Bernstein Shur Business and Commercial Litigation Newsletter #37

February 2014 | Issue 37

By Paul McDonald and Dan Murphy

We are pleased to present the 37^th edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month, we highlight recent developments concerning securities fraud liability against law firms and other third parties, suppression of evidence by asbestos plaintiffs and their counsel, limitations on robo-calling class actions, and the increase in IP cases reaching the U.S. Supreme Court. We hope you enjoy the newsletter.

In the News:

The U.S. Supreme Court holds that victims of the Stanford Ponzi scheme can sue law firms under state laws. The Supreme Court has ruled that the Federal Securities Litigation Uniform Standards Act does not bar investors from suing law firms and securities brokers who allegedly assisted R. Allen Stanford – currently serving a 110 year sentence for securities fraud – in the Ponzi scheme involving the sale of bogus CDs. SLUSA bars state court class action suits based on a “misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security.” Although the Stanford CDs themselves weren’t covered by federal securities laws, the CDs were sold based on the representation that they were backed by securities that were. The defendants, with support from the SEC, argued for a broad construction of SLUSA and dismissal of the suits. Instead, the 7-2 majority adopted a narrow reading of the statute, holding that inasmuch as the CDs were not traded on U.S. exchanges, the suits were not barred by SLUSA. The High Court also rejected the argument that allowing the suits to proceed would interfere with the SEC’s enforcement activities. The law firms named in the suits face potentially billions of dollars of damages exposure.

Click here to read more about the case and here to access the court’s opinion.

A U.S. Bankruptcy Court finds that asbestos plaintiffs and their counsel withheld evidence of asbestos exposure in obtaining settlements against Garlock Sealing Technologies. North Carolina Bankruptcy Court Judge George Hodges refused a request by plaintiffs’ asbestos law firms that Garlock place more than one billion dollars in a bankruptcy trust for claimants injured by exposure to Garlock’s asbestos-containing products. Plaintiffs’ attorneys argued that a fund of that size was justified under mathematical models, which were based on prior settlements and verdicts against Garlock. In rejecting that argument, the court found that some plaintiffs and their counsel had intentionally manipulated and suppressed evidence concerning their exposure to certain products, which resulted in inflated settlements or verdicts. Garlock has gone on the offensive, and has filed suits claiming fraud against several prominent plaintiffs’ law firms. Other asbestos manufacturers may follow suit based on the findings in Judge Hodges’ ruling.

Click here to read more about the case.

A ruling by a U.S. District Court may curtail class actions addressed to automated robo-calls and texts under the Telephone Consumer Protection Act. The TCPA, 47 U.S.C. § 227, limits the use of automated telephone dialing systems to send mass unsolicited advertisements to consumers by telephone, facsimile, or text. Under the TCPA, mass communications sent to such devices containing advertisement or solicitations are permissible only where the recipient’s “prior express consent” has been obtained. While safe harbors exist for pre-existing business relationships and communications devoid of any advertisement content, these areas have served as the focal point for a recent wave of class action litigation under the TCPA. A recent case from the U.S. District Court from the Central District of California may limit this trend. In Shaya Baird v. Sabre, Inc., the plaintiff asserted class action claims against a contractor of Hawaiian Airlines after receiving text messages concerning updates on a flight she booked on the airline. The plaintiff alleged that she did not provide prior express consent to be texted by Sabre, Inc. and that she was compelled to provide telephone contact information to Hawaiian Airlines to book her flight. Dismissing the class action, U.S. District Judge Steven V. Wilson held that the plaintiff effectively provided “prior express consent” for such texts when she shared her contact information with Hawaiian Airlines, and that such consent extended to its agent, Sabre, Inc. The case is significant in that it holds that release of one’s telephone number in effect amounts to an invitation to be contacted by that party, unless otherwise stated by the disclosing party. The case also underscores the need for companies to maintain updated policies and effective procedures to minimize the risk of a TCPA dispute.  

Click here to read more about the case and here to access the court’s opinion.

The U.S. Supreme Court’s docket has seen a marked increase in intellectual property cases. In its most recent term, the High Court reviewed fourteen cases involving intellectual property issues, representing more than 10 percent of the matters scheduled for oral argument. Analysts attribute the increase to the larger role that intellectual property plays in the present economy. In 2011, roughly 125,000 in software patents were granted by the U.S. Patent and Trademark Office, a sharp increase over the figure of 25,000 software patents granted in 1991.

Click here to read more about this development.