The alleged efforts of a board of directors to entrench itself – which included refusing to permit dissent shareholders to vote at a shareholders meeting and issuing additional shares to give the board majority control of the company – were the subject of the Business Court’s opinion last Friday in Green v. Condra, 2009
Law Firm’s Client Didn’t Have First Amendment Right To Be Anonymous
We’ll probably never know the identity of the Appellant in Lefkoe v. Jos. A. Bank Clothiers, Inc., decided yesterday by the Fourth Circuit. Whether anyone, including the Defendant, was entitled to know that person’s name was the whole point of the appeal by the party referred to by the Fourth Circuit as the "Doe Client."
The Doe Client had accused Jos. A. Bank, a publicly traded company, of serious accounting fraud. That individual, who claimed a constitutional right to anonymity, appealed a ruling of a trial judge in the District of Maryland ordering his or her identity to be disclosed to the Defendant.
The Fourth Court’s ruling touches both deposition and subpoena procedure under the Federal Rules of Civil Procedure as well as issues of freedom of speech under the First Amendment.
Background
You’ll need more than a little bit of background, as the case has elements of a John Grisham novel. Lefkoe is a securities class action. Plaintiffs assert fraud based on a sharp drop in the clothing company’s share price when it delayed an earnings report.
The delay occurred because Bank’s Audit Committee had received, shortly before the report’s due date, a letter from the law firm of Foley & Lardner making detailed charges of accounting improprieties.The letter was sent by the law firm on behalf of a shareholder who it said "held several hundred thousand shares" of Bank stock. The shareholder was not identified in the letter.
Bank hired lawyers and accountants to investigate the charges. The conclusion of the investigation was that the charges were "without substance." In the securities lawsuit, filed in federal court in Maryland, Bank sent a subpoena to the law firm seeking to require it to present a witness to testify as to the identity of its client. The subpoena was issued from the Massachusetts district court.
The law firm objected there to the subpoena, asserting that its client had "a right of anonymity as protected by the First Amendment." The Massachusetts judge permitted the deposition to take place. The law firm presented the Doe Client as the witness. The Court ordered the deposition sealed and entered a protective order stating that the lawyers for Bank couldn’t tell their client the name of the Doe Client.
The lawyers for Bank investigated the Doe Client, and found facts suggesting it had taken "deliberate and successful actions to drive down the market price" of Bank stock, and furthermore that it was a short seller who held a substantial quantity of puts on Bank stock. The Doe Client therefore stood to profit from the decline in Bank stock.
The clothing company’s lawyers then asked the Maryland judge to permit them to provide the name of the Doe Client to Bank. The Maryland judge agreed to a wider disclosure, but only to Bank’s in-house counsel.
The Doe Client appealed to the Fourth Circuit, arguing that the Maryland court didn’t have the authority to modify the Massachusetts’ court’s ruling, and furthermore that the ruling violated the Doe Client’s First Amendment rights.Continue Reading Law Firm’s Client Didn’t Have First Amendment Right To Be Anonymous
The NC Business Court Now Has Jurisdiction Over Utility Poles
The Business Court now has jurisdiction over utility pole disputes between communications providers and municipalities. That surprising expansion of the Court’s jurisdiction is thanks to a new law passed at the just concluded session of the North Carolina Legislature.
New section 62-55 of the General Statutes requires a municipality that "owns or controls poles, ducts
Mattress Now, Inc., v. KS Bank, Inc., August 12, 2009 (Tennille)(unpublished)
Once the Business Court takes jurisdiction over case, that jurisdiction remains in place for the life of the case, regardless of dismissals of parties or changes in the nature of the claims.
In this case, the Plaintiff moved to remand the case to Superior Court, arguing that it had settled its claims with the party
Business Court Grants Summary Judgment In Trade Secrets Case
The Business Court granted summary judgment on Plaintiff’s trade secrets claim yesterday in Edgewater Services, Inc. v. Epic Logistics, Inc., 2009 NCBC 20 (N.C. Super. Ct. August 11, 2009). It also dismissed Plaintiff’s claim for punitive damages.
Plaintiff Edgewater and Defendant Epic are third party logistics companies, arranging for transportation of freight for their
Fourth Circuit Orders Certification Of Race Discrimination Class Action
The Fourth Circuit ordered certification of a race discrimination class action last Friday in Brown v. Nucor Corp. reversing the district court. The 2-1 decision ordered the lower court to certify a class of employees making claims for disparate impact, disparate treatment, and hostile work environment.
The majority opinion, written by Judge Gregory, discussed: (1) when discrimination claims meet the commonality and typicality requirements of Rule 23, (2) the use of statistical evidence when the historical data to make such calculations has been destroyed, and (3) whether the plaintiffs could represent employees who worked in other departments of the employer.
The plaintiffs, African-American employees at Nucor’s South Carolina plant, asserted that Nucor’s promotion procedure allowed white managers and supervisors to use subjective criteria in promotion decisions, and that this had a disparate impact on African-American employees applying for promotions.
The trial court had determined that subjectivity in decision-making alone couldn’t establish a disparate impact claim, and had found the statistical evidence presented by the class plaintiffs insufficient to make out a disparate impact. The Fourth Circuit disagreed with both conclusions.
Commonality and Typicality
The Court held that "[a]llegations of similar discriminatory employment practices, such as the use of entirely subjective personnel processes that operate to discriminate, satisfy the commonality and typicality requirements of Rule 23(a)." It further found that the plaintiffs had "presented compelling direct evidence of discrimination," including:
denials of promotions when more junior white employees were granted promotions, denial of the ability to cross-train during regular shifts like their white counterparts, and a statement by a white supervisor [who wore a Confederate flag emblem on his hardhat] that he would never promote a black employee.
The Court held that "[t]his evidence alone establishes common claims of discrimination worthy of class certification."
The opinion stressed that "[t]he question before the district court was not whether the appellants have definitively proven disparate treatment and a disparate impact; rather the question was whether the basis of appellants’ discrimination claims was sufficient to support class certification." Op. at 11. It further observed that "evidence need not be conclusive to be probative, and even evidence that is of relatively weak probative value may be useful in meeting the commonality requirement." Op. at 12.
Statistical Evidence
On the point of statistical evidence, the main issue involved Nucor’s destruction of promotion records from before 2001. The plaintiffs had attempt to fill in the missing data by extrapolating from change-of-status forms showing positions filled during the 1999-2000 time period and assuming that the racial composition of the bidding pool had been the same then as in later years.
The Fourth Circuit held that the trial court had improperly refused to consider these calculations:
when an employer destroys relevant employment data, the plaintiffs may utilize alternative benchmarks to make up for this lost data. Certainly, the benchmarks will not be as good as the destroyed data themselves — that would be next to impossible to achieve. Nevertheless, the plaintiffs should not be penalized by the destruction (however innocent) of such data.
Op. at 10 n.4.
There are other significant points on statistical evidence in the opinion, including a discussion of a two standard deviation threshold and the "80% rule."Continue Reading Fourth Circuit Orders Certification Of Race Discrimination Class Action
There’s A New Standard For Injunctive Relief In The Fourth Circuit (In Other Words, Blackwelder Is Dead)
If you’ve practiced in federal court in North Carolina for any period of time — or anywhere in the Fourth Circuit for that matter — you are familiar with the case of Blackwelder Furniture Co. of Statesville v. Seilig Manufacturing Co., 550 F.2d 189 (4th Cir. 1977), which set out the standard for the
Last Minute Service Of Delinquent Discovery Responses Didn’t Save Plaintiff From Dismissal Of Her Complaint
The Plaintiff in Batlle v. Sabates didn’t respond to Defendant’s discovery for more than eight months. She served her responses only on the day that Defendant’s motion for sanctions came on for hearing.The trial court granted the motion for sanctions and dismissed the Complaint as a result of the discovery violation.
The Plaintiff argued on
New Cases In The North Carolina Business Court: July 2009
July was a slow month for new Business Court cases. By my count, there were only eight. One involves a hurricane (Bodie Island), another involves children’s cartoon characters (Middleton), a third involves telephone poles (Town of Murphy), and the others raise the usual allegations of corporate malfeasance and misconduct.
Justice O’Connor: “This Is A Case About A Wolf Named Duchess”
I wouldn’t ordinarily write about the Fourth Circuit’s opinion yesterday in Walker v. Prince George’s County, Maryland., The Walker case doesn’t have anything at all to do with business litigation. But two things make the case remarkable.
The first is that the opinion was written by U.S. Supreme Court Justice Sandra Day O’Connor, sitting by