Gibbons Law Alert

Gibbons Law Alert

Category: General Litigation

Third Circuit: In Pennsylvania, Creditors’ Deepening Insolvency Claims Still Fair Game

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Posted in General Litigation

On November 4, 2011

In September of this year, the Third Circuit reaffirmed that creditor claims against corporate directors and officers for fiduciary duty and related breaches under the “deepening insolvency” theory are alive and well, at least under Pennsylvania law. In Official Committee of Unsecured Creditors, on Behalf of the Estate of Lemington Home for the Aged v. Baldwin, the court considered an appeal from the District Court’s grant of summary judgment in favor of the D&O defendants, predicated upon that court’s finding that (i) the business judgment rule and the in pari delicto defense barred recovery on fiduciary duty claims and (ii) the Committee failed to establish a material issue of fact as to whether the defendants committed the fraud necessary to sustain a deepening insolvency claim.

Ninth Circuit Rules that Magnuson-Moss Warranty Act Prohibits Mandatory Arbitration in Warranties, Creating a Circuit Split

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Posted in General Litigation

On November 1, 2011

The Ninth Circuit in Kolev v. EuroMotors West/The Auto Gallery held that The Magnuson Moss Warranty Act (“MMWA”) “precludes enforcement of pre-dispute agreements . . . that require mandatory binding arbitration of consumer warranty claims.” The Ninth Circuit’s ruling would essentially prohibit manufacturers and distributors of consumer products from attempting to take advantage of the Supreme Court’s recent pro-arbitration rulings, including AT&T Mobility v. Concepcion, involving MMWA consumer warranty claims. Thus, to the extent the MMWA precludes arbitration clauses, class waivers in such clauses, which Concepcion rendered immune from invalidation under state laws, would thus likewise be unenforceable in MMWA actions, providing a complete end-run around Concepcion.

Creditors of Insolvent Delaware Limited Liability Companies Lack Standing to Pursue Derivative Claims

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Posted in General Litigation

On October 28, 2011

Relying on the plain language of Delaware’s Limited Liability Company Act, the Delaware Supreme Court, in CML V, LLC v. John Bax, et al., recently ruled that creditors of insolvent Delaware limited liability companies lack standing to sue derivatively for their managers’ alleged breach of their fiduciary duties. According to Chief Justice Myron T. Steele, writing for the Court, 6 Del. C. § 18-1002 of Delaware’s Limited Liability Company Act is “unambiguous and limits derivative standing in LLCs exclusively to ‘member[s]’ or ‘assignee[s].’” In so holding, the Court distinguished insolvent LLCs from insolvent corporations, which are subject to derivative claims by creditors, noting that “the General Assembly is free to elect a statutory limitation on derivative standing for LLCs that is different than that for corporations, and thereby preclude creditors from attaining standing.”

Representations That Product’s Effectiveness is “Clinically Proven,” Though Not “Puffery,” Fail to Support State New Jersey Consumer Fraud Act and Implied Warranty Claims

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Posted in General Litigation

On October 25, 2011

In Lieberson, the District Court for the District of New Jersey held that where a complaint does not allege whether or when the allegedly false advertisements appeared in magazines, and whether or when the plaintiff may have viewed them, they were “patently insufficient” to plead a New Jersey Consumer Fraud Act, N.J.S.A. 56:8-2, claim and otherwise fail to satisfy Rule 9(b) . The Plaintiff in Lieberson alleged that Johnson & Johnson’s baby wash products falsely stated that they were “clinically proven” to help babies sleep better. The Lieberson court held that to properly plead a New Jersey Consumer Fraud Act claim with the specificity required under Rule 9(b), a plaintiff must identify the origin of the statements and that they were actually viewed by the plaintiff. Notably, however, the Lieberson court declined to conclude that the product label’s statements that the product was “clinically proven” to help babies sleep better was mere non-actionable “puffery.” On the contrary, the court found that “incorporation of the words ‘clinically proven’ . . . a statement that might otherwise be considered puffery, i.e., that the products will help babies sleep, was transformed into something that appears ‘both specific and measurable.’”

Third Circuit Adopts Later-Served Defendant Rule for Removal Petitions in Multi-Defendant Cases

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Posted in General Litigation

On October 21, 2011

On October 12, 2011, the Third Circuit weighed in on what it referred to as a “deep circuit split.” In Delalla v. Hanover Insurance, the Third Circuit joined a majority of the other circuit courts in adopting the “later-served defendant” rule for determining whether a removal petition is within the thirty-day limitation under 28 U.S.C. §1446(b).

New Jersey Trial Court Can Sua Sponte Reconsider and Vacate Interlocutory Summary Judgment

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Posted in General Litigation

On October 18, 2011

Everyone makes mistakes — even judges. And a recent ruling by the New Jersey Supreme Court in Lombardi v. Masso declared it well within a trial court’s discretion to correct its own error. Specifically, the Supreme Court held that a trial court can sua sponte revisit and vacate an interlocutory order (including one granting summary judgment) provided that specific procedures are followed. In so holding, the court rejected the argument that the law-of-the-case doctrine barred such reconsideration.

Beware of Mutual Demand for Attorneys’ Fees in Arbitration Proceedings in Jurisdictions (Such as New York) Which Permit Award in the Absence of Statute or Agreement if Both Parties Demand Fees

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Posted in General Litigation

On October 14, 2011

It is well-known that, generally, an arbitrator may award attorneys’ fees where the award is authorized by statute or where the parties have agreed that the prevailing party is entitled to fees. Nonetheless, parties in an arbitration often include a demand for attorneys’ fees as a matter of course even where neither circumstance exists. Depending upon the jurisdiction, this practice may have a negative impact.

Third Circuit Addresses Tension Between Rules 8(a) and 9(b), Concluding That False Claims Act Plaintiffs Were Required to Meet Twombly/Iqbal Standard When Alleging Knowledge

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Posted in General Litigation

On October 4, 2011

The Third Circuit has made it clear that the Twombly/Iqbal pleading standard — which requires plaintiffs to plead enough facts to state a claim “that is plausible on its face” — applies to allegations of states of mind, such as knowledge and intent, notwithstanding Rule 9(b)’s allowance that such matters “may be alleged generally.”

Minority Shareholders Not Precluded From Seeking Damages for Majority Shareholders’ Post-Merger Breaches of Fiduciary Duty

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Posted in General Litigation

On September 30, 2011

In Mitchell Partners, L.P. v. Irex Corporation, et al., the Third Circuit concluded that Pennsylvania’s appraisal statute does not preclude dissenting minority shareholders who are “squeezed out” in a merger from seeking remedies beyond the appraisal remedies provided in the statute. In the precedential ruling, the Third Circuit predicted that the Supreme Court of Pennsylvania would “permit a post-merger suit for damages based on the majority shareholders’ breach of their fiduciary duties.”

No Right of Access Under OPRA to Unfiled Discovery in NJDEP Litigation But Right of Access May Exist Under Common Law

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Posted in General Litigation

On September 27, 2011

Last month, in Drinker Biddle & Reath, L.L.P. v. New Jersey Department of Law and Public Safety, Division of Law, the Appellate Division held that un-filed discovery in an environmental lawsuit brought by the New Jersey Department of Environmental Protection was not subject to access pursuant to New Jersey’s Open Public Records Act (“OPRA”). But the Court also found that access to such information could be compelled under the common law, depending on whether the plaintiff’s need for disclosure outweighed the State’s need for confidentiality, and remanded the matter to the trial court to conduct the appropriate balancing test.

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