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Archive for the ‘Commercial Litigation/Directors & Officers’ Category

New Medical Devices and Performance Criteria

Posted on: February 12th, 2019

By: Koty Newman

The Food and Drug Administration (“FDA”) recently issued final guidance (the “Guidance”), providing a framework for its new Safety and Performance Based Pathway for its updated 510(k) process. Section 510(k) of the Food, Drug and Cosmetic Act requires medical device manufacturers to notify the FDA of their intent to market a medical device. Notification enables the FDA to determine if the product is equivalent to a device already on the market, which by extension, helps the FDA determine if the device is at least as safe and effective as the already marketed device.

The FDA’s Safety and Performance Based Pathway evidences the FDA’s recognition that it may be less burdensome for device manufacturers to show a new device’s substantial equivalence to a predicate device by demonstrating that the new device meets certain performance criteria, rather than directly testing the new device against a predicate device. Thus, “[i]nstead of reviewing data from direct comparison testing between the two devices, FDA could support a finding of substantial equivalence based on data showing the new device meets the level of performance of appropriate predicate device(s),” the Guidance states. In order to discern the requisite performance criteria, manufacturers should look to descriptions in FDA guidance, FDA-recognized consensus standards, and special controls.

The Guidance states that the “FDA believes that use of performance criteria is only appropriate when FDA has determined that (1) the new device has indications for use and technological characteristics that do not raise different questions of safety and effectiveness than the identified predicate, (2) the performance criteria align with the performance of one or more legally marketed devices of the same type as the new device, and (3) the new device meets all of the performance criteria.” Further, a manufacturer may use this program only if the manufacturer can rely entirely on performance criteria to demonstrate substantial equivalence. The FDA will still require that a manufacturer identify a predicate device in order for the FDA to determine the relevant intended use and technological characteristics decision points.

The FDA will maintain a list of device types that are appropriate for the Safety and Performance Based Pathway on its website, along with other information that will be helpful for manufacturers intending on navigating this particular Pathway, such as “guidances that identify the performance criteria and testing methods recommended for each device type.”

This policy represents an expansion of the long-applied approach by the FDA, giving device manufacturers an additional pathway to demonstrate substantial equivalence. For the manufacturers who cannot, or prefer not to, rely on this Safety and Performance Based Pathway, direct comparison with a predicate device will remain available to determine whether the new device is substantially equivalent to a predicate device.

The FDA is also seeking public comment on questions such as whether it should make public a list of devices or manufacturers who make products that rely on older predicates, such as predicates that have been on the market for ten-or-so years, and whether there are actions the FDA could pursue to promote the use of more current predicates. The public will have until April 22, 2019 to comment.

If you have any questions or would like more information, please contact Koty Newman at (678) 996-9122 or [email protected].

District Court in California Certifies a Class of Five Million Against Walmart

Posted on: February 8th, 2019

By: Koty Newman

On January 17, 2019, a Federal District Court in California certified a class of five million Walmart applicants. The Class Representatives allege that Walmart failed to comply with the Fair Credit Reporting Act’s (“FCRA”) disclosure requirements by including extraneous information in its disclosure forms, thus violating disclosure and authorization requirements. The Class Representatives also allege that Walmart obtained investigative reports without informing the applicants of their right to request a written summary of their rights under the FCRA.

For a court to certify a class, the court must find that the proposed class satisfies the four requirements of Federal Rule of Civil Procedure 23(a): numerosity, typicality, commonality, and adequacy of representation. The facts of this case were tailor-made to meet these requirements. The Court noted that with the proposed class of five million applicants and employees, the class would be so numerous that joining all the members would be impracticable. The Court also found that the Class Representatives would adequately represent the class and vigorously prosecute the action on behalf of the class.

The requirements of typicality and commonality overlap to some degree, and the Court found that both were satisfied in this case. The Class Representatives, as applicants to Walmart, were found to be typical of the class because their interests align with those of the class. Finally, the case satisfied the commonality requirement given that every person in the class allegedly encountered similar confusing extraneous material in violation of the Fair Credit Reporting Act during their application process to Walmart. Each class member also allegedly was not informed of his or her right to request a written summary of his or her rights. The Court found these common issues would predominate the adjudication of the case, even though there may be small factual differences among individuals in the class. Thus, the Court held that it made practical sense to certify the class and resolve all of these individual’s problems in one case, rather than five million cases.

The Court also noted that this case presents more than a mere technical violation of the FCRA. The Class Representatives have, in essence, alleged that Walmart accessed their personal information in violation of their protected rights, a concrete harm.

This ongoing case serves as a warning to employers across the United States who conduct background investigations; comply with the FCRA, or you may face the prospect of having all those applicants come back to haunt you in a class action. If you have any questions or need help with an FCRA case, please contact one of our attorneys for guidance.

If you have any questions or would like more information, please contact Koty Newman at [email protected].

998s: The Stealth Policy Limit Demand

Posted on: February 7th, 2019

By: Tim Kenna & Kristin Ingulsrud

In personal injury practice, the claimant’s attorney will sometimes serve a statutory offer to compromise in tandem with service of the summons and complaint. This strategy has a two-fold impact on the case. The first is that if the plaintiff obtains a better result at trial, it may seek costs and prejudgment interest at 10%. The second is that the 998 be relied upon as a policy limit demand. In both cases, the running of the defendant’s time to accept the 998 triggers the consequences of a failure to settle. An insurer’s rejection of a valid policy limit demand can result in extracontractual exposure. Licudine v. Cedars-Sinai Medical Center, No. BC499153, 2019 Cal. App. LEXIS 2*, directly addresses the requirement that an early 998 is only valid if the offer is reasonable under the totality of the facts. The relevant factors are (1) how far into the litigation the 998 offer was made, (2) the information available to the offeree prior to the lapse of the 998 offer, (3) whether the offeree let the offeror know it lacked sufficient information to evaluate the offer, and (4) how the offeror responded. The court struck plaintiffs request for millions in prejudgment interest following a verdict far in excess of the 998 on the ground that it was premature because Cedars had not had an adequate opportunity to evaluate damages.

Licudine is relevant to the 998 used as a policy limit demand. The factors considered by Licudine also apply to the determination of the validity of conditional policy limit demands in general. See Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788, 798 (insurer should request additional time to respond to policy limit demand if further investigation of facts needed). Following trial, the results of a motion to tax costs could determine whether the 998 was valid as a policy limit demand. In either event, the case is critical of the premature demand for settlement designed to “game the system.”

If you have any questions or would like more information please contact Tim Kenna at [email protected] and Kristin Ingulsrud at [email protected].

Georgia Court of Appeals Concludes the Term “Affiliate” is Ambiguous

Posted on: February 4th, 2019

By: Jake Carroll

In Salinas v. Atlanta Gas Light Company,[1] the Georgia Court of Appeals’ recently examined whether Georgia Natural Gas (“GNG”) and Atlanta Gas Light Company (“AGLC”) were “affiliates.” Both AGLC and GNG were owned and controlled, either directly or through an intermediary, by a company named AGL Resources, Inc.

In Salinas, AGLC sought to dismiss Plaintiff’s claims and compel arbitration. In support of its argument, AGLC relied on a term in GNG’s service agreement that required the Plaintiff to arbitrate any disputes with GNG’s “affiliates.” However, since the term “affiliate” was not defined in GNG’s agreement, the Court of Appeals looked at how the term “affiliate” is defined in the Georgia Code, Black’s Law Dictionary, and other jurisdictions, and ultimately determined that the term is ambiguous. The Court of Appeals construed the agreement against GNG—the drafter of the contract—and as a result, AGLC could not demand arbitration of Plaintiff’s dispute.

While the Court of Appeals did not set-out a specific definition for “affiliate,” the Court’s analysis provides a couple of practice tips to anyone involved in drafting, reviewing, or enforcing contracts, including commercial agreements, government contracts, or insurance policies.

  1. Define Your Terms: The Salinas Court may not have had to address the meaning of “affiliates” if the Agreement had defined the term. But, since the term was not defined, the Court looked elsewhere, including other jurisdictions, the Georgia Code, and the dictionary to determine its meaning. Including a definitions section is an easy way to set out the agreed-upon meaning of a term throughout a contract, and should not be overlooked.
  2. Be Explicit: If there is a certain sibling or parent corporation that should be a beneficiary of a contract, consider listing the specific “affiliates” to which the contract or agreement should apply.
  3. Check Your State’s Code: The Court noted that the term “affiliate” is defined over 20 times in the Georgia Code, and the definitions vary. For example, in the context of financial institutions, an affiliate is an entity that controls the election of a majority of directors, trustees of a financial institution, or an entity that owns or controls 50 percent or more of the financial institution. O.C.G.A. § 7-1-4 (1). In Georgia’s Corporations Act, the definition of affiliate is broader: “a person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a specified person.” O.C.G.A. § 14-2-1110 (1).[2] Depending on the type of corporate entity, “affiliate” may not include every entity in a corporate structure, and certain rules regarding ownership and control may be relevant.

If you need help with this issue, or any other commercial law questions, Jake Carroll practices construction and commercial law, is licensed to practice in Georgia and Florida, and is a member of Freeman Mathis & Gary’s Construction Law and Tort and Catastrophic Loss practice groups. He represents corporations and manufacturers in a wide range of litigation and corporate matters involving breach of contract, business torts, and products liability claims. He can be reached at [email protected].

[1] 347 Ga. App. 480; 819 S.E.2d 903 (2018).
[2] See also O.C.G.A. § 18-2-71 (1) (B) (“Affiliate” has multiple definitions, including “[a] corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by the debtor or a person who directly or indirectly owns, controls, or holds with power to vote 20 percent or more of the outstanding voting securities of the debtor[.] …”).

Federal Securities Laws: Has the 9th Circuit Gone Rogue Again?

Posted on: February 4th, 2019

By: John Goselin

On January 4, 2019, the United States Supreme Court decided to hear an appeal from the Ninth Circuit’s April 20, 2018 decision in Varjabedian v. Emulex Corporation, 888 F.3d 399 (9th Cir. 2018). The Supreme Court is hearing this case to resolve a circuit split regarding whether a claim under Section 14(e) of the Securities Exchange Act of 1934 requires the plaintiff to plead a strong inference that the defendants acted with scienter (i.e. intent to defraud) or whether Section 14(e) merely requires an allegation that the defendants were negligent. Section 14(e) is a provision of the Securities Exchange Act of 1934 that prohibits a company involved in a tender offer from making a material misstatement or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading or to engage in any fraudulent, deceptive or manipulative acts or practices in connection with a tender offer.

Prior to the 9th Circuit’s April 20, 2018 opinion, no Circuit split had existed. Over the course of the forty-five preceding years, the Second, Third, Fifth, Sixth and Eleventh Circuits had uniformly held that Section 14(e) required a plaintiff to plead scienter when stating a claim pursuant to Section 14(e). Despite four and half decades of consensus, the 9th Circuit concluded that every Circuit Court to address this particular issue previously had simply gotten it wrong and that if the Supreme Court considered the issue, the Supreme Court would conclude that Section 14(e) only required the plaintiff to plead negligence.

Until recently, plaintiffs had historically chosen to challenge tender offers in state court, most often Delaware state court, pursuant to state law disclosure obligations. Challenging tender offers is big business as almost every tender offer conducted results in multiple state court class action lawsuits seeking injunctions to halt the tender offers until so-called disclosure deficiencies are rectified. The cases are high profile, high risk and involve significant legal defense costs that D&O carriers often end up paying pursuant to the provisions of D&O insurance policies.  The plaintiff’s lawyers have historically been successful in playing the role of the troll under the bridge collecting hefty tolls (a.k.a legal fees) for “improving” disclosures in tender offers as the tender offer participants seek to avoid the risk of a potential injunction that could halt the tender offer.

Recently, however, the Delaware state courts where the majority of these cases have been pursued have been clamping down on these “disclosure claims” making the state court forum less lucrative for the plaintiff’s bar. Hence, the plaintiff’s bar has been turning increasingly to Section 14(e) of the Securities Exchange Act of 1934 as an alternative cause of action in a federal forum in an effort to continue collecting their attorney fee tolls. The problem, however, is that if Section 14(e) requires the plaintiff to plead “scienter” and the plaintiff wants to bring a class action to put maximum pressure on the company, the plaintiff would have to comply with the heightened pleading requirements of the Private Securities Litigation Reform Act of 1995 and plead facts, not conclusory statements, sufficient to support a “strong inference” of scienter. The plaintiff’s bar would very much like to avoid this particular pleading, and burden of proof, hurdle.

So, the 9th Circuit’s decision adopting a mere negligence standard is a very big deal creating a window through which the plaintiff’s bar hopes to continue their troll under the bridge strategy at least out West and provides the plaintiff’s bar a new opportunity to challenge the prior holdings in the other Circuit Courts. The Supreme Court, however, has taken the opportunity to decide the issue and will either shut this particular door quickly or swing it wide open by deciding the issue of negligence or scienter for Section 14(e) claims.  Every securities lawyer in America will be watching closely.

If you have any questions or would like more information, please contact John Goselin at [email protected].