Bernstein Shur Business and Commercial Litigation Newsletter #29

June 2013 | Issue 29

By Paul McDonald and Daniel Murphy

We are pleased to present the 29th edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month, we highlight a Supreme Court decision addressing the waiver of class action rights, the SEC’s new policy requiring admissions of wrongdoing as a condition of settlement of certain securities fraud actions and a criminal trade secret case involving a Chinese wind turbine manufacturer. We hope you enjoy the newsletter.

In the News: 

Supreme Court upholds the validity of contractual waivers of class action rights in commercial arbitration agreements, continuing its recent trend in favor of arbitration. In American Express Co. v. Italian Colors, merchants brought a class action lawsuit against American Express, alleging that the company violated anti-trust laws by requiring them to honor the company’s high fee mass-market credit cards as a precondition to accepting its premium cards. The AmEx defense was based on the terms in its arbitration agreement with the merchants, which included waivers of class action rights in favor of arbitration.  In response, the plaintiffs argued that such waivers were “unconscionable” because a class action was the only effective means of vindicating numerous claims that were small in value on an individual basis, but significant on a class-wide basis.

The Supreme Court rejected the plaintiffs’ argument, emphasizing the sanctity of freedom of contract and pre-emption of the Federal Arbitration Act, which mandates enforcement of valid arbitration agreements. Ultimately, the court was not persuaded by the plaintiffs’ argument that the class action waivers unduly limited the merchants’ remedies based on the improbability that an individual would arbitrate individual claims. Some analysts believe that the case will result in increased use of arbitration clauses and class action waivers in agreements, while others have suggested that the ruling may invite action by Congress to limit the ability of companies to mandate that individuals and small businesses agree to arbitrate disputes. Click here to learn more about the case and here to read the full court opinion.

Securities and Exchange Commission states that it will require more admissions of wrongdoing from defendants as a condition of settlement of disputes. The policy, which was outlined in a letter to SEC staff, comes in the wake of criticism from commentators and a notable decision from U.S. District Court Judge Jed Rakoff of the Southern District of New York, in which he rejected a negotiated settlement concluded between the SEC and Citigroup, Inc. The SEC will require the admission of wrongdoing only in egregious cases, where investors are significantly harmed or where the defendant already has admitted wrongdoing in a criminal proceeding. The new policy will not apply to most cases that are resolved through traditional “no admit/no deny” settlements. Click here to read more about the policy. 

Sinovel, a Chinese wind turbine manufacturer, was indicted by a federal grand jury on criminal charges that it misappropriated trade secrets from AMSC, a Massachusetts company that provides turbine designs, engineering services and software. A trade secret is a legally protected formula, practice, design or process that is not publicly known or ascertainable, and allows a business to maintain an advantage over its competitors. The indictment alleges that Sinovel Wind Group, one the largest wind turbine makers in the world, replicated software that AMSC previously had licensed to Sinovel. In March 2011, Sinovel abruptly cancelled orders with AMSC, resulting in elimination of more than half of its work force. The alleged misappropriation of trade secrets and other intellectual property was discovered after Sinovel sold turbines to customers in Massachusetts, leading to discovery of the replicated software and other technology. A civil case seeking damages exceeding $1.2 billion is currently pending in a Chinese court. Click here to read more about the case.