Counsel for public companies—it may be time to take another look at your litigation disclosures. A recent federal district court opinion held that one company’s use of the phrase “without merit” to describe ongoing litigation in its public filings could give rise to federal securities fraud claims. The ruling serves as the latest admonition to exercise care in crafting litigation disclosures.
What began as a trademark infringement dispute concerning electronic cigarettes has evolved into a never-ending series of discovery issues, and lessons about the limits of Federal Rule of Evidence 502 and privilege waivers. DR Distributors, LLC filed its initial complaint against 21 Century Smoking, Inc and its owner, Brent Duke, in September 2012 alleging trademark violations. The defendants filed their counterclaim also alleging trademark violations about a month later. Though fact discovery was supposed to have ended in 2015, the parties continued to assert problems with discovery seven years later. The latest issue presented before the U.S. District Court in the Northern District of Illinois in this case was whether the defendants waived the marital communications privilege by disclosing certain communications during discovery. In its decision finding that the privilege had been waived, the Court described the limited application of Rule 502 and warned against the dangers of arguing that a disclosure was “inadvertent” without providing any explanation of how the privilege review was performed.
The COVID-19 pandemic has brought great economic uncertainty and significant market volatility, creating an environment where investors that are trying to assess the financial impact of the virus are looking to glean any insight they can from a company’s disclosures and are hanging on every statement made by company leaders. This environment of heightened investor focus has, not surprisingly, increased the legal risks that companies, their officers, and their directors face when informing the market about the impact of COVID-19. The coming months are likely to see increased activity from both the SEC Enforcement Division and from plaintiffs’ firms bringing shareholder suits challenging overly optimistic disclosures companies make about their capacity to manage the challenges presented by the pandemic. Consequently, disclosures concerning the business and financial risks to a company posed by COVID-19 must be made with the utmost prudence and caution to limit a company’s exposure to actions brought by the SEC Enforcement Division or shareholder suits.
A divided New York Court of Appeals recently held that Civil Rights Law § 50-a bars disclosure of police officer personnel records except under very limited circumstances, eliminating access to such records by the press or advocacy groups under the Freedom of Information Law (“FOIL”) even if the police department itself is willing to release them and even if they are redacted. The decision, In the Matter of New York Civil Liberties Union v. New York City Police Department, came with two dissents arguing that it is a significant break with earlier case law in which the Court construed FOIL exemptions more narrowly and at least suggested that agencies and the lower courts had more flexibility to effectuate FOIL’s goal of transparency.
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.