Bernstein Shur Business and Commercial Litigation Newsletter #73

FIRM NEWS2 Apr 2024 Shareholder Lindsay Milne Quoted About Subchapter V Being an Antidote for Distressed Small Businesses in a High Interest Rate Environment

The U.S. Supreme Court has vacated a Kentucky Supreme Court ruling that attempted to strike down a consumer arbitration agreement in violation of the Federal Arbitration Act.

Under the Federal Arbitration Act (FAA), state and federal courts are required to place arbitration agreements on equal footing with all other contracts. The statute, which has served as a potent tool to enforce the federal policy of enforcing arbitration agreements, pre-empts state rules that prohibit, limit, or discriminate against arbitration provisions on their face. In the underlying case, the Kentucky Supreme Court invalidated an arbitration agreement concluded between a nursing home and the children of elderly residents. The children entered into the agreement through the exercise of power of attorney from their parents. Invalidating the arbitration agreement, the Kentucky Supreme Court noted that the legal representatives were never granted specific powers by “clear statement” to waive the residents’ “inviolate” rights to access courts and request a jury trial. Sending a clear message to state courts, the U.S. Supreme Court vacated the Kentucky Supreme Court’s decision, signaling that it will not tolerate indirect attempts to diminish the force of arbitration agreements or evade the pre-emptive requirements of the FAA. The case is the latest in a series of decisions from the U.S. Supreme Court where it has forcefully held that the FAA pre-empts any attempts by state courts and legislatures to disfavor arbitration agreements on their face. In AT&T Mobility v. Concepcion, for instance, the U.S. Supreme Court held that the FAA pre-empted a California law that attempted to override contractual provisions that required arbitration and waived class action rights.

The Department of Labor has announced that the unified fiduciary standard for broker-dealers and registered investment advisors will begin to take effect on June 9, 2017 and will be in full effect by January 1, 2018.

Under the Dodd-Frank Act, the SEC was authorized to study and impose fiduciary obligations on broker-dealers, who presently are required only to purchase “suitable” investments for their clients. The new unified fiduciary standard will subject broker-dealers to the same heightened fiduciary duties applicable to registered investment advisors. The fiduciary standard implicates both a duty of care to use reasonable prudence and duty of loyalty to act without regard to the competing financial interests of the advisor or the firm. Under the new rule, the standard of conduct for broker-dealers and investment advisors would be to act only “in the best interest of the customer.” Secretary of Labor Alexander Acosta announced that the unified fiduciary rule will take effect next month, but will not be enforced until January 1, 2018 to allow for a transition period. In February 2017, President Trump asked the DOL to delay implementation of the unified fiduciary rule, but Secretary Acosta last week announced that he could find no principled reason to further delay the rule’s implementation. Analysts believe that modifications to the rule could be possible during the transition period.

Zillow, the real estate data company, is facing a class action by residential home owners who allege that its home price estimates listed on the web are inaccurate and have prevented sales.

Since its formation in 2006, Zillow publicly posted on its website its estimates of individual home values, as well as property tax and other data. Class Plaintiffs have filed suit in Illinois alleging that Zillow’s estimates have undermined their ability to sell their homes because they are significantly below asking prices. In addition to asserting statutory claims, plaintiffs also have alleged violation of the tort of intrusion upon seclusion. Under this theory, liability can attach where a party intentionally intrudes upon the solitude or seclusion of another’s private concerns where the intrusion would be highly offensive to a reasonable person. Zillow may seek to defend on the basis that it uses publicly available data to generate its estimates through its computer algorithms. Zillow previously faced criticism that it improperly inflated home values in its estimates, contributing in part to the housing bubble that occurred from 2005.

A federal district court has held that United Parcel Service, Inc. must pay more than $200 million for its role in illegal shipments of untaxed cigarettes in New York.

In the case, UPS faced allegations that it shipped hundreds of thousands of cartons of untaxed cigarettes from sellers on Indian reservations to New York wholesalers, retailers, and individuals. The practice, which commenced in 2010 and spanned several years, reportedly caused millions of dollars in lost tax revenues for the State of New York and New York City. Federal District Judge Katherine Forrest concluded that UPS had a “high degree of culpability,” while also noting that it showed a lack of cooperation and unwillingness to “acknowledge its errors” during the litigation. The Court awarded total damages and fines of $165.8 million to the State of New York and $81.2 million to New York City. Although significant, these amounts are far less than the $870 million sought by the state and city in the action. UPS has indicated that it will appeal the decision.