Articles Posted in Business Litigation

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batteriesCalifornia businesses that sell goods or services to the public have a duty to deal fairly with consumers and other businesses. Statutes like the California Consumers Legal Remedies Act (CLRA) and the Unfair Competition Law (UCL) prohibit a variety of deceptive or unfair practices and allow civil claims for damages by aggrieved businesses or consumers. A lawsuit filed late last year in a Northern California federal court alleges violations of the CLRA and the UCL by a major technology company. Harvey v. Apple, Inc., et al., No. 3:17-cv-07274, complaint (N.D. Cal., Dec. 21, 2017). The complaint, which includes class action allegations, claims that the defendant allowed one of its signature products to go to market with a known defect, failed to disclose this defect to consumers, and made misleading statements about the nature of the defect and possible solutions for problems caused by the defect. Lawsuits filed in other California federal courts and other states make similar allegations, and the court is reportedly considering consolidation of some or all of the complaints.

The CLRA prohibits a wide range of deceptive practices involving the sale of goods or services to consumers. The deceptive practices alleged in Harvey include “representing that goods…have…characteristics,…uses, benefits, or quantities that they do not have”; “representing that [they]…are of a particular standard, quality, or grade,…if they are of another”; and “advertising [them] with intent not to sell them as advertised.” Cal. Civ. Code §§ 1770(a)(5), (7), (9). Damages under the CLRA may include injunctive relief, actual damages, punitive damages, and restitution. Id. at § 1780.

The UCL also establishes broad prohibitions on unfair or deceptive business practices under various provisions of state law, but its coverage is not limited to consumers. California law states that a person is liable for damages that result from “willfully deceiv[ing] another with intent to induce him to alter his position to his injury or risk.” Id. at § 1709. “Deceit” includes acts like “the suppression of a fact, by one who is bound to disclose it.” Id. at § 1710(3). An act of deceit that is intended “to defraud the public” can potentially result in liability to every person “who is actually misled by the deceit.” Id. at § 1711. An individual can file suit for violations of the UCL if the alleged unfair act has caused them to “suffer[] injury in fact and…los[e] money or property.” Cal. Bus. & Prof. Code §§ 17203, 17204.

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churchA plaintiff must establish that the court in which they are filing suit has jurisdiction over their claims. Questions of jurisdiction can quickly become complicated, especially when a lawsuit cites multiple sources of law. The Alien Tort Statute (ATS) gives foreign citizens the right to file suit in U.S. district courts for certain tort claims. U.S. courts have allowed claims against individuals. The U.S. Supreme Court is now considering whether the ATS allows claims against foreign corporations in Jesner v. Arab Bank, PLC. While the case is not likely to have much effect on California business litigation, it offers a useful look at how U.S. courts can exercise jurisdiction over international business disputes.

The Judiciary Act of 1789, one of Congress’ very first laws, created the ATS. The statute gives federal district courts jurisdiction over “causes where an alien sues for a tort only in violation of the law of nations or a treaty of the United States.” 1 Stat. 77 (1789), 28 U.S.C. § 1350. It does not define “alien.” Federal law defines that term elsewhere as “any person not a citizen or national of the United States.” 8 U.S.C. § 1101(a)(3). The term “law of nations” refers to international law, which mostly consists of treaties, conventions, and other agreements.

The ATS was largely forgotten until 1980, when the Second Circuit ruled on a claim by the parents of a teenager who had been “kidnapped and tortured to death” in 1976 by the defendant, who was the “Inspector General of Police in Asuncion, Paraguay” at the time. Filártiga v. Peña-Irala, 630 F.2d 876, 878 (2d Cir. 1980). After the defendant moved to New York in 1978, the plaintiffs filed suit against him under the ATS for violations of the United Nations Charter, the Universal Declaration on Human Rights, and other sources of international law. The Second Circuit affirmed the verdict in favor of the plaintiff, which included a damages award of $10.4 million.

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justice statueIn order to sustain a California consumer lawsuit, a plaintiff must be able to demonstrate that they have standing to sue. “Standing” refers to the legal capacity to bring a claim in a particular capacity. Statutes that permit civil lawsuits to recover damages for violations often establish criteria for standing, and the courts have identified general rules for determining whether a plaintiff has standing, including the requirement of an “injury-in-fact.” See Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992). A case arising in California under the Fair Credit Reporting Act (FCRA) resulted in a question about the “injury-in-fact” requirement. The Ninth Circuit ruled that the plaintiff had established standing, Robins v. Spokeo, Inc. (“Spokeo I”), 742 F.3d 409 (9th Cir. 2014), but the Supreme Court vacated this ruling and remanded the case. Spokeo, Inc. v. Robins (“Spokeo II”), 578 U.S. ___ (2016). Earlier this year, the Ninth Circuit again ruled in the plaintiff’s favor. Robins v. Spokeo, Inc. (“Spokeo II”), 867 F.3d 1108 (9th Cir. 2017).

The FCRA regulates the collection, use, and distribution of consumer information related to matters like “credit worthiness,…character, general reputation, [and] personal characteristics.” 15 U.S.C. § 1681a(d)(1). This type of information regularly appears in credit reports, which are used not only in credit and lease applications but also by potential employers. The statute requires “consumer reporting agencies” (CRAs), defined as businesses that collect consumer information and package it in reports for a fee, to “follow reasonable procedures to assure maximum possible accuracy” of the reports they produce. Id. at § 1681e(b). It allows consumers to seek damages in court for violations, with additional penalties for willful or knowing noncompliance. Id. at §§ 1681n, 1681o.

The defendant in Spokeo “operates a website that provides users with information about other individuals.” Spokeo I, 742 F.3d at 410. This may include contact information, economic and work history, and other personal details. The plaintiff filed suit under the FCRA for allegedly failing to confirm the accuracy of the information provided about him by the website. The district court dismissed the lawsuit for lack of standing, finding that he had failed to demonstrate an injury-in-fact. He had not, according to the court, alleged that the information on the website had actually caused him an injury, but instead that the presence of allegedly inaccurate information only created the risk of future harm.

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Computer technology and the internet have created countless opportunities for both businesses and consumers. As more and more commercial activity moves online, however, the risks to the integrity of a company’s digital records grow greater. Cybersecurity breaches threaten not only the company’s assets but also stored customer information. Consumer information is often the target of hackers because it may enable further fraudulent activities like identity theft. Companies that collect and store personal information have a duty under California law to protect that information and to notify consumers in the event of a breach. Penalties for noncompliance may include civil liability to consumers and state or federal regulatory actions. Northern California business owners that deal with digital consumer information should make cybersecurity a critical part of their business operations.

hackingCalifornia’s Breach Notification Law (BNL) defines “personal information” as any information that “is capable of being associated with a particular individual,” such as a name, address, date of birth, and social security number or other identification number. Cal. Civ. Code § 1798.80(e). Businesses must “implement and maintain reasonable security procedures and practices” to safeguard customers’ personal information from cybersecurity breaches. Id. at § 1798.81.5(b).

If a breach occurs, the BNL requires businesses to notify individuals who were affected by the breach “in the most expedient time possible and without unreasonable delay.” Id. at § 1798.82(a). If a business intentionally shares customer information, such as for marketing purposes, California’s “Shine the Light” (STL) law requires it to make certain disclosures to customers in advance and to disclose, upon a customer’s request, which information was shared and with whom. Id. at § 1798.83.

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San FranciscoAny business that takes on employees also takes on responsibilities to those employees. In addition to standards regarding wages and hours of work, employers must make reasonable efforts to maintain a workplace that is free from unlawful discrimination and harassment. Throughout California, workplace harassment remains a serious problem. The technology industry of Silicon Valley and San Francisco has received attention for multiple recent accounts of sexual harassment and other forms of gender-based discrimination. A lawsuit filed earlier this year asserts several causes of action under California employment anti-discrimination statutes, including harassment and hostile work environment. Scott v. Upload, Inc., et al., No. CGC-17-558730, complaint (Cal. Super. Ct., San Francisco Cty., May 8, 2017).

Title VII of the federal Civil Rights Act of 1964 prohibits employment discrimination on the basis of “race, color, religion, sex, or national origin.” 42 U.S.C. § 2000e-2(a). Many state laws and city ordinances go further. California’s Fair Employment and Housing Act (FEHA), for example, addresses discrimination based on sexual orientation, gender identity and expression, and more. Cal. Gov’t Code § 12940(a). Under both federal and state laws, sexual harassment is considered a type of unlawful sex discrimination. The FEHA expressly provides that both harassment and failure to prevent harassment violate its anti-discrimination provisions. Id. at § 12940(j).

The plaintiff in Scott states in her complaint that she began working for the defendant in May 2016. The defendant is a San Francisco-based business that “focuse[s] on the virtual and augmented reality industry.” Scott, complaint at 1. The plaintiff’s position was “Director of Digital and Social Media.” Id. at 3. She describes the “atmosphere and work environment” of the defendant as “marked by rampant sexual behavior and focus.” Id. at 4. Male employees and managers, including two individuals identified by the plaintiff as founders of the company, allegedly spoke openly about “sexual exploits” and made overtly sexual comments about women in the office, often right in front of them. Id. Work-related emails, the plaintiff claims, were similarly explicit.

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Balance iconIn order for a plaintiff to maintain a lawsuit, they must demonstrate that the court in which they filed suit has jurisdiction over the case. Our legal system identifies two types of jurisdiction. Subject matter jurisdiction means that a court has jurisdiction over the cause of action asserted in the lawsuit. For example, a county-level court in California probably lacks jurisdiction over a claim based entirely on federal law. Personal jurisdiction involves the court’s jurisdiction over the defendants themselves. The U.S. Supreme Court recently considered whether a state court in California had personal jurisdiction over a corporation located outside California in a California business lawsuit involving alleged incidents occurring outside this state. The Supreme Court ruled that this exceeded the state court’s authority. Bristol-Myers Squibb Co. v. Super. Ct. of Cal., 582 US ___ (2017).

The Supreme Court’s landmark ruling on personal jurisdiction is International Shoe v. Washington, 326 U.S. 310 (1945). This case held that a court cannot exercise personal jurisdiction over a corporation based in another state, unless the corporation has “minimum contacts” with the state where the court is located. Id. at 316. Since then, courts have further identified two types of personal jurisdiction. “General jurisdiction” is based on where an individual lives or where a company is domiciled, and it can allow a court to hear almost any case against a defendant. “Specific jurisdiction” is based on a defendant’s connection to the particular state, or “forum.”

When multiple courts could have jurisdiction over a defendant or a particular claim, plaintiffs may seek out the court that they believe will treat them most favorably, based on a range of factors like distinct procedural rules or a more amenable local jury pool. This practice is often known as “forum shopping.” Several recent decisions from the Supreme Court have limited some rather expansive views of personal jurisdiction in cases involving corporations with national or international presences. One case held that a California federal court lacked jurisdiction over a German corporation in a lawsuit involving alleged acts in Argentina. Daimler AG v. Bauman, 571 U.S. ___ (2014). These decisions have had the effect of reducing forum shopping in lawsuits against major corporations.

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text balloonsBusinesses must always be aware of how their actions and communications could affect their legal rights. The media rather frequently report on internal company documents that become public, through the discovery process in litigation or by other means, which at best cause embarrassment for a company. A recent decision from the California Supreme Court, while not directly related to business litigation, offers a useful reminder of the importance of communicating with government officials and employees through “official channels.” The decision, City of San Jose v. Superior Court of Santa Clara Cty., 2 Cal.5th 608 (2017), addresses access to government communications under state law. The court held that official communications by government officials are still public record, even when the official uses a personal email account or mobile device. In other words, anything sent by or to a public official, for official reasons, could become public.

California’s Public Records Act (PRA), Cal. Gov’t Code § 6250 et seq., states that “every person has a right to inspect any public record” upon request, with some exceptions. Id. at § 6253(a). The statute defines a “public record” to include “any writing containing information relating to the conduct of the public’s business” that was “prepared, owned, used, or retained” by any government agency. Id. at § 6252(e). This includes communications written and sent by government employees, as well as those written by private parties and sent to government employees, provided that the subject matter relates to official business.

The San Jose case began in 2009 when an individual made a public records request to the city for “32 categories of public records.” San Jose, 2 Cal.5th at 614. The request was directed to the city itself, its redevelopment agency, the agency’s executive director, and various other officials and employees. The records that were responsive to the request included communications sent and received by city officials and employees. The city produced records of “communications made using City telephone numbers and e-mail accounts,” but not those made with personal phones or email accounts. Id. at 615. The individual who made the request filed suit against the city for declaratory relief.

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carSelf-driving cars have been a subject of great interest in Silicon Valley recently. The technology that would make autonomous vehicles viable on a wide scale is not here yet, but numerous companies are working to make it a reality. As with any new technology, competition can easily lead to conflict. In this case, a company affiliated with the tech company Google has filed suit against the ridesharing company Uber and others, alleging infringement of trade secrets and patent rights, as well as unfair business practices. Waymo LLC v. Uber Technologies, Inc. et al., No. 3:17-cv-00939, am. complaint (N.D. Cal., Mar. 10, 2017).

Unlike other forms of intellectual property, the value of a company’s trade secrets depends on their confidentiality. State and federal trade secret laws therefore focus on preventing or dissuading the misappropriation of trade secrets. A business must show that information meets several criteria in order to invoke trade secret protection. The information must have economic value based on the fact that it is not known to others and not easily discoverable by others who are in a position to benefit from it, and the business must have made reasonable efforts to safeguard the information’s secrecy. 18 U.S.C. § 1839(3), Cal. Civ. Code § 3426.1(d).

California law allows the owner of trade secrets to obtain injunctive relief preventing “actual or threatened misappropriation.” Cal. Civ. Code § 3426.2. If a court finds that an injunction would be “unreasonable,” it can order a person to pay “a reasonable royalty” for use of the information. Id. A court can award damages for “actual loss” or “unjust enrichment caused by misappropriation,” along with punitive damages in an amount up to twice the total amount of damages in cases of “willful and malicious misappropriation.” Id. at § 3426.3. Federal law contains similar provisions for damages and specifically allows courts to order “seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” 18 U.S.C. § 1836(b)(2).

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planetsMinority shareholders, meaning those whose shares in a corporation make up only a small percentage of the total outstanding shares, are at a disadvantage if one or more majority shareholders take actions that harm their interests. State business and corporate laws offer protection against certain potentially harmful actions by the majority. In the event of a merger, for example, minority shareholders can challenge the valuation of the corporation and the resulting price per share that they would receive. The Delaware Court of Chancery recently considered a shareholder’s claim that he did not receive sufficient information to evaluate and object to a planned merger. In Re United Capital Corp., Stockholders Litigation, No. C.A. No. 11619-VCMR, mem. op. (Del. Ch., Jan. 4, 2017).

A “merger,” generally speaking, involves two companies combining to form a single company. Delaware allows a procedure known as a “short-form merger,” which typically involves a parent company merging with a subsidiary. Since the parent company, by definition, owns a majority of the subsidiary’s stock, the merger only requires buying the shares of the minority shareholders. A short-form merger can also occur when one shareholder owns an overwhelming percentage of outstanding shares and wants to buy out the minority shareholders. Shareholder approval is not required for this type of merger. See 8 Del. Code § 253. This was the type of merger that led to the dispute in United Capital.

Minority shareholders who believe their shares have been undervalued in a short-form merger have little legal recourse. The Delaware Supreme Court has held that “absent fraud or illegality, the only recourse for a minority stockholder who is dissatisfied with the merger consideration is appraisal.” Glassman v. Unocal Expl. Corp., 777 A.2d 242, 243 (Del. 2001). This involves “an appraisal by the Court of Chancery of the fair value of the stockholder’s shares of stock” under the circumstances of a merger. 8 Del. Code § 262.

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Banana RepublicThree plaintiffs filed a putative class action against a retail clothing company, alleging that it induced them to enter store locations with misleading advertisements of a storewide sale. The defendant sought summary judgment, partly on the ground that the plaintiffs lacked standing to sue because they had not established actionable economic injuries. The trial court ruled in the defendant’s favor. The appellate court reversed this ruling, finding that the plaintiffs had demonstrated a triable issue of fact as to whether they suffered injuries-in-fact. SV v. Banana Republic, LLC, No. B270796, slip op. (Cal. App. 2nd, Dec. 15, 2016).

The lawsuit asserts causes of action under three California statutes. The Unfair Competition Law (UCL) prohibits “unfair, deceptive, untrue or misleading advertising.” Cal. Bus. & Prof. Code § 17200. The False Advertising Law (FAL) broadly prohibits the advertising of goods or services using “any statement…which is untrue or misleading, and which is known, or which…should be known, to be untrue or misleading.” Cal. Bus. & Prof. Code § 17500. The Consumers Legal Remedies Act (CLRA) prohibits “unfair or deceptive acts or practices” connected with the sale of goods or services. Cal. Civ. Code § 1770(a). The plaintiffs in SV alleged three CLRA violations involving false advertising of goods, false or misleading statements regarding “price reductions,” and misrepresenting the nature of a transaction. Id. at §§ 1770(a)(9), (13), (14).

In order to establish standing under any of these statutes, a plaintiff must demonstrate that they have “suffered injury in fact and…lost money or property” because of the defendant’s unlawful act. SV, slip op. at 10, quoting Kwikset Corp. v. Superior Court, 51 Cal.4th 310, 321 (2011), Cal. Bus. & Prof. Code § 17204. With regard to the amount of damages a plaintiff must show, the court notes that an “injury in fact is not a substantial or insurmountable hurdle.” SV at 10, Kwikset at 324. All three statutes allow restitution and injunctive relief. The UCL and the FAL limit any other kind of damages, but the CLRA expressly includes compensatory and punitive damages as available remedies.

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