Nov. 17, 2014). There were no allegations of cash payments. According to the SEC’s order, the travel and watches were offered in order to retain $12.9 million in business for thermal binoculars and to obtain a separate $17.4 million order for infrared security cameras. The SEC order further alleges that following an internal review by FLIR of Timms’ request for reimbursement for the cost of the watches, the former employees worked with a third-party agent to obtain false invoices understating the cost of the watches as 7,000 Saudi Riyal (approximately US $1,900), and inaccurately showing direct flights between Riyadh and Boston without the stopovers made by the MOI officials. Under the settlement, one former employee agreed to pay $50,000 and the other, $20,000, to resolve alleged violations of the FCPA’s anti-bribery and books-and-records provisions. This matter represents the SEC’s first administrative sanction of individuals since 2012.
Connecticut Court Denies Pre-Suit Discovery Of Internal Investigation.
In Renton v. Kone, Inc., No. HHDCV146050141S (Conn. Super. Ct. Sept. 26, 2014), two former employees of defendant brought a bill of discovery complaint in contemplation of an action challenging their terminations. The petition was brought under a Connecticut procedure that allows limited pre-suit discovery to ascertain the viability of claims. The dispute arose out of an anonymous call to the company’s CEO and a report to its hotline concerning theft and other improper business practices in the company’s Hartford office. The company’s General Counsel directed its Compliance Director and a Human Resources Director to conduct an internal investigation, which concluded that the Hartford office had a “fractured and polarized work force,” that one of the petitioners, the office’s branch manager, “lacked the judgment and ability to effectively manage and lead the office,” and that the branch manager and the other petitioner “had created a dysfunctional and hostile work environment.” The petitioners stated an intent to bring claims for defamation and negligent infliction of emotional distress, and claimed that various reasons the company provided for the terminations were baseless. The court found that the petitioners did not satisfy the required standard of providing detailed facts establishing probable cause to bring the potential causes of action. It also noted the privileged nature of internal investigations led by company lawyers, relying heavily on Upjohn Co. v. United States, 449 U.S. 383, 101 S. Ct. 677 (1981), and In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014). Accordingly, it denied the bill of discovery.