Justia Business Law Opinion SummariesArticles Posted in US Court of Appeals for the Second Circuit
In Re Bernard L. Madoff Investment Securities, LLC
Picard was appointed as the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS) pursuant to the Securities Investor Protection Act, 15 U.S.C. 78aaa, to recover funds for victims of Bernard Madoff’s Ponzi scheme. SIPA empowers trustees to recover property transferred by the debtor where the transfers are void or voidable under the Bankruptcy Code, 11 U.S.C. 548, 550, to the extent those provisions are consistent with SIPA. Under Sections 548 and 550, a transferee may retain transfers it took “for value” and “in good faith.” Picard sued to recover payments the defendants received either directly or indirectly from BLMIS. The district court held that a lack of good faith in a SIPA liquidation requires that the defendant-transferee has acted with “willful blindness” and that the trustee bears the burden of pleading the transferee’s lack of good faith. Relying on the district court’s legal conclusions, the bankruptcy court dismissed the actions, finding Picard did not plausibly allege the defendants were willfully blind to the fraud at BLMIS.The Second Circuit vacated. Nothing in SIPA compels departure from the well-established rule that the defendant bears the burden of pleading an affirmative defense. The district court erred by holding that the trustee bears the burden of pleading a lack of good faith under Sections 548(c) and 550(b)(1). View "In Re Bernard L. Madoff Investment Securities, LLC" on Justia Law
Doe v. The Trump Corporation
Anonymous plaintiffs filed a putative class action against The Trump Corporation, Donald J. Trump, and various members of his family, asserting claims for racketeering in violation of 18 U.S.C. 1962(c), conspiracy to conduct the affairs of a racketeering enterprise in violation of 18 U.S.C. 1962(d), dissemination of untrue and misleading public statements in violation of California law, unfair competition in violation of California law, unfair and deceptive trade practices in violation of Maryland and Pennsylvania law, common-law fraud, and common-law negligent misrepresentation. Plaintiffs contend that defendants fraudulently induced them to enter into business relationships with non-party appellant, ACN, by making a series of deceptive and misleading statements. The district court denied both defendants and ACN's motions to compel arbitration.The Second Circuit affirmed, concluding that (1) defendants may not compel plaintiffs to arbitrate their dispute on equitable estoppel grounds; and (2) the district court may not compel arbitration as to ACN's discovery dispute because the court lacked an independent basis for subject-matter jurisdiction over the parties' dispute. The court considered defendants and ACN's remaining arguments on appeal and concluded that they are without merit. View "Doe v. The Trump Corporation" on Justia Law
DDK Hotels, LLC v. Williams-Sonoma, Inc.
Plaintiffs DDK Hotels, DDK Hospitality, and DDK Management filed suit against Defendants Williams-Sonoma and West Elm, asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and unjust enrichment. West Elm then brought an action in the Delaware Court of Chancery, seeking to dissolve the joint venture, which the Delaware court dismissed. Plaintiffs then filed a supplemental complaint in the district court to assert an additional claim for breach of the prevailing party provisions of Section 21(h) of the joint venture agreement. Defendants then moved to compel arbitration for that claim, which the district court denied.The Second Circuit affirmed the district court's order denying defendants' motion to compel arbitration, concluding that the joint venture agreement does not "clearly and unmistakably" delegate arbitrability to the arbitrator and that the district court therefore correctly ruled on the scope of the arbitration agreement. Finally, the court rejected DDK Hospitality's request for prevailing party fees and noted that DDK Hospitality may pursue its request for fees on remand. View "DDK Hotels, LLC v. Williams-Sonoma, Inc." on Justia Law
Soliman v. Subway Franchisee Advert. Fund Trust, Ltd.
Soliman entered a California Subway sandwich shop. An employee showed her an in-store, hard-copy advertisement, on which Subway offered to send special offers if she texted a keyword. Soliman sent a text message to Subway. Subway began sending her, via text message, hyperlinks to electronic coupons. Soliman alleges that she later requested by text that Subway stop sending her messages, but her request was ignored. She filed suit under the Telephone Consumer Protection Act. Subway moved to compel arbitration, arguing that a contract was formed because the in-store advertisement, from which Soliman got the keyword and shortcode, included a reference to terms and conditions, including an arbitration requirement, located on Subway’s website and provided the URL.The Second Circuit affirmed the denial of the motion to compel arbitration. Under California law, Soliman was not bound by the arbitration provision because Subway did not provide reasonably conspicuous notice that she was agreeing to the terms on the website. Because of barriers relating to the design and content of the print advertisement, and the accessibility and language of the website itself, the terms and conditions were not reasonably conspicuous under the totality of the circumstances; a reasonable consumer would not realize she was being bound to such terms by sending a text message to Subway in order to receive promotional offers. View "Soliman v. Subway Franchisee Advert. Fund Trust, Ltd." on Justia Law
Fund Liquidation Holdings LLC v. Bank of America Corp.
Article III is satisfied so long as a party with standing to prosecute the specific claim in question exists at the time the pleading is filed. If that party (the real party in interest) is not named in the complaint, then it must ratify, join, or be substituted into the action within a reasonable time. Only if the real party in interest either fails to materialize or lacks standing itself should the case be dismissed for want of subject-matter jurisdiction.Two Cayman Islands investment funds filed a class action in 2016, alleging that numerous banks had conspired to manipulate certain benchmark interest rates. A year later, the banks discovered that the two plaintiff funds had been dissolved years earlier, and that the case was actually being prosecuted by a separate entity, Fund Liquidation. Fund Liquidation maintains that it was assigned the dissolved entities' claims, but the district court dismissed the case with prejudice.The Second Circuit vacated, concluding that although the dissolved funds lacked standing at the time the case was commenced, Article III was nonetheless satisfied because Fund Liquidation, the real party in interest, has had standing at all relevant times and may step into the dissolved entities' shoes without initiating a new action from scratch. The court explained that its precedent and Article III does not require application of the nullity doctrine. Accordingly, the court remanded for further proceedings. View "Fund Liquidation Holdings LLC v. Bank of America Corp." on Justia Law
Pharaohs GC, Inc. v. United States Small Business Administration
In March 2020, Congress created the Paycheck Protection Program (PPP), which authorized the SBA to guarantee favorable loans to certain business affected by the COVID-19 pandemic. The SBA Administrator promulgated regulations imposing several longstanding eligibility requirements on PPP loan applicants, including that no SBA guarantee would be given to businesses presenting "live performances of a prurient sexual nature." Pharaohs, a business featuring nude dancing, sought a preliminary injunction directing the SBA to give it a PPP loan guarantee.The Second Circuit affirmed the district court's denial of Pharaoh's motion, holding that the district court did not abuse its discretion in finding that Pharaohs has failed to show that it is substantially likely to succeed on its claims that (1) the SBA exceeded its statutory authority to promulgate eligibility restrictions, and (2) the exclusion of nude-dancing establishments from the Program violates the First or Fifth Amendments. The court need not address the remaining preliminary injunction factors in light of its conclusion. View "Pharaohs GC, Inc. v. United States Small Business Administration" on Justia Law
Electra v. 59 Murray Enterprises, Inc.
Plaintiffs filed suit alleging that defendants unlawfully used photographs of them to advertise strip clubs owned by defendants in violation of New York Civil Rights Law sections 50 and 51. The district court granted summary judgment for defendants, holding that plaintiffs signed full releases of their rights to the photographs.The Second Circuit concluded that the terms of Plaintiff Shake and Hinton's release agreements are disputed material facts, and defendants concede that neither they nor the third-party contractors that created and published the advertisements secured legal rights to use any of the photographs at issue. The court held that the district court erred in granting summary judgment to defendants and in denying summary judgment to plaintiffs on liability. Therefore, the court vacated in part and remanded for further proceedings.The court affirmed in part and held that the district court correctly concluded that plaintiffs had not accepted the offer of judgment because the offer's settlement amount term was ambiguous, the parties disagreed over how to interpret the term, and there was accordingly no meeting of the minds. Finally, the court held that the district court correctly dismissed the Lanham Act, 15 U.S.C. 1125(a), New York General Business Law Section 349, and libel claims. View "Electra v. 59 Murray Enterprises, Inc." on Justia Law
Packer v. Raging Capital Management, LLC
The district court granted summary judgment for plaintiff in a derivative suit on behalf of 1-800-Flowers.com against Master Fund, ruling that Master Fund was the beneficial owner of more than ten percent of the shares of 1-800-Flowers, Inc., which were bought and sold within a period of six months, and requiring Master Fund to disgorge $4,909,393 in short-swing profits for violating section 16(b) of the Securities Exchange Act of 1934. Master Fund appealed and plaintiff cross-appealed.The Second Circuit concluded that factual questions remain on the issue of Master Fund's beneficial ownership and therefore remanded. In this case, RCM is a registered investment advisor; Master Fund, Offshore, and QP are customers of RCM; and William C. Martin holds positions in RCM, Master Fund, and Offshore, and indirectly has a role in QP. The relationship among RCM, Master Fund, Offshore, and QP is governed by an Investment Management Agreement (IMA), which was signed by Martin on behalf of all four parties to the agreement.The court concluded that it would be inconsistent with principles concerning section 16(b) of the Securities Exchange Act of 1934 to accept the district court's first reason for rejecting Master Fund's delegation of voting and investing authority to RCM. The court explained that, although Rule 13d-3(a) includes within the definition of a beneficial owner "any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has" voting or investment authority, 17 C.F.R. 240.13d-3(a), using generalized wording such as "intertwined" or "not unaffiliated" to bring a person within the coverage of Rule 13d-3(a) would extend the reach of section 16(b) beyond the text of both the statute and the rule. The court also concluded that making an investment advisor a customer's agent for the specified purpose of carrying out the advisor's traditional functions for a customer does not make the advisor an agent for all purposes. Finally, the court concluded that there remains to be determined as a factual matter whether, under all the relevant circumstances, Martin is in control of Master Fund and the feeder funds with authority to commit these entities to altering or terminating the IMA. View "Packer v. Raging Capital Management, LLC" on Justia Law
R.M. Bacon, LLC v. Saint-Gobain Performance Plastics Corp.
This case arose from defendants' ownership in a manufacturing facility that used and disposed perfluorooctanoic acid (PFOA) which contaminated the water supply in the Village of Hoosick Falls, New York. Plaintiff, a construction company operating in the Village and the property owner, filed suit alleging property damage resulting from defendants' negligence in using and disposing of PFOA. On appeal, defendant challenged the district court's denial of defendants' motion under Federal Rule of Civil Procedure 12(b)(6) to dismiss the claims that defendants' negligence caused the corporate plaintiff to lose revenues and caused the individual plaintiff to suffer devaluation of his land.The Second Circuit held that the district court properly denied the motion to dismiss the claim of the property owner but erred in denying the motion to dismiss the claim of the company. The court saw no error in the district court's conclusion that the principle of 532 Madison Ave. Gourmet Foods, Inc. v. Finlandia Center, Inc., 96 N.Y.2d 8 280, 727 N.Y.S.2d 49 (2001), is inapposite to the claim of the owner, because he alleged physical contamination of his property, and thus is entitled to seek damages not only for that intrusion but also for the diminution in value of the property. Therefore, the motion to dismiss the owner's negligence claim was properly denied. However, the company's negligence claim to recover its purely economic damages should have been dismissed. The court affirmed in part and reversed in part, holding that the remaining claims lacked merit. View "R.M. Bacon, LLC v. Saint-Gobain Performance Plastics Corp." on Justia Law
Arkansas Teacher Retirement System v. Goldman Sachs Group, Inc.
Shareholders of Goldman filed a class action alleging that Goldman and several of its executives committed securities fraud by misrepresenting Goldman's freedom from, or ability to combat, conflicts of interest in its business practices. The district court certified a shareholder class, but the Second Circuit vacated the order in 2018. On remand, the district court certified the class once more.The court affirmed the district court's order on remand, holding that the district court correctly applied the inflation-maintenance theory. The court explained that the inflation-maintenance theory did not require proof of fraud-induced inflation, and that the district court applied the correct standard in concluding that Goldman's share price was inflated. The court also held that the district court did not abuse its discretion by holding that Goldman failed to rebut the Basic presumption by a preponderance of the evidence. View "Arkansas Teacher Retirement System v. Goldman Sachs Group, Inc." on Justia Law