June 14, 2022
The High Court finally determines that 1782 US discovery proceedings are not accessible for international private commercial or investment treaty arbitration. The question at issue was whether the term „foreign or international tribunal“ in Section 1782 is to be interpreted as a governmental adjudicative body. The Supreme Court unanimously affirmed. That excludes any private commercial arbitration from US discovery. The court, however, went further and found that even tribunals in International Investment Treaty Arbitration would not meet that requirement as the tribunal is chosen by the parties and functions „independently of the sovereigns“ involved in that arbitration. These findings, however, should have no bearing on a related question (pending with the federal court in D.C.) whether tribunals have jurisdicion over EU Investment Treaty Arbitration and whether the arbitration-exception in the FSIA applies where awards from such proceedings are enforced in the U.S.
June 22, 2021
The Supreme Court has finally rendered a decision in the Goldman Sachs v. Arkansas Teacher Retirement System class certification case centering around the application of the Basic presumption and price maintenance theory. The Supreme Court has vacated a decision by the 2nd Circuit that let the case continue as a class. The question at issue is whether the court may presume that all investors had relied on public misstatements by Goldman in relation to conflicts of interests in securities it sold. While Goldman maintained that the statements were too generic and broad to affect the stock price (i.e. maintain an inflated stock price), the Plaintiffs had relied on the Supreme Court’s Basic Inc v. Levinson decision pursuant to which investor reliance on public misstatements could be presumed. The SC now holds that the question of investor reliance (stock price impact) should be open to evidence already at the class certification stage, however, acknowledging that in case the court find the evidence in equipoise the defendants bear the burden of persuasion. The impact of the decision remains to be seen but it appears to shift the reliance question (and evidence thereof) from the motion to dismiss/summary judgment to the class certification stage. The case, which was filed more than 11 years ago, goes back to the 2nd Circuit for further consideration. #litigation
May 14, 2021
BMW EMISSION LAWSUIT CONTINUES; BOSCH OUT
In the emission cheating lawsuit filed by a putative class of consumers against BMW AG and Robert Bosch GmbH (Rickman et al vs BMW of N.A et al), the district court of NJ dismissed claims against Robert Bosch GmbH based on lack of specific jurisdiction but kept alive the lawsuit against German BMW AG. The case is of particular interest as it applies and interprets the most recent Supreme Court ruling in Ford Motor Co v Montana Eighth Judicial District Court on minimum contacts with the forum State. Here again the motion to dismiss centered around the questions whether BMW AG and Bosch GmbH purposefully availed themselves of the privilege of conducting business in the forum State (here: New Jersey) and whether the claims at issues arise out of these contacts.
Judge McNulty found the relevant link between BMW AG and the forum State NJ to be its subsidiary BMW NA which is headquartered in NJ. The court made clear, however, that pursuant to the Supreme Court’s Daimler AG v Bauman decision it would not employ a corporate or agency approach but relied on the commercial reality which is that BMW AG uses BMW NA to bring the products to the American market and as such made NJ the gateway or focal point for BMW AG’s access to the American market. According to the court this does not hold true for Bosch GmbH which implemented the defeat devices in Germany but did not work directly with BMW NA. The general targeting of the US market (through its subsidiary located in Michigan) does not suffice for establishing relevant contacts with the forum State NJ.
With regard to the causal link between the forum State and the claims at issue, the court interpreted the Supreme Court’s recent Ford decision in that the Third Circuit’s causation requirement cannot be reconciled with Ford. It found a sufficient relevant link between the claims at issue and New Jersey forum in BMW AG’s conduct in developing the “Efficient Dynamics” and “Clean Diesel” concepts, which targeted (among others) the US market and its demand for environmentally friendly cars. These concepts presumably had been tailored and deployed by BMW NA headquarters in New Jersey. In line with Ford that presumed link between (more generally) targeting the US market, the marketing conduct and the relevant injuries occurring in NJ sufficed to survive the motion to dismiss without requiring strict causation. He made clear, though, that this decision is not a conclusive finding and subject to further discovery on the interaction between BMW AG and BMW NA.
May 12, 2021
DISCOVERY ISSUES SURFACE IN MAJOR ZANTAC LITIGATION
In the prominent cases surrounding the recall of heartburn medication Zantac which involve several large European pharmaceuticals, it appears that Sanofi has destroyed potential relevant emails (including those of the head of regulatory affairs for the US consumer healthcare division). The deletion allegedly has caused delay and postponement of many key depositions in this behemoth litigation consisting of more than 1.300 lawsuits (by more than 70.000 former Zantac users) that have been consolidated at a federal court in Florida. Even worse, those emails allegedly contained key evidence for the plaintiffs case. Sanofi has initiated an internal probe about the email deletion and is scheduled to submit a report to the judge overseeing the litigation. This is just another example which shows that US discovery contains many pitfalls with serious consequences. Communication and data storage guidelines (such as litigation hold notices) and the diligent implementation thereof are, therefore, of utmost importance when conducting US litigation or even better long before.
April 6, 2021
Last week the SCOTUS rendered a groundbreaking decision on personal jurisdiction, which had been watched closely by large product makers but also attracted attention of the U.S. Solicitor General, trade organizations and law professionals. In Ford Motor Co. v. Montana Eighth Judicial District Court the Supreme Court unanimously confirmed jurisdiction of State Courts in Montana and Minnesota over Ford in suits stemming from accidents caused by defective vehicles in those States. The particular issue in the case (and main line of defense by Ford) was that the relevant cars originally had neither been designed/manufactured nor been sold in those two States but entered the States only through secondary sales. Hence, Ford argued that the lawsuits did not arise out of or relate to its business contacts in those States. The court was not persuaded and found that Ford purposefully availed itself of the privilege of conducting business in those States by advertising, selling and servicing the relevant model lines of these vehicles in these two States. In accepting jurisdiction of the States, it further stressed the global reach of Ford and its substantial business by systematically serving a market in those States. In a concurring opinion Justice Gorsuch casted doubts whether the minimum contacts test established in International Shoe Co. v. Washington in 1945 would be of continuing value. Despite this extensive interpretation of the personal jurisdiction requirements, the Court cautioned that it would not necessarily permit jurisdiction over defendants without the strong connections displayed in the Ford case. It, thus, explained that it did not intend to change the limits of personal jurisdiction established in World-Wide Volkswagen Corp v. Woodson or Bristol Myers Squibb Co. v. Superior Court of California and distinguished those cases. In these cases the defendant (i) either did not conduct significant business in the State where the product later caused harm or (ii) the product was distributed and market in the relevant State but the injury occurred and arose from out-of-State purchases and use. The practical consequences of the decision remain to be seen but it appears that the court was very careful in distinguishing the unique facts in Ford from other notable precedents and, thus, not expanding the scope of personal jurisdiction.
January 26, 2021
The Court of Appeals for the 2nd Circuit most recently rendered an instructive decision on jurisdiction of US Courts over foreign parties in securities litigation (Cavello Bay vs. Spencer Capital). The decision provides a comprehensive overview of how the Supreme Court’s Morrison decision has been further developed by the 2nd Circuit in Parkcentral and Absolute Activist. Finding that the „domestic transaction test“ (set forth in Morrison) operates as a threshhold requirement and as such may be underinclusive, it applies the (previously developed) two-prong test of „domestic transaction“ and „predominantly foreign claims“. Here, the court did not even bother deciding the question whether the transaction was domestic but rejected the appeal with the finding that the claims were so predominantly foreign that providing a US Forum would not enhance confidence in US securities markets or protect US Investors. The relevant parties were all foreign and the fact that misstatements were made from the US, funds from the Transaction were planned to be used in the US and the principal place of business of Spencer Capital was in the US were not relevant. As the court put it: „… a case that lacks all contacts with the territory of the U.S. …“ while clarifying that „contacts that matter are those that relate to the purchase and sale of securities“.
September 23, 2020
In Servotronics Inc. v. Rolls-Royce and The Boeing Company, the 7th Circuit recently held that a private arbitration qualifies under Section 1782 of Title 28 U.S.Code to permit discovery to be taken in the U.S. Section 1782 authorizes district courts (under certain conditions) to order a person within the district to give testimony or produce documents “for use In a proceeding in a foreign or international tribunal.” The question at issue centers around the definition of “tribunal” and whether that covers tribunals in private arbitration (i.e contractually agreed arbitration). This decision adds to a current Circuit split, with the Second and Fifth Circuit rejecting the broad interpretation of “tribunal” and the Fourth and Sixth Circuit permitting discovery in these kind of foreign arbitration proceedings. The 7th Circuit follows the latter view. Among legal commentators it is widely agreed that this question is ripe and will be adjudicated by the Supreme Court in the not so distant future although no petition for certiorari has yet been filed.
September 18, 2020
The most recent decision by the Eastern District of Pennsylvania in Behrens vs. Arconic Inc et al. in connection with the 2017 Grenfell Tower fire in London is a very instructive example in how courts can apply discretion in declining to exercise jurisdiction they would otherwise have (under general or specific jurisdiction analysis) on forum non-conveniens grounds. That is, even if the court determines that it would have jurisdiction over a defendant because the defendant is incorporated in the relevant State or otherwise specifically targeted that state, the court could still conclude that it would be more appropriate to try the case in another jurisdiction. This is a product liability case against the manufacturers of those products causing (fridge freezer) and exacerbating (the cladding) the fire. After extensive (and likely expensive) discovery (including invoking the Hague convention to obtain discovery matierals from a French subsidiary and several expert reports) was conducted with regard to the forum non-convenience defense, the court held that the UK court would be the more appropriate (and not an inadequate) forum, taking into consideration, among others, the following criteria: (i) defendants’ agreement to accept the exercise of jurisdiction by the English courts, (ii) similarity of product liability claims and the judicial system in the U.K (irrespective of the availability of punititive damages in the foreign jurisdiction), (iii) less deference to foreign plaintiffs’ choice of jurisdiction, (iv) ease of access to evidence and number of witnesses located in the US and UK speaking in favour of UK, (v) other practical problems (other potential defendants located in the UK, ongoing public inquiry in the UK, other personal injury cases pending in the UK), (vi) Pennsylvania’s and the US’ interest in regulating its corporation’s affairs vs UK’s interest in litigation concerning the death of numerous residents and compliance with relevant fire regulations.
September 11, 2020
PERSONAL JURISDICTION AND LONG-ARM STATUTES
Two more recent decisions (Red Oak Appartment Homes v Strategies Floor and In Re Midea Microwave and Electrical Appliances Manufacturing Co) show how diverse courts in different states may interpret the Long-Arm-Statute as to specific personal jurisdiction, which is of imminent importance for foreign corporations facing the risk of being dragged into U.S. litigation. Both cases deal with the rather common set-up of product liability where products are distributed, advertised and sold in the relevant state. While – on appeal – the New Hampshire Supreme Court in Red Oak Appartment Homes did not deem it to be of sufficient contact to exercise jurisdiction that a Canadian producer (not itself but through a distributor) advertised and sold products in the State, the Court for the Middle District of Pennsylvania in Midea Microwave – upon reconsideration after having dismissed the case for lack of jurisdiction – found to the opposite and retransferred the case to Eastern District of California. The set-up was not that different and dealt with faulty microwaves produced by a Chinese company in China and being distributed through Electrolux in the U.S. This case also boiled down to the question whether the parties had sufficient contacts with California. The court found to the affirmative.
The Supreme Court of New Hampshire relying on Justice Day’s opinion in Asahi Metal Industry and the “stream of commerce plus” theory found that the producer did not directly advertise or transact in N.H. and, thus, the mere awareness that its products would be streamed into the state would not suffice to exercise jurisdiction.
The federal court in PA, however, held that the plaintiffs made a prima facie showing (which sufficed for purposed of transfer) that the Chinese producer had purposefully targeted the State of California by selling (through Electrolux) hundred thousands of defective microwaves in California (presumably following the stream of commerce theory).
These two decisions show how ambiguous case law is in analyzing personal jurisdiction in product liability cases, in either applying the stream of commerce or the stream of commerce plus theory. To whichever side the courts tend, it will come with harsh consequences for the defendants.
August 25, 2020
VW and others will have to face revived claims relating to its emission cheat devices after 9th Circuit rejects en bank review. This is another very good example for the complexities of the dual US legal system, which foreign corporates have to be aware of and need to comply with carefully. After settling with the federal Environmental Protection Agency (EPA) for USD 20bn, counties in Utah and Florida have brought claims against VW, Porsche, Audi and Bosch under state and local pollution control laws which pursuant to the 9th Circuit are not preempted by the federal Clean Air Act. The court argued that the companies failed to obtain releases of liability from state and local Governments in the settlement.
August 9, 2020
EUROPEAN COURT OF JUSTICE STRIKES DOWN PRIVACY SHIELD (Schrems II decision).
The Schrems II decision certainly has an Impact on EU companies conducting litigation in the United States. Various Players (law firms, Discovery Vendors, experts) need to handle personal Information in the course of discovery. While part of that „handling“ can be done in Europe, ultimately, some of that information needs to be shipped to the US for production in the litigation. The good news is that the court approved of the Standard Contractual Clauses which are regularly used by these third-party servicers in connection with US litigation. The decision, thus, certainly complicates matters but should not substantially interfere with the litigation itself.
May 27, 2020
FEDERAL COURTS FORCE DISCOVERY DESPITE EUROPEAN DATA PROTECTION RESTRICTIONS
Two recent federal court decisions discuss the conflict between discovery obligations under U.S. procedural laws and European data protection laws. Both, the District Court of South Carolina (Rollins Ranches, LLC vs. Watson) and the District Court for the Eastern District of Pennsylvania (Giorgi Global Holding, Inc v. Smulski) hold that European Data Protection Laws cannot bar discovery. In relying on the Supreme Court’s Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Ct. for S. Dist of Iowa decision the courts cite that “foreign country’s statute precluding disclosure of evidence ‘does not deprive an American court of the power to order a party subject to its jurisdiction to produce evidence even though the act of production may violate that statute.” However, both courts acknowledge that exceptions to that rule may be applicable; however, the party relying on the foreign laws has the burden of showing such laws bar production. The PA court discusses this exception in more detail referring to the multi-factor balancing test set forth in the Foreign Relations Law § 442(1)(c). The factors to be considered are: importance of information, specificity of the request, place of origination of information, alternative means of securing information and –most importantly – whether non-compliance would undermine important interests of the United States. Ultimately, both courts come to the conclusion that the defendants did not meet their burden and the Smulski decision explicitly states that interests of the US in fully and fairly adjudicating matters before its courts outweigh the European countries interests in protecting their citizens’ data given that the parties had entered into ESI protocol and a Protective Order which would adequately protect the individuals data.
The aforementioned decisions should corroborate the arguments that exceptions under the GDPR, in particular Art 49(1)(e) GDPR, are applicable in U.S discovery proceedings and that EU law permits disclosure of such data in case safeguarding measures are taken. Among others European parties to US litigation should carefully pay attention that a Protective Order and corresponding ESI Protocol are in place. Further safeguarding measures will certainly be the limitation of production to only the information requested. That can be achieved by going through a thorough filtering process coordinated between the legal advisors and the E-Discovery-Vendor.
May 20, 2020
SUPREME COURT REJECTS VENEZUELA’S SOVEREIGN IMMUNITY APPEAL
SCOTUS rejects Venezuela’s Appeal of the Third Circuit’s Crystallex decision. That decision established a new veil-piercing exception under the alter-ego theory in the sovereign context. Crystallex moves one step further ahead in seizing the stocks in Citgo Petroleum Corp. Apart from the political aspects of this case (due to diverted leadership and questions of due representation of the country), it certainly is notable with regard to the interplay of the Foreign Sovereign Immunities defense and the enforcement of international arbitration Awards. The FSIA has been invoked lately in several other proceedings by Ukraine but also by European countries like Spain and Romania citing the European Court of Justice’s Achmea decision and asserting the invalidity of the arbitration agreement, an agreement which would otherwise preclude them from sovereign immunity.
April 23, 2020
Patent litigation is one of the rare exceptions in US litigation, where costs may be awarded to the prevailing party of the lawsuit. However, this requires the finding of an „exceptional case“ (a standard adopted by the most circuits for trademark litigation as well). Two recent rulings by the FCCA show that a fine procedural line is drawn in determining whether a party is deemed to have “prevailed” in the litigation and, thus, is potentially entitled to a cost award. In O.F. Mossberg & Sons, Inc. v. Timney Triggers, LLC, the Federal Circuit affirmed a district court decision that a voluntary dismissal of an infringement suit by the plaintiff (after the PTAB invalidated the relevant patent), does not constitute prevalence by the defendant. In Dragon Intellectual Prop., LLC v. DISH Network LLC, the FCCA, however, held that a vacation of a judgment (and likewise a dismissal of a case) as moot after the PTAB has invalidated the relevant patent upon inter partes review (which was upheld on appeal by the FCCA) is deemed prevalence in the litigation. In light of these rulings, plaintiffs need to carefully assess the procedural strategy with a view to a potential cost burden risk in case the PTAB has invalidated the patent in question.
March 24, 2020
The Federal Circuit will not rehear the Arthrex Decision en banc.
Yesterday, a majority of the Circuit Judges decided not to rehear the Arthrex decision en banc. For the majority Circuit Judge Moore held that rehearing would only create unnecessary uncertainty and disruption and that Arthrex followed Supreme Court precedent. Arthrex has been a highly controversial decision by a Federal Circuit panel holding that PTAB judges were appointed unconstitutionally. The core of the legal dispute surrounds the question as to whether PTAB judges are deemed principal or inferior officers. The former could only be appointed by the president with Senate’s confirmation and not – as has been the case in the past – by the patent office director. One of the major discussion points in that regard was the job protection of PTAB judges (who could only be removed from office for cause) which made them in the court’s view principal officers. The panel tried to fix that issue by severing part of the law that granted removal protection to PTAB judges but left the legislator and the community with loads of issues and questions to deal with, such as whether the fix would have retroactive effect or whether the decisions rendered by the improperly appointed judges (which would mean all of their decisions) would be challengeable. Further, the question arose whether it is on the Federal Circuit or rather the patent office and congress to remedy the unconstitutionality and finding an appropriate fix. Judge Moore held in quoting the panel’s decision that the Arthrex panel’s severance was the “narrowest poassible modification to the scheme Congress created” and the approach that minimized the disruption of the continuing operation of the inter partes review system. Also, the majority held that disruption as to potential challenges of past PTAB decisions has been limited by the Federal Circuit and the window for appeals from such decisions has closed.
March 13, 2020
JURSIDICTION OVER GERMAN COMPANIES IN ANTITRUST LITIGATION (PRICE RIGGING)
In a multidistrict litigation concerning antitrust claims (price rigging) against chemical corporations, the US District Court for the Western District of Pennsylvania denied a motion to dismiss by the foreign defendants (including BASF AG and Covestro AG) for lack of personal jurisdiction without prejudice. While the motion was ultimately denied, the court expressed its reluctance to exercise jurisdiction over the foreign defendants based on the facts presented by the plaintiffs. The court found that to establish minimal contacts with the U.S. (i.e. nationwide rather than applied to a narrower forum which was also part of the dispute), the plaintiff needs to demonstrate that the defendants “expressly aimed their tortious conduct specifically at the United States” and in doing so plaintiffs may not rely on bare pleadings alone but must cite evidence to support their claim (which wasn’t the case; plaintiffs rather alleged a global price fix). Also the court held, that none of the conduct of the foreign defendants’ subsidiaries in the U.S. could impute jurisidiction under either the alter ego or agency theory. Instead of dismissing the complaint, however, the court acknowledged the need for further discovery and granted limited jurisdictional discovery. The case is docketed under 2:18-mc-01001-DWA.
March 12, 2020
DERIVATIVE ACTION AGAINST DEUTSCHE BANK BOARD
On Tuesday yet another derivative shareholder lawsuit has been filed with the New York Supreme Court; this time against the board of Deutsche Bank and some of its advisors. The complaint alleges several instances or sequences of breaches of duty of due care during the years 2011 through 2020, in particular: breaches with regard to the Bank’s deficient IT systems, the inadequate legal and regulatory compliance and the failure to cooperate in government investigations resulting in billions of fines and sanctions. The complaint further alleges (i) the board’s failure to appropriately investigate and fix the surfaced deficiencies (it actually dubs the internal investigations a “whitewash” affair) and (ii) the board’s active suppressions of any attempts (from within the bank) to cure such deficiencies.
This complaint is now the second derivative shareholder lawsuit against the management of a German corporate brought under the auspices of the New York Supreme court within less than a week. It remains to be seen whether further suits will follow. It will be of utmost interest to monitor these lawsuits as these may establish a viable alternative avenue for shareholders to bring claims for mismanagement against the board of their respective corporations. In that regard, it appears that the German rules relating to derivative lawsuits provide for substantial hurdles, which may well be the reason why derivative lawsuits have rarely been brought in German courts.
March 10, 2020
DERIVATIVE ACTION AGAINST BAYER AG’ BOARD
Over the last several months, a sheer uncountable number of lawsuits have been brought against Bayer by consumers of the Monsanto product Roundup for allegedly causing cancer. This has been on the daily agenda of the corporate giant.
On Friday, however, fairly unnoticed a new type of lawsuit has been filed with the Supreme Court of New York. A Californian citizen brings a derivative suit against Bayer’s board and financial and legal advisors in connection with Monsanto’s acquisition. The plaintiff is a holder of ADR (American Depository Receipts) of Bayer AG. The lawsuit alleges among others that the board members (both management and supervisory board) breached their duties (among others) of due care and prudence towards Bayer and its shareholders by not conducting an appropriate due diligence (in particular with regard to the legal risks that engulfed Monsanto and its RoundUp product). Notably, the complaint further asserts intentional or deliberate wrongdoing against specific managers being the drivers of the transaction. The investor sues for compensatory damages to be determined at trial and with regard to those aforementioned specific Managers for punitive damages. As per procedural rules in derivative lawsuits, Bayer is named as nominal defendant while the complaint makes clear that Bayer is the real beneficiary of this action. The complaint asserts jurisdiction of the New York state court, but it concedes that the substantive laws governing the liability of the defendants will be those of Germany. The case merits close monitoring as it may become a precedent for management of German corporates being sued in the U.S. The case is docketed under 651500/2020 at the New York Supreme Court, New York County.