The Second Circuit adopted a de novo standard of review for dismissals of derivative actions, discarding the more deferential abuse of discretion standard it previously applied in these cases.

In Espinoza ex rel. JPMorgan Chase & Co. v. Dimon, a shareholder sent a letter to JPMorgan's board of directors demanding that the board investigate the alleged wrongdoing in the "London Whale" trading debacle and later misstatements by corporate officers about that wrongdoing. When JPMorgan rejected the demand, the shareholder brought suit claiming the investigation was unreasonably narrow and overlooked the alleged misstatements. The district court dismissed the suit, finding that the complaint did not show that the board had failed to exercise appropriate business judgment in rejecting the demand.

The Second Circuit reversed. In adopting a de novo standard of review, the court reasoned that a more deferential review for dismissals of derivative actions was not warranted. Reviewing the dismissal of a derivative action, the court noted, requires the appellate court to determine whether the allegations in the complaint state a claim. As with the dismissal of any other sort of complaint, the appellate court should not consider evidence or make credibility determinations. Therefore, the usual justifications for deferring to a district court are inapplicable.

Applying the de novo standard of review, the Second Circuit certified to the Delaware Supreme Court the legal question of what factors a court should consider when determining whether a board's investigation was too narrow. (797 F.3d 229 (2d Cir. 2015).)

See Legal Update, Dismissals of Derivative Actions to Receive De Novo Review: Second Circuit for more on this decision.

See Practice Note, Shareholder Derivative Litigation for more on derivative actions.

The Third Circuit has joined the First, Fifth and Tenth Circuits in holding that unnamed, putative members in a class action do not need to establish Article III standing.

In Neale v. Volvo Cars of North America, LLC, the named plaintiffs filed suit on behalf of themselves and a nationwide class of current and former Volvo owners and lessees, alleging a uniform design defect with several vehicles made by Volvo. The district court denied nationwide class certification but granted statewide class certification for groups of plaintiffs residing in different states. Volvo appealed the class certifications, arguing in part that putative members of the class did not suffer any injury and therefore lacked Article III standing.

In affirming the district court, the Third Circuit held that the "cases or controversies" requirement in Article III is satisfied if a class representative has standing. The court also found that requiring individual standing of all class members:

(794 F.3d 353 (3d Cir. 2015).)

The Third Circuit rejected the approach endorsed by the Second, Eighth, Ninth and DC Circuits, which requires all members of a class to have Article III standing. The circuit split leaves open the possibility that the US Supreme Court may settle the issue in Tyson Foods, Inc. v. Bouaphakeo, which was recently granted certiorari.

See Legal Update, Standing of Unnamed Class Members Need Not Be Established at Certification: Third Circuit for more on this decision.

See Practice Note, Non-statutory Grounds for Challenging Class Actions: Standing and Ascertainability and Class Action Toolkit for more on class actions.

Sanctions under Federal Rule of Civil Procedure (FRCP) 37(c)(1) can be imposed solely on parties and not on their counsel, following a decision from the Tenth Circuit.

In Sun River Energy, Inc. v. Nelson, attorneys for Sun River Energy failed to disclose the existence of an insurance policy that could have covered some of the counterclaims in the underlying action. The policy was eventually disclosed when opposing counsel filed a motion to compel its production. By that time, however, coverage under the policy had lapsed. The district court imposed sanctions on counsel under FRCP 37(c), finding that the attorneys had demonstrated deliberate indifference to their obligation to disclose relevant insurance information under FRCP 26.

On appeal, the Tenth Circuit reversed. Having first noted that other circuit courts had limited the imposition of sanctions under FRCP 37(c)(1) to parties, the court examined the text and history of the rule and found no basis for extending sanctions to counsel. Further, because the district court did not find that counsel acted in bad faith, it would be inappropriate to sanction the attorneys under the court's inherent power to sanction abuse of the judicial process. ( (10th Cir. Sept. 2, 2015).)

See Legal Update, Sanctions Authorized under FRCP 37(c)(1) Apply Solely to Parties: Tenth Circuit for more on this decision.

See E-Discovery Case Tracker: Sanctions for a table of cases involving requests for sanctions under FRCP 37 arising out of discovery disputes.

A settlement with Concordia Pharmaceuticals Inc. and Par Pharmaceutical, Inc. is the latest in the Federal Trade Commission's (FTC's) ongoing investigation into anticompetitive agreements between pharmaceutical companies.

The FTC settled allegations that the companies maintained a non-compete agreement regarding Kapvay, a drug used to treat attention deficit hyperactivity disorder. The agreement provided, among other things, that Concordia would grant Par the rights to its authorized Kapvay license and would not market its own generic version of Kapvay, while Par would share a percentage of the generic Kapvay profits with Concordia.

The FTC alleged that the agreement violated Section 5 of the FTC Act because it reduced competition for generic Kapvay, depriving consumers of lower, competition-induced Kapvay prices. In its decision and orders, the FTC required Concordia to forfeit all rights to receive payments under the agreement, and Par to cease and desist from enforcing any provision of the agreement impairing Concordia's rights to market an authorized generic version of Kapvay. The FTC further required the parties to:

( (FTC Aug. 15, 2015).)

The FTC's settlement underscores its interest in pharmaceutical agreements, though typically the agreements in question involve reverse payment settlement agreements (also known as pay-for-delay agreements).

See Legal Update, FTC Settles Non-compete Allegations Against Two Pharmaceutical Companies for more on this settlement.

See Practice Note, Reverse Payment Settlement Agreements and Section 5 of the FTC Act: Nonmerger Competition Enforcement Actions Chart for more on FTC enforcement.

A Ninth Circuit decision stresses the importance of precise and deliberate drafting of delegation provisions in arbitration clauses. Counsel should note that while this case involved sophisticated parties, the holding also may apply to unsophisticated parties or consumer contracts.

In Brennan v. Opus Bank, the plaintiff sued his former employer for wrongful termination of his employment contract and challenged the contract's arbitration provision as substantively and procedurally unconscionable. The district court dismissed the action in favor of arbitration. The Ninth Circuit affirmed, and held that:

(796 F.3d 1125 (9th Cir. 2015).)

See Legal Update, Incorporation of AAA Rules Evinces Intent for Arbitrator to Decide Arbitrability: Ninth Circuit for more on this decision.

See US Arbitration Toolkit for a collection of resources to assist counsel with US commercial arbitration and drafting alternative dispute resolution clauses.

Drug manufacturers can promote off-label uses when marketing a drug to doctors and patients if the statements used to market the secondary uses are truthful and not misleading, held the US District Court for the Southern District of New York.

In Amarin Pharma, Inc. v. US Food and Drug Administration, the Food and Drug Administration (FDA) rejected Amarin's application to market a second use for Vascepa, its triglyceride-lowering cardiovascular drug, based on an FDA-approved study suggesting that the drug was effective in patients with reduced triglyceride levels. The FDA denied Amarin's application to include information from the study on the drug's label and noted that Amarin would be subject to liability under FDA regulations if it referenced the study in its marketing.

Amarin challenged the FDA regulations under the First Amendment, arguing that under United States v. Caronia, its truthful and non-misleading speech promoting the off-label use of Vascepa could not result in prosecution for misbranding. Amarin further argued that an injunction or declaratory relief was necessary to eliminate the chilling effect of the FDA's threat of prosecution.

The court agreed that Caronia applies to all potential off-label misbranding actions that deal with truthful, non-misleading statements, and granted a preliminary injunction allowing Amarin to promote the off-label use of Vascepa. ( (S.D.N.Y. Aug. 7, 2015).)

See Legal Update, SDNY Decision Allows Drug Maker to Promote Off-label Use for more on this decision.

See Practice Note, Product Labeling for more on legal issues to consider when preparing or reviewing labeling copy.

Several recent decisions from the Delaware Court of Chancery signal a stricter approach by the court to approving rote class action settlements, aimed at stemming the tide of shareholder litigation that accompanies the majority of public M&A deals. The court has rejected settlements of fiduciary duty claims that would have granted the defendants global releases, and has indicated its unwillingness to continue approving settlements and attorneys'fees in return for releases that extend beyond the grounds for the underlying claims.

In Acevedo v. Aeroflex Holding Corp., the court rejected a settlement that contemplated supplemental disclosures and modifications to the deal protection provisions in the merger agreement in return for a release by the plaintiffs of all claims relating to the merger and payment of the plaintiffs' attorneys' fees. Acknowledging a split with the court's own custom, Vice Chancellor Laster explained that the practice of trading "intergalactic releases" for modifications that do not add value was no longer worth the trade-off for quickly settling shareholder lawsuits. (C.A. No. 7930-VCL (Del. Ch. Jul. 8, 2015).)

Vice Chancellor Noble similarly expressed his reluctance to continue approving these types of settlements, commenting that he felt like a "deal insurance" salesman (In re InterMune, Inc. Stockholder Litig., C.A. No. 10086-VCN (Del. Ch. Jul, 8, 2015)).

Most recently, the court issued a memorandum opinion in In re Riverbed Technology, Inc. Stockholders Litigation, upholding a proposed settlement for an "intergalactic release." The court awarded plaintiffs' counsel a lower fee than requested, but still found the settlement appropriate in light of the weakness of the plaintiffs' fiduciary duty claims. Although it upheld the settlement, the court expressed confidence that, following the Aeroflex and InterMune rulings, the practice of trading supplemental disclosures for broad releases will be "diminished or eliminated going forward." ( (Del. Ch. Sept. 17, 2015).)

See Legal Updates, Delaware Court of Chancery Signals Stricter Approach to Approving Settlements in M&A Deals and In re Riverbed Technology: Delaware Court of Chancery Upholds Proposed Settlement, But Predicts End to "Deal Insurance" Settlements for more on these decisions.

See Standard Document, Class Action Settlement Agreement for a sample settlement agreement, with explanatory notes and drafting tips.

A Third Circuit decision highlights the importance of including in claim denial letters any plan-imposed deadlines for filing a lawsuit based on the denial. Although not all the circuit courts have weighed in on this question, plans wishing to avoid litigation on the issue should consider updating their letters to include any plan-imposed contractual limitations period deadlines.

In Mirza v. Insurance Administrator of America, Inc., a participant in an employer-sponsored ERISA health plan underwent surgery and assigned her right to benefits under the plan to her doctor, who then submitted a benefits claim to the plan's claims administrator. Although the claims administrator's letter denying the claim informed the doctor of his right to sue, it failed to mention the plan's one-year time limit for seeking judicial review. More than one year after receiving the denial letter, the doctor sued the claims administrator for unpaid benefits. The district court granted summary judgment in favor of the claims administrator on the ground that the lawsuit was time-barred.

The Third Circuit reversed. Analyzing a Department of Labor (DOL) regulation on claim denials, the court joined other circuit courts in holding that the regulation requires claim denial letters to include the applicable time limits for both the review procedures and the claimant's right to sue. The appropriate remedy for the plan's error was to set aside the one-year deadline and apply the limitations period from the most analogous state law cause of action. ( (3d Cir. Aug. 26, 2015).)

See Legal Update, Claim Denial Letters Must Provide Notice of Plan Limits for Suing under ERISA: Third Circuit for more on this decision.

See Practice Note, Internal Claims and Appeals under the ACA for more on internal claims and appeals under the Affordable Care Act.

A decision from the US Bankruptcy Court for the District of Delaware should give secured lenders comfort that courts will enforce Agreements Among Lenders (AALs) in bankruptcy proceedings.

In response to an adversary proceeding that challenged a proposed sale of assets to the last out asset-based loan lender through a credit bid of its debt, the court in In re RadioShack Corp. was asked to consider whether the proposed sale violated two AALs, to which the borrower was not a party. The court construed and enforced both AALs and ultimately approved the proposed sale, basing its jurisdiction to construe the AALs on the parties' acknowledgment and consent rather than through statutory interpretation.

Before this case, the enforceability of AALs was untested in bankruptcy. Although the court did not rule on the issue, its statements provide guidance, and implicitly recognize the court's ability to construe and enforce AALs in bankruptcy proceedings. Like intercreditor agreements, AALs should be carefully drafted to ensure that the protections they provide are not circumvented in a bankruptcy. (No. 15-10197 (Bankr. D. Del. Mar. 31, 2015).)

See Legal Update, In re RadioShack Corp.: Delaware Bankruptcy Court Implicitly Enforces Agreement Among Lenders in Unitranche Loan for more on this decision.

See Practice Notes, Bankruptcy Provisions in Intercreditor Agreements and Unitranche Loan Financing for more on intercreditor arrangements.

In a unanimous en banc decision, the Federal Circuit in Akamai Technologies, Inc. v. Limelight Networks, Inc. expanded the standard for finding direct infringement under Section 271(a) of the Patent Act when multiple actors perform the patented method steps.

Following a June 2014 decision by the Supreme Court urging the Federal Circuit to review the direct infringement standard where more than one entity collectively perform the steps of a patented method, the Federal Circuit, on remand, found that direct infringement under Section 271(a) exists when all the steps of a method are performed by a single entity.

The Federal Circuit further held that if a single entity does not perform all the claimed method steps, divided infringement liability may exist where more than one entity collectively performs all the claimed method steps and the steps of one entity are attributable to the accused infringer. This standard may be satisfied if either:

Applying the new standard, the Federal Circuit reinstated the jury's verdict of direct infringement and reversed the district court's judgment of noninfringement as a matter of law. (797 F.3d 1020 (Fed. Cir. 2015).)

See Legal Updates, Akamai v. Limelight: Federal Circuit Expands Liability for Divided Patent Infringement and Supreme Court Rejects Federal Circuit's Liberal Induced Infringement Standard and Holds Inducement Requires Direct Infringement for more on this case.

See Practices Notes, Patent Litigation: Infringement and Patent Infringement Claims and Defenses for more on patent infringement.

Plaintiffs struggling to demonstrate standing in data breach class actions won a significant victory in the Seventh Circuit, where the court found that the plaintiffs' allegations of increased risk of future harm were sufficiently particularized, concrete and imminent for Article III standing. This is the first circuit court decision on standing in data breach litigation since Clapper v. Amnesty International USA and creates a significant hurdle for defendants seeking dismissal of these lawsuits.

Since Clapper was decided, the majority of federal district courts have held that the threat of a future injury arising from a data breach does not constitute an injury sufficient to establish standing. However, in Remijas v. Neiman Marcus Group, LLC, the Seventh Circuit found that the plaintiffs had sufficiently alleged both:

The Seventh Circuit noted that, by contrast to the plaintiffs in Clapper, the Neiman Marcus plaintiffs had alleged a plausible risk of future harm because their information was actually accessed. Further, the court found that Neiman Marcus's offer of free credit monitoring and identity theft protection suggested that the data breach put the plaintiffs at substantial risk of harm. (794 F.3d 688 (7th Cir. 2015).)

See Legal Update, Seventh Circuit Holds Neiman Marcus Data Breach Plaintiffs Have Standing for more on this decision.

See Data Breach Toolkit for a collection of resources addressing risk mitigation and data security preparation, data breach laws and data breach notification.

The Trademark Trial and Appeal Board (TTAB) must consider third-party uses when evaluating the strength of an opposer's mark, according to the Federal Circuit. Where an opposer's mark is weak, an applicant may use a similar mark on similar goods without causing a likelihood of confusion.

In Juice Generation, Inc. v. GS Enterprises, LLC, the TTAB refused to register Juice Generation's mark for a juice bar, which consisted of the words PEACE LOVE AND JUICE and an accompanying design, sustaining an opposition from GS Enterprises, which owns four related registrations incorporating the phrase PEACE & LOVE for restaurant services.

On appeal, the Federal Circuit concluded that the TTAB had failed to:

(794 F.3d 1334 (Fed. Cir. 2015).)

See Legal Update, Federal Circuit Considers Peace, Love and the Importance of Third-party Uses for more on this decision.

See Practice Note, Acquiring Trademark Rights and Registrations for more on securing trademark protection in the US.

A pair of decisions from the Second Circuit provides new clarity on settlements and expert fee recovery under the Fair Labor Standards Act (FLSA).

In Cheeks v. Freeport Pancake House, Inc., the Second Circuit held that parties settling claims under the FLSA must receive approval from a district court or the DOL before filing a stipulation of dismissal with prejudice under FRCP 41. Noting that it was the first circuit court to address the issue, the court reasoned that an exception to the general rule under FRCP 41 that parties may stipulate to the dismissal of an action without court involvement was consistent with both the broad remedial purpose and the Supreme Court's liberal interpretation of the statute. Further, court or DOL approval was necessary to remedy the unequal bargaining position between employers and employees. (796 F.3d 199 (2d Cir. 2015).)

In Gortat v. Capala Brothers, Inc., in a matter of first impression, the Second Circuit held that Section 216(b) of the FLSA does not explicitly authorize expert fee awards and a district court may not award expert fees beyond per diem and travel expenses under that provision (795 F.3d 292 (2d Cir. 2015)). Parties should consider the effect of this decision when engaging experts in an FLSA case and evaluating the fee amounts included in settlement offers.

See Legal Updates, Without Approval Parties Cannot Settle FLSA Claims in FRCP 41 Private Stipulated Dismissal with Prejudice: Second Circuit and FLSA Does Not Explicitly Authorize Expert Fee Awards: Second Circuit for more on these decisions.

See Practice Note, Wage and Hour Law: Overview for more on employers' rights and obligations under the FLSA.

Litigation activities can constitute unfair labor practices and concerted activities under the National Labor Relations Act (NLRA), according to a series of decisions from the National Labor Relations Board (NLRB). These decisions are designed to control and regulate workplace conduct, whether or not the employees are unionized.

The recent NLRB decisions add new wrinkles to the D.R. Horton and Murphy Oil progeny, and found that:

For more on these decisions, see:

See Practice Note, Employee Rights and Unfair Labor Practices under the National Labor Relations Act for more on employee rights and prohibited ULPs under the NLRA.

Two circuit courts of appeals recently issued decisions that significantly shape litigation brought under Title VII of the Civil Rights Act of 1964 (Title VII).

In Littlejohn v. City of New York, the Second Circuit found that the pleading requirement that a complaint state sufficient facts to demonstrate a plausible claim, as set out in Ashcroft v. Iqbal, applies to Title VII employment discrimination complaints. The court also held that the plausibility requirement does not affect the temporary presumption of discriminatory motivation that benefits plaintiffs during the prima facie phase in employment discrimination cases under the McDonnell Douglas burden-shifting framework. (795 F.3d 297 (2d Cir. 2015).) It remains to be seen whether other circuit courts will follow the Second Circuit in adopting this pleading standard.

The Fourth Circuit, in Butler v. Drive Automotive Industries of America, Inc., became part of the emerging split among the circuit courts on the proper test to apply under the joint employer doctrine. After first finding the joint employer doctrine applied in the Title VII context, the court used a hybrid of the control and economic realities tests to find that Drive Automotive Industries was a joint employer with co-defendant ResourceMFG, a temporary staffing agency that had placed the plaintiff with Drive, where she allegedly was subjected to sexual harassment by a supervisor. (793 F.3d 404 (4th Cir. 2015).)

See Legal Updates, Iqbal's Plausibility Requirement Applies to Title VII Complaints of Discrimination: Second Circuit and Fourth Circuit Adopts Joint Employer Doctrine for Title VII, Uses Hybrid of Control and Economic Realities Tests for more on these decisions.

See Practice Note, Discrimination under Title VII: Basics for an overview of how Title VII applies to private employers.