Bernstein Shur Business and Commercial Litigation Newsletter #48

By Paul McDonald and Dan Murphy

January 2015 | Issue 48

 We are pleased to present the 48th edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month, we highlight recent cases that address the common interest doctrine, the statute of limitations for Sarbanes-Oxley Act claims, and other news that will have an impact on business and litigation. We hope you enjoy the newsletter.

In the News:

New York’s intermediate appellate court rules that the common interest doctrine may protect communications between counsel for prospective merger partners even in the absence of expected litigation. The common interest doctrine, sometimes referred to as the joint defense privilege, is a recognized exception to the rule that the attorney-client privilege is waived when otherwise privileged communications are shared with a third party. The common interest doctrine retains the cloak of privilege over attorney-client communications that are shared with a third party who maintains a common interest with the client. Many courts, however, hold that the common interest only applies where the parties sharing the privileged communications are involved in pending litigation or reasonably anticipate litigation. In Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 2014 WL 340444 (N.Y. App. Div. 1st Dept. Dec. 4, 2104), the plaintiff claimed that Countrywide had fraudulently induced it to insure mortgage-backed securities, and sought discovery of communications between counsel for Countrywide and Bank of America prior to BOFA’s acquisition of Countrywide. The trial court ordered production of the communications, finding that the common interest doctrine did not apply since there was no actual or threatened litigation involving those parties. The First Department of the Appellate Division reversed, holding that “in today’s business environment, pending or reasonably anticipated litigation is not a necessary element of the common-interest privilege,” specifically noting that the doctrine is particularly applicable where “parties have a common legal interest because they were engaged in merger talks during the relevant period and now have a completed and signed merger agreement.” Slip. Op. at *2.

Access the court’s decision here.

A federal appeals court upholds a jury verdict in favor of a whistleblower under the Sarbanes-Oxley Act and applies longer statute of limitations for retaliatory firing claims. Under the act, whistleblowers at public companies are provided protection against retaliation for reporting suspected violation of federal securities laws. In 2010, the act was expanded to permit an award of monetary sanctions payable to whistleblowers who report information that leads to the successful prosecution of prohibited conduct. In the case at issue, the chief financial officer of a video game company, SouthPeak Interactive Corp, reported her concerns to the company’s chief executive officer regarding its off-balance sheet transactions, resulting in her dismissal after she refused to sign off on financial reports. A jury awarded the plaintiff more than $500,000 in back pay and other damages. On appeal, the company argued that the whistleblower’s claim was barred by a two-year statute of limitations applicable to securities claims under 28 U.S.C. § 1658(b)(1). The Fourth Circuit Court of Appeals rejected this argument, concluding that the four-year “catch-all” statute of limitations for federal claims under 28 U.S.C. § 1658(a) applied.  

Read more about this development here and access the court’s opinion here.

Procter & Gamble’s Gillette unit has filed suit against former employees accusing them of divulging trade secrets to a direct competitor. The employees previously worked in research and development at Gillette and subsequently left to work for ShaveLogic, Inc., a company that has applied for patents on a magnetic device that attaches blade cartridges to the shaving unit. Gillette has alleged that the employees developed the technology working for Gillette. In general, a trade secret may be understood as a formula, practice design or process that is not publicly known or ascertainable, by which businesses can maintain advantage over their competitors. Gillette’s lawsuit charges that ShaveLogic has made it a practice to hire former Gillette employees to obtain access to its trade secrets. The suit against Gillette’s former employees seeks injunctive relief and monetary damages.  

Read more about this development here.