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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 firstname.lastname@example.org.
Confidentiality Provision in Arbitration Agreement Held Unconscionable.
The U.S. Court of Appeals for the Eleventh Circuit concluded that a confidentiality provision in an arbitration clause in a bank account holder agreement was substantively unconscionable. Larsen v. Citibank FSB, 871 F.3d 1295 (11th Cir. Sep. 26, 2017). The case concerned a putative class of account holders who challenged the bank’s overdraft policy. The arbitration clause in the account holder agreement required both parties to keep confidential any decision of an arbitrator. The account holder argued that this provision disproportionately favored the bank as a repeat participant in the arbitration process. The court agreed, concluding that where the outcomes of prior arbitration proceedings remain concealed, as the arbitration clause purported to require, prospective claimants have little context in which to assess the value of their cases, to avoid repeating past claimants’ mistakes, or to leverage prior successes. The court further reasoned that the information advantage that the bank holds at the outset of a dispute may have the effect of discouraging consumers from pursuing valid claims. The court concluded that severing the confidentiality clause would not significantly alter the tone or nature of arbitration between the account holders and the bank. Accordingly, the court severed the confidentiality clause and enforced the remainder of the clause.[Back to Top]
By: Michael T. Brody
Seventh Circuit Reverses ERISA Class Due to Absence of Common Fiduciary Duty.
In Priddy v. Health Care Service Corp., No. 16-4127 (7th Cir. Aug. 31, 2017), plaintiff sued one of the nation’s largest health insurance providers claiming the defendant violated federal and Illinois law through its use of third party affiliates to provide services. Plaintiffs asserted defendant’s affiliates overcharged beneficiaries and returned proceeds to defendant through rebates in violation of defendant’s fiduciary duties to the class. The district court certified a class estimated to include 10 million members. The class included employers, beneficiaries, direct insurance purchasers in multiple states, and Illinois purchasers. The Seventh Circuit reversed. The Seventh Circuit found that whether defendants violated a fiduciary duty is a “context-specific endeavor, because a plan administrator is ‘a fiduciary only to the extent that he acts in such a capacity in relation to a plan.’” The district court did not engage in this analysis, and it was not clear defendant owed many class members any fiduciary duty at all. The Seventh Circuit remanded for a determination of the nature and scope of any fiduciary duty.
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Third Circuit: Consumers Have Standing to Complain of Eyedrop Packaging.
In Cottrell v. Alcon Laboratories, No. 16-2015 (3d Cir. Oct. 18, 2017), plaintiffs alleged defendants, manufacturers and distributors of prescription eyedrops, sold the medication in bottles that dispensed eyedrops that were too large for effective use. The excess medication would escape the eye or be absorbed through the tear duct, resulting in waste or potential side effects. Plaintiffs alleged at least half of the medication dispensed from defendants’ products went to waste or put the patient at risk for side effects. Plaintiffs alleged this resulted in an economic injury. The district court disagreed, and dismissed the lawsuits for lack of injury in fact. The Third Circuit reversed. It found plaintiffs alleged economic interests – the money they spent on wasted medication – that were protected by state consumer statutes. The Third Circuit acknowledged the Seventh Circuit had held otherwise in Eike v. Allergan, 850 F.3d 315 (7th Cir. 2017); the Seventh Circuit concluded plaintiffs failed to allege a legally protected interest and lacked standing. The Third Circuit disagreed, noting consumer protection statutes not only prohibit fraudulent and deceptive practices, but also unfair practices. Packaging product in a manner that requires it to be wasted was arguably unfair. The injury was both concrete and particularized, thereby satisfying the Spokeo requirements. One judge dissented, concluding the alleged economic injury was overly speculative. To the dissent, the assertion the defendants could have manufactured a more efficient product that could have resulted in a lower price did not give rise to a claim.
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Seventh Circuit Establishes Brightline Tolling Rule.
In Collins v. Village of Palatine, Illinois, No. 16-3395 (7th Cir. Nov. 16, 2017), the Seventh Circuit addressed the intricacies of the American Pipe doctrine. That case provides that when plaintiff files a complaint on behalf of a class, the statute of limitations for each member of the class is tolled until “the case is ‘stripped of its character as a class action.’” This “stripping” occurs when the district court denies class certification, dismisses the case for lack of subject matter jurisdiction, or otherwise dismisses the case without prejudice. In Collins, the Seventh Circuit held that a dismissal with prejudice also strips the case of its class action character. The court adopted a “simple and uniform rule: Tolling stops immediately when a class action suit is dismissed – with or without prejudice – before the class is certified.” The Court considered whether a district court’s dismissal of a prior lawsuit tolled the limitations period, or whether tolling continued until the dismissal was affirmed and certiorari denied. The Seventh Circuit found the statute of limitations was not tolled during the period from the district court’s dismissal until the Supreme Court denied certiorari. The Court relied on cases in other contexts that established the consensus view that “once certification is denied, the limitations clock immediately starts ticking again.” In Collins, the Seventh Circuit applied that reasoning to the dismissal with prejudice of the underlying claim, even if certification had not yet been sought or obtained.
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Eighth Circuit Addresses Standing for Data Breach Claim.
In In re SuperValu, Inc., Customer Data Security Breach Litigation, No. 16-2378 (8th Cir. Aug. 30, 2017), the Eighth Circuit reviewed the district court’s dismissal of a lawsuit alleging claims arising out of a data breach that purportedly caused a single identified unauthorized charge. The district court found plaintiffs lacked standing because they did not suffer an injury in fact. As for the risk of future injury, the Eighth Circuit concluded plaintiffs had alleged information had been stolen, but, with one exception, had not alleged that it had been misused. The Court found the mere possibility of future harm was not sufficient for standing. Likewise, the costs plaintiffs may incur to mitigate their risk of future harm cannot create an injury where the risk of future identify theft is itself speculative. As for present injury, the Court concluded that the single allegation of misuse of credit card information was sufficient to demonstrate the class representative had standing. Because one named plaintiff had standing, the district court erred in dismissing the action.
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Books and Records Request Rejected as Attorney Driven.
In Wilkinson v. Schulman, No. 2017-0138-VCL, (Del. Ch. Nov. 13, 2017), the Court entered judgment in favor of the defendant in a books and records dispute, concluding that the shareholder lacked a “proper purpose” for his demand. The initial records demand featured all of the hallmarks of a legitimate books and records request. It included proper stated purposes, sought documents reasonably connected to those purposes, articulated a potential harm to the company based on certain Board conduct, and was signed by a shareholder of the company. However, during his deposition, the plaintiff shareholder admitted that he “lent his name to a lawyer-driven effort by entrepreneurial plaintiffs’ counsel.” The plaintiff shareholder admitted that he did not (a) identify the purposes for the request; (b) identify the categories of documents to request; (c) review any of the correspondence between the company and his lawyers about the request; and more generally, (d) that he “was not involved in [plaintiff’s counsel’s] effort to obtain documents.” During the deposition, defense counsel also elicited the fact that the plaintiff had – at least on seven prior instances – lent his name as a named plaintiff for shareholder suits filed by the same plaintiff’s counsel. In light of all of these facts, the court concluded that the defendant proved the shareholder’s “purported purposes were not his actual purposes. They were his counsel’s purposes.” As a result, judgment was entered for the defendant company.
Fully Informed Shareholder Vote Leads to Dismissal of Derivative Action.
In Morrison v. Berry, No. 12808-VCG (Del. Ch. Sept. 28, 2017), the plaintiff shareholder sued the Board of Directors of The Fresh Market, a food store chain. The plaintiff alleged that the Directors breached their fiduciary duty by failing to disclose material information about a proposed acquisition of The Fresh Market by Apollo Management L.P. Specifically, the plaintiff alleged that the auction process engaged in by The Fresh Market was a sham because one of the largest shareholders– who also was a Director of The Fresh Market – had, without the Board’s knowledge, pre-arranged for Apollo to win the auction. In defense of the completed acquisition, the Board members argued that the pre-acquisition discussions with Apollo were disclosed prior to an informed vote of the shareholders, which approved the acquisition. The Morrison court explained that where there was an “uncoerced tender of the majority of shares” in support of a merger, the plaintiff’s burden was to “plead facts from which it is reasonably conceivable that the potentially ratifying tender was materially uninformed.” Concluding that the plaintiffs’ theories were “self-defeating” because they were, themselves, based on information disclosed by the Fresh Market in public filings, the Court granted the defendants’ motion to dismiss.
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By: Daniel J. Weiss
Electronic Scan of Destroyed Hard Copy Documents Insufficient to Avoid Sanctions.
In Mitcham v. Americold Logistics, LLC, No. 17-cv-00808-WJM-NYW, 2017 WL 4163359 (D. Colo. Sept. 20, 2017), a sex discrimination action, the plaintiff twice responded that she had produced all documents pursuant to a discovery request for “handwritten note[s], recorded communications, calendars, journals, [and] diaries.” But at the plaintiff’s deposition, the defendant learned that plaintiff had kept a journal, in which she had recorded her own accounts of alleged improper conduct. The plaintiff testified that she had scanned the journal, turned the scan over to her lawyer, and then shredded the original. The plaintiff produced the scanned copy of the journal two days after the deposition, and the defendant sought sanctions for the plaintiff’s delay in producing the scanned copy. The court awarded sanctions, finding that the plaintiff’s duty to preserve the original journal was triggered when she hired a lawyer the day after her termination – facts that gave her “notice” that the journal might be “relevant to a reasonably-defined future litigation.” The court “respectfully disagree[d]” that “the scanned copy is just as good as the original” because the scan could not show whether all pages of the original journal were included, and the scan would give “no opportunity . . . to determine from the handwriting, the ink, or otherwise if there are timing differences as to when certain entries were written.” Based on the defendant’s inability to review the original journal, the court found that the defendant had been prejudiced. The court ordered the plaintiff to pay attorneys’ fees and costs associated with the reopening of the plaintiff’s deposition to clarify issues related to the journal, but denied an adverse inference instruction because the record was “insufficient” to “determine the scope and extent of any prejudice” to the defendant. Significantly, the plaintiff disputed whether she had even destroyed the journal because she kept her journal “in the ordinary course of business and transferred it to a computerized form as a matter of routine,” such that she should be able to produce the scanned copy under Federal Rule 34(b)(2)(E). But the court found that the original journal was not ESI, so Rule 34(b)(2)(E) was inapplicable.
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Screen Capture of Website Taken Offline Found Sufficient To Avoid Sanctions.
In Barcroft Media, Ltd. v. Coed Media Group, LLC, No. 16-CV-7634 (JMF), 2017 WL 4334138 (S.D.N.Y. Sept. 28, 2017), the court found that relevant documents had not been lost for sanctions purposes where the defendant took down certain websites containing relevant, discoverable materials because the plaintiffs had retained “screen captures” of those same webpages showing the relevant information. The case involved the allegedly infringing use of copyrighted celebrity photographs. The defendant media company took down the websites where the photos were displayed and the plaintiffs moved for spoliation sanctions. The court denied sanctions, finding that the plaintiffs had retained the screen captures of the websites and the defendant did not deny the screen captures’ authenticity. Accordingly, the court found that the plaintiffs’ motion for sanctions “border[ed] on frivolous” because there was “no evidence whatsoever that [the] Defendant ‘acted with the intent to deprive another party of the information’s use in litigation.’”
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UPDATE: Google Requests Contempt Order Against Itself To Seek Appellate Review.
We recently noted that Google had been ordered to comply with two FBI warrants seeking users’ data stored on servers located outside the United States in In re Search Warrant No. 16-960-M-1 to Google, No. 16-1061, 2017 WL 3535037 (E.D. Pa. Aug. 17, 2017).
In a similar case, Matter of Search of Content Stored at Premises Controlled by Google Inc., Case No. 16-mc-80263-RS, 2017 WL 4700056 (N.D. Cal. Oct. 19, 2017), Google successfully moved for sanctions of $10,000 per day against itself for noncompliance with another warrant seeking data from offshore servers. By subjecting itself to such a sanctions order, Google sought standing to obtain appellate review of the court’s order compelling compliance. The government agreed that Google should be sanctioned for noncompliance, but also sought an evidentiary hearing on matters such as Google’s duty to preserve information pending appeal. The court denied the government’s request for an evidentiary hearing and imposed the $10,000-a-day sanction on Google.
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Lynyrd Skynyrd Member Sanctioned For Failure To Preserve Third Party’s Text Messages.
In Ronnie Van Zant, Inc. v. Pyle, 17 Civ. 3360 (RWS), 2017 WL 3721777 (S.D.N.Y. Aug. 28, 2017), former members of the band Lynyrd Skynyrd sued another former member and a music and film production company for breach of a consent order the band members had entered in 1988. The plaintiffs alleged that the defendants had begun developing an unauthorized film in violation of the consent order.
The matter proceeded to a bench trial, in which the plaintiffs requested that the court draw an adverse inference with respect to lost cell phone text messages between the defendant band member and a non-party screenwriter with whom he was collaborating on the film. The text messages were lost when the non-party screenwriter switched phones. The defendants maintained that they could not be sanctioned for the actions of the non-party screenwriter, whose phone was not “within their control.” The court disagreed, following case law that has held documents to be under a party’s control where “the party has the practical ability to obtain the documents from another, irrespective of legal entitlement.” The non-party screenwriter’s text messages, the court found, were practically within the control of the defendant music and film production company because the screenwriter was under contract with the production company to work on the film and the screenwriter had a financial stake in the litigation’s outcome because he was entitled to a percentage of the film’s eventual net receipts. Accordingly, the court held that “common sense” indicated that the screenwriter’s text messages should have been preserved in the face of pending litigation regarding the film. Furthermore, the court held that the plaintiffs had been prejudiced because the text messages would demonstrate the “quality of interaction between” the screenwriter and the defendant band member bound by the consent order. Finally, the court held that the screenwriter’s efforts to preserve photos but not text messages when switching phones after the onset of litigation showed “the kind of deliberate behavior” weighing in favor of an adverse inference.
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By: Allison A. Torrence and Matthew G. Lawson
Following Keystone Pipeline Oil Spill, Judge Orders Ongoing Monitoring Requirements for Dakota Access Pipeline.
In Standing Rock Sioux Tribe v. U.S. Army Corps of Engineers, 16-cv-01534 (December 4, 2017), Federal District Court Judge James Boasberg ordered the Dakota Access Pipeline’s (DAPL) owner, Dakota Access, LLC, the U.S. Army Corps of Engineers (the Corps) and the Standing Rock Sioux Tribe and Cheyenne River Sioux Tribe (the Tribes) to “coordinate to finalize an oil-spill response plan affecting Tribal resources and lands at Lake Oahe.” In addition, Judge Boasberg ordered Dakota Access to submit bi-monthly reports to the court providing detailed information with respect to the segment of the DAPL crossing Lake Oahe, and to hire an independent, third-party engineering expert to conduct a compliance audit of the pipeline.
The order is the most recent development in a series of ongoing decisions regarding the DAPL. In June, Judge Boasberg determine that the Corps had failed to fully comply with the National Environmental Policy Act (NEPA) when it granted easements to DAPL over Lake Oahe. Subsequent to this decision, the Tribes asked the court to vacate DAPL’s permits, and to enjoin construction of the pipeline until the Corps rectified the deficiencies in its NEPA analysis. The court declined the Tribes request, finding that an injunction was not proper because there was a “significant likelihood” The Corps could fix the deficiencies in its NEPA analysis, and substantiate its original conclusion to grant the easement. The court’s decision left open, however, the possibility that it may impose other, interim conditions on the project while awaiting the Corps updated NEPA analysis.
Following the court’s October ruling, in November, the TransCanada Keystone Pipelineleaked an estimated 210,000 gallons of crude oil near the boundaries of the Lake Traverse Reservation, home of the Sisseton Wahpeton Oyate Tribe in South Dakota. In highlighting the recent spill as evidence of the need for monitoring requirements, Judge Boasberg stated, “Although the Court is not suggesting that a similar leak is imminent at Lake Oahe, the fact remains that there is an inherent risk with any pipeline.” Judge Boasberg dismissed the defendant’s assertions that Plaintiff’s request for monitoring information was nothing more than an alternative request for injunctive relief. Instead, the court found that the interim conditions were simply a means to ensure the court received up to-date and necessary information about the operations of the pipeline. To ensure the court received this information, Judge Boasberg ordered the DAPL’s bi-monthly report to include, among other information, any updates regarding new integrity threats, any reportable incidents and any leaks or ruptures in the pipeline. Finally, the court ordered the parties’ oil spill response plan and compliance audit report be submitted to the court by April 1, 2018.The Corps anticipates completing its supplemental NEPA analysis by April 2018, at which point the court will determine whether the Corps has fully complied with NEPA.
View the Order here, which includes additional instructions about the Memo.[Back to Top]
Recent Ruling from the N.D. Illinois Favorable to Additional Insured Coverage.
Following an insurance coverage dispute that arose after substantial completion of Chicago's Deep Tunnel flood control project, a federal court in Illinois recently ruled in favor of coverage for a general contractor under the insurance policy belonging to a subcontractor. Old Republic Insurance Co. v. Kenny Construction Co., No. 15-CV-03524, 2017 WL 4921970 (N.D. Ill. Oct. 31, 2017). Specifically, the court held that the general contractor had received certificates of insurance demonstrating that it was an additional insured under the subcontractor’s policy for underlying damages that resulted from a ruling in the underlying action that both the subcontractor and the general contractor were negligent in connection with a design change in the tunnel’s construction. The court’s opinion is instructive for other policyholders on three key points. First, certificates of insurance can be construed to reflect the parties’ intent to add another entity as an additional insured, and are not merely for “informational purposes,” as the insurer asserted. “The additional insured representation has no value to [the additional insured] if not true.” The court thus relied upon the certificates to identify the parties’ intent, which was to include the general contractor as an additional insured year after year. Second, an insurer may have a duty to indemnify even in the absence of a duty to defend. The court found that the policy provisions relating to indemnification did not contain the same limiting language found in those pertaining to the duty to defend, which required the existence of a suit. As a result, when the two duties appear in separate contractual provisions, the duty to indemnify may very well exist in the absence of a duty to defend. Third, the contractual liability exclusion will not apply to bar coverage for an underlying claim when the claim includes both negligence and breach of contract allegations. In the underlying action here, the contracting agency’s repeated reference to the general contractor’s “negligence” in approving the design change that resulted in the leaks suggested to the court that the claims also had a tort-based component.[Back to Top]
DOJ Charges Two in Plot to Bribe African Officials to Benefit Chinese Oil and gas Company.
By: Erin R. Schrantz
On November 20, 2017, the Department of Justice, with the U.S. Attorney’s Office for the Southern District of New York (“SDNY”), announced criminal charges for FCPA violations against the head of a non-governmental organization based in Hong Kong and Virginia and the former Foreign Minister of Senegal. The criminal complaint alleges the two individuals participated in a multimillion-dollar scheme to bribe “the highest levels of government” in Chad and Uganda in order to obtain business advantages for a Chinese oil and gas company. Some of the alleged bribes were disguised as charitable contributions.
According to the allegations in the complaint, the defendants engaged in two bribery schemes to pay high-level officials of Chad and Uganda in exchange for business advantages for the Shanghai-based energy conglomerate. They allegedly facilitated a $2 million bribe in exchange for valuable oil rights from the Chadian government. The complaint alleges that the former Foreign Minister of Senegal “played an instrumental role in the scheme” by, among other things, conveying the bribe offer to the President of Chad, for which he received $400,000 “via wires transmitted through New York.” The complaint also alleges a $500,000 bribe was paid, via wires transmitted through New York, to an account designated by the Minister of Foreign Affairs of Uganda, who had recently completed his term as the President of the UN General Assembly.
The Department’s announcement emphasized two facts that may have piqued the SDNY’s interest in the case and provided an important jurisdictional hook: (1) the defendants used the U.S. banking system to pay the alleged bribes, and (2) they had discussions in the halls of the United Nations in New York in furtherance of the alleged scheme. As the Department put it, the defendants “didn’t realize that using the U.S. banking system would be their undoing.”
SEC Names New Head of FCPA Unit.
By: Erin R. Schrantz
The SEC announced that it has installed Charles Cain at its new Chief of the Enforcement Division’s FCPA Unit. Cain acted as the Unit’s Acting Chief since April 2017, when the former Chief, Kara Brockmeyer, left the SEC for the private sector. After joining the SEC as a Senior Counsel in 1999, Cain served as a Deputy Chief of the FCPA Unit before co-authoring the SEC/DOJ Resource Guide to the U.S. Foreign Corrupt Practices Act. The guide outlines the FCPA in detail and examines the SEC and DOJ approach to FCPA enforcement. Cain also served in lead roles in various FCPA investigations, including those that resulted in charges against Dutch telecommunications provider VimpelCom Ltd. in 2016 and against Sweden-based telecommunications provider Telia Company AB earlier this year.
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ITAR and the FCPA: Strange But Not Uncommon Bedfellows.
By: Erin R. Schrantz
Airbus Group SE, a European multinational corporation that designs, manufactures and sells aeronautical products worldwide, announced in a company release that it has discovered “inaccuracies” in filings it made to the U.S. State Department under the International Traffic in Arms Regulations (ITAR). The ITAR imposes reporting requirements on defense contractors that export defense-related “articles and services.” Part 130 of the ITAR requires defense contractors to report all fees and commissions paid related to the sale of the same.
Recent history and high-profile investigations reveal how a company’s suspected or actual noncompliance with the ITAR can serve as a prelude to the discovery of FCPA violations (or vice versa). In 2010, for example, military contractor BAE pled guilty to a conspiracy that involved both violations of the ITAR and making false statements regarding its FCPA compliance program. Among other misfeasance, BAE “made a series of substantial payments to shell companies and third party intermediaries” without due diligence or proper corporate controls. In some instances, BAE concealed the identities of so-called “marketing advisors” on its payroll. After entering its guilty plea, BAE was ordered to pay a $400 million criminal fine.
The possible interplay between violations of the ITAR and the FCPA could be an issue for Airbus, which has since 2016 been embroiled in a criminal investigation run by the United Kingdom Serious Fraud Office. That investigation is looking into allegations of fraud, bribery, and corruption related to “third party consultants.” At present, no U.S. authority has announced opening a formal investigation into Airbus. Airbus said on October 31st that it is cooperating with U.S. authorities generally.
By: Erin R. Schrantz
On November 29, 2017, the Department of Justice (DOJ) announced a new Foreign Corrupt Practices Act (FCPA) enforcement policy that formally adopts the enforcement principles outlined in the Fraud Section’s “Foreign Corrupt Practices Act Enforcement Plan and Guidance,” commonly referred to as the “FCPA pilot program,” issued by then-Fraud Section chief Andrew Weissmann in April 2016. The original FCPA pilot program sought to encourage corporations to voluntarily disclose FCPA violations by promising that if they did so, they would face a more lenient resolution, possibly including a complete declination of prosecution, as long as they also fully cooperated with DOJ, remediated their controls and compliance programs, and disgorged any illicit profits resulting from the violation. The new policy, which will be inserted into the US Attorney’s Manual as official DOJ policy, draws its structure and much of its language from the pilot program, continuing to provide the promise of beneficial treatment for companies meeting the requirements
For additional analysis of the new policy, please see the linked Client Alert from Jenner’s Investigations, Compliance and Defense practice group: DOJ Formalizes FCPA Enforcement Policy – Reinforcing Incentives for Disclosure and Cooperation Under the FCPA Pilot Program and Creating a “Presumption” in Favor of a Declination of Prosecution for Companies that Voluntarily Disclose Misconduct, authored by David Bitkower, Gayle Littleton, Nicholas Barnaby, Keisha Stanford and Natalie Orpett.[Back to Top]
Plaintiffs May Proceed On Allegations That Wells Fargo Directors Ignored Red Flags
By: Robert R. Stauffer and Ana R. Bugan
In In re Wells Fargo & Co. Shareholder Derivative Litigation, No. 16-cv-05541-JST (N.D. Cal. Oct. 4, 2017), plaintiffs brought a shareholder derivative action against officers and directors of Wells Fargo & Company, alleging that the defendants knew or consciously disregarded that Wells Fargo employees were illicitly creating millions of deposit and credit card accounts for customers without the customers’ knowledge or consent. They allege, among other things, that the defendants knew or should have known of fraudulent cross-selling practices as early as 2007, when the Audit and Examination Committee and the CEO received letters from an employee describing unethical and illegal activity, and that additional notice was provided by complaints through the company’s ethics hotline beginning in 2008, a 2008 whistleblower lawsuit, employment-related lawsuits beginning in 2009, investigations and inquiries by the Office of the Comptroller of Currency and the Consumer Financial Protection Bureau by 2012, and a 2013 article in the Los Angeles Times. Notwithstanding these alleged red flags, the defendants allegedly participated in preparing and signing onto public filings containing inflated cross-sell metrics and other false or misleading statements. Plaintiffs asserted claims for breach of fiduciary duty, violations of several provisions of the securities laws, and other statutory and common law violations. The court granted in part and denied in part the defendants’ motion to dismiss. With respect to the claims against three individual defendants for breach of fiduciary duty, the court found that the complaint sufficiently alleged that the defendants knew about the fraudulent scheme or, given their positions at the company, had “access to information about the alleged fraud, the various lawsuits related to the fraud, and the regulatory investigations,” but nonetheless “took no action to remedy these problems.”
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Jenner & Block Releases 2017 Edition of Privilege and Work Product Handbook.
Jenner & Block recently released the newly-revised, 2017 edition of its attorney-client privilege and work product doctrine guide, titled Protecting Confidential Legal Information: A Handbook for Analyzing Issues Under the Attorney-Client Privilege and The Work Product Doctrine. Authors of the guide include Partners David Greenwald and Michele Slachetka.
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Pennsylvania Superior Court Compels Production Of Investigators’ Notes In Paterno Matter.
In Estate of Paterno v. National Collegiate Athletic Association, No. 877 MDA 2015 (Pa. Super. Ct. July 25, 2017), applying Pennsylvania law, the court held that the Task Force appointed by the University, and not the University itself, could assert the attorney-client privilege, and that non-lawyer investigators’ interview notes were not protected by Pennsylvania’s work product rule. In this matter, the University of Pennsylvania created a Task Force to investigate allegations of criminal wrongdoing by former assistant football coach Jerry Sandusky. The first issue was who could assert the attorney-client privilege over the investigation. The trial court held that the Task Force, not the University, held the privilege, and the appellate court affirmed. The appellate court quoted the engagement letter at length, finding that the letter clearly identified the Task Force as the client, and the University as the party responsible for paying fees. That the Task Force was not a distinct legal entity did not prevent it from acting as the sole client. The second issue was whether interview notes taken by attorneys and non-lawyer investigators were protected work product. The trial court held that certain notes prepared by both attorneys and non-attorneys were discoverable. The appellate court held that only the investigators’ notes were discoverable. The court explained that the Pennsylvania work product protection, found in Pa. R. C. P. 4003.3, is significantly different than the federal rule. Rule 4003.3 specifically protects memoranda and notes of an attorney, but also specifically provides that notes by non-attorneys are not protected unless they reveal “mental impressions, conclusions or opinions respecting the value or the merit of a claim or defense or respecting strategy or tactics.”
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Courts Disagree On Scope of Opinion Work Product Protection For Attorney Testimony.
In In re Grand Jury Subpoena v. United States, 870 F.3d 312, (4th Cir. 2017), a divided panel of the Fourth Circuit applied an expansive view of opinion work product where an attorney was compelled to testify before a grand jury. In this case, the government discovered that documents used by defendant in a criminal trial were forged. The government subpoenaed defense counsel to testify regarding three questions: “(1) Who gave you the fraudulent documents? (2) How did they give them to you, specifically? (3) What did [your client] tell you?” The appellate court held that the third question, which requested the lawyer’s recollection of an interview, sought protected opinion work product. The court explained that a lawyer’s recollection of a witness interview, whether drawn from memory or from written notes, constitutes opinion work product. “[I]mperfect recitations from memory of what a witness said would inevitably reveal what the attorney deemed important enough to remember. Accordingly, we draw a line between asking an attorney to divulge facts . . . [and] asking an attorney to recall generally what was said in an interview.”
The federal district court that ordered Paul Manafort’s attorney to testify before a grand jury applied a narrower standard for opinion work product than the standard applied by the 4th Circuit. In In re Grand Jury Investigation, Misc. Action No. 17-2336 (BAH) (D.D.C. Oct. 2, 2017), the court held that the crime-fraud exception applied to the limited questions that the Special Counsel’s Office (SCO) intended to ask Manafort’s attorney. The attorney had submitted two letters on Manafort’s behalf to the Foreign Agent Registration Act’s (FARA) Registration Unit of the DOJ’s National Security Division. The SCO sought eight categories of information: (1-2) Who were the sources of certain factual representations and documents? (3) Did Manafort or others approve the letters before they were submitted? (4) What did the source(s) say to the attorney regarding specific statements in the letters? (5) When and how did the attorney receive communications from her clients? (6) Did anyone question or correct statements in the letters? (7) Did the attorney memorialize the conversations? (8) Whether the attorney was careful with submitting the letters to the DOJ and whether it was the attorney’s practice to review submissions with her clients before the attorney did so? One issue addressed by the court was whether the information sought was opinion work product, for which the SCO had not made a sufficient showing of extraordinary need to overcome the protection, or fact work product, which would be discoverable as the SCO had made a sufficient showing to overcome fact work product protection. Relying in part on the 4th Circuit decision discussed above, Manafort argued the information sought was opinion work product because the questions would elicit testimony regarding counsel’s recollection of communications with her client, including her mental impressions of those statements. The court disagreed, finding that the D.C. Circuit had rejected “a virtually omnivorous view” of opinion work product and cautioning that not every item which may reveal some inkling of a lawyer’s mental impressions is opinion work product. The court found that the dissenting opinion in the Fourth Circuit matter was more persuasive than the majority opinion because there are myriad reasons why an attorney might recall a conversation with a client, including reasons unrelated to the lawyer’s mental impressions about the case. The appellate court held that the first six questions regarding the attorney’s present memory of a client’s statement sought only fact work product because they at most would reveal “some inkling” of her mental impressions. However, the appellate court held that the seventh question sought opinion work product, because knowing whether the attorney considered the statements significant enough to memorialize would reveal her thought process.
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2d Cir. Holds No Joint Defense Privilege Where Lawyer Did Not Participate in Communication.
In United States v. Krug, 868 F.3d 82 (2nd Cir. 2017), the court held that the joint defense privilege did not apply to a conversation between defendants covered by a joint defense agreement where no lawyer participated in the conversation. In this matter, three police officers were charged with depriving an individual of his constitutional rights while acting under color of law. All three defendants, who were represented by separate counsel, entered into a joint defense agreement. One defendant, Kwiatkowski, decided to cooperate with the government and was prepared to testify about a conversation with a second defendant, Wendel, which occurred before Kwaitkowski withdrew from the joint defense arrangement. The conversation at issue occurred in a hallway outside a meeting that included defense counsel; counsel was not present and was not within hearing distance of the hallway conversation. The district court granted the motion and the appellate court reversed. The appellate court explained that the Restatement (Third) of the Law Governing Lawyers § 76 cmt. d provides that the common interest rule applies to communications among the lawyer, agents of the client or of the lawyer “who facilitate communications between” the client and the lawyer, and the “agents of the lawyer who facilitate the representation.” The court explained that the Second Circuit has stated that it is not “necessary for the attorney representing the communicating party to be present when the communication is made to the other party’s attorney” under a common interest agreement, so long as the communication is made in confidence for the purpose of obtaining legal advice from the lawyer. Finding that the hallway discussion was not made for the purpose of obtaining legal advice, the court held that the common interest rule did not apply and the witness would be allowed to testify about the conversation.
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”Quick Peek” Ordered In Deliberative Process and Bank Examination Privilege Dispute.
In Fairholme Funds, Inc. v. United States, No. 13-465C (Fed. Cl. Oct. 23, 2017), the government withheld 1,500 documents on the grounds of the deliberative process privilege and the bank examination privilege (but not based on the attorney-client privilege or the work product doctrine). Confronted with the likelihood that the parties would engage in additional briefing and demand the court to review the 1,500 document in camera, the court ordered the government to provide the documents to the plaintiff for a “quick peek,” while protecting validly asserted privileges with an order entered pursuant to Federal Rule of Evidence 502(d). Pursuant to the quick peek, plaintiffs would be allowed to review all of the withheld documents; plaintiffs could identify the documents they believed were relevant to the case; and the parties would then meet and confer and, only if agreement was not reached, plaintiff could file a motion to compel the limited number of disputed documents identified for production during the review. The court acknowledged that the only case law in which a quick peek had been ordered was as a sanction against a party that had failed to provide an adequate privilege log, and that The Sedona Conference Commentary on Protection of Privileged ESI, 17 Sedona Conf. J. 99, 140 (2016), clearly takes the position that “[FRE] 502(d) does not authorize a court to require parties to engage in ‘quick peek’ . . . productions and should not be used directly or indirectly to do so. . . . Rule 502 was designed to protect producing parties, not to be used as a weapon impeding producing parties’ right to protect privileged material. Compelled disclosure of privileged information, even with a right to later claw back the information, forces a producing party to ring a bell that cannot by un-rung.” The court distinguished the Commentary on the grounds that it was directed at the absolute protections of the attorney-client privilege rather than the qualified protections provided by the deliberative process and bank examination privileges before the court.
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SOX Retaliation Complaint Filed By Former Accounting Employee Against Statoil.
On October 24, 2017, a former accountant at Statoil Gulf Services LLC filed a complaint against the company in federal court, alleging that she was fired in violation of Sarbanes-Oxley after repeatedly raising inconsistencies in Statoil’s financial statements to her superiors. See Plaintiff’s Original Complaint, Lamont v. Statoil Gulf Servs. LLC, No. 4:17-3219 (S.D. Tex. Oct. 24, 2017). Statoil informed the accountant that she was being terminated for “bad behavior” and lack of alignment with company values after working as a joint-venture employee for approximately 15 months, but the accountant claims those rationales were pretextual. The accountant details several examples of the conduct that she alleges led to her firing, including asking in-house counsel a question during an employee training about what the accountant believed was an illegal method of calculating and paying royalties, and raising concerns with Statoil’s auditors while they were conducting a departmental training. In a statement, Statoil called the accountant’s claims “baseless.” The accountant said she had also filed an OSHA complaint on the same subject matter.
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By: Kelly Hagedorn
Jenner & Block Releases Guides On Enforcement Of Foreign Awards and Court Judgments.
Jenner & Block teams based in the United States and the United Kingdom have prepared new guides that explore how to enforce foreign arbitral awards and court judgments in the United States and in England and Wales. We hope you will find these guides to be an excellent resource for the law in their respective jurisdiction. Authors of the US Guide are Partners Elizabeth Edmondson, Patrick Pearsall and Richard Ziegler, and Associates Laura MacDonald and Irene Ten Cate. Authors of the UK Guide are Partner Charlie Lightfoot, Special Counsel James Woolrich and Associates Jessica Veitch and Thomas Wingfield.
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