CLOSE X
RSS Feed LinkedIn Instagram Twitter Facebook
Search:
FMG Law Blog Line

Posts Tagged ‘Fifth Circuit’

9th Circuit Holds Inadmissible Evidence May Support Class Cert

Posted on: May 17th, 2018

By: Ted Peters

Courts around the country are split over whether admissible evidence is needed to support a class certification.  The Fifth Circuit requires it, and the Seventh and Third Circuits appear to be of the same opinion.  In contrast, the Eighth Circuit has indicated that inadmissible evidence can be considered.  On May 3, 2018, the Ninth Circuit join ranks with the Eighth Circuit when it issued an opinion indicating that certification of a class action can be supported by inadmissible evidence.

The case arises out of the district court’s decision to deny class certification to a group of nurses based, in part, on the finding that two of the named plaintiffs had not offered evidence that they were underpaid.  Their only evidence consisted of a paralegal’s analysis of time cards reflecting that hours were not properly calculated.  While perhaps not sufficiently trustworthy to be admitted at trial, the Ninth Circuit concluded that the district court prematurely rejected such evidence when ruling on whether the class could be certified.  The Court stated: “Notably, the evidence needed to prove a class’s case often lies in a defendant’s possession and may be obtained only through discovery.  Limiting class-certification-state proof to admissible evidence risks terminating actions before a putative class may gather crucial admissible evidence.”

The Court also concluded that, because there was no consideration as to whether the employer controlled the nurses after they clocked in, the district court misapplied the definition of “work” under California jurisprudence.  Lastly, the Court was critical of the finding that the law firm representing the putative class action was incapable of properly representing the class, focusing on “apparent errors by counsel with no mention of the evidence in the record demonstrating class counsel’s substantial and competent work on [the] case.”

If you have questions or would like more information, please contact Ted Peters at [email protected].

DOL Fiduciary Rule Suffers a Slow Death

Posted on: May 15th, 2018

By: Ted Peters

In 2016, the U.S. Department of Labor (“DOL”) promulgated a set of rules and regulations now infamously referred to as the “Fiduciary Rule.”  After multiple criticism and legal challenges, the Fifth Circuit Court of Appeal struck down the Fiduciary Rule effective May 7, 2018.  Surprising many, the DOL elected not to challenge the Fifth Circuit ruling.  Even more surprising, however, was the bulletin issued by the DOL on the effective date of the court’s order.

The court’s ruling, which was not opposed by the DOL, left many unanswered questions.  Enter the DOL’s field bulletin.  Rather than admitting the total defeat of the Fiduciary Rule, however, the DOL seeks to maintain the status quo.  Specifically, the DOL announced that pending further guidance, advisors will not be penalized for either complying with the Fiduciary Rule, or ignoring it in favor of pre-existing standards.  Unfortunately, this announcement leaves the single most important question unanswered – what is the standard to which advisors will be held?  With the U.S. Securities and Exchange Commission working on its own set of rules, and the wait-and-see approach embraced by the DOL notwithstanding, only time will tell.

If you have questions or would like more information, please contact Ted Peters at [email protected].

DOJ Fails to Challenge 5th Circuit Ruling Striking Fiduciary Rule

Posted on: May 3rd, 2018

By: Theodore C. Peters

On March 15, 2018, the Fifth Circuit Court of Appeal stuck down the “fiduciary rule” proposed by the Department of Labor (DOL), which required brokers to act in the best interests of their clients in retirement accounts.  Subsequently, there was much speculation as to whether the Department of Justice (DOJ), acting on behalf of the DOL, would appeal that decision.  The April 30, 2018 deadline for the DOJ to appeal came and went, but …. nothing.  The Fifth Circuit’s ruling, therefore, is slotted to take effect on May 7, 2018.

In late April, AARP and several state attorneys general (including California, New York and Oregon) joined forces in seeking the court’s permission to intervene as defendants in the case, and also sought an en banc hearing before the entire 17-judge circuit. AARP contends that the court’s decision striking down the DOL rule puts Americans’ retirement security at substantial risk, resulting in an “issue of exceptional importance.”  The plaintiffs in the case, opponents of the DOL rule, formally opposed the motions to intervene on April 30.  Counsel for the plaintiffs charged that the “last-minute motions do not come close to justifying their unprecedented bid to intervene…”

On May 2, the Fifth Circuit denied the intervenors’ motions.  The court’s decision looks to be the final nail in the coffin holding the DOL’s fiduciary rule.  Despite this ruling, however, the DOL still has one more card it could play – it can file a petition by June 13 to have the Supreme Court hear the case. Even if the DOL stands quietly by and does nothing, the Supreme Court could conceivably take the case up on its own.

Ultimately, this legal brouhaha focuses attention on the SEC, which is currently taking public comment on newly proposed standards of conduct for brokers and advisors.

If you have questions or would like more information, please contact Ted Peters at [email protected].

Schiff Hardin Requests 5th Circuit To Dismiss Insurer’s Malpractice Suit

Posted on: April 25th, 2018

By: Barry S. Brownstein

Schiff Hardin, LLP, asserting that it has immunity under Texas law, has appealed to the Fifth Circuit seeking to end a suit filed by Ironshore Europe DAC, alleging that the law firm’s bad advice in connection with a product liability trial cost it $34 million.

Schiff Hardin defended Dorel Juvenile Group Inc. in a products liability suit over an allegedly faulty car seat. Ironshore, Dorel’s excess insurer, was not paying for the defense, but was regularly monitoring the litigation with Schiff Hardin to make sure the suit would not trigger its policy, which kicked in after $6 million in primary coverage had been exhausted.

Ironshore claimed it was blindsided when Dorel was hit with a $34 million verdict and sued Schiff Hardin for negligent misrepresentation, claiming that Schiff Hardin misrepresented the amount in which the plaintiffs were willing to settle.  In addition, Ironshore claimed that the firm repeatedly told Ironshore that the suit was going “pretty well” even into trial.  Schiff Hardin asked the panel to overturn a district court ruling allowing Ironshore to continue with some of its negligent misrepresentation claims, saying they are immune from suit for any statements made in the course of representing its client.

The district court partially granted Schiff Hardin’s motion, dismissing the claims based on predictions about the future and subjective claims about the trial by Schiff Hardin and allowing the portions of the claims based on allegations that Schiff Hardin failed to inform Ironshore of important developments in the case, such as settlement offers.

In its appeal, Schiff Hardin argued that the court had incorrectly ruled that the Texas state law that protects law firms from liability to nonclients for actions taken while representing a client has an exception for negligent misrepresentation.  That exception, according to Schiff Hardin, only applies if the damages result from an attorney acting entirely outside the scope of representing their client.

In sum, Schiff Hardin asserted that it is was immune from suit by Ironshore, since it was acting within the scope of representing Dorel when it made any alleged negligent misrepresentations or omissions, and its conduct was of the kind in which defense attorneys engage when communicating with their clients’ insurers.

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

SEC Fiduciary Rules Proceeds on Split Vote

Posted on: April 19th, 2018

By: Theodore C. Peters

The Securities and Exchange Commission (“SEC”) conducted a public hearing on April 18, 2018 to address a series of SEC proposals governing securities professionals.  Recall that the Department of Labor previously sought to promulgate a “fiduciary rule” which encountered numerous legal hurdles and ultimately was struck down by the Fifth Circuit.  Concurrently, over the last 11 months, the SEC has been working on its own set of rules to provide the securities industry with more clarity concerning advice standards.  After a two hour hearing, the SEC Commissioners split over whether to proceed with the next step in the rule making process.  Chairman Jay Clayton and Commissioners Michael S. Piwowar, Robert J. Jackson Jr. and Hester M. Peirce voted in favor of the proposals; Commissioner Kara M. Stein vociferously rejected the proposals.

At issue were three proposals: (1) a rule to establish a standard of conduct for broker-dealers and their associated persons when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer; (2) a rule requiring registered broker-dealers and registered investment advisers to provide a brief relationship summary to retail investors; and (3) a formal SEC interpretation of the standard of conduct applicable to investment advisers.  Various SEC staffers introduced each of the proposals with candid remarks, tacitly admitting that there was room for improvement with respect to each component of the proposal package.

The so-called “Regulation Best Interest” would mandate that broker-dealers and their registered representatives who make recommendations to a retail customer act in the best interest of the customer at the time the recommendation is made, without putting the financial or other interest of the broker-dealer ahead of the retail customer.  To comply with this obligation, a broker-dealer would need to do three things: (1) disclose key facts about the relationship (including material conflicts of interest); (2) exercise reasonable diligence/care/skill to i) understand the product, ii) have a reasonable basis to believe that the product is in the customer’s best interest, and iii) have a reasonable basis to believe that a series of transactions is in the customer’s best interest; and (3) establish/maintain/enforce policies and procedures designed to identify and disclose and then mitigate or eliminate material conflicts of interest.

The Form CRS (customer relationship summary) rule would require investment advisers and broker-dealers (and their associated persons) to provide retail investors with a short-form (4 pages maximum) disclosure summary that would identify key differences in the principal types of services offered, the legal standards of conduct that apply to each, applicable fees and conflicts of interest.

In connection with the proposal regarding a Commission interpretation of the standard of conduct for investment advisers, the SEC seeks a Commission-sanctioned interpretation as to the duty owed by an investment adviser to his/her clients.  The proposed interpretation reaffirms, and in some cases clarifies, certain aspects of the fiduciary duty owed by an investment adviser.

Republican Commissioner Michael Piwowar candidly admitted that the failed DOL Fiduciary Rule was “terrible,” “horrible,” and “very bad.”  He expressed greater faith in the SEC proposals, though he said that the proposals could be improved in several respects.  He stated that the proposed Regulation Best Interest represented a “solid building block,” but noted that there was much room for improvement.  As for the proposed Form CRS template, Piwower suggested that it was “as comprehensible as Herman Melville’s Moby Dick.”  Despite having misgivings as to all three proposals, he voted in favor of them.

Democratic Commissioner Robert Jackson, who admitted being an advocate of the DOL Fiduciary Rule, also professed to have concerns over the proposals.  He stated that the standard set forth in Regulation Best Interest was too ambiguous and he feared that such ambiguity would be used by lawyers to defend transgressing brokers.  As for the proposal concerning mitigation of conflicts of interest, Jackson stated that “some conflicts should simply be banned outright.”  Despite his concerns, Jackson stated that he was “reluctantly voting to open the proposals for comment.”

Republican Commissioner Hester Peirce concurred with many of the prior comments concerning clarity (or the lack thereof) of the proposals.  She stated that “disclosure should be the centerpiece of reform,” and that she was in favor of requiring brokers to provide more details in connection with their disclosures of services offered and fees charged. Peirce believes that the proposed Regulation Best Interest was mislabeled, stating that it would be more accurate to call it a “suitability-plus” standard.  Lack of clarity in the proposal leads to increased cost of compliance, Peirce said, and suggests an “impossible standard” to satisfy which could lead to a decline in the number of registered broker-dealers. Commissioner Peirce stated that the proposals were an “excellent start toward reform,” and voted in favor of them.

Democratic Commissioner Kara Stein blasted the proposals as too weak.  She said the Commission had the opportunity to propose meaningful proposals, but failed to do so.  Critically, Stein said the Regulation Best Interest provided broker-dealers with a safe harbor and did nothing to require that they put customers’ interests first.  Noting that the proposed regulation lacked any definition of “best interest,” Stein said the proposal might mislead investors and might as well be called “Regulation Status Quo,” because it simply reaffirms that broker-dealers are required to meet their suitability obligations.  Not surprisingly, Commissioner Stein voted against the proposals.

Chairman Jay Clayton acknowledged his fellow Commissioners’ comments and stated that “much work” was still needed before the proposals could be adopted as final rules.  Calling for a vote, Commissioners Piwower, Jackson, Peirce and Clayton voted in favor; Commission Stein voted against.  With majority approval, the SEC’s rule package will now be submitted for a 90-day public comment period.

If you have questions or would like more information, please contact Ted Peters at [email protected].