Bernstein Shur Business and Commercial Litigation Newsletter #49

By Paul McDonald and Dan Murphy

February 2015 | Issue 49

We are pleased to present the 49th edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month, we highlight recent cases that address patent infringement claims, erroneous termination of security interests, and qualified privilege applicable to pre-litigation communications of counsel. We hope you enjoy the newsletter.

In the News:

A jury finds that Apple’s iTunes software infringes patents and awards $533 million in damages. Smartflash, LLC is a closely held entity that makes no products and whose only business is licensing several patents that were co-invented by one of its owners.  Smartflash sued Apple, Inc. in the United States District Court for the Eastern District of Texas (whose courthouse is across the street from Smartflash’s offices) alleging that Apple’s iTunes software infringed three patents held by Smartflash. After a six-day trial and deliberating for only eight hours, the jury found that Apple had deliberately infringed Smartflash’s patents and awarded $532.9 million in damages to Smartflash. Apple has announced that it will appeal the verdict. Smartflash also has patent infringement suits pending against Apple’s competitors, Google, Inc., and Samsung. 

Read more about this case here, and here.

The Second Circuit holds that JP Morgan’s unintentional termination of a security interest in General Motors’ real estate to secure $300 million in financing was effective to release its interest on collateral. In the matter, JP Morgan and other lenders extended 300 million in credit related to a Synthetic Lease transaction and perfected its security interest in General Motors’ real property. However, a paralegal at Mayer Brown inadvertently filed a UCC-3 termination statement addressed to unrelated transactions, as well as  the Synthetic Lease transaction. The mistaken release of the security interest went unnoticed until General Motors filed bankruptcy in 2009, rendering the bank an unsecured creditor. On appeal, JP Morgan argued that the termination of its security interest addressed to the Synthetic Lease transaction was ineffective because it was not intended or authorized. The Second Circuit rejected the bank’s argument, stating that while JP Morgan never intended to terminate its security interest, it clearly authorized the filing of a UCC-3 termination that had this effect. In particular, the court rested its decision upon the “actual authority” of Mayer Brown reflected in JP Morgan’s expression of assent to instruct Mayer Brown to take action. See Restatement (Third) of Agency § 3.01.  Accordingly, JP Morgan’s security interest in General Motors’ real estate was terminated.

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

New York’s highest court holds that pre-litigation correspondence from an attorney to an adverse party is protected by qualified privilege, rather than absolute privilege. In the underlying matter, counsel for an engineering firm sent a letter to a former employee alleging that the individual attempted to misappropriate the company’s intellectual property. The employee brought suit against the attorney, asserting defamation and other claims. In response, the attorney asserted the defense of absolute privilege, or alternatively, qualified privilege. On appeal, New York’s highest court held that only qualified privilege applied, noting that the protection afforded by the privilege could be eliminated on a showing of malice. While noting that attorneys and parties should be free to communicate in order to reduce or avoid the need for litigation, the Court also held that the protection is lost when an attorney threatens baseless or asserts wholly unmeritorious claims.

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

Bank of America concludes a $300 million settlement with fellow members of a credit facility for a defunct resort in Nevada. The bank served as the lead for the $1.85 billion credit facility for the Fontainebleau Resort and Casino in Las Vegas, Nevada. In June, 2009, the resort filed protection under the bankruptcy code. Carlyle Group, LP and other members of the credit facility brought suit against Bank of America, alleging that it encouraged members to extend credit when it should have known that the project was financially untenable. After discovering significant overruns in construction expenses, Bank of America finally stopped financing the resort, while plaintiffs protested the bank’s belated action.  Members of the lending syndicate are resolving their claims against Bank of America in exchange for payment of $300 million. The unfinished project, slated to be a 63-story facility, was purchased by an entity controlled by Carl Icahn.

Read more about this development here.