Minding Your Business

Proskauer’s perspective on developments and trends in commercial litigation.

Key Lessons From the Recent Precedential Order by Federal Circuit – Jurisdiction, Mandamus, and Privilege

On November 17, 2016, the United States Court of Appeals for the Federal Circuit published a precedential order denying a petition for a writ of mandamus to overturn a district court’s determination. In In re: Rearden LLC, Rearden MOVA LLC, MO2, LLC, MOVA, LLC, the defendants in the underlying case had petitioned for a writ of mandamus to challenge the district court’s order compelling them to produce allegedly privileged documents.

Background

The underlying dispute in the case surrounded ownership of visual effects technology secured by trademarks, copyrights, trade secrets, and patents. A newly formed entity acquired the technology and related assets but the two parties disputed the nature and control of the new entity. In February 2015, the plaintiffs filed a complaint in the United States District Court for the Northern District of California, alleging that the defendants made false or misleading representations regarding ownership of the technology and seeking a declaration that it owned the technology in question. The defendants counterclaimed, seeking their own declaration that they owned the technology in question and damages for patent infringements.

During discovery, the plaintiffs moved to compel the defendants to produce documents exchanged between a corporate attorney and the entity that had originally acquired the patented technology. The magistrate judge disagreed with the defendants’ assertion of attorney-client privilege protection and granted the request to compel. Further, the district court affirmed the magistrate court’s order, while declining to consider an additional declaration from the defendants that had not been presented to the magistrate judge. In turn, the defendants petitioned for a writ of mandamus. The Federal Circuit answered three core questions in a short precedential order.

Jurisdiction

First, the Federal Circuit concluded that it had jurisdiction to decide this petition. Under 28 U.S.C. § 1295(a)(1), the Federal Circuit has appellate jurisdiction in any civil action arising under or with a compulsory counterclaim arising under any Act of Congress relating to patents. The Court found that here, the claims and counterclaims involve the same patents and share overlapping legal and factual issues and logical relation. Also, substantially the same evidence could refute both the claims of ownership and counterclaims of infringement. Moreover, unlike a case where a counterclaim of infringement may mature after the filing of the complaint, the defendants in this case counterclaimed that the plaintiff infringed the same patents in question and the alleged infringing activity was known by the defendants at the time of filing. Therefore, the counterclaim was found compulsory, establishing appellate jurisdiction for the Federal Circuit.

Appellate Review for a Writ of Mandamus

Second, a relief by writ of mandamus calls for a deferential review and requires a showing of a “clear and indisputable” right to relief and that no adequate alternative legal channels exist through which the petitioners may obtain the same relief. Kerr v. U.S. Dist. Court. The Federal Circuit held that the petitioners failed to meet this high standard.

The petitioners argued that the district court erred by not accepting a supplemental declaration and not holding an evidentiary hearing on the issue. However, this did not establish a clear and indisputable right to relief, according to the Federal Circuit; an evidentiary hearing or supplementation is one of discretion—not a requirement—of a district court. Also, the petitioners did not establish that the district court abused its discretion because they failed to explain why they could not have submitted any additional information to the magistrate judge or explain why an additional hearing was necessary.

Privilege or Disclosure

Third, the Federal Circuit disagreed with the petitioners’ argument that the district court and the magistrate judge should have deferred ruling on the privilege issue until the control over the disputed entity was conclusively determined. Rather, the Court showed deference to the district court and magistrate judge’s preliminary factual determinations.

The Federal Circuit further declined to consider extra-record declaration regarding the entity’s control and denied a mandamus relief on the preliminary factual findings regarding privilege. Lastly, the Court noted that the petitioners have an alternative avenue to obtain meaningful review of these arguments, citing a U.S. Supreme Court case which held that appellate courts can effectively remedy the improper disclosure of privileged material post-judgment by vacating an adverse judgment and remanding for a new trial in which the protected material and its fruits are excluded from evidence. See Mohawk Indus., Inc. v. Carpenter.

Conclusion

As noted (and cited by the petitioners) in United States v. Mett, “hard cases should be resolved in favor of the privilege, not in favor of disclosure.” However, a mandated disclosure of alleged privileged material does not necessarily mean that a collateral appeal is the best strategic decision. Moreover, parties considering to petition for a writ for mandamus should be prepared to meet the high burden of proof.

NY Court of Appeals Finds Personal Jurisdiction Based on Use of NY Correspondent Bank Accounts

A sharply divided New York Court of Appeals recently held that defendants who allegedly made intentional and repeated use of New York correspondent bank accounts for money laundering thereby purposefully transacted business related to the plaintiffs’ claims, and thus were subject to the personal jurisdiction of the New York courts. According to the three-judge dissent, the decision, Rushaid v. Pictet & Cie, broke with 40 years of precedent, expanding the reach of the state’s long arm statute to encompass individuals who performed no acts directed at New York. Because correspondent bank accounts enable foreign banks to facilitate transactions in U.S. currency and the U.S. market, and New York is the home of many correspondent banks, any expansion of personal jurisdiction in New York based on correspondent banking relationships could have a significant impact. Courts and practitioners may have to reconsider their assumptions about personal jurisdiction in future cases. Continue Reading

An Offer You Can’t Refuse: Are Deathtraps a Tool for Fostering Settlements, or a Method of Coercion?

Accept an unpalatable offer, or reject it and risk getting much less (or even nothing)? This is the choice stakeholders in chapter 11 bankruptcies increasingly face as a result of the proliferation of “deathtrap” provisions in plans of reorganization. For example, a class of bondholders may be forced to decide between accepting 60 cents on the dollar if they vote to accept a plan, or 40 cents if they reject. A class of equityholders may have to decide between accepting equity warrants, or rejecting and getting nothing. Adding to the paralysis of being confronted with a deathtrap is the reality that there is surprisingly little authority on whether, and under what conditions, such provisions are enforceable under the Bankruptcy Code. The authorities that do exist are split on this question—emboldening debtors seeking to precipitate chapter 11 settlements while leaving impaired classes of stakeholders to decry deathtraps as “draconian” and “coercive” mechanisms. Continue Reading

President-Elect Trump Set to Make Key Appointments in SEC Shake-Up

SECThe outcome of the presidential election, and Mary Jo White’s announcement of her intent to step down as chair of the Securities and Exchange Commission, are sure to kick off an avalanche of prognostication about her successor, the direction of the SEC, and the fate of some of the laws that govern the securities industry, most principally the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Beyond designating a Chair, however, President-elect Trump will be in a position to overhaul the makeup of the SEC by appointing three of the five SEC Commissioners – with a fourth Commissioner appointment as early as June of 2017. This is particularly important in an agency that relies on Commissioner votes for each decision, order, rule or similar action.

Read the full post on The Capital Commitment Blog.

Not an LOL Matter: Court Provides Guidance on Steps Litigants Should Take to Preserve Text Messages

dina-friday-1We’ve all been there. Your friends throw you in the pool with your phone in your pocket. You repeatedly slice your finger on shards of glass from your phone’s shattered screen. Or, maybe you forget your phone isn’t waterproof and dump champagne all over it. For most of us, the worst part of these ordeals is a trip to the Apple Store and the hefty price tag of the latest iPhone. However, if you’re a litigant with text messages that are relevant to pending litigation, the failure to preserve those messages could result in spoliation sanctions or an adverse inference instruction. While case law is unlikely to provide insight on what to do with a champagne-covered, non-waterproof phone, a recent district court decision, Shaffer v. Gaither, provides guidance to litigants on what steps to take to preserve potentially-relevant electronically-stored information (“ESI”) stored on mobile devices.  Continue Reading

The Basics of International Privacy Law for Commercial Litigators, Part 3: Cross-Border Discovery Issues

global-privacy-3As explained in Part I and Part II of this series, U.S.-based commercial litigators should be aware that other countries’ privacy laws may affect their cases in unexpected ways. Perhaps the most likely stage for these issues to surface is during discovery, where materials of interest are located in another country, and that country’s privacy laws effectively prohibit counsel from removing those materials from the jurisdiction. This post provides an overview of some of the issues at the intersection of U.S. discovery practice and international privacy law. Continue Reading

Second Circuit Finds Use of “Who’s on First” Routine Not to Be Fair Use

The U.S. Court of Appeals for the Second Circuit, in a unanimous 3-0 ruling, decided that a Broadway play’s verbatim performance of a full minute from the iconic Abbott and Costello routine, “Who’s on First,” in a scene between an introverted, small-town boy and his demonic sock puppet, was not transformative or otherwise fair use as a matter of copyright law. The Second Circuit’s opinion clarifies that simply placing an unaltered original copyrighted work “in a sharply different context from its original authors” does not warrant a protectable “transformative use.” This opinion will shape the meaning and scope of what has become the “transformative use” factor of the four-factor fair use defense to copyright infringement.

Click here to read the full client alert.

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