Business and Commercial Litigation Newsletter
By Paul McDonald, Dan Murphy, Eben Albert, Kevin Decker
Paul and Dan are pleased to introduce you to our new co-contributors, Eben Albert and Kevin Decker. Eben and Kevin, both members of Bernstein Shur’s Litigation Practice Group, are capable litigators who will be assisting in publication of the Newsletter each month.
Our May recap highlights cases that address the new federal trade secrets act, state securities fraud actions, and other news that will have an impact on business and litigation.
Federal Defend Trade Secrets Act of 2016 Becomes Law
The Federal Defend Trade Secrets Act of 2016 has been enacted into law, creating federal remedies addressed to misappropriation of trade secrets. Rather than preempting state remedies, the DTSA supplements diverse laws enacted in different states as variants of the Uniform Trade Secrets Act. The DTSA is intended to provide a uniform standard across state and international boundaries and additional means of redress for theft of trade secrets and confidential information. Among other things, the Act provides for monetary damages for actual loss, including potential assessment of royalties, multiple damages and attorney fees for willful and malicious violations, and ex parte seizure of property in exceptional circumstances. The DTSA also contains safeguards for misuse of its procedures, including an award of attorney fees for bad faith claims and penalties for excessive seizure of property. The Act also includes whistleblower provisions that grant broad immunity to employees under state and federal law when they reveal trade secrets “in confidence,” such as when making reports of violations to government officials. Disclosures made to counsel for the sole purpose of reporting such violations also are provided immunity.
Supreme Court Limits Exclusive Federal Jurisdiction, Paving the Way to Pursue Securities Fraud Claims in State Court
The U.S. Supreme Court has made it easier for plaintiffs to pursue certain securities fraud actions in state court. In the underlying dispute, a group of shareholders sued Merrill Lynch and other financial institutions for allegedly devaluing a company’s stock through naked short selling. The shareholders filed in state court and tried to stay there by bringing only state law claims. The financial institutions sought removal to federal court in part because Section 27 of the Securities Exchange Act of 1934 grants exclusive federal jurisdiction over all suits “brought to enforce” any duty created under the Act. The financial institutions argued that naked short selling is a violation of federal securities law, and therefore the plaintiffs’ suit effectively was “brought to enforce” the federal duty to refrain from naked short selling. The Supreme Court disagreed and resolved a three circuit split by holding that the jurisdictional test under Section 27 matches the well-established “arising under” test for federal question jurisdiction. Because the shareholders’ suit did not “arise under” federal law, the financial institutions were unable to invoke Section 27 jurisdiction.
Supreme Court Clarifies Class Action Standing Requirements
The U.S. Supreme Court provided additional guidance on standing requirements to pursue claims based on procedural violations of statutes. In the underlying case, Spokeo v. Robins, the plaintiff commenced a class action against Spokeo, Inc., a data broker and search engine provider that allegedly provided inaccurate personal and professional information concerning the plaintiff. Under the Fair Credit Reporting Act, consumers may obtain an award of damages if a false report is published about them. Plaintiff alleged that the inaccurate information provided by Spokeo interfered with his search for employment. At the trial court level, the U.S. District Court dismissed the plaintiff’s claim based on a lack of standing. In order to have standing to pursue a claim in court, a plaintiff must have: 1) suffered an injury in fact, 2) that is concrete and fairly traceable to the challenged conduct of the defendant, and 3) that is likely to be redressed by a favorable judicial decision. On appeal, the Ninth Circuit reversed, holding that the plaintiff had plausibly alleged that Spokeo’s publication of inaccurate information caused an individualized injury to him. However, the U.S. Supreme Court vacated the Ninth Circuit’s determination, taking issue with the Court’s failure to meaningfully analyze the requirement of “concreteness” of injury. A “concrete” injury is a harm that may be described as “real,” not “abstract.” Remanding the case to the Ninth Circuit, the Court stated that bare allegation of statutory violation without accompanying allegations of particularized and concrete harm could not satisfy standing requirements.
Proposed Facebook Stock Reclassification Challenged by Shareholders
A shareholder lawsuit accuses Facebook’s proposed stock reclassification of giving Mark Zuckerberg’s lifetime control. Facebook founder and chief executive Mark Zuckerberg’s pledge to use 99 percent of his Facebook shares for philanthropy presented one problem: Zuckerberg would lose control over the company he founded and runs. Facebook’s proposal to issue nonvoting Class C capital stock for outstanding voting Class A and Class B shares would solve this problem for Zuckerberg. But several shareholder lawsuits followed the proposal’s announcement, with shareholders complaining that the plan permanently entrenches Zuckerberg’s control of Facebook with no benefit for shareholders. Google proposed and completed a similar stock deal to entrench its founders, but only after settling a shareholder lawsuit shortly before trial.
About Eben Albert
Eben is an aggressive, thorough litigator who practices in both the Litigation & Dispute Resolution and Technology, Outsourcing & Data Security practice groups. He has argued numerous cases in state and federal court, including both bench and jury trials, and has participated in various administrative hearings and alternative dispute resolution (ADR) proceedings. View Eben’s bio here.
About Kevin Decker
Kevin’s practice focuses on a wide range of business and commercial litigation, including contract disputes, shareholder suits, and business dissolutions, as well as regulatory and municipal matters. Prior to joining Bernstein Shur, Kevin clerked for the Honorable William J. Kayatta, Jr., of the United States Court of Appeals for the First Circuit. Kevin is a graduate of Dartmouth College and the University of ME School of Law. View Kevin’s bio here.