Bernstein Shur Business and Commercial Litigation Newsletter #38

March 2014 | Issue 38

 By Paul McDonald and Dan Murphy

We are pleased to present the 38^th edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month, we highlight recent convictions in the Madoff scandal, class action litigation against General Motors in the wake of a recent recall, and other news that will have an impact on business and litigation. We hope you enjoy the newsletter.

In the News:

Five former associates of Bernard Madoff were convicted of conspiracy to defraud clients, securities fraud, and falsification of records. The conviction of former employees followed a lengthy trial in which prosecutors portrayed the defendants as knowingly defrauding clients in order to enrich themselves. Although defendants pleaded ignorance of Madoff’s scheme, the testimony of Frank DiPascali, former finance chief for Madoff, provided important testimony to the contrary. In particular, DiPascali explained how the group worked in unison to trick regulators during inspections and were paid higher salaries to ensure loyalty and silence. In one instance, two defendants demanded payments in untraceable diamonds from Madoff after they discovered that the software code that they created was central to maintaining the fraud. Madoff’s Ponzi scheme wiped out some $17.5 billion in principal, while investors were duped into believing they earned an additional $47 billion in profits. Madoff is currently serving a sentence of 150 years in a North Carolina prison.

Read more about this development here.

A federal judge dismisses a putative class action against Yahoo!, Inc. under the Telephone Consumer Protection Act despite the company’s use of emailed text messages. The TCPA, which has become a hotbed of class action litigation, prohibits the use of automated telephone dialing systems to send mass unsolicited advertisements to consumers by telephone, facsimile, or text. In the case, the lead plaintiff alleged that he received approximately 50 texts per day from Yahoo, which were sent to an account previously linked to his telephone number by a former owner. However, under the TCPA, a claimant must prove that the defendant used an Automatic Telephone Dialing System, a system that has the ability to store or produce telephone numbers to be called using a random or sequential number generator. Concluding that Yahoo’s texts sent to plaintiff did not employ a random or sequential ATDS, U.S. District Judge Michael Baylson dismissed the putative class action as outside the scope of the TCPA.

Read the court’s opinion here.

General Motors faces a potential wave of lawsuits in the wake of its recent automobile recall addressed to faulty ignition switches. Last month, GM announced a recall of more than 1.5 million vehicles after problems with ignition switches were first discovered in 2001 and service remedies were offered in 2005. Among the accidents involving recalled cars, GM has learned that 34 crashes have occurred, with 12 deaths. GM also has been hit with class action suits seeking to recover the loss of value in vehicles attributable to the recall. Claimants have alleged that GM was aware of the magnitude of defects for more than a decade, but failed to take sufficient steps to mitigate such risks.

Read more about this development here.

The Internal Revenue Service has provided guidance on the tax treatment of Bitcoin, the virtual “currency” that has appreciated more than 50-fold in value since early 2013. Addressing the question of whether Bitcoin should be treated as property or currency, the I.R.S. this week announced that it would treat Bitcoin as “property,” subjecting it to capital gains tax treatment. The ruling from the I.R.S., which is effective immediately, applies to past and present transactions.

Read more about this development here.