A recent US Supreme Court decision narrowly construing the Securities Litigation Uniform Standards Act of 1998 (SLUSA) will likely result in more state law securities fraud class actions.

SLUSA precludes certain securities class actions based on state law claims of fraud "in connection with" the sale or purchase of "covered securities." In Chadbourne & Parke LLP v. Troice, the Supreme Court held that SLUSA did not preclude state law fraud claims involving the purchase of certificates of deposit (CDs), which are not covered securities, even though the plaintiffs alleged that they were fraudulently induced to buy the CDs based on the defendants' misrepresentations that the CDs were backed by investments in covered securities.

Chadbourne involved four state law securities fraud class actions arising out of a Ponzi scheme against the firms and individuals who helped sell the CDs. The district court granted the defendants' motions to dismiss the plaintiffs' complaints as barred by SLUSA and the Fifth Circuit reversed, finding that the relationship between the covered and uncovered securities was too tangential to trigger SLUSA's preclusion provision.

In affirming the Fifth Circuit's decision, the Supreme Court limited preclusion to situations where fraud is material to a decision by someone other than the perpetrator of the fraud to buy or sell a covered security. Here, the perpetrator allegedly made the misrepresentation and owned the covered securities. This reading is consistent with prior cases regarding SLUSA's preclusion provision, all of which involved the victims themselves buying, selling or holding on to the security. (134 S. Ct. 1058 (2014).)

See Legal Update, Supreme Court Decision Allows More State Law Securities Class Actions for more on this decision.

See Practice Note, US Securities Laws: Overview for more on the federal securities laws and Practice Note, Class Actions: Overview for more on class actions generally.

The Second Circuit recently held that the 30-day removal periods under 28 U.S.C. §§ 1446(b)(1) and (b)(3) of the Class Action Fairness Act (CAFA) are not triggered until the plaintiff serves a paper specifically identifying the damages sought or the facts concerning the amount in controversy. If neither removal period has been triggered, the defendant may remove the case when it determines that the case is removable after its own independent investigation.

In Cutrone v. Mortgage Electronic Registration Systems, Inc., No. 14-455, (2d Cir. Apr. 17, 2014), the Second Circuit vacated the district court's decision to remand the plaintiffs' putative class action and held that Moltner v. Starbucks Coffee Co., 624 F.3d 34 (2d Cir. 2010) applies to cases removed under CAFA. In Moltner, the Second Circuit adopted the bright-line rule that the removal clock does not start to run until the plaintiff serves the defendant with a paper that explicitly specifies the amount of monetary damages sought. This is consistent with the approach adopted by several other circuits.

The Second Circuit in Cutrone determined that the defendant's removal was not precluded by either 30-day limit because the plaintiffs failed, both in their initial pleading and response to the defendant's demand for a bill of particulars, to explicitly specify the amount in controversy or allege sufficient information for the defendant to ascertain removability. Following the Ninth Circuit's reasoning in Roth v. CHA Hollywood Medical Center, L.P., 720 F.3d 1121 (9th Cir. 2013), the Second Circuit held that the defendant was entitled to remove the case based on its own investigation because neither 30-day limit had been triggered.

See Legal Update, Second Circuit: Time Limit for CAFA Removal Not Triggered Until Plaintiff Indicates Specific Amount of Damages Sought for more on this decision.

See Practice Note, Class Action Fairness Act of 2005 (CAFA): Overview for more on removal under CAFA.

The Racketeer Influenced and Corrupt Organizations Act (RICO) may have extraterritorial application, and the European Community (EC) is considered a foreign state for diversity purposes, says the Second Circuit.

European Community v. RJR Nabisco, Inc. involved a lawsuit brought by the EC and several member states against RJR Nabisco, Inc. and its related entities for their role in an alleged global money laundering scheme in violation of RICO and New York state law (No. 11-2475, (2d Cir. Apr. 23, 2014)). The district court dismissed the action, concluding that RICO has no extraterritorial application, and that the EC's participation in the lawsuit destroyed complete diversity because it did not qualify as a "foreign state" as used in 28 U.S.C. § 1332.

The Second Circuit vacated the district court's judgment and remanded the case. The Second Circuit held that RICO may apply extraterritorially if liability or guilt could attach to extraterritorial conduct under the relevant RICO predicate statute. It recognized the Supreme Court's presumption in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010) against the extraterritorial application of a US statute absent a clear indication of congressional intent. However, the Second Circuit found that Congress manifested an unmistakable intent that certain federal statutes incorporated into RICO as predicates for liability apply to extraterritorial conduct. The Second Circuit clarified that its prior ruling in Norex Petroleum Ltd. v. Access Industries, Inc., 631 F.3d 29 (2d Cir. 2010) did not stand for the proposition that RICO can never have extraterritorial reach in any of its applications.

Additionally, the Second Circuit applied the factors it set out in Filler v. Hanvit Bank, 378 F.3d 213 (2d Cir. 2004) and concluded that the EC qualified as an "organ" of a foreign state under the Foreign Sovereign Immunities Act. Therefore, the lawsuit came within 28 U.S.C. § 1332.

See Legal Update, Second Circuit: RICO May Apply Extraterritorially and European Community is a Foreign State for Diversity Purposes for more on this decision.

See Practice Note, Commencing a Federal Lawsuit: Initial Considerations for more on diversity jurisdiction.

The Department of Justice (DOJ) successfully litigated the extradition of a foreign national on conspiracy charges, its first ever extradition on antitrust charges. The extradition underscores the DOJ's commitment to prosecuting foreign nationals who conspire to fix prices for products sold in the US.

Romano Pisciotti, an Italian national, was extradited from Germany and made his initial appearance in the US District Court for the Southern District of Florida. The DOJ charged Pisciotti with conspiring to eliminate competition in the marine hose sales market, alleging that Pisciotti relayed information obtained from US customers to a co-conspirator who coordinated the global conspiracy. The DOJ stated that the marine hose cartel affected the prices on hundreds of millions of dollars' worth of sales worldwide.

Pisciotti's extradition is part of the DOJ's ongoing marine hose investigation, which to date has obtained guilty pleas from five companies, both domestic and international, and nine individuals.

See Legal Update, DOJ Obtains First Ever Extradition on an Antitrust Charge for more on the extradition.

See Practice Note, Criminal Antitrust Enforcement in the US for more on the DOJ's enforcement of criminal antitrust laws.

In international commercial disputes, including those involving bilateral investment treaties, US courts will give deference to the arbitrators' interpretation and application of an agreement's procedural pre-arbitration conditions.

In BG Group PLC v. Republic of Argentina, the Supreme Court found that an arbitration panel should decide whether it could hear an arbitration brought before it, despite a party's failure to satisfy a pre-arbitration condition before commencing the proceedings. The petitioner, BG Group, commenced arbitration proceedings pursuant to an investment treaty between the UK and Argentina despite failing to commence litigation in Argentinean courts, as required by the arbitration provision in the treaty. During the arbitration, the respondent argued that the arbitrators did not have jurisdiction over the proceedings because the petitioner failed to satisfy this condition. The arbitration panel disagreed and issued an award in favor of the petitioner.

Applying ordinary contract principles to the treaty, the Supreme Court found that the local litigation requirement in the treaty is not a substantive condition affecting arbitrability. Rather, the requirement is a procedural condition to the arbitration because it determines when the contractual duty to arbitrate arises. Therefore, the local litigation requirement was a matter for the arbitrators to interpret and apply. (134 S. Ct. 1198 (2014).)

See Legal Update, Supreme Court: Arbitrators, Not Courts, to Interpret Investment Treaty's Conditions Precedent to Arbitration Clause for more on this decision.

See Practice Note, Investment Treaty Arbitration: Introduction for more on investment treaty arbitration and US Arbitration Toolkit for a collection of resources to assist counsel with US commercial arbitration.

The Supreme Court resolved a circuit split regarding the appropriate standard for determining who can sue for false advertising under Section 1125(a) (15 U.S.C. § 1125(a)) of the Lanham Act. To have standing, a plaintiff must allege an injury to its commercial interest in sales or business reputation that was proximately caused by the defendant's misrepresentations. Proximate cause can be adequately alleged by showing that the deceptive advertising caused consumers to withhold trade from the plaintiff.

Lexmark International, Inc. v. Static Control Components, Inc. involved a dispute between Lexmark International, Inc., a manufacturer of laser printers that can function only with Lexmark toner cartridges, and Static Control Components, Inc., the leading manufacturer of the components necessary to remanufacture Lexmark cartridges. Remanufacturers refurbish used Lexmark cartridges using Static Control parts and then sell them in competition with the cartridges sold by Lexmark. Lexmark sued Static Control for copyright infringement, and Static Control counterclaimed, alleging that Lexmark violated Section 1125(a) of the Lanham Act.

The Supreme Court concluded that Static Control had standing to sue under Section 1125(a). The Supreme Court reasoned that Static Control adequately pled injury by alleging that it lost sales and its business reputation was damaged. Further, Static Control adequately pled proximate causation by alleging that Lexmark directly caused its commercial injuries when Lexmark falsely asserted to remanufacturers that Static Control's business was illegal, and that any false advertising that reduced the remanufacturers' business would also have a direct negative impact on Static Control's business. (134 S. Ct. 1377 (2014).)

See Legal Update, Supreme Court Clarifies Lanham Act False Advertising Standing Rule for more on this decision.

See Practice Note, Advertising: Overview for more on advertising regulation in the US, including Section 1125(a) of the Lanham Act.

In an issue of first impression, the Delaware Supreme Court held that the business judgment rule standard of review, rather than the entire fairness standard, can apply to a merger between a subsidiary and its controlling stockholder. The presumptions of the business judgment rule will be available if the merger was conditioned at the outset of negotiations on the approval of both an independent, adequately empowered special committee that fulfills its duty of care and the uncoerced, informed vote of a majority of the minority stockholders.

In Kahn v. M & F Worldwide Corp., the Delaware Supreme Court affirmed the Delaware Court of Chancery's decision in In re MFW Shareholders Litigation, 67 A.3d 496 (Del. Ch. 2013), ruling that the business judgment standard will apply to a controlling-stockholder transaction if the following conditions are met:

(C.A. No. 6566, (Del. Mar. 14, 2014).)

Although the Delaware Supreme Court largely adopted the formulation in MFW, it placed particular emphasis on the fourth component, the duty of care in negotiating price. Until the Court of Chancery applies and clarifies the test laid out in Kahn, controlling stockholders should assume that a review akin to entire fairness of the process undertaken by the target board in negotiating the price (even if not a review of the price itself) will still be applied to controlling-stockholder mergers.

See Legal Update, Kahn v. M&F Worldwide: Delaware Supreme Court Upholds Chancery Decision in MFW, but Opens Door to Challenges Against Controller Mergers for more on this decision.

See Practice Note, Going Private Transactions: Overview for more on controlling-stockholder transactions.

The SEC's conflict minerals rule (Rule 13p-1 under the Securities Exchange Act), adopted under Section 1502 of the Dodd-Frank Act, violates the First Amendment to the extent that the rule and statute require SEC reporting companies to state in their SEC filings and on their websites that any of their products have "not been found to be DRC conflict free." The rule and statute were intended to reduce a significant source of funding for armed groups committing human rights abuses in the Democratic Republic of the Congo.

In National Association of Manufacturers v. SEC, several business groups argued that the disclosure requirement violates the First Amendment by unconstitutionally compelling speech. A company would have been required to make the statement if its diligence on the minerals' source yielded certain results or, in some cases, was inconclusive. The DC Circuit agreed, finding that:

The DC Circuit upheld the other provisions of the rule, rejecting arguments that challenged the SEC's rulemaking under the Administrative Procedure Act and the Exchange Act as arbitrary and capricious, and remanded the case for further proceedings. (No. 13-5252, (D.C. Cir. Apr. 14, 2014).)

The SEC has issued guidance regarding the effect of this decision, as well as an order staying the effective date for compliance with the portions of the rule held to violate the First Amendment. A motion for a full stay of the conflict minerals rule was denied by the DC Circuit.

See Legal Update, Conflict Minerals Challenge: DC Circuit Strikes Disclosure Provision and Upholds Rest of Rule for more on this decision.

See Legal Update, Companies Must Report under Conflict Minerals Rule with Modifications: SEC Staff and Practice Note, Conflict Minerals Rule Challenge: Litigation Tracker for more on the SEC's guidance and the major filings in this litigation.

The Sixth Circuit held that an employer that unilaterally discontinued group health plan coverage for retirees and replaced it with health reimbursement accounts (HRAs) breached the applicable collective bargaining agreements (CBAs). The decision clarifies the Sixth Circuit's case law on evaluating the contractual vesting of health insurance benefits for retirees provided under CBAs.

In United Steel Workers International Union v. Kelsey-Hayes Co., the plaintiffs were a class of former union-represented employees, who retired under CBAs in which their employer agreed to provide self-insured or insured group health coverage to the retirees. The plaintiffs argued that a change from health plan coverage to HRAs following the employer's purchase by a successor company breached the CBAs in violation of ERISA and the Labor Management Relations Act.

In its reasoning, the Sixth Circuit examined its decision in UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), which found an inference that when parties contract for benefits that accrue based on attaining retiree status, they likely intend for those benefits to continue as long as the beneficiary is a retiree. It distinguished its 2009 and 2012 decisions in Reese v. CNH America LLC (574 F.3d 315 (6th Cir. 2009); 694 F.3d 681 (6th Cir. 2012)), which held that disputed lifetime health benefits could be reasonably altered under a CBA in certain situations, and concluded that those cases did not represent a "sea change" in retiree benefits case law. Unlike here, the parties' actions and the CBAs' language in the Reese cases evidenced their intent to make the benefits alterable.

The Sixth Circuit held in United Steel Workers that the applicable CBAs were sufficient, under the Yard-Man inference, to create a vested lifetime right to health benefits. It affirmed the district court's finding that the employer's unilateral implementation of the HRAs breached the CBAs because the HRAs were not what the parties bargained for. (No. 13-1717, (6th Cir. Apr. 22, 2014).)

See Legal Update, Employer Violated CBAs by Replacing Retirees' Health Plan Coverage with HRAs: Sixth Circuit for more on this decision.

See Practice Note, Defined Contribution Health Plans: Overview for more on HRAs.

A recent decision by the US District Court for the Western District of Washington highlights that courts may consider extrinsic evidence, including a lender's conduct, when interpreting loan agreement provisions. Parties negotiating loan agreements should use precise and exact wording if they want to limit or qualify lenders' assignment rights, and lenders wishing to preserve broad assignment rights should ensure that their conduct is consistent with their interpretation of these provisions.

Meridian Sunrise Village, LLC v. NB Distressed Debt Investment Fund Ltd. involved a prepetition loan agreement with a restriction limiting the lender's ability to sell, transfer or assign the loan only to "Eligible Assignees," which was defined to include any "financial institution." After the debtor's bankruptcy filing, one of the loan assignees transferred its interest in the loan to NB Distressed Debt Limited Fund, which subsequently split its interest between itself and two other distressed debt funds. The debtor argued that the funds did not qualify as Eligible Assignees under the loan agreement.

The district court affirmed the bankruptcy court's decision and ruled that because the funds that were assigned the loans were not financial institutions and therefore did not qualify as Eligible Assignees under the debtor's loan agreement, they could not vote on the debtor's plan of reorganization. Rejecting a broad reading of the term financial institution, the district court reasoned that based on the plain language of the loan agreement, the specific text surrounding the reference to the term and extrinsic evidence concerning the parties' actions, the funds were not financial institutions. (No. 13-5503, (W.D. Wash. Mar. 7, 2014).)

See Legal Update, Meridian Sunrise Village v. NB Distressed Debt Investment Fund: Court Rules Distressed Hedge Fund Not an "Eligible Assignee" under Loan Agreement for more on this decision.

See Practice Note, Assignments and Participations of Loans for more on assignment provisions in loan agreements.

Two recent Supreme Court decisions should make it easier for patent infringement litigants to recover attorneys' fees in cases based on tenuous claims or in which a party conducts the litigation unreasonably. This may be of particular importance to accused infringers litigating against a non-practicing entity with weak or unsubstantiated infringement claims by allowing the accused infringer to recover attorneys' fees even if the plaintiff's claims are not "objectively baseless" under the Federal Circuit's previous, rigid fee-shifting standard.

Under 35 U.S.C. § 285, a court may award attorneys' fees to a prevailing party in a patent infringement action in "exceptional cases." In Octane Fitness, LLC v. ICON Health & Fitness, Inc., the Supreme Court held that a district court may determine fee-shifting under 35 U.S.C. § 285 on a case-by-case basis in its discretion, based on the totality of the circumstances (134 S. Ct. 1749 (2014)). It overruled the Federal Circuit's earlier decision in Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005), which set a rigid fee-shifting standard.

Finding that the Federal Circuit's fee-shifting standard was too restrictive and inconsistent with the text and history of 35 U.S.C. § 285, the Supreme Court concluded that:

Additionally, in the companion case of Highmark Inc. v. Allcare Health Management System, Inc., the Supreme Court held that district court fee-shifting decisions should be reviewed for an abuse of discretion, not de novo (134 S. Ct. 1744 (2014)).

See Legal Update, Supreme Court Reverses Federal Circuit's Rigid Fee-shifting Standard in Patent Cases for more on this decision.

See Practice Note, Patent Infringement Claims and Defenses for more on attorneys' fees and other remedies in patent litigation.

Copyright infringement claims accrue on actual or constructive discovery of the relevant infringement, held the Second Circuit. This ruling is consistent with that of every other circuit court to consider the issue.

In Psihoyos v. John Wiley & Sons, Inc., the Second Circuit affirmed the district court's determination that the Copyright Act's three-year statute of limitations did not bar a photographer's infringement claims because, exercising reasonable diligence, he did not discover the infringements until fewer than three years prior to bringing suit. The Second Circuit rejected the argument that a claim should accrue at the time of the infringement.

Additionally, the Second Circuit acknowledged a circuit split regarding whether a pending application for registration satisfied the Copyright Act's requirement of pre-suit registration, but declined to consider the issue. Instead, it affirmed the district court's decision that the plaintiff's failure to even apply for registration until after the close of discovery had failed to satisfy the registration requirement. (No. 12-4874, (2d Cir. Apr. 4, 2014).)

See Legal Update, Copyright Infringement Claims Accrue on Actual or Constructive Discovery of Infringement: Second Circuit for more on this decision.

See Article, Expert Q&A on Time-based Defenses in Copyright Litigation for more on the statute of limitations in copyright litigation and Practice Note, Copyright Infringement Claims, Remedies and Defenses for more on copyright litigation generally.

A recent case of first impression by the Trademark Trial and Appeal Board (TTAB) establishes that an owner of a foreign trademark that has not used or registered the mark in the US may petition for and obtain the cancellation of a US trademark based on the registrant's misuse of the mark in the US in a manner calculated to trade on the goodwill and reputation of the foreign mark.

In Bayer Consumer Care AG v. Belmora LLC, the petitioner was the owner of a Mexican trademark registration for the mark FLANAX. Bayer sold analgesics in Mexico under the mark since 1976. In about 2003, the respondent began offering an analgesic tablet in the US under the FLANAX mark and applied to register the mark in the US. Bayer petitioned to cancel the registration.

In granting the cancellation petition, the TTAB applied the Federal Circuit's two-prong test and held that:

(Cancellation No. 92047741 (TTAB Apr. 17, 2014).)

See Legal Update, Decision of First Impression Grants Foreign Trademark Owner's Petition to Cancel US Registration of Mark: TTAB for more on this decision.

See Practice Note, TTAB Oppositions and Cancellations: Grounds and Defenses for more on the grounds for petitioning to cancel a trademark registration.

Employees of private companies who claim they were retaliated against for reporting suspected fraud at a public company client may bring claims against their employer for violations of the Sarbanes-Oxley Act of 2002 (SOX).

In Lawson v. FMR LLC, the Supreme Court held that the whistleblower protections in Section 1514A of Section 806 of SOX (18 U.S.C. § 1514A(a)), which protect whistleblowing employees of public companies from retaliation, also protect employees of private contractors and subcontractors to public companies. The plaintiffs in Lawson were former employees of private companies that contracted to advise and manage publicly traded mutual funds, alleging that they suffered adverse employment consequences in violation of Section 1514A for reporting putative fraud. In reversing and remanding the First Circuit's decision that Section 1514A protects only employees of public companies, the Supreme Court examined the text, purpose and effect of the statute. (134 S. Ct. 1158 (2014).)

Following this decision, private companies that provide services to public company clients should review their compliance policies and procedures and consider adopting additional policies and procedures that reflect whistleblower best practices already implemented by public companies.

See Legal Update, Supreme Court: SOX Whistleblower Provision Protects Employees of Private Contractors to Public Companies for more on this decision.

See Practice Note, Whistleblower Protections under Sarbanes-Oxley and the Dodd-Frank Act for more on employment-related practices in the SOX context.

The Third Circuit joined the Seventh and Ninth Circuits in applying federal common law to evaluate whether a purchasing company may be liable as a successor in interest to its predecessor's Fair Labor Standards Act (FLSA) violations. The federal common law standard sets a lower bar to relief than most state jurisprudence.

In Thompson v. Real Estate Mortgage Network, the Third Circuit vacated the district court's dismissal of the plaintiff's complaint alleging FLSA and New Jersey Wage and Hour Law violations for failure to state a claim. The Third Circuit found that the plaintiff successfully pleaded that the purchaser of her now-defunct employer was a successor under federal common law, liable under the FLSA for its predecessor's violations. Holding that the federal common law standard for successor liability should apply to the FLSA, the Third Circuit considered the following factors in examining the pleadings:

The federal common law standard sets a lower evidentiary burden for plaintiffs than under New Jersey law, which requires the purchasing company to be a "mere continuation" of the seller. The Third Circuit vacated the district court's dismissal of the New Jersey claims based on the same allegations that supported an FLSA successor liability claim. The Third Circuit also vacated the dismissal of claims that the purchaser was primarily liable and liable as a joint employer with the predecessor for various FLSA violations. (No. 12-3828, (3d Cir. Apr. 3, 2014).)

See Legal Update, Federal Common Law Standard for Successor Liability Applies to FLSA Claims: Third Circuit for more on this decision.

See Practice Note, Labor and Employment Issues in Corporate Transactions: Strategic Considerations and Hidden Liabilities for more on successor liability relating to labor and employment issues in the context of corporate mergers and acquisitions.