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

Litigation Funding – The Struggle to Peek Behind the Curtain

Posted on: October 17th, 2019

By: Joshua Ferguson

Continuing a nationwide trend, this past month the U.S. District Court for the District of New Jersey rejected a discovery request into the plaintiff’s litigation funding arrangements. Re: Valsartan N-Nitrosodimethylamine Litigation, MDL Docket No. 2875, No. 19-2875, D. N.J., Camden Vicinage.

Litigation funding is where a third party provides the financial resources to enable Plaintiff’s litigation or arbitration cases to proceed. The litigant obtains all or part of the financing to cover its legal costs from a private commercial litigation funder, almost always with repayment at exorbitant interest rates.   It seems a natural conclusion that these same litigation funders would have an “interest” in the results of the outcome to secure their “risk”, but the courts have concluded otherwise on several occasions.

Similar to arguments in other matters involving concerns over litigation funding, defendant in the New Jersey District court action argued disclosure was necessary to determine whether the plaintiffs were the “real parties in interest” in the case.

The court noted a “plethora of authority” from courts across the United States concluding that such information is irrelevant to the claims and defenses at issue.

The “plethora of authority” includes numerous cases, including a 2019 decision in Northern District of California that noted that “the courts simply held that fee and litigation funding agreements could be discoverable when there was a specific, articulated reason to suspect bias or conflicts of interest.”  MLC Intellectual Property LLC v. Micron Technology, Inc., No. 14-cv-03657, 2019 WL 118595 (N.D.Cal. Jan. 7, 2019)

Until and unless the Government steps to slow litigation funding through regulation, any chance of success on securing discovery as to litigation funding will require actual proof of bias or conflict of interest.

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

In Praise of Folly: When Legal Advice Includes Business Issues

Posted on: September 24th, 2019

By: Paul Boylan

A recent case involving a highly compensated executive shows the pitfalls of getting what you want in a business deal.  In 2002, a sophisticated business executive negotiated a stock buyback provision in his executive employment agreement using a skilled and experienced corporate law attorney.  Jenkins v. Bakst, 95 Mass. App. Ct. 654 (2019).

The 2002 employment agreement was drafted and signed on an expedited basis because the board of directors of the employer, a high-tech company, wanted to announce the hiring of this key executive at an already-scheduled meeting of the board of directors.  The executive was a close friend of the founder of the company, and the company was very excited to bring him on board. Much later, after 13 years of successful work, the executive resigned.  At that point, he was very disappointed with the valuation formula he had negotiated as to the stock buyback price in his 2002 employment agreement.  That formula had been proposed to the executive by his attorney.  The formula used was based on fixed asset value plus goodwill.  The company at the time was routinely using, with other key executives, a stock buyback valuation formula based on revenues per month.

When the executive resigned after 13 years of service the payout under the fixed asset plus goodwill formula was $200,000.  The payout under the monthly revenue formula which the executive had chosen not to use would have been between 1.6 and 3.4 million dollars.  The revenue per month formula was far more profitable 13 years later because the high-tech company had developed a large but ever-changing sales base and did not have substantial fixed assets.

The executive resolved all claims against the former employer and sued the lawyer he had used in the 2002 negotiations for malpractice.  He recovered nothing against the lawyer because the attorney had explained the asset value plus goodwill formula to the executive before he signed the 2002 agreement, he read the agreement before signing, and put his initials on the page which included the buyback formula.  The court also held that the executive could not prove loss causation because it ruled there was no sufficient evidence to show that the company would have agreed to the monthly revenue formula as to this executive despite the fact that the company had concurrently done so in multiple instances with other key executives that same year.  The malpractice claim failed separately because counsel for the executive in the malpractice case did not offer expert testimony as to liability or loss causation.

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

Georgia Federal Judge Enforces Contractual Liability Limitation, Cuts Jury Verdict in Half

Posted on: September 19th, 2019

By: Jake Carroll

A federal judge in Georgia enforced a limitation of liability clause in a construction contract for engineering services—reducing the jury’s award from $5.7 million to just over $2 million. See U.S. Nitrogen LLC v. Weatherly, Inc., No. 1:16-CV-462-MLB, (N.D.Ga. Sept. 16, 2019).

The case arose from the design and construction of an ammonium nitrate solution plant in Midway, Tennessee. The project owner, US Nitrogen (“USN”), hired Weatherly to provide engineering services related to the construction, and entered into a written contract.

Constructing the plant cost more money and took longer than the parties initially anticipated—to the tune of $200 Million. USN attributed more than $30 million of cost overruns and delays to Weatherly’s design, and brought suit against Weatherly for breach of contract, breach of warranty, professional negligence, negligent misrepresentation, and bad faith.

Following discovery, Weatherly moved for partial summary judgment, arguing that the contract contained an enforceable limitation of liability provision which capped the damages USN could seek to fifteen percent (15%) of Weatherly’s contract price. Weatherly also argued that the terms of the contract prevented USN from recovering consequential damages.

The court agreed with Weatherly—finding that USN could only recover up to $2,203,800 of the more than $30 million it was seeking—and the case proceeded to trial for the jury to determine the amount of damages incurred by USN as a result of Weatherly’s breach. Although the jury ultimately awarded $5,755,000 in damages, the court reduced the award to $2,203,800, pursuant to its earlier findings, and consistent with the terms of the contract. However, the judgment is not final: either party may still appeal the decision to the Eleventh Circuit Court of Appeals.

While Georgia courts have long recognized limitation of liability clauses as valid and enforceable, this case is another example of how carefully drafted contract language can mitigate future risk. Typically, a party’s exposure can be limited to the amount of compensation under the contract, or even less in Weatherly’s case. Such clauses are most frequently seen in contracts for services such as agreements with design professionals and testing laboratories. Nonetheless, there is no reason that they could not be included in general contracts and subcontracts.

If you have questions regarding this decision, or any other contract drafting questions, Jake Carroll practices construction and commercial law as a member of Freeman Mathis & Gary’s Construction Law, Commercial Litigation, and Tort and Catastrophic Loss practice groups. Mr. Carroll represents business and commercial entities in a wide range of disputes and corporate matters involving breach of contract and warranty, business torts, and products liability claims.

Saporous Naming Rights Protected

Posted on: September 10th, 2019

By: William Gildea

The Business Litigation Session of the Massachusetts Superior Court recently granted the prior owner of the registered trademark “Zuma” a preliminary injunction against a transferee’s decision to open a restaurant in Boston named “Zuma Boston.” B.B. Kitchen, Inc. v. Azumi, Ltd., 2019 Mass. Super. LEXIS, * 469 (Mass. Super. Ct. July 12, 2019 (Davis, J.). Plaintiff B.B. Kitchen, Inc. d/b/a Zuma Tex-Mex Grill (“Plaintiff”) sought to enforce a 2008 written settlement agreement (“Settlement Agreement”)with Defendant Azumi, Ltd. (“Defendant”). Plaintiff has operated a restaurant named “Zuma Tex-Mex Grill” in Faneuil Hall since 1989, while Defendant operates more than a dozen “Zuma” Japanese restaurants across the globe. Defendant recently opened a new restaurant “Zuma Boston” at the Four Seasons Hotel. After “Zuma Boston” opened, “Zuma Tex-Mex Grill” began experiencing “instances of actual confusion among members of the dining public” based off the name similarities.

The Settlement Agreement resolved “a prior dispute between the parties regarding their respective rights to use the ‘ZUMA’ mark in conjunction with the provision of restaurant services.” Plaintiff held the trademark for the ZUMA mark, but eventually reached the Settlement Agreement where the mark would pass to Defendant, except in the “Licensed Territory” which expressly included the six New England States.

Plaintiff asserted the Settlement Agreement prohibited Defendant from opening any restaurant with the “ZUMA” mark in New England. Plaintiff filed suit alleging Defendant’s opening of “Zuma Boston” violated the Settlement Agreement, further alleging claims for breach of contract and violation of G.L. ch. 93A, § 11. Plaintiff sought damages and injunctive relief, specifically a preliminary injunction preventing Defendant from operating “Zuma Boston” under that name.

The Court found Plaintiff had satisfied all requirements entitling it to a preliminary injunction against Defendant. Plaintiff demonstrated a strong likelihood of success on the merits on its claim that Defendant breached the Settlement Agreement. The Court found that Defendant “expressly agreed in… the Settlement Agreement to ‘refrain from opening any restaurant incorporating the term ZUMA or any mark confusingly similar thereto as part of a trade name, trademark, or service mark within the Licensed Territory” which included Massachusetts.

The Court further found Plaintiff would suffer irreparable harm based off the evidence that the name similarities created “significant actual confusion among dining customers, financial institutions, and others.” Finally, the Court found the balance of harm weighed in Plaintiff’s favor as it is a small single location business while conversely, Defendant is an international operation with approximately $200,000,000 in annual revenue.

This decision reflects the importance of businesses doing due diligence prior to absorbing the high costs of opening a new business such as a restaurant. This decision further demonstrates a 10-year-old agreement can impact an organization’s rights. Counsel advising a new business should be wary of old agreements that may impact the rights of organizations they represent and the costs of opening in a new locale, including future litigation costs in connection with failing to abide by old agreements.

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

Breaking – Eleventh Circuit Holds No TCPA Standing For Receipt of Single Unsolicited Text Message

Posted on: August 29th, 2019

By: Matthew Foree

In Salcedo v. Alex Hanna, the U.S. Court of Appeals for the Eleventh Circuit has just issued a major decision holding that receipt of a single unsolicited text message does not establish standing under the Telephone Consumer Protection Act (“TCPA”). A copy of the opinion is available here.

In this case, the plaintiff, who was a former client of the defendant law firm, received a multimedia text message from the defendant offering a 10% discount on his services. Plaintiff filed suit as a representative of a putative class of former clients who received unsolicited text messages from the defendant in the past four years alleging violations of the TCPA.

In reaching its decision, the court considered Eleventh Circuit precedent in the Palm Beach Golf Center-Boca, Inc. v. John G. Sarris, D. D. S., P. A. case, in which it found standing for a plaintiff who alleged that receiving a junk fax in violation of the TCPA harmed him because, during the time that it took to process the fax message, his fax machine was unavailable for legitimate business. The court distinguished that case based on differences between faxes and text messages.  Among other things, it found that a fax message consumed the fax machine entirely while a text does not consume a cellular phone.  It noted that, unlike a cellular phone, a fax machine is unable to receive another message while processing.

The court also looked to the judgment of Congress as to whether plaintiff’s allegations were treated as a concrete injury-in-fact. Among other things, the court recognized that “Congress’s legislative findings about telemarketing suggest that the receipt of a single text message is qualitatively different from the kinds of things Congress was concerned about when it enacted the TCPA. In particular, the findings in the TCPA show a concern for privacy within the sanctity of the home that do not necessarily apply to text messaging.” The court determined that Congress’s “privacy and nuisance concerns about residential telemarketing are less clearly applicable to text messaging.” Significantly, it noted that a single unwelcome text message will not always involve intrusion into the privacy of the home in the same way that a voice call to a residential line necessarily does.  As part of its analysis, the court also found the Ninth Circuit decision in the Van Patten v. Vertical Fitness Group, LLC case, which dealt with the same issue, unpersuasive.  It distinguished that case by noting that it stopped short of examining whether isolated text messages not received at home come within the judgment of Congress.

The Eleventh Circuit also found that history and the judgment of Congress do not support finding concrete injury in plaintiff’s allegations. It noted that the plaintiff did not allege “anything like enjoying dinner at home with his family and having the domestic peace shattered by the ringing of the telephone.” The court  summed up its position by stating that the “chirp, buzz, or blink of a cell phone receiving a single text message is more akin to walking down a busy sidewalk and having a flyer briefly waved in one’s face. Annoying, perhaps, but not a basis for invoking the jurisdiction of the federal courts.”

Judge Pryor concurred in judgment only and noted that the majority opinion appropriately, and her view, leaves unaddressed whether a plaintiff who allege that he had received multiple unwanted and unsolicited text messages may have standing to sue under the TCPA. With this understanding, she concurred in the majority’s judgment.

It remains to be seen how this case will be used to defeat standing in future cases, including how it is applied to cases involving multiple text messages and calls to cellular telephones.  This is a major decision that will have a drastic effect on standing in TCPA class action cases. If you have any questions about this decision, please do not hesitate to contact Matt Foree at [email protected].